In a 112-page order, the US Securities and Exchange Commission (SEC) has rejected NYSE Arca’s request for a rule change to allow the company to sell a “Bitwise” Bitcoin ETF to retail traders.
The proposal is believed to be the last remaining request for a green light on Bitcoin ETF/ETPs still sitting before the regulator.
Like other applications before the SEC, the NYSE’s application was rejected based on the commission’s ongoing concerns about poor integrity in Bitcoin spot markets (primary trading markets).
Similar applications to sell Bitcoin ETF/ETP derivatives from Van Eck, ProShares, Direxion, GraniteShares, Gemini and Bitshares have been rejected, withdrawn or have lapsed.
In the decision on NYSE Arca, the SEC cited a comprehensive submission from Bitwise in which the company produced evidence of endemic misreporting of trading volumes from exchanges across the globe.
According to the SEC, that study showed that only, “a small set of identified platforms have ‘real’ trading volume, unlike the remaining 95% of the spot bitcoin market, which the Sponsor (Bitwise) asserts is dominated by fake and non-economic activity, such as wash trades.”
The SEC says NYSE Arca contended that its Bitcoin ETF, “would be an incremental positive to the market by creating another regulated market for price discovery…(and would) enhance competition among market participants, to the benefit of investors and the marketplace.”
The company also, “assert(ed) that its existing surveillance procedures are adequate to properly monitor trading of the Shares…(and) contend(ed) that, if approved, its ETP would protect investors and the public interest.”
Unfortunately, the SEC found that NYSE Arca, “has not established that it has in fact identified the ‘real’ bitcoin market, or that the ‘real’ bitcoin market is isolated from the fraudulent and manipulative activity…”
Therefore, “we find, in each case, that NYSE Arca has not met its burden to demonstrate that its proposal is consistent with the requirements of Exchange Act Section 6(b)(5), and therefore the Commission disapproves this proposed rule change.”
The SEC distinguished its rejection of a rule change to benefit NYSE Arca from it’s overall position on cryptocurrencies, crypto tokens and “blockchain” tech:
“Although the Commission is disapproving this proposed rule change, the Commission 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.”
Instead, NYSE Arca’s proposal was rejected because of provisions in the exchange act obliging investor protection:
“Rather, the Commission is disapproving this proposed rule change because, as discussed below, NYSE Arca 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 Exchange Act Section 6(b)(5), and, in particular, the requirement that the rules of a national securities exchange be ‘designed to prevent fraudulent and manipulative acts and practices.'”
NYSE Arca declined to comment on the SEC’s disapproving of its requested rule change.