Ethereum ETF Receives SEC Approval for Spot Trading in the US
The US Securities and Exchange Commission (SEC) has given its approval for the sale of spot Ether Exchange-Traded Funds (ETFs) in the United States. This decision merges proposals from Nasdaq, NYSE, and CBOE exchanges, which had sought rule changes to allow for the trading of Ethereum investment products.
This marks the SEC’s second major decision regarding crypto Exchange-Traded Products, following the approval of Spot Bitcoin ETFs in January 2024 after a long battle. While this approval is significant, trading will not begin immediately. Issuers are required to have individual ETF registration statements approved by the SEC, which will include investor disclosures.
However, the SEC still has concerns about price manipulation in Ether ETFs. They have emphasized the importance of comprehensive surveillance-sharing agreements with the Chicago Mercantile Exchange (CME) to detect and deter fraud and manipulation.
Each exchange has a surveillance-sharing agreement with the CME through their membership in the Intermarket Surveillance Group. Although the CME currently does not monitor spot ether markets, its futures contracts are closely correlated with the spot market. This means that price manipulations in the spot market are likely to affect the futures market.
To evaluate whether the CME’s surveillance over the futures market can effectively detect and deter fraud in the spot markets, the exchanges provided correlation analyses comparing price movements in the CME ether futures market with those in the spot ether markets.
In order to protect investors and maintain market integrity, the SEC analyzed Section 11A(a)(1)(C)(iii) of the Exchange Act. They set several key requirements for the approval of Ether-based ETP proposals:
1. Pricing Information: Pricing and last-sale information for each ETP must be available through the securities information processor. Intra-day indicative values (IIV) and net asset values should be available on each ETP’s website and major market data vendors, updated every 15 seconds during trading hours.
2. Transparency of Portfolio Holdings: ETPs must regularly disclose their portfolio holdings, including the amount of ether and any cash or cash equivalents held. This information should be updated daily and made available on the ETP’s website and major financial information platforms.
3. Surveillance Procedures: Exchanges must have data exchange agreements to share information with other regulated markets, enhancing the ability to detect and deter fraudulent practices. They also need to specify conditions under which they would implement trading halts and suspensions.
The SEC also addressed concerns raised by commenters regarding volatility and risk in Ethereum ETFs. While acknowledging the market volatility, the SEC noted that it may attract many investors. However, the SEC and other authorities remain concerned about the impact of merging crypto with traditional finance on the broader financial system.
The gradual introduction of multiple derivative assets could have significant effects on the financial system, and these effects have not been thoroughly examined or addressed. Ignoring these potential consequences could lead to financial instability on a much larger scale.
