BlackRock’s SEC ETF Approval Record is 575-1: What Was the One Black Spot?
BlackRock CEO Larry Fink says he hopes "regulators look at these filings".
Key Takeaways
- What happened with BlackRock’s only rejected ETF application?
- How SEC rules set in 2014 set the stage for future ETF applications
- BlackRock 2023 vs. 2014 ETF applications
BlackRock, the world’s biggest asset management firm, had only one ETF application rejected by the US Securities and Exchange Commission. The company’s filing history includes hundreds of accepted applications and is now filing for an ETF that is sending shockwaves through the crypto market.
To understand the potential progress of the company’s ongoing ETF application, we need to reflect on why that one application by one of the richest firms in the world got rejected against all odds.
Also, how does it reflect on ETF applications filed by other companies in the market?
Non-Transparent ETFs
In 2014, the US Securities and Exchange Commission released a statement regarding ETF applications filed by BlackRock Inc and Precidian Investments. The SEC made it clear that it “preliminarily intends to deny the application.”
Both applications had the same issue that eventually led to their refusal, a lack of transparency regarding the corresponding companies’ earnings.
BlackRock and Precidian essentially wanted to create ETFs that would not be forced to give information about their assets or earnings. Understandably, the SEC saw an issue with an ETF that would likely pose a risk to both investors and the government.
While BlackRock’s rebuttal was that such “non-transparency” would enable managers to make strategic moves without revealing their entire strategies to competitors, the SEC saw an issue with allowing an ETF to do so as it would affect operations taking place by more transparent ETFs.
The SEC, surprisingly, didn’t directly reject the ETF applications, but instead published a notice of the reason why they may be rejected.
The note said, “Absent a request for a hearing that is granted by the Commission, the Commission intends to issue an order under the Act denying the application.”
BlackRock’s and Precidian’s applications were among numerous non-transparent ETF applications waiting for SEC approval. Naturally, the rejection of applications filed by such major corporations echoed in adjacent applications processed by the SEC around the same time.
The question is, how does that influence BlackRock’s 2023 Bitcoin spot ETF application?
Should We Expect Full Transparency From BlackRock?
If previous decisions by the SEC are anything to go by, then yes. BlackRock’s Bitcoin spot ETF would be expected to declare its assets on a daily basis to the SEC, which would be good news for the market. Naturally, what would potentially be the world’s biggest investment pool in the Bitcoin market needs to be forthcoming with the values of assets it holds to avoid market manipulation and enhance a fair trading ground.
The SEC is already vigilant against major companies in the industry, such as Binance. Binance being the world’s biggest crypto exchange, is facing a potential shutdown in the US, with an even more likely exit from the European market.
The exchange is facing thirteen lawsuits filed by the SEC with accusations such as wash trading, evading US regulators, and commingling customer funds; charges a company wouldn’t normally face given full transparency and integrity-based commerce.
The First-ever Spot ETF
This may come as a surprise to some, but the SEC has never accepted a single crypto spot ETF. The only ETFs operating in the crypto space are futures ETFs. For a better understanding of the difference between spot ETFs and futures ETFs, check out our explainer.
Spot ETFs allow investors to invest in a crypto ETF at the chronologically corresponding price. On the other hand, futures ETFs require investors to predict certain prices at certain points in time in the future of a cryptocurrency, effectively gambling on the future of a token.
BlackRock boasts a 575-1 record when it comes to its ETF applications. And, if BlackRock’s Bitcoin spot ETF application goes through, it would be a first for the SEC.
The only company to come close to potentially landing a Bitcoin spot ETF was Grayscale. The company filed its first application in 2016 but eventually gave up after spending the better part of 2017 debating with the SEC. Grayscale then filed another application in 2021 to convert their Bitcoin Investment Trust (GBTC) to a Bitcoin spot ETF but was rejected by the SEC, which resulted in the company actually filing a lawsuit against the regulating commission.
