Institutional players are vying to include supervision and sharing agreements in ETF filings. Why does this give the SEC more leeway?

Big players compete to include supervision and sharing agreements in ETF filings, giving the SEC more flexibility.

Author: BlockingBitpushNews Mary Liu

When financial giant BlackRock applied to launch a bitcoin ETF in the United States, the encryption community speculated that the world’s largest asset management company was more likely to be approved than those failed “pioneers”.

BlackRock’s actions have stimulated a series of followers, and financial companies such as ARK Invest ment, Valkyrie, and Fidelity have also submitted their own bitcoin ETF applications and included the Shared Supervision Agreement (SSA) in almost all filings.

The SEC’s requirement for shared supervision to prevent market manipulation in the encryption market is not new and first appeared in the Winklevoss brothers’ Bitcoin ETF application in 2017, but a “Coinbase and Nasdaq Information Sharing Agreement Table” obtained by encryption media CoinDesk Revealed more details.

Industry insiders believe that theoretically, the Information-Sharing Agreement is more likely to affect the decision of the U.S. Securities and Exchange Commission (SEC), which allows regulatory agencies to obtain additional background information on transactions, undoubtedly giving the SEC more power space.

The subtle difference between SSA and the Information Sharing Agreement can be described as the difference between “push” and “pull”.

SSA focuses on data monitoring conducted by spot exchange Coinbase. If it is considered suspicious, it can be pushed to regulatory agencies, ETF providers, and listed exchanges.

In contrast, the Information Sharing Agreement allows regulatory agencies and ETF providers to request data from exchanges.

The relevant information may be related to specific transactions or traders, and the agreement also forces cryptocurrency exchanges to share data, including personally identifiable information (PII), such as customers’ names and addresses. The information sharing agreement did not appear in any spot bitcoin ETF documents, but this structure already exists in other markets.

An insider told Coindesk that an important warning is that the information-sharing request must be very specific, no different from a subpoena.

The anonymous source said: “This is not just a fishing adventure, it includes all the information attached to any transaction between two specific points in time. The obvious concern is that almost by definition, cryptocurrency traders do not like to share information about them. Overall, this is a disgust for the spirit of cryptocurrency. But in order for the ETF to succeed, [the company] must do so.”

Bitcoin ETF Application History

As early as 2017, the SEC emphasized that Bitcoin ETF applications need to sign supervision sharing agreements with larger regulated markets, but companies lack clarity and objective standards when explaining this point.

Matt Hougan, chief investment officer of Bitwise Asset Management, said that information sharing agreements are meaningful compared to simple supervision sharing, because this means that ETFs do not rely on unregulated markets. Bitwise has applied for ETFs several times.

Hougan said in an interview: “Regulators have the right to extract information from regulated markets, while the reported information comes from unregulated markets. Therefore, the SEC hopes that the regulated market can supervise this monitoring and identify the users behind these transactions, I think this will become an important part of these agreements.”

Suspicious Activity Report

The combination of supervision sharing and information sharing is a structure well-known to stock market brokers and exchanges. Regulators have the right to request more information about the trading history of end customers.

For example, every time a broker’s client sends an order to Nasdaq and the order is marked as suspicious by the exchange’s SMARTS monitoring system, both the broker and the exchange need to submit a suspicious activity report (SAR).

Dave Weisberger, CEO of cryptocurrency trading platform CoinRoutes, said that investigating regulatory agencies for SARs can continue to execute “step two”, that is, requiring the identification of personal identity information (PII) to determine whether there are the same beneficiaries behind specific transactions, thereby creating unified audit tracking.

Coinbase, Nasdaq and BlackRock may indicate that if there is suspicious activity (and they are monitoring it), regulatory agencies can ask who is doing it, but they will not disclose personal identity information (PII) indiscriminately.

Bloomberg ETF analyst Eric Balchunas predicted in an interview with Cointelegraph that BlackRock should know how to convince regulators that its participation is enough to increase the likelihood of approving Bitcoin spot ETFs from 1% to 50%.