Bats BZX Exchange Request to the SEC for ETF Bitcoin Trading
SEC File No. SR-BatsBZX-2016-30
Timeline:
No follow-up SEC filings for this case have been located for these principals. The recent lateral move of the Winklevoss twins to a New York state regulated exchange was wise, and will be covered in a subsequent blog post. However, we believe that this 2016 or a similar proposal will re-emerge from the Winklevoss after the New York test, and subsequent pro-digital currency federal regulation by the Commission expected in 2019.
July 26, 2018 – Second Disapproval Order – See SEC Release No. 34-83723 for File No. SR-BatsBZX-2016-30 > SRO; Bats BZX Exchange, Inc.; Order Setting Aside Action by Delegated Authority and Disapproving a Proposed Rule Change, as Modified by Amendments No. 1 and 2, to List and Trade Shares of the Winklevoss Bitcoin Trust.
After a de novo review of the BZX proposed rule change, as amended, and all comments and statements submitted, the SEC set aside the prior Disapproval Order, but then once again Disapproved the proposed rule changes. In general, the Commission found (1) in Section IIIB that the record did not support their assertion that bitcoin and bitcoin markets were uniquely resistant to manipulation; (2) that in Section IIIC, the BZX means of identifying and deterring fraud and manipulation as described were not sufficient to meet the requirements of Exchange Act Section 6(b)(5); (3) that in Section IIID-E, BZX did not established that it had entered into, or could enter into, a surveillance-sharing agreement with a regulated market of significant size related to bitcoin to deter manipulation and fully investigate manipulation if it occurred; and (4) that in Section IIIF, the BZX exchange trade protocol was sufficient to protect investors and promote the public interest.
In reaching its conclusion, the Commission stated it had to consider whether the potential benefits of the proposal met the applicable requirements of the Exchange Act. In accord with Section 19(b)(2) of the Exchange Act, the Commission had to disapprove a proposed rule change filed by a national securities exchange if it did not find that the proposed rule change was consistent with the applicable requirements of the Exchange Act—including the requirement under Section 6(b)(5) that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices. Thus, even if a proposed rule change would provide certain benefits to investors and the markets, the proposed rule change would still fail to meet other requirements under the Exchange Act. Thus the Commission concluded that BZX has not met its burden of demonstrating an adequate basis on the record for the Commission to find that the proposal was consistent with Exchange Act Section 6(b)(5), and therefor disapproved the proposal.
Although the Commission disapproved this proposed rule change, the Commission emphasized that its disapproval did not evaluate whether bitcoin, or blockchain technology more generally, had utility or value as an innovation or an investment. Rather, the Commission disapproved the proposed rule change because BZX had not met its burden under the Exchange Act and the Commission’s Rules of Practice to demonstrate that its proposal was consistent with the requirements, in particular the requirement that its rules be designed to prevent fraudulent and manipulative acts and practices.
April 24, 2017 – Pursuant to Rule 431 of the Rules of Practice [17 CFR 201.431], BZX’s petition for review of the Disapproval Order was granted by the SEC. In addition, any party may file a written statement in support of or in opposition to the Disapproval Order on or before May 15, 2017.
March 24, 2017 – On March 24, 2017, pursuant to Rule 430 of the Rules of Practice [17 CFR 201.430], BZX filed a petition for review of the Disapproval Order.
March 10, 2017 – First Disapproval Order – After consideration of the record in the proposed rule change, the Division of Trading and Markets (“Division”), pursuant to delegated authority [17 CFR 200.30-3(a)(12)], issued an order disapproving the proposed rule change (“Disapproval Order”) on March 10, 2017. See, Order Disapproving a Proposed Rule Change, as Modified by Amendments No. 1 and 2, to BZX Rule 14.1(e)(4), Commodity-Based Trust Shares, to List and Trade Shares Issued by the Winklevoss Bitcoin Trust, Securities Exchange Act of 1934, Release No. 80206 (March 10, 2017), 82 FR 14076 (March 16, 2017).”
January 4, 2017 – Amendments 1 & 2 – On January 4, 2017, the Commission designated a longer period for Commission action on the proposed rule change. See, “Notice of Designation of a Longer Period for Commission Action on Proceedings to Determine Whether to Approve or Disapprove a Proposed Rule Change, as Modified by Amendment No. 1, to BZX Rule 14.11(e)(4), Commodity-Based Trust Shares, to List and Trade Winklevoss Bitcoin Shares Issued by the Winklevoss Bitcoin Trust, Securities Exchange Act of 1934, Release No. 79725 (January 4, 2017), 82 FR 2425 (January 9, 2017). On February 22, 2017, BZX filed Amendment No. 2 to the proposed rule change, which did not materially alter the substance of the proposed rule change.”
October 12, 2016 – Pursuant to Section 19(b)(2)(B) of the Exchange Act [15 USC 78s(b)(2)(B)], the Commission instituted proceedings to determine whether to approve or disapprove the proposed rule change. See, “Order Instituting Proceedings to Determine Whether to Approve or Disapprove a Proposed Rule Change to BZX Rule 14.11(e)(4), Commodity-Based Trust Shares, to List and Trade Winklevoss Bitcoin Shares Issued by the Winklevoss Bitcoin Trust, Securities Exchange Act of 1934, Release No. 79084 (October 12, 2016), 81 FR 71778 (October 18, 2016). On October 20, 2016, BZX filed Amendment No. 1 to the proposed rule change, replacing the original filing in its entirety. See Exchange Act Release No. 79183 (October 28, 2016), 81 FR 76650 (November 3, 2016).”
August 30, 2016 – Representatives from the SEC Division of Trading and Markets, the Division of Corporation Finance, and the Division of Economic and Risk Analysis had a telephonic conference with Cameron Winklevoss, Tyler Winklevoss, et al, from Digital Asset Services, LLC, and Laura Morrison et al, from Bats Global Markets, Inc. The discussion concerned the proposed rule change by Bats BZX Exchange, Inc., to list and trade shares issued by the Winklevoss Bitcoin Trust.
August 23, 2016 – On August 23, 2016, the Commission designated a longer time period within which to act on the proposed rule change. See, “Notice of Designation of a Longer Period for Commission Action on Proposed Rule Change to BZX Rule 14.11(e)(4), Commodity-Based Trust Shares, to List and Trade Winklevoss Bitcoin Shares Issued by the Winklevoss Bitcoin Trust, Securities Exchange Act of 1934, Release No. 78653 (August 23, 2016), 81 FR 59256 (August 29, 2016).”
July 8, 2016 [another SEC source says June 30, 2016] – The Commission issued a notice of filing of the proposed rule change filed with the 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. See, “Notice of Filing of a Proposed Rule Change to BZX Rule 14.11(e)(4), Commodity-Based Trust Shares, to List and Trade Winklevoss Bitcoin Shares Issued by the Winklevoss Bitcoin Trust, Securities Exchange Act of 1934, Release No. 78262 (July 8, 2016), 81 FR 45554 (July 14, 2016).”
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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