SEC rejects NYSE Arca proposal for One River spot bitcoin ETF

The Securities and Exchange Commission denied a requested rule change to list and trade shares of a proposed carbon-neutral spot bitcoin exchange-traded fund, according to an SEC order issued May 27, which said the burden of demonstrating sufficient investor protection hadn't been met.

NYSE Arca proposed a rule change in September 2021 to list and trade shares of the One River Carbon Neutral Bitcoin Trust, the SEC order said. The trust is sponsored by One River Digital Asset Management, a wholly owned subsidiary of One River Asset Management.

"The commission concludes that NYSE Arca 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), and in particular, the requirement that the rules of a national securities exchange be 'designed to prevent fraudulent and manipulative acts and practices' and 'to protect investors and the public interest,'" the SEC order said.

In evaluating whether the exchange's proposal was designed to prevent fraudulent and manipulative acts, the SEC applied the same standard used in its orders weighing previous proposals to list bitcoin-based commodity trusts and bitcoin-based trust-issued receipts, the order said.

The order said an exchange that lists bitcoin-based exchange-traded products can meet its obligations under Exchange Act Section 6(b)(5) by showing that the exchange has "a comprehensive surveillance-sharing agreement with a regulated market of significant size related to the underlying or reference bitcoin assets."

Such agreements act as a deterrent to manipulation because they facilitate the availability of information necessary to investigate a manipulation fully should one occur, the order said.

"The commission emphasizes that its disapproval of this proposed rule change does not rest on an evaluation of whether bitcoin, or blockchain technology more generally, has utility or value as an innovation or an investment," the order said. "Rather, the commission is disapproving this proposed rule change because ... NYSE Arca has not met its burden to demonstrate that its proposal is consistent with the requirements of Exchange Act Section 6(b)(5)."

Sebastian Bea, president of One River Digital, said in a statement issued to Pensions & Investments on Monday, that One River believes its proposed carbon-neutral bitcoin ETF responds to calls from both investors and policymakers for a product that offers bitcoin exposure while also addressing environmental concerns.

"While the SEC does not believe the spot trading market for bitcoin has demonstrated sufficient oversight and controls to support a bitcoin ETF, One River believes spot markets for bitcoin and other digital assets continue to mature," Mr. Bea said in the statement. "As was the case with bitcoin futures-based ETFs, as the SEC continues to monitor the bitcoin spot market, we expect that the SEC will become satisfied that the spot market can support an ETF product."

An NYSE spokesman declined to comment Tuesday.