BlackRock has filed revisions to its spot Bitcoin ETF filing with the SEC in an effort to address regulator concerns about market manipulation and broker-dealer registrations, according to minutes of the meeting between the asset manager and the firm’s Trading and Markets Department the SEC on November 28. , 2023.
BlackRock’s proposed solution changes the current in-kind redemption model, where the offshore market maker entity pays cash upfront to the registered broker-dealer entity prior to delivery of ETF shares during the redemption process. This “prepaid model” aims to insulate the broker-dealer on its balance sheet from the risks associated with transferring Bitcoin to the market maker.
Additionally, BlackRock argues that retaining a cash-in-kind structure, even with changes, offers advantages over shifting to a cash repayment method, including lower transaction costs, simpler operations and resistance to manipulation schemes. The asset manager believes that directly addressing balance sheet and broker-dealer registration dependencies through customized timing and custody transfers allows the Bitcoin ETF application to clarify regulatory procedures while optimizing shareholder incentives.
Whether the updates provide enough guardrails to offset the SEC’s discomfort over spot BTC exposure for retail investors through an ETF remains unclear.
Race for approval
The push for a Bitcoin exchange-traded fund (ETF) has gained momentum in recent months, as major financial institutions like BlackRock and Fidelity Investments have thrown their hat into the ring with filings with the Securities and Exchange Commission (SEC).
Despite the excitement, significant obstacles remain to obtaining regulatory approval. The SEC has consistently objected to Bitcoin ETFs in the past, rejecting previous applications due to concerns about manipulation and inadequate oversight mechanisms.
The Commission’s recent feedback on the latest round of applications focused again on these concerns, suggesting that the applications did not provide sufficient clarity on crucial details, such as the specific spot exchanges that would enter into supervision sharing agreements.
On November 17, rumors circulated on social media indicating that the SEC may have instructed applicants to use cash generation processes instead of in-kind Bitcoin transfers. scenes. This has not yet been confirmed, but if implemented the structure could allow broker-dealers to avoid direct crypto transactions that fall outside current regulations.