ABSTRACT
An obscure BATS rule change approved by the SEC at 3am on 3.7.17 paved the way for the COIN ETF's approval, and the investing public took little notice.
A copy of the release can be found here.... https://www.sec.gov/rules/sro/batsbzx/2017/34-80169.pdf
The below analysis is performed by a financial analyst with extensive experience working with the SEC to gain approval for new business lines and products. I'm sharing the analysis here for everyone's benefit, but wouldn't mind earning some STEEM off upvotes if you find this analysis helpful.. Cheers!
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First, what was proposed/approved in plain English?
Each exchange registered with the SEC is considered a Self-Regulatory Organization (SRO) and must have various exchange rules filed with the SEC. In this proposed change to their own SRO rules, leading global exchange BATS, proposed and received approval for an amendment to their own Self-Regulation rules which will change the initial and continuing listing requirements for securities traded on the exchange while also clarifying situations in which a security can be delisted.
When was it approved and why is it important?
The proposal and approval of this BATS rule change progressed as follows...
11/18/16 - BATS files rule change proposal with SEC
12/7/16 - SEC publishes the proposal for public comment
1/18/17- SEC extends approval period
3/1/17 - BATS files amendment 1
3/3/17 - BATS files amendment 2
3/7/17 - SEC "The Commission is publishing this notice to solicit comments on Amendments Nos 1 & 2 from interested persons, and is approving the proposed rule change, as modified by Amendments Nos. 1 & 2,on an accelerated basis.
First of all, the SEC doesn't do anything on an 'accelerated basis' without a damn good reason. I find it interesting that the SEC couldn't make a decision for two months and extended the deadline (11/18/16-1/18/17), but approved the proposal with its two rapid-fire amendments in only 3 days.... All of that frantic activity is jammed awfully close to the March 11th COIN approval deadline. Also it is highly unusual for the SEC to solicit comments at the same time they are announcing accelerated approval....
How does this apply to COIN?
Since BATS would trade the COIN ETF if approved, this rule change applies to COIN. Also, based on the timing and content of the rule change, I would argue the rule change was made with COIN in mind. For instance the rule change "amends Rule 14.11(a) to require a company with securities listed under Rule 14.11 to promptly notify the exchange after company becomes aware of any non-compliance with the requirements of the rule." In my humble opinion, this could be BATS way of mitigating risk in case COIN goes haywire down the road, the Winklevii are now bound by law to report any compliance problems directly to BATS if they become aware. BATS comments that they believe this will "supplement the Exchange's own surveillance.
The proposal also changes listing requirements to explicitly state "if the index that underlies a series of Portfolio Depository Receipts or Index Fund Shares is maintained by a broker-dealer or fund advisor, the index shall be calculated by a third party who is not a broker-dealer or fund advisor." This change could also apply to the COIN ETF proposal, as separation of duties has been a noted concern with COIN's structure, especially as it relates to pricing. If you compare COIN's initial structure vs it's amended form, you'll see these concerns have been addressed.
Macroeconomic Factors
I think the trade / currency relationship between the U.S and China is of utmost significance in evaluating the chance of a COIN ETF approval. I don't think it's a coincidence that Chinese BTC exchanges have had withdrawals disabled for the entire month leading up to the ETF decision, and will keep them disabled for the near future. The PBOC is terrified of the capital flight that could ensue if Yuan flowing into BTC was then packaged into ETFs that are sold in USD.
Conversely, the U.S. government is looking for a way to weaken the dollar as the FED is set to raise rates in 2017. SEC approval of a BTC ETF could release some of the global upward pressure on the dollar while increasing the pressure on the Yuan, which has seen flight pressures, falling 6% in 2016. This could be the opportune time for the U.S. to assert control over the burgeoning currency and emerge as the leading national market.
Hope you enjoyed and look forward to discussing the finer points via comments!