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On March 10, 2017, the SEC issued an Order disapproving of a proposed rule change by the BATS BZX Exchange (“the Proposal”), which proposed to list and trade “commodity-based trust shares” issued by the Winklevoss Bitcoin Trust. The Proposal, if approved, would have established a bitcoin exchange-traded fund (“ETF”) that market participants could invest in through the BATS BZX Exchange platform. Specifically, in rejecting the Proposal, the Commission emphasized the lack of regulation in the bitcoin market, noting both (i) that the BATS BZX Exchange platform “would currently be unable to enter into, the type of surveillance-sharing agreement that helps address concerns about the potential for fraudulent or manipulative acts and practices in the market for the Shares”; and (ii) that bitcoin regulation, at present, would leave a bitcoin ETF more susceptible to manipulation than an ETF comprised of other commodities, such as gold and silver. Ultimately, the Commission concluded that, “[a]bsent the ability to detect and deter manipulation of the Shares—through surveillance sharing with significant, regulated markets related to the underlying asset—the [Commission] does not believe that a national securities exchange can meet its” regulatory obligations.
Comments submitted in response to the original BATS BZX Exchange proposed rule change can be accessed here.
On January 18, the New York State Department of Financial Services (NYDFS) announced that it had approved the application of Coinbase, Inc., for a virtual currency and a money transmitter license. According to NYDFS, the license was issued to Coinbase—a digital currency wallet that facilitates transactions with Bitcoin and other virtual currencies—only after “a comprehensive review of Coinbase’s applications, including the company’s anti-money laundering, capitalization, consumer protection, and cyber security policies.” Having met the New York regulator’s standards for operations in the state, Coinbase may now operate, under supervision by NYDFS, as a service for buying, selling, sending, receiving and storing Bitcoin.
As previously covered in InfoBytes, NYDFS’s BitLicense framework—which was finalized back in June 2015—requires virtual currency companies to submit a 31-page application providing information covering, among other things: (i) written policies and procedures including, but not limited to BSA/AML, cybersecurity, privacy and information security, (ii) company information, (iii) biographical information on company directors and stockholders, and (iv) an explanation of the methodology used to calculate the value of virtual currency in fiat currency. In addition, the NYDFS released a set of FAQs to help clarify the BitLicense requirements. To date, NYDFS has approved five firms for virtual currency charters or licenses, while denying those applications that did not meet its standards.
The Illinois Department of Financial and Professional Regulation (IDFPR) is requesting comment on its proposed “Digital Currency Regulatory Guidance” on decentralized digital currencies—including Bitcoin, Dogecoin, Litecoin, Ethereum, and Zcash. The proposed guidance seeks to establish the regulatory treatment of decentralized digital currencies under existing definitions of money transmission in Illinois, as defined in the Illinois Transmitters of Money Act (205 ILCS 657) (TOMA). Currently, digital currencies do not fit the statutory definitions of “money” and, therefore, do not independently trigger the licensing requirements of TOMA. However, some business activities involving decentralized digital currency that involve the receipt of “money” can trigger the licensing requirements of TOMA. Comments must be received by January 18, 2017 at 6:00pm EST and may be submitted by clicking here.
In October 2016, BuckleySandler Attorney Amy Davine Kim joined the newly founded Digital Currency and Ledger Defense Coalition (DCLDC). More than 60 attorneys will participate in the DCLDC, which was “founded to help protect individual constitutional rights and civil liberties in connection with regulatory and law enforcement scrutiny and efforts relating to digital currencies (e.g. bitcoin) and ledgers (e.g. blockchains).” The DCLDC intends to foster bitcoin and blockchain innovation through pro bono attorney referrals and by submitting amicus briefs on significant issues.