• The US Securities and Exchange Commission (SEC) has denied Ark Investment Management and exchange-traded note (ETN) issuer 21Shares’ proposal to list a spot Bitcoin (BTC) exchange-traded fund (ETF) for the second time.
• The SEC concluded that the Cboe BZX Exchange on which the ETF would be listed has failed to demonstrate that its proposal is consistent with the requirements of Exchange Act Section 6(b)(5).
• The SEC found that the exchange failed to establish that other means to prevent fraudulent and manipulative acts and practices will suffice to protect investors and the public interest.
The US Securities and Exchange Commission (SEC) has yet again refused to give its regulatory blessing to Ark Investment Management and exchange-traded note (ETN) issuer 21Shares to list a spot Bitcoin (BTC) exchange-traded fund (ETF). According to the document published on January 26, the SEC discussed the Cboe BZX Exchange on which the ETF would be listed and stated that, “The Commission concludes that BZX has [failed to] demonstrate that its proposal is consistent with the requirements of Exchange Act Section 6(b)(5), which requires, in relevant part, that the rules of a national securities exchange be “designed to prevent fraudulent and manipulative acts and practices” and “to protect investors and the public interest.”
The SEC found that an exchange that lists bitcoin-based ETPs can meet its obligations under this Act by demonstrating that it has “a comprehensive surveillance-sharing agreement with a regulated market of significant size related to the underlying or reference bitcoin assets.” Surveillance-sharing agreements are not the only way for a listing exchange of a commodity-trust ETP to meet its obligations, the Commission noted, but the proposed exchange failed to establish that other means to prevent fraudulent and manipulative acts and practices will suffice to protect investors and the public interest.
This is not the first time that the SEC has denied the proposal to list a spot Bitcoin ETF. In September 2020, the SEC had also rejected a similar proposal from Wilshire Phoenix. The agency had then stated that the proposal failed to meet the requirements of Exchange Act Section 6(b)(5), which “requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices.”
The rejection of the ETF proposal is a setback for the crypto industry, which has been pushing for the SEC to approve such a fund. But the SEC has maintained that the market is too vulnerable to manipulation and that it needs to be better regulated before it can approve a Bitcoin ETF. The SEC has also noted that it is committed to monitoring developments in the crypto space and that it will continue to assess any new proposals.
The rejection of the ETF proposal is a reminder that the crypto industry still has a long way to go before it can gain the trust and acceptance of mainstream investors. In the meantime, the SEC will continue to assess new proposals and monitor developments in the industry.