U.S. SEC Orders Temporary Suspension of Trading of Bitcoin and Ether ETNs

Siamak Masnavi

On Sunday (9 September 2018), the U.S. Securities and Exchange Commission (SEC) announced the temporary suspension of trading in the securities Bitcoin Tracker One (“CXBTF”) and Ether Tracker One (“CETHF”) starting at 21:30 (UTC) on 9 September 2018 and ending at 03:59 (EDT) on 21 September 2018.

The "Bitcoin Tracker One" and "Ether Tracker One" are Exchange-Traded Notes (ETNs) that track Bitcoin (BTC) and Ether (ETH) respectively, and are issued by Swedish company "XBT Provider", a wholly-owned subsidiary of UK company Global Advisors (Holdings) Limited

This is how the SEC announced the news on Twitter (around 21:43 UTC on 9 September 2018):

The link in the tweet was to a PDF file representing a notice (Release No. 84063) from the SEC.

Here were the terms of the order:

The Securities and Exchange Commission (“Commission”) announced the temporary suspension, pursuant to Section 12(k) of the Securities Exchange Act of 1934 (the "Exchange Act"), of trading in the securities Bitcoin Tracker One (“CXBTF”) and Ether Tracker One (“CETHF”) commencing at 5:30 p.m. EDT on September 9, 2018, and terminating at 11:59 p.m. EDT on September 20, 2018.

And the reason given was:

The Commission temporarily suspended trading in the securities CXBTF and CETHF because of confusion amongst market participants regarding these instruments.

The "confusion amongst market participants" that the SEC is talking about probably refers to the fact that some unsophisticated retail investors may mistakenly think that these two products are equivalent to ETFs, which they are not. Since these two Swedish products do not seem to be violating any U.S. securities laws, one possible reason for a temporary suspension is that the SEC wants to have some time to have a dialog with U.S. broker-dealers to advise them to take some steps to protect such investors.

In fact, an earlier version of the order (referred to by Reuters), which had a more detailed explanation for why it had been issued, stated:

It appears to the Securities and Exchange Commission (SEC) that there is a lack of current, consistent and accurate information concerning Bitcoin Tracker One (Ticker Symbol: CXBTF) and Ether Tracker One (Ticker Symbol: CETHF), issued by XBT Provider AB (publ), a Swedish company headquartered in Stockholm, resulting in confusion amongst market participants regarding these financial instruments.

For example, the broker-dealer application materials submitted to enable the offer and sale of these financial products in the United States, as well as certain trading websites, characterize them as “Exchange Traded Funds.” Other public sources characterize the instruments as “Exchange Traded Notes.” By contrast, the issuer characterizes them in its offering materials as “non-equity linked certificates.” CXBTF and CETHF are listed and trade on the NASDAQ/OMX in Stockholm and have recently been quoted on OTC Link (previously “Pink Sheets”) operated by OTC Markets Group, Inc.

The Commission is of the opinion that the public interest and the protection of investors require a suspension of trading in the securities of the above quoted company.

As for section12 (k) of the Securities Exchange Act of 1934 cited by the SEC, here is the relevant part of this section:

If in its opinion the public interest and the protection of investors so require, the Commission is authorized by order (A) summarily to suspend trading in any security (other than an exempted security) for a period not exceeding 10 business days, and (B) summarily to suspend all trading on any national securities exchange or otherwise, in securities other than exempted securities, for a period not exceeding 90 calendar days. The action described in subparagraph (B) shall not take effect unless the Commission notifies the President of its decision and the President notifies the Commission that the President does not disapprove of such decision.

Gabor Gurbacs, Director of Digital Assets Strategy at VanEck/MVIS, had the following comments regarding this decision by the SEC:

The "GBTC" product Gabor is referring to in his second tweet is the Grayscale Bitcoin Investment Trust (ticker: GBTC), which also offers exposure to Bitcoin, but which has lower liquidity and is more expensive than Bitcoin Tracker One ("CXBTF").

Another commenter on Twitter was Nate Geraci, President of The ETF Store:

Wonder if SEC release related at all to reports Citi working on something that sounds an awful lot like Bitcoin Tracker One

Perhaps, rather unsurprisngly, the crypto markets immediately reacted to this annoucement by the SEC. At press time (23:27 UTC on 9 September 2018), according to data from CryptoCompare, the Bitcoin price is around $6,271, up 1.18% in the past 24-hour period. However, just minutes before the SEC announcement, at 21:40 UTC on 9 September 2018, BTC was trading at $6,389, and 45 minutes later, it had dropped to $6,238. Here is the one-day price chart for Bitcoin (please note that the times shown are UTC + 01:00):

BTC one day chart for Sep 9.png

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