A prevalent question since the news about finance heavyweight, BlackRock, filing to establish a spot bitcoin ETF in the U.S. is whether it has more potential for approval than its many predecessors. Interestingly, a mechanism in the application known as the Surveillance-Sharing Agreement (SSA) that permits suspicious trade alerts to be sent to concerned authorities has gained attention.
The SSA isn’t new to the crypto-verse; it was first seen in the Winklevoss Bitcoin ETF application in 2017. However, a ‘Coinbase and NASDAQ Information Sharing Term Sheet’ could push the narrative further this time around. This is different from the previous SSA because it allows regulators and ETF providers, specifically, to extract data from the exchange, which could be about specific trades or traders. Such an agreement even obliges a crypto exchange to disclose personally identifiable information (PII) such as a customer’s name and address.
An information-sharing agreement hasn’t been found in any spot bitcoin ETF filings yet, but this structure is a common sight in other markets. According to a source, an information-sharing request needs to be precise, bearing a resemblance to a subpoena. This caveat has sparked concern amongst crypto traders who, almost by nature, are privacy advocates.
Circling back to 2017, the SEC had underscored the need for bitcoin ETF applications to have a surveillance-sharing agreement with a regulated market of notable size. Even so, firms have struggled with interpreting these ambiguities. The advent of an information-sharing agreement, as opposed to merely surveillance sharing, is therefore actionable because it means an ETF isn’t dependant on an unregulated market, argues Matt Hougan, CIO at Bitwise Asset Management, a firm that has applied for an ETF multiple times.
In addition to surveillance sharing, information sharing is customary amongst brokers and exchanges in equities markets where the regulator can request more details about the client’s trading history. For instance, if an order sent to Nasdaq is flagged as suspicious by its SMARTS surveillance system, both the broker and exchange are obliged to file a suspicious activity report (SAR). Regulators investigating a SAR can move on to the ‘second step,’ which requires PII to ascertain whether the same owners are behind a set of trades, essentially creating a consolidated audit trail.
The exchange Coinbase, coupled with BlackRock and Nasdaq, are essentially asserting that regulators can access information about suspicious activity but the exchange is not mandated to gratuitously disclose PII. Dave Weisberger, CEO of crypto trading platform CoinRoutes, believes that if this succeeds, the SEC will most likely welcome this ETF and consider it a success which could help boost its current popularity.
Source: Coindesk
