SEC rejects the listing of ARK 21 Shares Bitcoin ETF once more

Investor protection would be sufficient, according to the fund’s backers, according to a present surveillance sharing deal with CME.

According to a statement released by the Securities and Exchange Commission on January 26, the SEC has once again denied a petition to list the ARK 21 Shares Bitcoin ETF on the stock exchange Cboe BZX. The SEC previously rejected a similar proposal in April.

If approved, Cathie Wood’s ARK Investment Management and 21Shares would have shared management of the proposed exchange-traded fund. The proposed fund’s goal was to give investors access to the price of Bitcoin while staying inside the bounds of a regulated stock market.

The ETF was first requested to be listed by the Cboe BZX Exchange in June 2021. It reapplied in 2022 after the initial application had been turned down and included fresh legal justifications to have the fund accepted.

The Cboe BZX Equities Exchange maintained that it has a “full surveillance-sharing relationship with a regulated market of significant size” that can prevent price manipulation in its second application, which was submitted back in May. Therefore, the exchange contended, the ARK 21Shares Bitcoin ETF should be permitted to list. The Chicago Mercantile Exchange (CME), where Bitcoin futures contracts are transacted, is the party to this surveillance-sharing arrangement, the application claims.

The application also claimed that the majority of spot markets for commodities and currencies are unregulated, but an application is typically not denied for this reason alone.

The SEC dismissed these claims in its answer. It added that because only Bitcoin futures contracts are traded at CME, the surveillance sharing agreement between Cboe BZX Equities Exchange and the CME does not apply to spot Bitcoin.

The SEC further asserted that while having a surveillance-sharing agreement is not always required, the exchange must “show that other mechanisms to prevent fraudulent and manipulative activities and practises will be sufficient” in the absence of one. It stated that because the exchange had not provided evidence of this claim, it was refusing to permit the listing of the ETF.

No spot Bitcoin ETF has yet received SEC approval to be listed on an exchange. Grayscale Investment Trust has filed a lawsuit against the SEC for denying its request to convert its Bitcoin Trust into a spot Bitcoin ETF. The Grayscale case is set to have oral arguments in March.

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