Grayscale argues SEC bitcoin ETF treatment could violate APA

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Following the most recent rejection of Bitcoin exchange-traded funds (ETFs) by the Securities and Exchange Commission, Grayscale is pushing back the regulator’s arguments.

Grayscale is looking to convert its trust bitcoin, GBTC, to ETF, and recently put the Securities and Exchange Commission on the clock in October, when NYSE Arca filed for listing of the product. A decision could be made as early as December 24, although the agency has a history of extensions. It has already published a notice on November 2 seeking comment on the proposed rule change.

The SEC took a similar approach to VanEck’s offer, seeking comment in June of this year. The agency rejected the proposal earlier this month, making it the first to receive a response in this wave of applications.

In light of these events, Grayscale sent a letter to the agency on Monday evening, arguing that the SEC’s repeated rejections could violate the Administrative Procedure Act (APA). The APA governs the decision-making process of federal agencies.

Grayscale says the agency’s decisions have been “arbitrary and capricious” since the Commission approved bitcoin futures ETFs, but not cash offers. Since the early boom in bitcoin futures ETF approvals, Grayscale has pointed out inconsistencies in the willingness to approve a futures product but not the one that holds the underlying.

“Bitcoin futures ETPs registered under the 1940 Act and Bitcoin spot ETPs that are not required or eligible to be so registered are the same in all relevant respects, but based on the analysis of the Ordinance of disapproval of 12 November 2021, the Commission treats them differently, ”the letter said.

VanEck’s product was offered under the Securities Act of 1933, while approved futures products receive additional oversight under the Investment Company Act of 1940. SEC Chairman Gary Gensler has previously stated his interest in approving products under the ’40 Act because of its enhanced protections. . While Law ’33 focuses on disclosures, Law ’40 authorizes regulators to monitor issuers and establishes consumer protection standards that issuers must adhere to.

The SEC said the difference in registrations was the reason for the different treatment between futures and spot products, but Grayscale contends that this is a waiver of market manipulation concerns that the SEC has. continually cited in its dismissal orders.

Some argue that if the SEC is comfortable with the absence of market manipulation in a futures market, it follows that the market for the underlying assets must also be sufficiently free from manipulation.

“Although the Commission cited the investor protections afforded by the 1940 Act as justification for disparate treatment, the protections in the 1940 Act do not address and are therefore irrelevant to the concern that the Commission raised in repeatedly to deny rule 19b-4 applications for spot Bitcoin ETPs like BTC: market manipulation and fraud in the underlying Bitcoin market, “the letter reads.

Grayscale VP Legal Craig Salm explained the company’s argument in an article posted on Grayscale’s website. He argued that the protections offered by Bill 40 do not really address the concerns that the SEC has repeatedly expressed in its dismissal orders. The ’40 law seeks to regulate the management of investment products, but the SEC has repeatedly expressed concerns about the lack of oversight of places where the spot price is derived, which would not fall under the ’40 law. .

Nonetheless, approved futures hold bitcoin futures contracts that trade on the Chicago Mercantile Exchange, which is a federally regulated market. But many rejected spot products plan to follow the CME indices, which also set the price of futures products.

Grayscale argues that it is not clear why CME’s pricing mechanisms are sufficient to filter manipulation in the futures market, but not commodities that track the spot market.

“As it stands, the Bitcoin ETF landscape is unfair and discriminatory against GBTC shareholders and all other US investors looking for an accessible and efficient way to gain their Bitcoin exposure.” , wrote Salm. “Fortunately, the Administrative Procedure Act (APA) exists to deal with situations like this to govern the process by which federal agencies make and publish regulations, ultimately to protect the American investor.”

The SEC has yet to officially respond to the letter, but it is published in the agency’s database.

2021 The Block Crypto, Inc. All rights reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial or other advice.

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