Today, the Commission approved the listing and trading of a number of spot Bitcoin exchange-traded products (ETPs).
I have often emphasized that the Commission must act within the law and that the interpretation of the law by the courts is crucial. Starting in 2018, the SEC, led by Chairman Jay Clayton, has rejected more than 20 trading rule filing applications for spot Bitcoin ETPs through March 2023. One of the filings was filed by Grayscale, which considers converting the Grayscale Bitcoin Trust into an ETP.
We are now faced with a new set of applications similar to those we have declined to approve in the past. However, things have changed. According to the decision of the U.S. Court of Appeals for the District of Columbia, the Commission failed to adequately explain its reasons for disapproving Grayscale’s proposed ETP listing and trading. Accordingly, the Court quashed that consideration and remanded the matter back to the Commission for reconsideration. Based on these circumstances and those more fully discussed in the Approval Order, I believe that the most appropriate course of action, taking sustainability considerations into account, is to approve the listing and trading of these spot Bitcoin ETP products.
The Commission will evaluate the rules submitted by the national securities exchange for compliance with the Exchange Act and regulations to ensure the protection of investors and the public interest. The Committee will remain neutral and will not express an opinion on any specific company, investment or underlying asset of the ETP. As long as issuers of securities and the exchanges on which they are listed comply with the Securities Act, the Exchange Act, and the Commission's rules, they will be afforded the same access to regulated markets as others.
Importantly, today’s Commission action is limited to ETPs holding Bitcoin, a non-security commodity. This does not mean that the Commission is willing to approve listing standards for crypto-asset securities. It also did not indicate the Commission’s views on the status of other crypto-assets under the federal securities laws or on the current status of non-compliance with federal securities laws by certain crypto-asset market participants. Based on past statements, we know that most crypto assets are investment contracts and are subject to federal securities laws. Therefore, without prejudging any one crypto-asset, we should be cautious with participants in the crypto-asset market to ensure they comply with relevant regulations.
Investors today can buy or otherwise gain exposure to Bitcoin through a variety of brokerage firms, mutual funds, national securities exchanges, peer-to-peer payment applications, and some non-compliant crypto trading platforms. Additionally, investors can invest through the Grayscale Bitcoin Trust. Action now will strengthen certain investor protections.
First, sponsors of Bitcoin ETPs must provide full, fair and truthful disclosures about the product. Investors in all listed and traded Bitcoin ETPs will benefit from the disclosures required in public registration statements and periodic filings. While these disclosures are necessary, it is important to note that today's action does not constitute an endorsement of the disclosed ETP arrangements, such as custody arrangements.
Secondly, these products will be listed and traded on a registered national stock exchange. These exchanges must adhere to regulated rules to prevent fraud and manipulation. We will closely monitor these exchanges to ensure they enforce these rules. In addition, the Commission will comprehensively investigate fraud or manipulation in securities markets, including the use of social media platforms. Regulated exchanges also have rules and regulations in place to address conflicts of interest and protect investors and the public interest.
In addition, existing rules and standards of conduct will apply to the purchase and sale of approved ETPs. This includes, for example, the regulation of best interests when broker-dealers recommend ETPs to retail investors, as well as the fiduciary duties imposed on investment advisers under the Investment Advisers Act. Today’s action does not approve or endorse cryptocurrency trading platforms or intermediaries, which are largely inconsistent with federal securities laws and often present conflicts of interest.
Third, the China Securities Regulatory Commission staff are completing the registration statement review of 10 spot Bitcoin ETPs at the same time, which will help create a level playing field for issuers, promote fairness and competition, and enable investors to and benefit the wider market.
The agency has extensive experience regulating spot non-security commodity ETPs, such as those that hold certain precious metals, since 2004. This experience has been extremely valuable in our oversight of Bitcoin ETP spot trading.
While we are neutral, I would like to point out that the underlying assets in metal ETPs have consumer and industrial uses, whereas Bitcoin, in comparison, is primarily a speculative, volatile asset , are also used in illegal activities, including ransomware,[4] money laundering,[5] sanctions evasion,[6] and terrorist financing. [7]
While we approved the listing and trading of certain spot Bitcoin ETP products today, we do not approve or endorse Bitcoin. Investors should remain cautious about the numerous risks associated with Bitcoin and products whose value is tied to cryptocurrencies
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