US SEC Approves Exchange Applications to List Spot Ether ETFs
Background of Approval
On May 23, the U.S. Securities and Exchange Commission (SEC) approved applications from Nasdaq, CBOE, and NYSE to list exchange-traded funds (ETFs) tied to the price of ether. This decision is a big win for the cryptocurrency industry, which had expected the SEC to reject the filings.
Major Surprise for the Crypto Industry
Thursday’s approval was unexpected. Until Monday, most thought the SEC would reject the applications. Nine issuers, including VanEck, ARK Investments, and BlackRock, hope to launch these ether ETFs. Earlier this year, the SEC approved Bitcoin ETFs, setting a precedent for crypto ETFs.
The Road to Approval
The SEC’s decision was a significant step. It showed that the agency is becoming more open to crypto products. Andrew Jacobson, VP and head of legal at 21Shares, said this is “an exciting moment for the industry.” However, ETF issuers still need to get final approval for their registration statements before trading can start.
SEC’s Concerns and Requirements
The SEC’s main concerns were preventing fraud and market manipulation. They emphasized the importance of surveillance-sharing agreements with the Chicago Mercantile Exchange (CME). These agreements help detect and deter fraud in the market. Although the CME does not monitor spot ether markets, it does track futures contracts. The high correlation between futures and spot prices means that manipulation in the spot market would likely affect futures as well.
To address these concerns, exchanges submitted correlation analyses. They showed that price movements in the CME ether futures market closely align with those in the spot ether markets. This analysis helped prove that the CME’s monitoring could detect fraud in the spot markets.
Investor Protection and Market Integrity
The SEC also focused on protecting investors and maintaining market integrity. They looked at several key requirements, including:
- Pricing Information: Ensuring the availability of quotation and last-sale information for each ETF through major market data vendors.
- Transparency: Requiring ETFs to regularly disclose their portfolio holdings, including the amount of ether and any cash or cash equivalents.
- Surveillance Procedures: Implementing surveillance-sharing agreements with other regulated markets to detect and deter fraud.
Market Participants’ Reactions
Many in the cryptocurrency industry were surprised by the SEC’s approval. Market participants had been preparing for a rejection. SEC officials asked the exchanges to quickly fine-tune their filings, leading to a rush to complete weeks of work in just days. It is still unclear why the SEC changed its stance.
Timeline for Trading
While the SEC has approved the rule change to list these new products, issuers still need to get approval for their ETF registration statements. These statements detail investor disclosures. Unlike the exchange filings, there is no set time frame for the SEC to decide on these statements. Some industry participants believe it could take months.
The Impact of Bitcoin ETFs
The approval of spot Bitcoin ETFs earlier this year set a precedent. The SEC had rejected Bitcoin ETFs for over a decade due to concerns about market manipulation. However, Grayscale Investments won a court challenge last year, forcing the SEC to approve Bitcoin ETFs. This decision paved the way for ether ETFs.
Sui Chung, CEO of CF Benchmarks, noted that ether is more complex than Bitcoin. This complexity could slow the SEC’s review process. However, since Bitcoin ETFs offer an established template, the SEC might not delay too much.
Mainstream Finance and Crypto Integration
The approval of spot ether ETFs is another boost for the cryptocurrency industry’s push into mainstream finance. This week, the UK regulator also approved listed cryptocurrency products. The U.S. House of Representatives passed a bill seeking to provide regulatory clarity for cryptocurrencies. This bill, which still needs to pass the Senate, has strong bipartisan support, marking a significant endorsement for the industry.
What’s next?
The SEC’s approval of spot ether ETFs is a major milestone for the cryptocurrency industry. While there are still hurdles to clear before trading can begin, this decision signals a growing acceptance of crypto products in mainstream finance. With the SEC’s focus on preventing fraud and protecting investors, the future of crypto ETFs looks promising.
