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https://twitter.com/jchervinsky/status/1086266216568799233‏

@jchervinsky

0/ The VanEck/SolidX bitcoin ETF won't be automatically approved just because the US government is shut down.

I've seen a lot of confusion & misinformation about how the shutdown affects the SEC and its process for handling ETF proposals. I'll try to explain here.

Thread. 👇

1/ As you probably know, the SEC's final deadline to approve or deny the ETF is February 27. That's 240 days after the ETF proposal was first published in the Federal Register.

2/ That 240-day deadline is imposed by federal statute—15 U.S.C. §§ 78s(b)(2)(A) & (B), to be exact(https://www.law.cornell.edu/uscode/text/15/78s …).

Because the deadline is statutory, the shutdown doesn't affect it at all. The law continues to apply whether the government is funded or not.

3/ Also, the SEC doesn't have the power to extend the 240-day deadline. The statute absolutely prohibits any further delays.

By law, that means if the SEC fails to make a decision by the February 27 deadline, the ETF will be automatically approved.

4/ From these facts, the following narrative has emerged:

• the SEC might be shut down longer than the February 27 deadline

• which means the SEC might not decide by the deadline

• in which case the ETF will be approved!

Sorry, but that's extremely unlikely.

5/ It's true that the SEC has stopped nearly all of its work due to the shutdown & furloughed most of its employees (they have to stay home).That includes the majority of staff members in the Division of Trading & Markets, which handles proposed rule changes (including ETFs).

6/ But the SEC still has a small number of staff members available to handle "excepted" functions, which mostly refers to urgent law enforcement matters, but also includes "activities necessary for a short period in order to ensure an orderly shutdown of operations."

7/ What activities are necessary to ensure an orderly shutdown?

The SEC gets to make that designation for itself, and I'm willing to bet it thinks preventing controversial financial products like bitcoin ETFs from being auto-approved due to blown deadlines is "necessary."

8/ In fact, the SEC has already taken action during the shutdown to avoid missing deadlines on other proposed rule changes.

For example, on January 9, the SEC issued an order extending its January 10 deadline on a rule change proposed by Nasdaq PHLX (https://www.sec.gov/rules/sro/phlx/2019/34-84981.pdf …).

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>>4820125

9/ So we know the SEC has a skeleton crew handling proposed rule changes during the shutdown.

If the shutdown continues until February 27, that same crew should be around to issue an order approving or denying the ETF. The better question is whether anyone's around to write it.

10/ The staff shortage means the order might have less detail than usual. Maybe it's one page saying "[approved/denied] for reasons to be explained later." Or maybe it was written weeks ago & is totally standard.Regardless, there's no reason to think it can't get done in time.

11/ If I'm wrong (it's possible), then one of two things has happened:

#1: the SEC decided to approve the ETF anyway & preferred to allow auto-approval than to issue an order of approval during a shutdown.

#2: the SEC couldn't keep its skeleton crew on board to issue a denial.

12/ If #1 happens, fine, but the ETF was getting approved anyway.

If #2 happens, it isn't likely to stay in effect for long. Automatic approval isn't a lifetime guarantee & can be undone easily. When the shutdown ends, the SEC can just force the ETF to be delisted.

13/ One last bit of bad news for the ETF bulls: if the shutdown continues to February 27, I think the ETF's chance of approval is near zero.

I base that on the SEC's operations plan, which describes the functions that continue or stop during a shutdown (https://www.sec.gov/files/sec-plan-of-operations-during-lapse-in-appropriations-2018.pdf …).

14/ On page 18, the operations plan talks about proposed rule changes. It says the SEC will discontinue "review and approval of applications for registration . . . with respect to new financial products."

In other words, the SEC won't review or approve ETF proposals.

15/ If the SEC won't approve new ETFs, then obviously it must deny them all. And why not? It should be very comfortable with a position like:"The shutdown prevented us from completing our review, so we can't be sure that the requisite standards for approval have been met."

16/ Don't get me wrong: the ETF could still be approved, especially if the SEC made its decision before the shutdown started.

All I'm saying is that the shutdown doesn't improve the ETF's chances of approval at all. In fact, the opposite is probably true.

17/ And if you're about to ask how this all applies to Bakkt, it doesn't.

Unlike the SEC, the CFTC has no statutory deadline for making a decision on Bakkt, so it can delay as long as it wants. Don't expect anything on Bakkt until after the shutdown (maybe months after).

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