The SEC is asking for public comment on two proposed rule changes that, if approved, would lead to the listing of the first-ever bitcoin-based exchange-traded funds.
Released by the SEC on Dec. 28 and Jan. 2 as a way to solicit public input on the proposals, the new documents make public proposed rule changes put forward by the Chicago Board Options Exchange (Cboe) that would exempt its proposed bitcoin ETFs from certain market manipulation rules. Submitted in two filings, on Dec. 15 and Dec. 19, the rule changes relate to advisors and brokers that would seek to support the products when launched.
The two documents would allow Cboe’s exchange to list a total of four ETFs.
Under current regulations, advisors to a company managing funds must have a “firewall” between any brokers or dealers they might be affiliated with. This wall would prevent the advisor and the broker from sharing information about the company’s portfolio. Other rules disallow anyone who manages a fund from using insider information to increase their funds’ worth.
In the documents, Cboe asks for exceptions to the rules because it does not believe bitcoin can qualify as a commodity at risk of being manipulated under the same rules as some existing ones are, noting that price manipulation would require a bad actor to influence the entire blockchain worldwide.
Similarly, due to the nature of the bitcoin network, and its broad, global infrastructure, it would be difficult for any person to have insider trading knowledge on it, the filing claims.
“There is [no] inside information about revenue, earnings, corporate activities or sources of supply; manipulation of the price on any single venue would require manipulation of the global bitcoin price in order to be effective; a substantial over-the-counter market provides liquidity and shock-absorbing capacity; bitcoin’s 24/7/365 nature provides constant arbitrage opportunities across all trading venues; and it is unlikely that any one actor could obtain a dominant market share.”
That said, it still remains to be seen whether the current procedure will clear the way for Cboe to list any bitcoin related ETF products. As reported previously, past attempts at launching a bitcoin-based ETF have met with failure, with the SEC rejecting some filings or forcing other companies to withdraw their filings.
To date, the regulatory body has not approved any bitcoin-based ETFs, though whether the SEC will continue to reject the filings is unclear given that now two different futures products are on the market.
As part of the public comment, the SEC will accept both email and written messages for three weeks after the filings are published in the Federal Register.
CBOE image via Shutterstock