Note from the Editor: The Federalist Society takes no positions on particular legal and public policy matters. Any expressions of opinion are those of the author. We welcome responses to the views presented here. To join the debate, please email us at [email protected].
This post was originally published at Regulatory Intelligence.
The D.C. Circuit Court of Appeals vacated the SEC's disapproval of NYSE Arca's proposal to allow the listing and trading of shares of Bitwise Bitcoin ETP Trust and Grayscale Bitcoin Trust, both of which held bitcoin.
The SEC had previously issued an Order that denied the exchange's proposal to list Grayscale Bitcoin Trust on the ground that the exchange had not demonstrated that it would be able to prevent manipulation of the underlying asset (i.e., the bitcoin)(see previous coverage). Grayscale subsequently filed with the Court a petition for review of the SEC’s denial.
The Court of Appeals held that an administrative agency “must treat like cases alike.” The Court noted that the SEC had previously approved the trading of two bitcoin futures funds on national exchanges while denying the approval of Grayscale’s bitcoin fund. The Court ruled that the SEC’s denial of Grayscale’s proposal was “arbitrary and capricious” because it failed to provide an explanation of its differing treatment of like products. Further, the Court agreed that Grayscale's proposed bitcoin exchange-traded product was “materially similar” to the bitcoin futures exchange-traded products. Accordingly, the Court granted Grayscale's application to trade on the NYSE Arca and vacated the SEC’s Order.
Several weeks ago, the SEC was on the losing end of two decisions in its enforcement action against Ripple. Although this decision by the D.C. Circuit may not attract as much attention as the Ripple case, it is arguably a larger blow to the agency. The Ripple case was about a disputed point of law, and it is entirely possible that a different judge might have decided in the SEC's favor. By contrast, this case is about the quality of the SEC’s work, particularly insofar as it regulates digital assets, an area in which the SEC has been the subject of significant criticism.
It is notable that SEC Commissioners Hester M. Peirce and Mark T. Uyeda have consistently dissented from the SEC’s refusal to permit the exchange listing of trusts holding bitcoins for reasons that this decision significantly echoes. See, e.g., “SEC Rejects BZX's Proposal to List Bitcoin Trust”; “SEC Rejects Proposal to List and Trade Bitcoins on Regulated Exchange.”
It is likewise notable that Commissioners Peirce and Uyeda have not merely dissented on policy grounds from a good number of the SEC’s actions; they have questioned whether the SEC was acting on good legal authority. See, e.g., SEC Commissioners Amp Up Objections to Recent Rulemakings.
