SEC opened proceedings on the VanEck SolidX bitcoin trust proposal

SEC escalated its review

The Securities and Exchange Commission instituted proceedings on May 20, 2019 to determine whether to approve or disapprove Cboe BZX Exchange’s proposal to list shares of the VanEck SolidX Bitcoin Trust. The action extended the regulatory examination of a prominent attempt to place bitcoin exposure inside a security traded through conventional brokerage and exchange infrastructure.

The order was neither an approval nor a rejection. The SEC expressly said that opening proceedings did not mean it had reached a conclusion. Instead, the agency requested further evidence about whether the proposed rule change complied with Section 6(b)(5) of the Securities Exchange Act, including requirements intended to prevent fraudulent and manipulative practices and protect investors and the public interest.

Cboe BZX filed the proposal on January 30, 2019, and the SEC published it for comment on February 20. On March 29, the agency extended its initial review and designated May 21 as the date by which it would approve the proposal, disapprove it or institute proceedings. The May 20 order selected the third route. The SEC reported receiving 25 comment letters by that point.

What the trust would have offered

Each share would have represented a fractional beneficial interest in a trust whose assets consisted of bitcoin. SolidX Management was identified as sponsor, while the Bank of New York Mellon would perform administrative, transfer-agent and cash-custody functions. The trust itself would be responsible for custody of its bitcoin.

The administrator generally would calculate net asset value using the MVIS Bitcoin OTC Index at 4 p.m. Eastern on business days. According to representations submitted by the exchange, that index drew executable bids and offers from participating U.S. over-the-counter trading desks and calculated intraday values every 15 seconds.

That design was institutionally significant because it attempted to connect a bitcoin-holding vehicle to a regulated national securities exchange. The exchange argued that the shares would be geared toward sophisticated institutional investors. Brokerage access, however, would not by itself resolve questions about the integrity of the underlying markets, the reliability of the valuation mechanism or the security of the trust’s holdings.

The unresolved market-integrity questions

The SEC presented 14 groups of questions for public comment. Among them were whether the exchange had a surveillance-sharing agreement with a regulated bitcoin-related market of significant size; where price formation occurred between futures and spot markets; and how the cessation of new bitcoin-futures trading on the Cboe Futures Exchange affected the proposal.

The agency also questioned the proposed use of a proprietary, non-public index based on privately reported over-the-counter quotes. It asked whether calculating net asset value from that index could create manipulation opportunities and whether liquidity in the OTC market could support efficient arbitrage between the shares and bitcoin.

Other questions addressed Cboe BZX’s surveillance-sharing agreement with Gemini, the proposed minimum of 100 shares outstanding when trading began, the likelihood of fractional-share access for smaller investors, and the trust’s security, control and insurance arrangements. These were requests for evidence, not findings that manipulation or custody failures had occurred.

The order invited written comments and rebuttals on timetables tied to its subsequent Federal Register publication. As of May 20, the defensible conclusion was therefore procedural: the proposal remained alive, but approval required additional analysis of market structure and investor protection.

Later procedural context

Cboe BZX later withdrew the proposal on September 13, 2019, and the SEC recorded that withdrawal in a notice issued on September 17. That later disposition should not be projected backward: on May 20, the application remained pending and the Commission had not decided its merits.