The US Securities and Exchange Commission (SEC) rejected a request to list a proposed spot-price Bitcoin-indexed ETF over the Cboe BZX Exchange.
The regulatory agency said its decision is due to the lack of an “adequate surveillance-sharing agreement with a regulated market of significant size relating to the underlying or reference bitcoin assets.”
The ETF in question is VanEck Bitcoin Trust, which Cboe petitioned on 1 March to amend its rules allowing a Commodities-Based Shares Trust to trade under BZX Rule 14.11( e )(4). New York-based VanEck refiled its registration statement with the SEC, proposing a new effective date of 1 February 2022.
“The Commission concludes that BZX 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), in particular, the requirement 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 said in its decision.
Bitcoin falls after SEC ruling
Bitcoin fell slightly to $64,062 shortly after the announcement, according to Coinbase, down 2.08% from its 24-hour high of $65,422 seen overnight Thursday.
Despite having recently cleared the way for Bitcoin-futures indexed products to trade, the SEC remains uniquely concerned over the unregulated status of the exchanges Bitcoin trades on.
“Commodity-trust (ETFs) approved to date for listing and trading, have in every case at least one significant, regulated market for trading futures on the underlying commodity – whether gold, silver, platinum, palladium, or copper – and the (ETF) listing exchange has entered into surveillance-sharing agreements with…that market.”
The SEC explained the minimum standard protocols in place for an exchange “to have the ability to obtain information necessary to detect, investigate, and deter fraud and market manipulation, as well as violations of exchange rules.”
Additionally, a listing exchange must “provide a necessary deterrent to manipulation because they facilitate the availability of information needed to fully investigate a manipulation if it were to occur.”
Door not closed
The SEC did not close the door on future Bitcoin spot-price indexed funds from receiving approval due to a lack of a surveillance-sharing agreement.
“The (SEC) has agreed that, if a listing exchange could establish that the underlying market inherently possesses a unique resistance to manipulation beyond the protections that are utilised by traditional commodity or securities markets, it would not necessarily need to enter into a surveillance-sharing agreement with a regulated significant market,” the SEC added.
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.