Cboe seeks US SEC approval for in-kind transactions on ARK Bitcoin & 21Shares Ethereum ETFs

Cboe BZX Exchange Inc. filed 19b-4 with the U.S. SEC, a proposed rule change to amend the ARK 21Shares Bitcoin ETF (ARKB) and the 21Shares Core Ethereum ETF (CETH) to permit in-kind creations and redemptions. 

According to the 19b-4 form, the ARK Bitcoin and 21Shares Ethereum ETFs will now be allowed to process creations and redemptions in-kind rather than in cash only. All other representations will remain unchanged.

Nate Geraci, president of the ETF Store Inc., explained that individuals (retailers) will not be able to do in-kind creations and redemptions. Only authorized participants (APs) will have access to the service. 

Cboe awaits US SEC approval of proposed rule change 

The Cboe BZX Exchange Inc. submitted its 19b-4 filing with the U.S. SEC on January 27. In the proposed rule changes, both ARKB and CETH will allow the creation and redemption of ETF shares using Bitcoin and ETH rather than in cash.

A crypto commenter suggested that this approval will create a more orderly market and enable “more surface area” between the ETFs and the rest of crypto. The regulator previously dismissed similar applications for two proposed spot Solana ETFs, prompting their exclusion from Cboe’s official listings.

As per the 19b-4 filing, the Bitcoin Trust will create or redeem its shares in-kind by transferring Bitcoin in blocks of 5,000 shares based on the quantity of Bitcoin attributable to each share of the Trust at the Trust’s NAV.

Conversely, the ETH Trust will create or redeem shares in-kind through transfers of Ether in blocks of 10,000 shares based on the quantity of ETH attributable to each share of the Trust at the Trust’s NAV. Authorized participants will deliver Bitcoin or ETH to create shares and receive Bitcoin or ETH when redeeming shares. 

Except for these proposed changes, the Cboe filing suggested that all other representations in Bitcoin ETP Amendment No. 5 and ETH ETP Amendment No. 2 will remain unchanged. The representations will also continue to constitute continuing listing requirements and both Trusts will continue to comply with the requirements of Rule 14.11(e)(4).

Additionally, the exchange believes that the proposed rule change is consistent with the requirements of Section 6(b) of the Securities Exchange Act of 1934. If approved, the proposed changes will remove barriers and perfect the mechanisms of a free and open market. The exchange also believes that the proposed rule change will not raise new regulatory concerns.

Cboe tests US SEC limits with proposed in-kind transactions

Bloomberg ETF analyst James Seyffart said this was a case of ETF issuers testing the limits of what the U.S. SEC will allow under the new administration following the agency’s recent shift away from cash-only models. He added that he expects the new crypto task force led by Hester Peirce to be the “linchpin” in determining what will be allowed and what will not.

Fellow Bloomberg analyst Eric Balchunas said that it will be interesting to see where the U.S. SEC draws the line (if at all) and why. He predicted that trading under the new changes could be launched as soon as April if no objections come from the regulators. 

According to Seyffart, approval of the proposed in-kind transactions means that ETFs will be able to trade even more efficiently than they already did theoretically because “things could now be streamlined.” He opined that ETFs should have been allowed to process in-kind transactions from the “get-go,” although Democratic U.S. SEC Commissioners were against it.

“The main point is that the In-kind model is way more streamlined with less steps and less parties involved (and its how the vast majority of ETFs operate).”

– James Seyffart

Top degen Dominic CK said Cboe’s proposal is a bullish signal for institutional adoption and market maturity. The exchange does not believe the proposed rule change will impose any unnecessary burden on competition.

Cryptopolitan Academy: FREE Web3 Resume Cheat Sheet - Download Now