A panel of judges heard oral arguments in Grayscale Investments’ lawsuit against the US Securities and Trade Commission (SEC) on March 7. Grayscale is challenging the SEC’s order not to approve Grayscale’s application to create a spot Bitcoin (BTC) exchange-traded fund. (ETF). The SEC issued its order on July 6, 2022.
Former Attorney General Donald Verrilli Jr. represented Grayscale and SEC Senior Counsel Emily Parise spoke on behalf of the SEC before Chief Judge Sri Srinivasan and Judges Neomi Rao and Harry Edwards in the Circuit Court of Appeals for the District of Columbia. Verrilli opened, saying:
“The fundamental problem with the order is that it contradicts previous SEC orders giving the green light to Bitcoin futures ETPs that present the same risk of fraud and manipulation and have the same CME (Chicago Mercantile Exchange) surveillance mechanism. to protect against those risks. .”
The SEC has approved investment products from Teucrium, ProShares, VanEck and Valkyrie linked to BTC futures.
Parise argued that the offerings are not comparable to Grayscale’s proposal because the oversight mechanisms are not identical, as the spot markets underlying the asset in the proposed ETF are “fragmented and unregulated,” unlike the CME, which is regulated by Commodity Futures Trading. Commission (CFTC).
Parise went on to dismiss the argument that the spot and Bitcoin futures markets move together 99.9% of the time, noting that it is unclear whether the futures market leads the spot market when affected by the fraud and manipulation, or vice versa.
Related: GBTC approval could return a ‘couple billion dollars’ to investors: Grayscale CEO
For the proposed grayscale product, CME surveillance would serve as a proxy for spot market surveillance. In addition, the 99.9% correlation is based on “once a day” futures prices, regardless of intraday prices, Parise added.
INTERESTING: So the SEC lawyer came out strong with the opening argument blah blah, but the judge interrupted her MULTIPLE TIMES with a bunch of very polite questions about futures and point relationships, Teucrium filing, etc. -and judge and the q’s of him. pic.twitter.com/suyMkgPRcF
—Eric Balchunas (@EricBalchunas) March 7, 2023
The judges directed more questions at Parise than at Verrilli, leading crypto-community commentators to interpret his leanings as pro-Grayscale. They asked for clarification, for example, about how Teucrium’s product that received SEC approval differs from Grayscale’s, and why the spot and futures markets might be affected differently by fraud and manipulation.
