The United States Securities and Exchange Commission (SEC) has made a significant move in its evaluation of the proposed Bitcoin exchange-traded fund (ETF) applications by Franklin Templeton and Hashdex.
The SEC is seeking public input on these proposals, specifically requesting written comments regarding the approval or rejection of the applicants’ Forms 19b-4. Form 19b-4 is a disclosure form used for proposing rule changes, including those related to the listing and trading of new financial products like ETFs. This form is distinct from Form S-1, which is the offering prospectus and falls under the purview of the SEC’s Corporate Finance Division.
The SEC has set a 35-day period for the submission of these comments and responses, starting from the date of publication in the Federal Register. The proposed rule changes, which are essentially the applications for the ETFs, were initially filed in late September. The Hashdex ETF is intended to be listed on the New York Stock Exchange Arca, while Franklin Templeton’s ETF is planned for listing on the Cboe BZX. On November 15, the SEC extended its deadline to make a decision on these applications.
The SEC’s questions for public comment focus on various aspects of potential ETF approval. They invite feedback on the likelihood of market manipulation, the size and significance of the exchanges where the ETFs would be traded, and the robustness of the market surveillance mechanisms in place.
For the Franklin Templeton ETF, the SEC is particularly interested in the potential for price manipulation in the Bitcoin market, the effectiveness of Franklin Templeton’s surveillance sharing agreement with Coinbase in aiding price discovery and preventing fraud, and the correlation between spot and futures prices of Bitcoin.
Hashdex’s proposed ETF structure is notably more complex than that of Franklin Templeton. The Hashdex Bitcoin ETF would be a futures-based ETF holding spot Bitcoin. Unlike Franklin Templeton, which relies on a surveillance sharing agreement with Coinbase, Hashdex plans to acquire Bitcoin from other exchanges listed on the CME and use this as its sole pricing mechanism.
The SEC is querying whether the CME is sufficiently large and liquid in the context of Hashdex’s fund structure, and whether there will be adequate liquidity. Additionally, the SEC is seeking insights on the calculations made by the fund’s sponsor, Toroso Investments, to establish the relationship between Bitcoin prices on the CME and those on unregulated exchanges, given that Toroso Investments is responsible for managing and controlling the fund.
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