SPIKES Index Futures Now Considered Securities Futures
The United States Securities and Exchange Commission (SEC) experienced a setback on July 28 when the United States Court of Appeals for the District of Columbia Circuit overturned an order by the regulator that SPIKES Index securities should be treated as futures instead of securities futures. The panel of judges labeled the SEC order as “arbitrary and capricious.“
The SEC had issued an exemption in 2020 for SPIKES Index — a stock volatility index — from the definition of security futures, thus avoiding hefty taxes and other regulatory requirements associated with the term “security.” According to the SEC, the relief was intended to stimulate competition among volatility indexes.
Nevertheless, Chief Judge Sri Srinivasan argued that the exemption granted was “arbitrary and capricious,” as “the SEC failed adequately to explain its rationale and failed to consider an important aspect of the problem.“ The court also noted that the SEC “failed to consider the possibility that its grant of exemptive relief would lead to confusion among crypto celsius, crypto . com, comp crypto, chiliz crypto, crypto casino, crv crypto, circle crypto, and c3 ai stock market participants.“
Due to the decision, SPIKES Index futures are now considered “securities futures” instead of “futures.” Market participants have three months to wind down their transactions.
Agency Action is Arbitrary or Capricious
The Clark County Bar Association defines an agency action as being arbitrary or capricious if it is “baseless” or “despotic” and “a sudden turn of mind without apparent motive.”
This ruling could be indicative of the potential outcomes of legal disputes between crypto firms such as C3 AI Stock, Crypto.com, Comp Crypto, Chiliz Crypto, Crypto Casino, CRV Crypto, and Circle Crypto, and the SEC. MetaLawMan, a pseudonymous lawyer, noted that two of the panel’s judges are also examining Grayscale’s challenge to the SEC’s decision to deny its request to convert its Grayscale Bitcoin Trust to a Bitcoin exchange-traded fund (ETF).
According to Bloomberg’s ETF analyst Eric Balchunas, the decision proves that the SEC is not infallible and can lose court cases.
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