The United States Securities and Exchange Commission has announced the next steps in its consideration of the proposed Franklin Templeton and Hashdex spot Bitcoin (BTC) exchange-traded fund (ETF) bids.
The agency has requested written comments on both proposals to approve or deny the applicants’ Forms 19b-4.
SEC Form 19b-4 is a public disclosure approved by the SEC Trading and Markets Division separately from Form S-1, the offering prospectus subject to Corporate Finance Division approval. The SEC’s requests have an open period of 35 days from their publication in the Federal Register for both comments and responses to comments.
The proposed rule changes — effectively applications — that would allow the trading of the ETFs were filed in late September. The Hashdex ETF would be traded on the New York Stock Exchange Arca and Franklin Templeton’s on Cboe BZX. On Nov. 15, the SEC extended its deadline for deciding on the applications.
The questions address issues related to potential ETF approval. Commenters are invited to assess the funds’ susceptibility to manipulation and whether or not the exchanges that will host them are of significant size.
Franklin Templeton commenters are further asked to consider price manipulation on the BTC market, the company’s surveillance sharing agreement with Coinbase, which would aid in price discovery and supplement efforts to detect manipulation and fraud, and correlation between BTC spot and futures prices.
— Daniela (@DeFinanzasYT) November 28, 2023
Hashdex’s proposed fund structure is more complex than Franklin Templeton’s. Its proposed Hashdex Bitcoin ETF would be structured as a futures ETF that holds spot BTC. Rather than depending on a Coinbase surveillance sharing agreement, Hashdex would acquire BTC from other exchanges on the CME and rely solely on that mechanism for pricing.
The SEC asked whether the CME has significant size in light of the fund structure and whether sufficient liquidity will be available. Finally, commenters are asked about sponsor Toroso Investments’ calculations to determine the relationship between the BTC price on the CME and on unregulated exchanges. The sponsor manages and controls the fund.