SEC tells spot bitcoin ETF hopefuls to make final changes by year-end -sources

SAN FRANCISCO: U.S. SEC officials met on Thursday with representatives of at least seven companies hoping to launch exchange-traded funds (ETFs) tied to spot bitcoin early in 2024, and told at least two to submit final changes by the end of next week, according to public memos and two people familiar with the discussions.

Among those holding discussions with the Securities and Exchange Commission were representatives from BlackRock (BLK.N) and Grayscale Investments, as well as ARK Investments and 21 Shares.

The SEC is due to decide whether to approve or reject the joint proposal from ARK and 21 Shares by Jan. 10. Most issuers expect the SEC will likely give the green light to several applications at the same time in the days leading up to that deadline.

Executives from two of the firms that met with regulators -- speaking on background because of the confidential nature of the discussions -- said the SEC set a deadline for final updates to their filings of Dec. 29. Regulators told attendees at the meetings that any issuer that doesn't meet that deadline will not be part of a first wave of potential spot bitcoin ETF approvals in early January, both executives said.

The Dec. 29 deadline was first reported by Fox Business.

Representatives of the exchanges on which the new products might trade, including Nasdaq and Cboe, as well as lawyers for the issuers, also attended the meetings, according to meeting memos.

The SEC has rejected multiple applications to launch spot bitcoin ETFs in recent years, arguing that the cryptocurrency market is vulnerable to manipulation. The only cryptocurrency ETFs the agency has approved are tied to bitcoin and ethereum futures contracts that trade on the Chicago Mercantile Exchange.

In recent months, however, there have been increasing signs that regulators are prepared to sign off on at least some of the 13 proposed spot bitcoin ETFs. Some say the catalyst was a federal appeals court decision in August that the SEC erred in rejecting Grayscale's proposed conversion of its trust into an ETF.

The two executives who participated in Thursday's meetings with SEC officials said the agency indicated it could grant approval in the first few business days of 2024. Regulators would do so by informing issuers directly of what date their request to launch the ETF would be "effective;" each proposed ETF could be rolled out on that date.

An SEC spokesperson said the agency does not comment on individual filings.

A number of issuers have made changes to the technical details of their ETF proposals in recent days. Both BlackRock and ARK updated their filings earlier this week to allow cash redemptions, a change requested by regulators, according to people familiar with the matter.

Any final alterations likely would include details of fees. ARK and 21 Shares are the only issuers to have disclosed the fee they propose to levy on their joint ETF, at 0.80%.

Final updates also would include information about the sums that issuers plan to use to "seed" the new ETFs. These are likely to be relatively small amounts, according to those involved in the discussions, but to increase substantially once the ETFs have begun trading. These "seeds" provide capital required for marketmakers to ensure that the initial market for new ETFs is liquid.