The Division of Investment Management (IM) staff of the U.S. Securities and Exchange Commission (SEC) issued a statement this week on funds registered under the Investment Company Act of 1940 (Investment Company Act) that invest in the Bitcoin futures market. The statement strongly encourages investors interested in investing in a mutual fund with Bitcoin futures market exposure to carefully consider the risk disclosure of the fund, the investor's risk tolerance and the possibility of investor loss. Among other things, the statement advised that IM staff and Division of Examinations staff will closely monitor and assess such mutual funds' and investment advisers' ongoing compliance with the Investment Company Act and other federal securities laws, including the impact of mutual funds' investments in Bitcoin futures on investor protection, capital formation, and the fairness and efficiency of markets. As part of this monitoring, the staff expects to:
- Analyze the liquidity and depth (e.g., number of participants) of the Bitcoin futures market.
- Analyze mutual funds' ability to liquidate Bitcoin futures positions as necessary to meet daily redemption demands and the efficacy of mutual funds' derivatives risk management.
- Monitor funds' valuations of holdings in the Bitcoin futures market and the impact of mutual fund participation in the Bitcoin futures market on valuations in that market.
- Consider, as part of funds' compliance with the open-end fund liquidity rule, mutual funds' liquidity classification of any position in the Bitcoin futures market and the basis for such classification, and also consider the overall construction of a fund's liquidity risk management program.
- Assess the ongoing impact of the potential for fraud or manipulation in the underlying Bitcoin markets and its possible influence on the Bitcoin futures market.
- Consider whether the Bitcoin futures market could accommodate ETFs.
For more information, please refer to the following link:
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
