KEY POINTS
- BlackRock met with the SEC on Nov. 20 and discussed its proposed in-kind model for its Bitcoin ETF application
- The New York-based investment giant met with the SEC again on Tuesday
- It presented a revised proposal for the in-kind model
BlackRock has once again met with the U.S. Securities and Exchange Commission (SEC) officials and revised its spot Bitcoin exchange-traded fund prospectus. The New York-based multinational investment company maintained its position for in-kind creations and redemptions.
BlackRock met with the Trading and Markets Division of the SEC and presented a revised in-kind model design Tuesday based on the officials' feedback during its previous meeting on Nov. 20. It addresses the regulator's concern on market manipulation and broker-dealer registrations.
Bloomberg Intelligence ETF analyst James Seyffart observed that since the commission didn't budge from its demand for cash creations and redemptions on the spot Bitcoin ETF, BlackRock presented a revised in-kind creations and redemptions model.
"Seems like SEC hasn't budged on cash creates demands if this was the primary focus of the meeting. At least not before yesterday, Interesting days ahead," Seyffart said in a tweet.
Finance lawyer Scott Johnson weighed in with some notable points on the revised in-kind model design of BlackRock.
"The only difference with the prior in-kind model is creating a cash receivable from the off-shore MM [market maker] to the on-shore MM and then transferring the cash directly so it sits on-shore after all is said and done," Johnson said. "And the only difference between the new in-kind model and the cash redemption model is basically either having that cash receivable be from the off-shore MM vs. the trust. Think it's hard to argue there's any difference from a BS perspective. And it eliminates the need to transfer the cash through the trust in the cash redemption model."
More confirmation that Issuers still meeting with SEC. @BlackRock/@Nasdaq still pushing for In-Kind creation & redemption. Seems like SEC hasn't budged on cash creates demands if this was the primary focus of the meeting. At least not before yesterday, Interesting days ahead! https://t.co/b5tI4AwjOG
— James Seyffart (@JSeyff) November 29, 2023
BlackRock proposes a solution that modifies the prevailing in-kind redemption model, which would require an offshore market maker entity to pre-pay cash to the registered broker-dealer entity before the delivery of ETF shares during the redemption process. The so-called prepaid model aims to confine the broker-dealer on its balance sheet from risks related to moving Bitcoin to the market maker.
Earlier this month, the SEC reportedly instructed spot Bitcoin ETF applicants to amend their prospectus and use cash instead of in-kind creations, a recommendation many industry watchers viewed as a move to appease brokers.
"Cash creates makes sense IMO bc broker-dealers can't deal in Bitcoin so doing cash creates puts the onus on issuers to transact in Bitcoin and keeps broker-dealers from having to use unregistered subsidiaries or third-party firms to deal w (with) the BTC. Less limitations for them overall," Bloomberg Intelligence ETF analyst Eric Balchunas said at the time.
Hearing chatter SEC’s Trading & Markets engaged w/ exchanges this week on spot bitcoin ETF 19b-4s, is advising them they'd like the ETFs to do cash creates (vs in-kind), and has asked them to get in amendments in next couple wks. This isn't unexpected but good sign nonetheless.
— Eric Balchunas (@EricBalchunas) November 17, 2023
With BlackRock's revised in-kind model proposal, it remains to be seen if the SEC would change its mind.
