BlackRock has revamped its ETF redemption model to mitigate against market manipulation and other regulatory sticking points.
The largest asset manager in the world, BlackRock, has revised its application for a spot in the Bitcoin Exchange-Traded Fund (ETF) to address concerns raised by the Securities and Exchange Commission (SEC) of the United States.
The modifications center on resolving concerns with market manipulation and broker-dealer registrations, and they are described in full in the meeting minutes from a conversation held with the SEC’s Division of Trading and Markets on November 28, 2023.
BlackRock’s Updated Redemption Model
In its updated proposal, BlackRock adds a “prepaid model” to the current in-kind redemption scheme. Under this strategy, before ETF shares are sent to the registered broker-dealer business for redemption, the offshore market maker must provide a cash prepayment to the latter.
With this modification, the broker-dealer will be shielded from the hassles of sending Bitcoin to the market maker, lowering its financial risk. Even with these changes, BlackRock argues that the in-kind structure has several benefits over a cash redemption approach.
These consist of decreased transaction costs, optimized processes, and a diminished possibility of manipulation. The asset management argues that improving the timing and custody transfer procedures to address problems with the balance sheet and broker-dealer registrations could help the Bitcoin ETF proposal comply with regulatory requirements while enhancing shareholder incentives.
It must be clarified if the changes offer enough safeguards to allay SEC concerns about retail investors’ spot exposure to Bitcoin through an ETF.
Competition For Regulatory Approval
Financial behemoths such as BlackRock and Fidelity Investments have applied to the SEC in an effort to create a spot Bitcoin exchange-traded fund (ETF).
But the road to acceptance has its challenges. In the past, the SEC has been cautious about approving spot Bitcoin ETFs because of concerns about inadequate oversight and market manipulation.
These worries have been echoed by the SEC’s recent comments on the most recent applications, especially with regard to the ambiguity surrounding the precise spot transactions for surveillance-sharing arrangements.
On November 17, social media speculations were going around that the SEC might have told applicants to use cash-creation techniques instead of sending Bitcoin in-kind.
The duties of issuers may be drastically altered by this unconfirmed development, necessitating more covert management of Bitcoin transactions. If this new strategy is effective, broker-dealers can avoid being directly involved in cryptocurrency transactions outside the purview of current regulatory systems.
