SEC Publishes Memorandum From Meeting on SolidX, VanEck BTC ETF Proposal

The U.S. Securities and Exchange Commission (SEC) has published a memorandum, dated Oct. 9, from a meeting regarding the Bitcoin (BTC) exchange-traded-fund (ETF) proposal from VanEck and SolidX.

As stated in the memorandum, VanEck is a New York-based investment management firm with $46 billion in assets under management and SolidX is a provider of blockchain software development and financial services.

According to the document, on Oct. 9 SEC Commissioner Elad L. Roisman and his counsels Dean Conway, Matthew Estabrook, and Christina Thomas met with representatives from SolidX, VanEck, and the Chicago Board Options Exchange (CBOE).

The memorandum presents a summary of the applicants’ history with the regulator. SolidX had filed for a Bitcoin ETF to be listed on the New York Stock Exchange (NYSE) as early as March 2016, but its application was rejected by the SEC in March 2017.  

In June 2018, VanEck joined SolidX to apply for a physically-backed Bitcoin ETF to be listed on CBOE’s BZX Equities Exchange, the SEC’s decision on which is still pending since it was postponed in August.  

The proposed pricing of each share of the physically-backed Bitcoin ETF is about $200,000 (25 bitcoin per share), in an explicit bid to focus on institutional, rather than retail investors.

The parties’ arguments as outlined in the memorandum comprehensively address the grounds the regulator had given in its 2017 disapproval of SolidX’s previous ETF application: a perceived failure to be consistent with Section 6(b)(5) of the Securities Exchange Act, which focuses on “prevent[ing]  fraudulent and manipulative acts and practices.”

The SEC at the time stated that, historically, commodity-trust exchange-traded products (ETPs) have been approved in the context of “well-established, significant, regulated markets for futures.”

The memorandum counters this ground, stating that “multiple” Commodity Futures and Exchange Commission (CFTC)-regulated Bitcoin derivatives markets now exist for Bitcoin, notably on stalwart U.S. exchanges CBOE and CME.

As reported in August, the SEC rejected nine applications to list and trade various Bitcoin ETFs from three different applicants, in part citing similar concerns over the lack of regulated derivatives markets of a sufficiently “significant” size.

VanEck, SolidX and CBOE’s representatives argued against this latter point in their memorandum, stating:

“As issuers, we are concerned the SEC staff have created a moving target in their use of the word ‘significant.’ The Staff have never provided guidance as to what "significant" means, enabling them to move the goal post indefinitely.”