November 18, 2023

SEC Recommends Bitcoin ETF Firms Opt for Cash Creations to Address Broker Concerns

To address concerns related to broker-dealers directly handling bitcoin, the Securities and Exchange Commission (SEC) has reportedly advised companies seeking to launch bitcoin exchange-traded funds (ETFs) to revise their filings and opt for cash creations instead of in-kind creations.

According to Bloomberg ETF analyst Eric Balchunas, the U.S. Securities and Exchange Commission (SEC) is urging companies planning to launch bitcoin exchange-traded funds (ETFs) to modify their filings. The SEC recommends a shift towards cash creations over in-kind creations to alleviate concerns associated with broker and dealers directly handling bitcoin.

In the world of ETFs, the creation or redemption of shares can occur either in-kind, involving the exchange of bitcoin for ETF shares, or with cash, involving the buying or selling of bitcoin on the open market to balance supply and demand.

Balchunas revealed that the SEC's Division of Trading and Markets engaged with exchanges this week to discuss bitcoin ETF filings. The regulator suggested that companies submit amendments within the next few weeks, specifying a preference for cash creations over in-kind creations.

The rationale behind this recommendation is that current regulatory restrictions prevent broker and dealers from directly transacting in bitcoin. Opting for cash creations places the responsibility on the ETF issuer to manage bitcoin transactions, eliminating the need for broker and dealers to involve unregistered subsidiaries or third parties. Overall, cash creations present fewer limitations for broker and dealers.

While most recent bitcoin ETF applicants initially proposed in-kind creations, Balchunas noted that only 2-3 filers had originally planned for cash creations. The SEC's latest guidance is expected to prompt many filers to adjust their proposals and submit amendments to prevent potential delays in the approval process.

This development, although not directly impacting the estimated 90% odds of a bitcoin ETF approval, signifies progress in the SEC's efforts to address logistical challenges surrounding bitcoin ETFs.

SEC Delays Decisions on Franklin Templeton and Global X Bitcoin Spot ETFs

The U.S. Securities and Exchange Commission (SEC) has announced delays in decisions on the approval of spot bitcoin ETF applications from both Franklin Templeton and Global X, as revealed in a recently released note.

The initial deadline for the SEC to make a decision on Franklin Templeton's application passed yesterday, and for Global X's attempt, it was scheduled for Nov. 21. With the delays, the new deadlines now extend into early 2024.

While few had anticipated spot bitcoin ETF approvals this week, the SEC's actions come as little surprise. As of now, bitcoin (BTC) is trading at $36,400, showing modest gains.

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