The recent refiled applications for spot Bitcoin exchange-traded fund (ETF) issuers by Fidelity, WisdomTree, VanEck, ARK Invest, Galaxy/Invesco, and BlackRock have brought attention to the importance of surveillance-sharing agreements.
The U.S. Securities and Exchange Commission (SEC) has rejected Bitcoin ETF applications in the past due to the absence of these agreements, which are aimed at preventing market manipulation and safeguarding consumers. In response, Cboe’s BZX Exchange has named Coinbase, a prominent U.S.-based cryptocurrency exchange, as its surveillance-sharing partner to address this requirement.
Surveillance-sharing agreements have long been a crucial aspect of Bitcoin ETF applications. The SEC has emphasized the need for partnerships with markets of “significant size” to ensure effective market surveillance. These agreements provide exchanges with access to data on spot Bitcoin trades, enabling them to monitor the market for potential manipulation or undesirable activities. Such measures are crucial for maintaining market integrity and investor protection.
In its refiled applications, Cboe’s BZX Exchange specifically named Coinbase as its partner for surveillance-sharing agreements. Citing Coinbase’s platform as a substantial contributor to U.S.-based and USD-denominated Bitcoin trading, Cboe acknowledges the importance of Coinbase’s market presence.
The agreement between Cboe and Coinbase aims to facilitate the exchange’s surveillance program for Commodity-Based Trust Shares, aligning with the surveillance-sharing practices established within the Intermarket Surveillance Group (ISG).
While Cboe and other ETF applicants have taken steps to address the SEC’s requirements, the regulator still needs to formally acknowledge the applications and begin the review process. Upon publication in the Federal Register, the SEC will initiate a 45-day review period, which can be extended up to a total of 240 days. During this period, the SEC will assess the adequacy of the surveillance-sharing agreements and evaluate the significance and regulatory compliance of the markets involved.
It is worth noting that Coinbase is currently facing a lawsuit filed by the SEC. The lawsuit alleges that Coinbase operated an unregistered securities exchange, broker, and clearinghouse. However, it is important to clarify that the SEC’s allegations do not classify Bitcoin itself as a security. SEC Chair Gary Gensler has consistently distinguished Bitcoin as a digital asset that does not fall under the category of securities.
As Cboe’s BZX Exchange and other companies refile their Bitcoin ETF applications, the inclusion of surveillance-sharing agreements with markets of “significant size” is a notable development. By naming Coinbase as its surveillance-sharing partner, Cboe aims to enhance its market surveillance capabilities and address the SEC’s concerns regarding potential market manipulation.
The outcome of the SEC’s review process, along with the ongoing legal challenge against Coinbase, will shape the future landscape of Bitcoin ETFs and the regulatory environment surrounding cryptocurrency markets