Previously, the Bats BZX Exchange, Inc. filed a proposed rule change with the Commission, seeking to list and trade shares of the Winklevoss Bitcoin Trust. The SEC Division of Trading and Markets disapproved the proposed rule change. BZX then filed a petition seeking review of the disapproval. The Commission granted BZX’s Petition for Review, seeking public comment. The Commission issued a 96 page order that set aside the previous disapproval, but the order also disapproved BZX’s proposed rule change.

Among other things, the Commission noted:

• The record does not support BZX’s assertion that that bitcoin and bitcoin markets, including the Gemini Exchange, are uniquely resistant to manipulation.
• The record does not support BZX’s assertion that “traditional means” of identifying and deterring fraud and manipulation are sufficient to meet the requirements of Exchange Act.
• Where a listing exchange fails to establish that other means to prevent fraudulent and manipulative acts and practices will be sufficient, the listing exchange must enter into a surveillance-sharing agreement with a regulated market of significant size.

Commissioner Hester M. Peirce registered her dissent. She noted the disapproval order demonstrates a skeptical view of innovation, which may have an adverse effect on investor protection, efficiency, competition, and capital formation well beyond the particular product. She believes the disapproval order’s broad interpretation of the Commission’s statutory mandate signals that the Commission reserves for itself the authority to judge when an innovation is ripe enough, respectable enough, or regulated enough to be worthy of the securities markets. By suggesting that bitcoin, as a novel financial product based on a novel technology that is traded on a non-traditional market, cannot be the basis of an ETP, she believes the Commission signals an aversion to innovation that may convince entrepreneurs that they should take their ingenuity to other sectors of our economy, or to foreign markets, where their talents will be welcomed with more enthusiasm.