BlackRock, the world’s largest asset manager, recently updated its application for a spot Bitcoin exchange-traded fund (ETF) in a bid to address concerns from the US Securities and Exchange Commission (SEC). .
The revisions, detailed in the minutes of the Nov. 28, 2023, meeting with the SEC’s Division of Trading and Markets, focus on mitigating issues related to market manipulation and broker-dealer filings.
Updated BlackRock Swap Model
In its revised proposal, BlackRock introduces a “prepaid model” within the existing in-kind swap framework. This model requires the offshore market maker to prepay cash to the registered broker-dealer prior to delivery of the ETF shares in the redemption process.
This adjustment is designed to reduce financial risks for the broker by separating them from the complexities of transferring Bitcoin to the market maker.
BlackRock maintains that the in-kind structure, even with these modifications, offers several advantages over a cash reimbursement method. These include lower transaction costs, simplified operations and reduced risk of manipulation.
The asset manager maintains that resolving issues with brokerage balance sheets and records by modifying custody transfer timing and processes could make it easier for the Bitcoin ETF app to comply with regulatory standards while at the same time , improve incentives for shareholders.
It is not yet clear whether the updates provide enough barriers to offset the SEC’s concerns regarding Bitcoin spot exposure for retail investors through an ETF.
Race for the regulatory green light
The decision to establish a Bitcoin spot ETF has recently gained traction, with financial giants such as BlackRock and Fidelity Investments filing applications with the SEC.
However, the path to approval is fraught with challenges. Historically, the SEC has been hesitant to approve spot Bitcoin ETFs, citing concerns about market manipulation and insufficient oversight measures.
The SEC’s recent comments on the latest filings have reiterated these concerns, particularly the lack of clarity around spot exchanges specific to shared surveillance arrangements.
On November 17, the rumors circulated on social media suggesting that the SEC may have ordered applicants to adopt cash creation methods instead of transferring Bitcoin in kind.
This unconfirmed change could significantly change the responsibilities of issuers, requiring them to manage Bitcoin transactions more discreetly. If true, this new approach could allow brokers to bypass direct involvement in crypto transactions that go beyond existing regulatory frameworks.
