What is the "supervision and sharing agreement" that appears frequently in the Bitcoin ETF application proposal?

Original source: BlockWorks

Compilation of the original text: Mary Liu, Bitui BitpushNews

In the latest wave of spot bitcoin ETF application documents, a term appears frequently: surveillance-sharing agreement (surveillance-sharing agreement).

Following asset management giant BlackRock, firms such as ARK Invest, Valkyrie, Bitwise, WisdomTree and Invesco have all added this to their proposals.

“These agreements will provide greater transparency to the market and bring the cryptocurrency market more in line with how the U.S. market is regulated,” said Ophelia Snyder, co-founder and president of 21 Shares.

In considering a proposed Bitcoin ETF, the U.S. Securities and Exchange Commission (SEC) weighs whether the proposed listing exchange (NASDAQ, NYSE, or other entity) can meet certain obligations under the Exchange Act to prevent Fraud and Manipulation.

According to the June 2022 SEC filing rejecting the Bitwise spot bitcoin ETF, the SEC argued that the exchange could do so by demonstrating "a comprehensive oversight sharing agreement with a sizable regulated market related to the underlying or reference bitcoin asset." make it happen.

The SEC defines “oversight sharing agreements” very clearly in its denial order:

A sharing agreement is characterized by the agreement providing for the sharing of information regarding market trading activity, clearing activity, and customer identity; the parties to the agreement have a reasonable ability to obtain and provide the requested information; and no existing rule, law, or practice prevents A party to the agreement obtains this information from the other party or provides this information to the other party.

The size of this market cannot be quantified in numbers. The metric, the document states, refers to a market in which a potential manipulator “has a reasonable likelihood” of having to trade in order to do so — “so that monitoring sharing agreements will help detect and deter inappropriate Behavior".

In the Bitwise directive, the SEC noted that monitoring the sharing agreement is not the only way for an exchange seeking to list a Bitcoin ETF to satisfy Exchange Act Section 6(b)(5).

But the securities regulator said, "such agreements have previously provided the basis for exchanges listing commodity trust ETPs to meet these obligations, and the Commission has historically recognized their importance by allowing the sharing of information about market trading activity, clearing activity, and customer identities. information".

David Hirsch, head of the SEC’s Enforcement Division’s Crypto Assets and Networks Division, said last week that potential bitcoin ETF spot issuers have yet to establish “appropriate monitoring systems” comparable to trades on registered exchanges.

BlackRock, a fund giant with about $9 trillion in assets under management, filed for its first spot bitcoin ETF last week. Its filing notes that the SEC approves ETFs that hold bitcoin futures contracts traded on the Chicago Mercantile Exchange (CME): If pricing is directly based on the spot Bitcoin market, it is not clear how such conclusions apply only to Bitcoin futures-based ETPs, but not to spot Bitcoin ETPs.”

Nasdaq is expected to enter into an oversight sharing agreement with “a U.S.-based operator of a bitcoin spot trading platform,” which was not named in the document.

Sumit Roy, a senior analyst at ETF.com, told Blockworks earlier this week that additional agreements may not be enough to gain approval, especially if the platform operator is Coinbase (which the SEC sued earlier this month).

But “because BlackRock was involved, they were expected to have the inside information and make it happen,” he said.

Different proposals correspond to different exchanges

Investment firm Valkyrie is the latest to rejoin the spot bitcoin ETF race. The firm's last attempt at a spot bitcoin ETF ended in December 2021 when the SEC failed to approve it.

According to the new filing, the Valkyrie Bitcoin Fund will trade under the ticker symbol BRRR (BRRR is also used to describe the sound of the money printing machine).

The company, like BlackRock, has designated Nasdaq as its listing exchange, which Bloomberg Intelligence analyst James Seyffart said in a tweet could give it an edge over other firms.

The Valkyrie follows filings by Bitwise, whose proposed spot bitcoin ETF will be listed on NYSE Arca, as well as more traditional financial firms WisdomTree and Invesco, whose planned offering will trade on the Cboe BZX exchange.

A spot bitcoin ETF, filed by Ark Invest and 21 Shares in April, is also scheduled to trade on Cboe.

Seyffart told Blockworks in an email: “21 Shares, ARK and Cboe [Chicago Board Options Exchange] are at the top of the list as the SEC’s next decision date is August 13, 2023 and we haven’t identified any other 19 b-4 date of application, such as BlackRock's application".