SEC Suspends Trading of XBT Provider’s Bitcoin and Ether Exchange-Traded Product

News and Analysis
10.09.2018

The U.S. Securities and Exchange Commission (SEC) issued an “Order of Suspension of Trading” for Bitcoin Tracker One (“CXBTF”) and Ether Tracker One (“CETHF”) issued by Swedish company XBT Provider AB.

Bitcoin Tracker One, often referred to as ‘Soft’ Swedish Alternative to ETFs, has been available since May 2015 quoted in Euros and Swedish Krona (SEK). Last month, as reported by ForkLog, it became available to the U.S. investors after being quoted in USD under the ticker CXBTF.

However, in its statement on Sunday, September 9, the SEC attributes “a lack of current, consistent and accurate information” which leads to “confusion amongst market participants” as the reason for such a decision.

“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,” the statement reads

Noting that both instruments are listed and traded on the Nasdaq/OMX in Stockholm and have recently been quoted on OTC Link operated by OTC Markets Group Inc., the SEC said:

“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”.

The SEC proceeded to explain the inconsistencies of how the two products are categorized, elaborating:

“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 (ETF)’”.

The agency defines ETFs as registered investment companies that offer investors a way to pool their money in a fund that invests in stocks, bonds, or other assets. In return, investors receive an interest in the fund.

However, the agency pointed out that “Other public sources characterize the instruments as ‘Exchange Traded Notes (ETN)’.

” Unlike ETFs, these notes are unsecured debt obligations of financial institutions that trade on a securities exchange. “ETN payment terms are linked to the performance of a reference index or benchmark, representing the ETN’s investment objective,” the Commission  said.

The SEC also insists that ETNs are often confused with exchange-traded funds (ETFs).

“ETNs and ETFs are both traded on a securities exchange and can be bought and sold throughout the day, but there are important differences.”

To further complicate the matter, the Commission noted that “the issuer characterizes them in its offering materials as ‘non-equity linked certificates’,” which XBT Provider says “are not principal protected” and “do not bear interest.”

Commenting on the SEC’s ruling, Gabor Gurbacs, Director of Digital Assets Strategy at VanEck/MVIS, wrote:

“I suspected that a foreign product in U.S. capital markets will hold up so long while U.S. ETFs are held up for market structure related reasons. That said, I think regulators should let products freely compete and let investors and brokerages decide what they want to buy/allow.”

He also expressed his surprise that the Grayscale Bitcoin Investment Trust ( GBTC), which also offers exposure to Bitcoin, but has lower liquidity and is more expensive than CXBTF, is not impacted by the Commission’s ruling:

In addition to Bitcoin Tracker One and Ether Tracker One, XBT Provider AB has two more products: Bitcoin Tracker Euro and Ether Tracker Euro.

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