BlackRock and SEC Negotiate Bitcoin ETF Application
BlackRock recently had another meeting with the SEC’s Trading & Markets division to discuss its spot Bitcoin ETF application. This comes after a previous meeting where the SEC advised applicants to use cash creates instead of in-kind redemption models for their ETFs.
In an attempt to differentiate between the two models, BlackRock shared a document but ultimately expressed a preference for the in-kind redemption model. They believe this model would alleviate restrictions on broker-dealers.
In the latest meeting, BlackRock presented a revised in-kind model design based on feedback from the SEC. The discussion focused on NASDAQ’s proposed rule change to list and trade shares of the iShares Bitcoin Trust.
The SEC has expressed concerns about the chosen in-kind redemption model, particularly regarding its impact on the balance sheet and risks to the Market Maker’s United States broker/dealer entity (MM-BD). This prompted BlackRock to present a revised version of the model.
BlackRock’s Revised In-Kind Model
In the current in-kind redemption flow, the MM-BD places an order through an Authorized Participant (AP), and then borrows Bitcoin or cash to sell short. The ETF shares are delivered to a Transfer Agent through the AP.
In the revised in-kind model, the MM-crypto delivers cash to the MM-BD, who then delivers the ETF shares to the Transfer Agent. The BTC custodian is instructed by the issuer to transfer the coin to MM-crypto, which closes its short position in Bitcoin.
This revised model offers benefits such as lower transaction fees, resistance to market manipulation, and reduced operational risks. It demonstrates BlackRock’s commitment to addressing the regulator’s concerns and gaining approval for their Bitcoin ETF.
Hot Take: BlackRock Continues Negotiations with SEC for Bitcoin ETF Approval
Bloomberg ETF analyst Eric Balchunas has reported on another meeting between BlackRock and the SEC regarding the investment manager’s spot Bitcoin ETF application. The discussions centered on the choice of redemption model and NASDAQ’s proposed rule change. BlackRock presented a revised in-kind model to address the SEC’s concerns. This ongoing dialogue reflects BlackRock’s determination to gain approval for its Bitcoin ETF offering.
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