On March 23, 2018, the U.S. Securities and Exchange Commission (“SEC”) issued an order instituting proceedings to determine whether it will approve or disapprove a proposal for Bitcoin futures exchange-traded funds (“ETFs”) (the “Order”).  In December 2017, NYSE Arca, Inc. filed a rule change proposal to allow for the creation of ETFs that invest in Bitcoin futures contracts and potentially other Bitcoin related investments.  In January 2018, the SEC extended its review of the proposal, and with the Order, it now has instituted formal review proceedings and is seeking public comment.  Relatedly in January 2018, the director of the SEC’s Division of Investment Management, Dalia Blass, requested that already-proposed Bitcoin futures ETFs withdraw their applications and outlined a series of concerns she had for such products, including valuation, access to information, and liquidity.  The SEC’s March 23 Order institutes a new period review into such products and requests comments from the public that focus on twelve areas of interest for the SEC.

The subjects of interest include issues relating to the Bitcoin futures ETFs’ investment practices, as well as concerns related to the underlying Bitcoin and Bitcoin futures markets and how such markets may in turn affect ETFs that invest in Bitcoin futures.  For instance, the SEC requests comments on how the ETFs’ investment adviser will select the appropriate Bitcoin futures contracts as well as how it will navigate the respective terms of each contract from the different futures exchanges.

In addition, the SEC requests comments on whether the ETFs will have enough information to be able to adequately value the ETFs’ assets.  The SEC also focuses many of its concerns around the potential for manipulation of the underlying Bitcoin markets and what, if any, such potential could have on the ETFs’ net asset value (“NAV”).  Finally, the SEC asks for comments on liquidity issues, and whether the relatively high margin requirements for bitcoin futures contracts may present liquidity issues for the Bitcoin futures ETFs to meet redemption requests.

Commenters will have until April 19, 2018 to submit comments.  Those with rebuttals to the comments will have until May 3, 2018 to submit rebuttals.

The Order can be found here.

Good Day. DR2

P.S.  On April 5, 2018, the SEC published a second order instituting proceedings to determine whether it will approve or disapprove another proposal for Bitcoin futures ETFs (the “Cboe Order”).  The Cboe Order relates to a rule change proposal by Cboe BZX Exchange, Inc. that would allow for the creation of ETFs that invest in Bitcoin futures contracts.  The Cboe Order asks for comments on many of the same issues as the Order such as manipulation of underlying Bitcoin markets and the effect that may have on the ETFs’ NAV, valuation, and liquidity.  Like the Order, the Cboe Order will be open for public comment.  Commenters will have until May 1, 2018 to submit comments.  Those with rebuttals to the comments will have until May 15, 2018 to submit rebuttals.

The Cboe Order can be found here.