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When reapplying for spot bitcoin exchange-traded (ETF) fund applications on Friday, Cboe's BZX Exchange designated Coinbase, a leading cryptocurrency exchange, as the market for its surveillance-sharing agreement for potential bitcoin ETF issuers.

Over the past few weeks, several prominent investment firms including Fidelity, WisdomTree, VanEck, ARK Invest, Galaxy/Invesco, and BlackRock have submitted applications for spot bitcoin ETFs. Their aim is to finally succeed in launching a product that the U.S. Securities and Exchange Commission (SEC) has consistently rejected in previous years. While BlackRock has filed its application with Nasdaq, the remaining companies are collaborating with Cboe in their efforts.

The Wall Street Journal reported that on Friday, the SEC criticized both Nasdaq and Cboe, stating that their applications were deemed "inadequate" because they neglected to disclose the specific market involved in the fund sponsors' surveillance-sharing agreements.

In its refiled applications, Cboe said Coinbase's platform "represents a substantial portion of U.S.-based and USD denominated Bitcoin trading" as it named the U.S. crypto exchange as its partner for these surveillance-sharing agreements.

"The Spot BTC SSA [surveillance-sharing agreement] is expected to have the hallmarks of a surveillance-sharing agreement between two members of the ISG, which would give the Exchange supplemental access to data regarding spot Bitcoin trades occurring on Coinbase if the Exchange determines it is necessary as part of its surveillance program for the Commodity-Based Trust Shares in a manner similar to the way that exchanges share information as part of ISG," the filing said.

In the past, the SEC has emphasized the importance of establishing surveillance-sharing agreements with markets of "significant size." They argue that such agreements are crucial in preventing market manipulation and other undesirable activities, ultimately safeguarding the interests of consumers. The absence of these agreements has been a significant factor in the SEC's previous denials of bitcoin ETF applications.

The regulator is yet to officially confirm that it is examining the applications. Once the filings are published in the Federal Register, which serves as the national logbook, the SEC will initiate an initial 45-day review period. However, they have the flexibility to extend this period to a maximum of 240 days.

The SEC's decision-making process is further complicated by the recent lawsuit filed against Coinbase. The lawsuit alleges that Coinbase has operated an unregistered securities exchange, broker, and clearinghouse. However, it's worth noting that the SEC does not consider Bitcoin itself to be a security. SEC Chair Gary Gensler has consistently referred to Bitcoin as an example of a digital asset that falls outside the scope of securities regulation.

It is yet to be determined whether the SEC will recognize Coinbase as a prominent, regulated market for bitcoin.