On June 30, reports emerged that the US Securities and Exchange Commission (SEC) has returned recent spot Bitcoin exchange-traded fund (ETF) filings. The applications, submitted by exchanges on behalf of BlackRock and Fidelity Investments, among others, were not deemed “sufficiently clear or complete”.
An anonymous source quoted by the Wall Street Journal shared that the applications failed to identify the spot Bitcoin exchange that would enter into a “surveillance sharing agreement” (SSA) with Nasdaq and Cboe. This agreement is a requirement of the SEC, aimed at preventing fraud and manipulation in an asset’s underlying market.
Intermarket Surveillance Group
According to the filings, both Nasdaq and the Chicago Board Options Exchange (Cboe Global Markets), which plan to list many of the recently filed spot Bitcoin ETFs, have not expressed any intention to launch a spot SSA. crypto exchange.
Instead, they clarified their intent to participate in SSAs with the Chicago Mercantile Exchange (CME), a Bitcoin futures market of significant size, through their membership in the Intermarket Surveillance Group (ISG).
ISG members include almost every major exchange in the traditional financial sector; it is a self-regulatory body whose primary aim is to prevent fraud and manipulation by sharing information. The documents also state that the exchanges intend to use the S&P Global Bitcoin Index and Bitcoin Futures market to monitor price performance.
The exchanges claim that the Bitcoin Futures market is the “leading market for Bitcoin price discovery”, and as such any actor attempting to manipulate Bitcoin’s price would be forced to participate in the Futures market, putting him under supervision occurs.
Since the CME has adequate measures in place to detect fraud or manipulation in the market, the SSA through ISG membership should be sufficient to address the concerns of the SEC as it is a priority.
According to one of the filings:
“The Commission has traditionally believed that joint membership of the Intermarket Surveillance Group (“ISG”) constitutes such a surveillance sharing agreement.
The exchanges further argue that the underlying spot markets for commodities, such as gold, and currencies remain largely unregulated. However, this has not prevented ETFs linked to these assets from entering the market, as there are ways to detect futures-based manipulation.
They argue that the precedent for gold ETFs should apply to Bitcoin, which regulators seem to treat most like a commodity.
Further changes?
Cboe has publicly confirmed that it will resubmit applications for the ETFs it plans to list in the coming days based on SEC feedback, which may include further changes to the SSA clause and specification of a spot cryptocurrency. exchange can mean.
However, options are limited, and choosing Coinbase – which serves as the custodian for most of these applications – could backfire, as it is currently embroiled in a lawsuit with the SEC.
It is unclear whether simply adding a spot crypto exchange to the filings will be enough to satisfy the SEC, despite the various arguments in the filings.