SEC Again Denies ARK 21Shares Bitcoin ETF Proposal: Citing Risk of Fraud & Manipulation

The US Securities and Exchange Commission (SEC) has once again denied a proposal to list the ARK 21Shares Bitcoin ETF on the Cboe BZX equities exchange. The SEC rejected the proposal, citing concerns over the potential for fraudulent and manipulative acts and practices, according to the court filing.

This marks the second time that the SEC has rejected a proposal for a Bitcoin ETF, with a similar proposal being denied in April 2022. At that time, The SEC expresses similar worries regarding deceptive and illegal conduct:

The Commission concludes that BZX has not met its burden under the Exchange Act and the Commission’s Rules of Practice to demonstrate that its proposal is consistent with the requirements of Exchange Act Section 6(b)(5).

The proposed ETF, which would have been jointly managed by Cathie Wood’s Ark Investment Management and 21Shares, aimed to provide investors with exposure to Bitcoin’s price within the regulated stock market.

Bitcoin ETF Proposal: Surveillance Agreement Not Enough

The Cboe BZX Exchange first submitted the application to list the ETF in June 2021, but after it was denied, it reapplied and presented new legal arguments in an attempt to gain approval.

The Cboe BZX Equities Exchange claimed in its second application that it had a “comprehensive surveillance-sharing agreement” with the Chicago Mercantile Exchange (CME) that would prevent price manipulation.

However, the SEC rejected this argument, stating that the surveillance agreement only applied to Bitcoin futures contracts and not to spot Bitcoin.

Additionally, the SEC stated that even if an agreement does exist, the exchange must demonstrate that other means to prevent cheating and manipulative acts will be sufficient. The exchange, according to SEC, failed to do that.

According to the filing, the SEC said that a trading platform could show that they have other ways to stop cheating and trickery. This means that they don’t need to have a special agreement with a big, regulated market to watch for these things.

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This would require showing the Bitcoin market as a whole or specifically the relevant market. In addition, it is inherently resistant to fraud and manipulation in a unique way that goes beyond traditional commodities or securities markets.

Nevertheless, the SEC’s decision is a blow to those who had hoped to see a Bitcoin ETF listed on a major equities exchange. As it further delays the possibility of mainstream institutional investment in the crypto asset.