Down to the wire: It’s time for the SEC to decide its next move in the bitcoin case

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Another busy day for the SEC. The Securities and Exchange Commission has until midnight Friday to decide if it wants to appeal the U.S. Court of Appeals for the D.C. Circuit’s ruling that the agency was wrong to reject an application from Grayscale Investments to create a spot bitcoin ETF. Should they decide not to appeal, they will likely be forced to approve the Grayscale application to convert to a spot bitcoin ETF, and possibly to approve all other spot bitcoin applications as well. The SEC is allowed to request a rehearing. The Federal Rules of Appellate Procedure states that “The petition must state with particularity each point of law or fact that the petitioner believes the court has overlooked or misapprehended and must argue in support of the petition. Oral argument is not permitted.” This leaves the SEC in a tough position. It’s not clear what the court has “overlooked or misapprehended,” especially since the ruling was unanimous. Is there some other novel angle the SEC could argue they have not argued before? That’s not clear. New rules on short sales also coming Separately, the SEC Commission will vote Friday to adopt two new rule proposals regarding short sales. One rule would require Wall Street firms to provide more information about securities lending, which is usually done for the purpose of shorting. The rule would require lenders of securities to provide information on their securities lending transactions to FINRA or another securities association, including the amount of securities being loaned and the rates or fees at which it is being loaned. Ultimately, much of this goes back to the Dodd-Frank Act, which was enacted in 2010. Part of that act directed the SEC to promulgate rules that would provide more information on the loaning or borrowing of securities. Yes, you read that right: that was in 2010. The making of government regulations sometimes moves very slowly — very slowly. The second would require institutional investors to file short sale positions on a monthly basis. This information is supposed to supplement short sale data that is currently reported to FINRA, but in greater detail. The filing would be confidential, and the SEC will then publish the aggregate short sales by each security. The SEC says this will help the market better understand the role short sellers play in the market. “This would provide the public and market participants with more visibility into the behavior of large short sellers,” SEC Chair Gary Gensler said when the proposed rule changes were announced in February 2022. Much of this rule came out of the the Gamestop events of 2021 , which amplified the gaps in reporting around shorts and securities lending. Both of these rules are part of the 50 or so rule proposals the agency has adopted or is considering adopting under Gensler this year.