Today's new ETF listings from around the world.

USA

Rex Shares lists actively managed blockchain and cryptocurrency ETF

Connecticut-based Rex Shares is teaming up with Vident Investment Advisory to list a new actively managed ETF that tracks "cryptocurrency-related companies" and - we presume - will buy bitcoin futures. The REX BKCM ETF (BKC) will invest in blockchain companies while leaving 25% of its funds open to investing in a Cayman Islands subsidiary.

BKC starts by investing up to 75% of its funds in blockchain companies of any size. Blockchain companies are roped into five categories:

  1. "Cryptocurrency Payees," i.e., companies that accept cryptocurrency as payment
  2. "Mining Enablers," i.e., companies that make software or hardware enabling blockchain;
  3. "Solutions Providers," i.e., companies that help build and apply blockchain tech;
  4. "Blockchain Users," i.e., companies that use blockchain;
  5. "Cryptocurrency Service Providers," i.e., companies that cryptocurrency services
The fund is actively managed and does not take a rules-based approach, meaning blockchain companies can be chosen arbitrarily by BKCM. "As such, there may be times when the Fund's investments in Cryptocurrency Stocks may not include Cryptocurrency Stocks in all of the above-listed categories," the prospectus says.

BKC keeps open 25% of the fund to invest in Cayman Islands subsidiaries. The subsidiaries, "are expected to provide the Fund with an effective means of obtaining exposure to certain cryptocurrency investments," the prospectus says. We presume this means bitcoin futures (see analysis).

Analysis - SEC: who said hedging was only for financiers?

Cayman Islands subsidiaries are often used by American ETF issuers - especially commodity ETFs - as a way of holding futures. The problem ETF issuers have had is that if they hold futures directly they are deemed by the IRS to be futures traders and are taxed accordingly. To get around this, ETF issuers get a Cayman Islands subsidiary to do the futures holding dirty work for them. They then just own equity in the Cayman subsidiary.

We anticipate that the purpose of leaving 25% of its fund open to Cayman subsidiaries is to invest in bitcoin and other crypto futures, which are now trading on CBOE exchanges. (Its competitors ICE and NASDAQ are indicating that they may do something similar soon too.) There is no explicit acknowledgment of this by Rex Shares. The prospectus says only that the Cayman subsidiaries "will have the same investment objective as the Fund." Yet the prospectus says only that the fund's investment objective is to "provide total return."

Why the shifty phrasing? Perhaps because the SEC does not want to be seen approving of a bitcoin ETP. Yet at the same time does not quite want to block them entering the market -- hence the 25% threshold. And while it is happy to put out somewhat waffling position papers on cryptocurrencies suggesting they are permissible and potentially great for "capital formation", it does not want to be outrightly greenlighting such products either. Who said hedging was just for financiers?