Bats Exchange Petitions SEC to Review ETF Rejection

On March 28, 2017, Bats BZX Exchange filed a formal petition with the Securities and Exchange Commission requesting a review of the agency's March 10 decision to reject the Winklevoss Bitcoin ETF. Bats, which would have been the listing exchange for the ETF, argued that the SEC's concerns about Bitcoin market surveillance and manipulation could be adequately addressed through the exchange's surveillance mechanisms and partnerships.

The petition represented the first formal challenge to the SEC's decision and kept alive the possibility that the ETF might eventually be approved if the commission reconsidered its ruling.

The Bats petition was significant because it indicated that major traditional financial infrastructure providers believed strongly enough in Bitcoin's legitimacy to invest time and resources in challenging regulatory decisions. The exchange argued that it had robust surveillance systems in place and maintained surveillance-sharing agreements with other markets that would allow detection of manipulative trading.

Bats also noted that other commodity ETFs existed despite their underlying spot markets being global and fragmented, suggesting that Bitcoin should not be held to a uniquely stringent standard. The petition would eventually lead the SEC to order a review of its decision, though this review would ultimately uphold the original rejection.The fact that a major exchange was willing to advocate publicly for Bitcoin and challenge the SEC's reasoning demonstrated how Bitcoin had evolved from a fringe technology to something that serious financial institutions believed could be integrated into regulated markets with proper safeguards.