Graniteshares bitcoin

GraniteShares Bitcoin Disapproved

SEC Disapproves 2 Bitcoin Funds from the GraniteShares ETP Trust

August 22, 2018 – SEC Disapproval Order – See SEC Release No. 34-83913 for File No. SR-CboeBZX-2018-001, by the Division of Trading and Markets. [83 FR 43923 August 28, 2018]

After review of the Cboe BZX Exchange proposed rule change, the SEC Disapproved the proposal, concluding as follows:

Analysis – Preventing Fraudulent and Manipulative Practices – As stated in the Winklevoss Order, although surveillance-sharing agreements were not the exclusive means by which an exchange could meet its obligations under Exchange Act Section 6(b)(5), such agreements were widely used as a means for exchanges that list ETPs to meet their obligations in deterring manipulation.  Even though the Winklevoss Order was based on a commodity-trust ETP it was also appropriate for an ETP based on bitcoin futures. Thus, a surveillance-sharing agreement with a regulated market of significant size was required to prevent fraudulent and manipulative acts and practices. That the bitcoin markets of the CME and CBOE regulated by the CFTC were not of sufficient size.

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 exchange had 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 the Exchange 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.

Untimely Amendments – As noted above, the deadline for rebuttal comments in response to the Order Instituting Proceedings was May 15, 2018. On August 21, 2018, the Exchange filed Amendment No. 1 with the Commission, stating that the amendment “amends and replaces in its entirety the proposal as originally submitted on January 5, 2018.” Then, on August 22, 2018, the Exchange filed Amendment No. 2 with the Commission, stating that the amendment “amends and replaces in its entirety Amendment No. 1 as submitted on August 21, 2018, which amended and replaced in its entirety the proposal as originally submitted on January 5, 2018.” Because these amendments were filed months after the deadline for comments on the proposed rule change, the Commission deems Amendment No. 1 and Amendment No. 2 to have been untimely filed.

In conclusion, the Commission stated that pursuant to Section 19(b)(2) of the Exchange Act, the proposed rule change was not consistent with the requirements of the Exchange Act and the rules and regulations thereunder applicable to a national securities exchange, and in particular, with Section 6(b)(5) of the Exchange Act. Therefore, it ORDERED that the proposed rule change SR-CboeBZX-2018-001 was disapproved.

July 18, 2018 – The Commission extended the period for consideration of the proposed rule change to September 21, 2018, in that it had only received a few comments. [83 FR 35040]

June 28, 2018 – Time Extended – [SEC Release No. 34-83548][83 FR 31246] – Section 19(b)(2) of the Act provides that, after initiating disapproval proceedings, the Commission shall issue an order approving or disapproving the proposed rule change not later than 180 days after the date of publication of notice of filing of the proposed rule change. The Commission may extend the period for issuing an order approving or disapproving the proposed rule change, however, by not more than 60 days if the Commission determines that a longer period is appropriate and publishes the reasons for such determination.

The proposed rule change was published for notice and comment in the Federal Register on January 18, 2018. July 17, 2018, is 180 days from that date, and September 15, 2018, is 240 days from that date.
The Commission finds it appropriate to designate a longer period within which to issue an order approving or disapproving the proposed rule change so that it has sufficient time to consider this proposed rule change. Accordingly, the Commission designates September 15, 2018, as the date by which the Commission shall either approve or disapprove the proposed rule change.

April 5, 2018 – Questions for Commentators –  [SEC Release No. 34-82995][83-15425 April 11, 2018] Order Instituting Proceedings to Determine Whether to Approve or Disapprove a Proposed Rule Change to List and Trade the Shares of the GraniteShares Bitcoin ETF and the GraniteShares Short Bitcoin ETF Under BZX Rule 14.11(f)(4), Trust Issued Receipts pursuant to Section 19(b)(2)(B) of the Act6 to determine whether to approve or disapprove the proposed rule change.

The Commission stated it was providing notice of the grounds for disapproval. The Commission is instituting proceedings to allow for additional analysis of the proposed rule change’s consistency with Section 6(b)(5) of the Act, which requires, among other things, that the rules of a national securities exchange be “designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade,” and “to protect investors and the public interest.

However, the Commission included twelve specific questions and requested that they be addressed by commentators. extended the time to receive comments to 21 days after the publication in the Federal Register, and 35 days post publication for rebuttal comments: