Bats Exchange Fights Back Against SEC’s Decision to Reject Bitcoin ETF

Bats BZX Exchange has submitted a “notice of intention to petition for review of order disapproving” its proposed rule change to list and trade Coin ETF by the U.S. Securities and Exchange Commission (SEC).

Also read: SEC Rejects Rule Change for Bitcoin ETF

Notice of Intention to Petition

National law firm Schiff Hardin LLP faxed its letter as well as a letter written by Bats BZX Exchange to the SEC on March 17, but they were not published on the SEC’s website until early this week. Bats Exchange’s letter officially serves as a “notice of intention to petition for review of order disapproving a proposed rule change” pertaining to the listing and trading of Coin ETF which the Commission rejected on March 10. The SEC’s disapproval decision was made by “the Division of Trading and Markets pursuant to delegated authority”.

The exchange cites Rule 430(b)(1) of the SEC’s Rules of Practice in its letter, which details the procedure for an ‘appeal of actions made pursuant to delegated authority’. This rule states that “a party to an action made pursuant to delegated authority, or a person aggrieved by such action, may seek Commission review of the action by filing a written notice of intention to petition for review”.

Petition for Review

The letter also states that: “Bats intends to file separately a petition for review in accordance with Rule 430(b)(2) of the Securities and Exchange Commission’s Rules of Practice”.

Rule 430(b)(2) outlines the procedure of how to actually petition for review. It reads:

Within five days after the filing of a notice of intention to petition for review pursuant to paragraph (b)(1) [Rule 430(b)(1)] of this rule, the person seeking review shall file a petition for review containing a clear and concise statement of the issues to be reviewed and the reasons why review is appropriate.

In addition, the petition must include “exceptions to any findings of fact or conclusions of law made, together with supporting reasons for such exceptions based on appropriate citations to such record as may exist. These reasons may be stated in summary form”, according to the rule.

Once the petition is filed, the SEC will determine whether to grant a review. If it is found that the Commission’s staff had reached an erroneous conclusion of law by misapplying the Exchange Act standards application to the proposed rule change, then a review would be granted. Subsequently, the Commission may “affirm, reverse, modify, set aside or remand for further proceedings, in whole or in part, any action” made by the delegated authority.

Why the Bitcoin ETF was Rejected

In rejecting Coin ETF, the SEC ruled that Bats Exchange must “have surveillance-sharing agreements with significant markets for trading” bitcoin or its derivatives, and that bitcoin markets must be regulated. However, it found that “the significant markets for bitcoin are unregulated”, therefore there could not be the type of surveillance-sharing agreements needed to be consistent with the Exchange Act.

Bats had already tried to convince the SEC that there is a comprehensive surveillance-sharing agreement in place to monitor the trading of Coin ETF on its exchange, but it failed to convince the SEC the first time. In the exchange’s petition which should be filed by the end of the week, Bats Exchange will have to convince the SEC that a review is warranted.

While Bats Exchange is fighting to reverse the SEC’s decision to reject Coin ETF, NYSE Arca is waiting to hear the Commission’s decision on its proposed rule change to list and trade Solidx Bitcoin Trust which is due on March 30. The Community has already been expecting the SEC to reject that proposed rule change as well.

Do you think Bats Exchange will be able to convince the SEC to reverse its decision? Let us know in the comments section below.

Images courtesy of Shutterstock, SEC, and Bats

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