The Securities and Exchange Commission (SEC) has issued rejections to bitcoin exchange-traded fund (ETFs) proposals from ProShares, Direxion and GraniteShares.
In three orders published on August 22, the rejections came ahead of previously reported deadlines arising from the SEC’s public-facing approval process.
Notably, the agency used the exact same reasoning – and wording – in all of its rejections.
The agency wrote in the case of ProShares:
“…the Commission is disapproving this proposed rule change because, as discussed below, the Exchange has not met its burden under the Exchange Act and the Commission’s Rules of Practice to demonstrate that its proposal is consistent with the requirements of the Exchange Act Section 6(b)(5), in particular the requirement that a national securities exchange’s rules be designed to prevent fraudulent and manipulative acts and practices.”
And in the case of Direxion’s five proposed ETFs:
“…the Commission is disapproving this proposed rule change because, as discussed below, the Exchange has not met its burden under the Exchange Act and the Commission’s Rules of Practice to demonstrate that its proposal is consistent with the requirements of the Exchange Act Section 6(b)(5), in particular the requirement that a national securities exchange’s rules be designed to prevent fraudulent and manipulative acts and practices.”
In all instances, the SEC stressed that it “emphasizes that its disapproval does not rest on an evaluation of whether bitcoin, or blockchain technology more generally, has utility or value as an innovation or an investment.”
Similar language was also used in the GraniteShares rejection as well.
The rejections come mere weeks after SEC commissioners completed a review on a proposed bitcoin ETF from investors Cameron and Tyler Winklevoss, whose multi-year effort was dashed after a majority of the SEC’s commissioners backed up the agency’s original March 2017 decision.
One commissioner, Hester Peirce, dissented that decision, later telling CoinDesk in an interview that the move to block a bitcoin ETF is a disservice to both investors and innovators.
Past issues cited
For those who have read disapproval orders for bitcoin ETFs in the past, the language likely calls to mind the justifications used to twice strike down a proposal from investors Cameron and Tyler Winklevoss for their proposed bitcoin ETF.
Yet for the three companies named today, the proposals were unique in that they were tied to the market for bitcoin futures rather than a fund that holds bitcoin directly.
Notably, the SEC cited a letter from one of the current markets for bitcoin futures in the U.S., CBOE.
“Additionally, the President and COO of CFE, recently acknowledged in a letter to the Commission staff that ‘the current bitcoin futures trading volumes on Cboe Futures Exchange and CME may not currently be sufficient to support ETPs seeking 100 [percent] long or short exposure to bitcoin’,” the agency wrote.
At the same time, the SEC did concede a notable point: that investors would gain an extra layer of protection by trading exchange-based products for bitcoin – while also contending that possible benefits should be held against other considerations.
“The Commission acknowledges that, compared to trading in unregulated bitcoin spot markets, trading a bitcoin-based ETP on a national securities exchange may provide some additional protection to investors, but the Commission must consider this potential benefit in the broader context of whether the proposal meets each of the applicable requirements of the Exchange Act,” officials argued in the ProShares rejection.
Find the full rejection orders below:
GraniteShares ETF Rejection by CoinDesk on Scribd
Direxion Bitcoin ETF Rejection by CoinDesk on Scribd
ProShares Bitcoin ETF Rejection by CoinDesk on Scribd
The SEC image via Shutterstock