First Trust Bitcoin ETF Proposal Withdrawn

Cboe BZX Exchange Inc Request to the SEC for trading of First Trust Bitcoin ETF

File No. SR-CboeBZX-2017-021;

Release No. 34-82429;

First Trust Bitcoin ETF Withdrawn

January 19, 2018 – On January 19, 2018, the Exchange withdrew the proposed rule change (SEC Release No. 34-82561; SR-CboeBZX-2017-021). [83 FR 3789 Jan. 22, 2018]

January 8, 2018 – The proposed rule change was published for comment in the Federal Register. [83 FR 929].

January 2, 2018 – On The Cboe BZX Exchange, Inc., filed a proposed rule change with the Division of Trading and Markets, Securities and Exchange Commission pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 USC 78s(b)(1)] and Rule 19b-4 [17 CFR 240.19b-4] thereunder, to list and trade shares of the following exchange traded products :

• First Trust Bitcoin Strategy ETF (the ‘Long Bitcoin Fund’), and
• First Trust Inverse Bitcoin Strategy ETF (the ‘Inverse Bitcoin Fund’),
• (collectively, the “Funds”).

Each fund a series of the First Trust Exchange-Traded Fund VII, under Rule 14.11(i) for Managed Fund Shares.

According to the Registration Statement, the Funds would offer investors the opportunity to obtain daily short, leveraged long or leveraged short exposure to the lead month bitcoin futures contract traded on the Chicago Mercantile Exchange (‘‘CME’’) or on Cboe Global Markets, Inc. (‘‘CBOE’’) or on any other U.S. exchange that subsequently trades Bitcoin Futures Contracts.

Bitcoin Futures Contracts were defined as measures of the market’s expectation of the price of bitcoin on certain future dates, and thus would perform differently than current or spot bitcoin prices. The Funds were not linked to bitcoin and thus could underperform or outperform the price of bitcoin.

The Funds were to be operated in accord with the Commodity Futures Trading Commission (“CFTC”) rules, as well as the regulations applicable to registered investment companies. Registration as a CPO imposed additional compliance obligations on the Adviser and the Funds related to additional laws, regulations, and enforcement policies.

The Long Bitcoin Fund would provide investors with long exposure to the price movements of bitcoin instruments by investing in a portfolio of financial instruments that provide exposure to movements in the value of bitcoin and/or other securities, including but not limited to Bitcoin Futures Contracts, Listed Bitcoin Derivatives, OTC Bitcoin Derivatives, U.S. exchange-listed ETPs, Bitcoin Instruments, cash and Cash Equivalents, and U.S. government and agency securities with maturities of five years or less.

the Inverse Bitcoin Fund seeks to provide investors with short exposure to the price movements of bitcoin instruments

The Inverse Bitcoin Fund would provide short exposure to movements in the value of bitcoin. It would invest primarily in Bitcoin Futures Contracts, but may also invest in Bitcoin Instruments, cash and Cash Equivalents, and GSE Securities. The Inverse Bitcoin Fund intends to use such instruments as investments and, to the extent applicable, to collateralize the Inverse Bitcoin Fund’s Bitcoin Instrument exposure on a day-to-day basis.

The proposal stated that the underlying reference asset, bitcoin, was not susceptible to manipulation because the nature of the bitcoin ecosystem made manipulation difficult. That the geographical diverse and continuous nature of bitcoin trading made it difficult and prohibitively costly to manipulate the price  and, in many instances, the bitcoin market was less susceptible to manipulation than the equity, fixed income, and commodity futures markets.

Second, the Exchange stated that the surveillance procedures were adequate to monitor the trading of the Shares and to detect violations of Exchange rules and the applicable federal securities laws. Additionally, the Listed Bitcoin Derivatives would be subject to the rules and surveillance programs of their respective listing venue and the CFTC.

Within 45 days of the date of publication of the notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: A. by order approve or disapprove the proposed rule change, or B. institute proceedings to determine whether the proposed rule change should be disapproved.

See SEC Release No. 34-82429 or Federal Register 83 FR 929 for the complete rule change proposal.

December 19, 2017 – Cboe BZX Exchange, Inc. filed with the Securities and Exchange Commission, pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19b-4 thereunder, a proposed rule change to list and trade shares of the First Trust Bitcoin Strategy ETF and the First Trust Inverse Bitcoin Strategy ETF, each a series of the First Trust Exchange-Traded Fund VII, under Rule 14.11(i), Managed Fund Shares. The proposed rule change was published for comment in the Federal Register on January 8, 2018.

Commentary by Attorney Timothy F. Mills, Editor / Action Cyber Times™ © 2018 All Rights Reserved.

Action Cyber Times™ provides resources for cybersecurity, data privacy, compliance, breach reporting and risk management, intellectual property theft, and the utilization of emerging technologies such as artificial intelligence, machine learning, blockchain DLT, advances in cryptographic applications, and more.

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