The US Securities and Exchange Commission (SEC) has published a memorandum from a recent meeting with VanEck and SolidX surrounding the group’s proposed Bitcoin exchange-traded-fund (ETF). The meeting took place on October 9th and provides further details into what many expect to be the most qualified Bitcoin ETF proposal introduced to the SEC.
SolidX first filed for a Bitcoin ETF to be listed on the New York Stock Exchange in March 2016. However, this application was rejected the following year. In June 2018, SolidX formed a partnership with VanEck to launch a physically backed Bitcoin ETF to be listed on Cboe BZX exchange. VanEck is an established issuer and manager of over 70 funds with approximately $46 billion in assets under management.
The SEC’s memorandum notes numerous changes in product, market structure and overall circumstance since SolidX’s March 2017 disapproval. Since that time, multiple CFTC regulated derivatives markets have emerged for Bitcoin, with a combined $150-$200 million trading volume cleared for Bitcoin futures on CME and Cboe. The SolidX/VanEck trust will use over-the-counter (OTC) Bitcoin trading desk pricing data, which are not subject to manipulation. The SolidX/VanEck Bitcoin Trust will not be available for retail, and its starting share price is set at $200,000.
SolidX and VanEck have focused their proposal around section 6(b)(5) of the Securities Exchange Act, which provides criteria for approval as follows:
“ The rules of the exchange are designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest; and are not designed to permit unfair discrimination between customers, issuers. brokers. or dealers, or to regulate by virtue of any authority conferred by this chapter matters not related to the purposes of this chapter or the administration of the exchange.”
“SolidX, VanEck and Cboe believe the Trust and the rule change request are indeed consistent with section 6(b)(5),” the memorandum notes.
SolidX and VanEck put added emphasis on the importance of investor protection and support for public interest in their case to the SEC. Without SEC approval, Bitcoin investors face operational risks of theft, loss or destruction of cryptographic keys, without a solution of insurance. SolidX and VanEck, by contrast, have assembled a $125 million insurance capacity from a syndicate of A-rated underwriters and have made arrangements to further scale the fund’s insurance capacity as it grows.
“An ETF provides a straightforward solution for investors seeking price exposure without facing counterparty risk, as the ETF would be cleared through DTCC,” read the memorandum. “Furthermore, in creations and redemptions, the Trust always requires APs and trading counterparties to settle their leg of the trade before the Trust will do so.”
The memorandum concludes with a restatement of the issues in SolidX’s previous application that have since been resolved:
- “There now exists a significant regulated derivatives market for bitcoin
- Relevant markets – Cboe, bitcoin futures, OTC desks – are regulated
- Concerns around price manipulation have been mitigated, consistent with approval of prior commodity-based ETPs
- Cboe’s rules are designed to surveil for potential manipulation of Trust shares
- The proposed ETF promotes investor protection”
“To the extent necessary, we stand ready to make additional changes to the product structure consistent with Section 6(b )(5) of the Exchange Act to address any concerns of Commission or Staff,” said the applicants.
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