Regulators Explain Why Bitcoin Futures Are Easier to Approve Than Bitcoin ETFs

SEC and CFTC Open to Collaborating

Commissioners of the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have actually come together to discuss their regulatory techniques to bitcoin futures contracts and bitcoin exchange-traded funds (ETFs). The two regulators are also available to collaborate on their oversight of crypto investment items.

CFTC Regulating Bitcoin Futures

At a Bipartisan Policy Center occasion entitled “The Year Ahead for Capital Markets” recently, SEC Commissioner Hester Peirce and CFTC Commissioner Brian Quintenz discussed their firms’ methods to managing crypto investment items.

Explaining his firm’s oversight of bitcoin futures contracts noted by Cboe Futures Exchange and CME Group, Quintenz mentioned:

We have a process in the Commodity Exchange Act that allows the exchanges to self-certify a contract if they believe it meets the requirements of the Act.

CFTC Regulating Bitcoin Futures

He elaborated that the CFTC has a “review duration in which we can state, no we disagree with you and here’s why, however if we don’t disagree, [then] they have the opportunity to proceed and self-certify that contract.” He noted that both of the above “exchanges pursue that self-certification [route] so these contracts get noted without our approval but likewise without our disapproval.”

The commissioner likewise revealed, “Our jurisdiction over those contracts needs that they not be readily susceptible to manipulation … in any capability,” adding that there is likewise the “question of how easily can we find it and generally it’s extremely quickly.”

SEC Reluctant to Approve Bitcoin ETF

SEC Commissioner Peirce, in some cases called “crypto mama” within the Bitcoin community, stated that “At the SEC we’ve hesitated to … approve a bitcoin ETF, an exchange-traded product based upon bitcoin,” voicing:

My concern about our approach in that area is it looks a little bit like a merit-based approach judging the underlying bitcoin markets.

Opposing her agency’s view that bitcoin markets are not regulated enough, Peirce argued that “there are lots of markets that aren’t controlled however we construct products on top of them.” She concluded, “I believe we need to be extremely careful with that type of thinking.”

Regulators Explain Why Bitcoin Futures Are Easier to Approve Than Bitcoin ETFs

Her declaration echoes a similar one she made in August last year when she explained that the SEC “browsed at the underlying asset [bitcoin] … and raised some concerns about the marketplace for that underlying product.” Crypto mama thinks that “by doing that they went beyond what the statute enables us to do and we should have truly focused on the market where the exchange-traded product would trade instead of focusing on the underlying bitcoin markets.”

Commodities vs. Securities

Quintenz proceeded to describe significant differences between securities and commodities, stating:

We only have fraud and enforcement jurisdiction over the commodity space. Our oversight jurisdiction is over the commodity derivatives space, so the trading of commodities themselves like things like Ebay we don’t have any type of oversight over that.

He stressed that having no oversight is “not always a bad thing” if trading platforms “can implement a free-market approach” to solve issues such as market control. “Due to the fact that our absence of statutory oversight ability, I have actually recommended that these platforms come together to form some kind of self-regulatory structure where they can discuss, agree to, implement, and hopefully analyze or examine themselves.”

In addition, he clarified that these platforms can set requirements themselves “however they view what is suitable … from conflicts of interest, organisation conduct, insider trading, redemptions, custody, liquidity …”.

Commodities vs. Securities

SEC and CFTC Open to Collaborating

Peirce was likewise asked whether she believed that “the SEC and other regulators typically take a too-restrictive technique to cryptocurrencies” and whether “policy in this area [is] challenging.” She responded that restrictive might not be the word she would use, but rather it is “too confusing.” She continued to state that this is “an area where I believe Brian and I have an interest in collaborating,” elaborating:

There [are] questions about where your jurisdiction ends and ours begins and again we don’t want to have overlap there so you know my main concern has been that I think we need to do a better job providing guidance.

What do you think of the differences between how the CFTC and SEC approach bitcoin investment products? Let us know in the comments section below.

Images courtesy of Shutterstock.

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