The SEC has denied a proposed rule change by NYSE Arca to permit the listing and trading of shares of the SolidX Bitcoin Trust. The reasons were substantially similar to the reasons the SEC denied a proposed rule change submitted by Bats BZX Exchange designed to permit the listing and trading of the Winklevoss Bitcoin Trust. The reasons are that the Commission believes that, in order to meet standards set forth in the Exchange Act, an exchange that lists and trades shares of commodity-trust exchange-traded products, or ETPs, must, in addition to other applicable requirements, satisfy two requirements which were not met. First, the exchange must have surveillance-sharing agreements with significant markets for trading the underlying commodity or derivatives on that commodity. And second, those markets must be regulated

Meanwhile, Bats BZX Exchange filed a petition for review of the denial of the Winklevoss Bitcoin Trust. The petition for review argues the standard applied by the SEC staff was inconsistent with prior approval orders and was not required by the Exchange Act, and that the manipulation concerns in the order were overstated and largely theoretical. In support, the petition argues that the Exchange believes that the geographically diverse and continuous nature of bitcoin trading makes it difficult and prohibitively costly to manipulate the price of bitcoin. In fact, the Exchange believes the bitcoin market generally is less susceptible to manipulation than the equity, fixed income, and commodity futures markets for a number of reasons:

  • there is not inside information about revenue, earnings, corporate activities, or sources of supply;
  • it is generally not possible to disseminate false or misleading information about bitcoin in order to manipulate its price;
  • a substantial over-the-counter market provides liquidity and shock-absorbing capacity;
  • bitcoin’s 24/7/365 nature means that there is no single market-close event to manipulate; and
  • it is unlikely that any one actor could obtain a dominant market share.