Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change Relating to the Listing and Trading of Shares of SolidX Bitcoin Trust Under NYSE Arca Equities Rule 8.201, 76400-76403 [2016-26405]

Download as PDF 76400 Federal Register / Vol. 81, No. 212 / Wednesday, November 2, 2016 / Notices all Potential Co-Investment Transactions that fall within each Regulated Fund’s then-current Objectives and Strategies and will be given sufficient information to make its independent determination and recommendations under conditions 1, 2(a), 7 and 8. 16. If the Holders own in the aggregate more than 25 percent of the Shares of a Regulated Fund, then the Holders will vote such Shares as directed by an independent third party (such as the trustee of a voting trust or a proxy adviser) when voting on (1) the election of directors; (2) the removal of one or more directors; or (3) any matters requiring approval by the vote of a majority of the outstanding voting securities, as defined in section 2(a)(42) of the Act. For the Commission, by the Division of Investment Management, under delegated authority. Brent J. Fields, Secretary. [FR Doc. 2016–26401 Filed 11–1–16; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–79173; File No. SR– NYSEArca–2016–62] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Designation of a Longer Period for Commission Action on Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change Relating to a Change to the Underlying Index for the PowerShares Build America Bond Portfolio sradovich on DSK3GMQ082PROD with NOTICES October 27, 2016. On May 3, 2016, NYSE Arca, Inc. (‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to: (1) Permit the continued listing and trading of shares of the PowerShares Build America Bond Portfolio (‘‘Fund’’) following a change to the index underlying the Fund, and (2) propose changes to the index underlying the Fund and the name of the Fund. The proposed rule change was published for comment in the Federal Register on May 23, 2016.3 On June 27, 2016, pursuant to section 19(b)(2) of the Act,4 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 77849 (May 17, 2016), 81 FR 32371. 4 15 U.S.C. 78s(b)(2). 2 17 VerDate Sep<11>2014 17:18 Nov 01, 2016 Jkt 241001 the Commission designated a longer period within which to either approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.5 On August 12, 2016, the Commission instituted proceedings to determine whether to approve or disapprove the proposed rule change.6 The Commission received no comments on the proposed rule change. Section 19(b)(2) of the Act 7 provides that, after initiating disapproval proceedings, the Commission shall issue an order approving or disapproving the proposed rule change not later than 180 days after the date of publication of notice of filing of the proposed rule change. The Commission may extend the period for issuing an order approving or disapproving the proposed rule change, however, by not more than 60 days if the Commission determines that a longer period is appropriate and publishes the reasons for such determination. The proposed rule change was published for notice and comment in the Federal Register on May 23, 2016. November 19, 2016 is 180 days from that date, and January 18, 2017 is 240 days from that date. The Commission finds it appropriate to designate a longer period within which to issue an order approving or disapproving the proposed rule change so that it has sufficient time to consider this proposed rule change. Accordingly, the Commission, pursuant to section 19(b)(2) of the Act,8 designates January 18, 2017 as the date by which the Commission should either approve or disapprove the proposed rule change (File No. SR–NYSEArca–2016–62). 5 See Securities Exchange Act Release No. 78157, 81 FR 43327 (July 1, 2016). The Commission determined that it was appropriate to designate a longer period within which to take action on the proposed rule change so that it has sufficient time to consider the proposed rule change. Accordingly, the Commission designated August 21, 2016 as the date by which it should approve, disapprove, or institute proceedings to determine whether to disapprove the proposed rule change. 6 See Securities Exchange Act Release No. 78564, 81 FR 55247 (August 18, 2016). Specifically, the Commission instituted proceedings to allow for additional analysis of the proposed rule change’s consistency with section 6(b)(5) of the Act, which requires, among other things, that the rules of a national securities exchange be ‘‘designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade,’’ and ‘‘to protect investors and the public interest.’’ See id. at 55250. 7 15 U.S.C. 78s(b)(2). 8 Id. PO 00000 Frm 00070 Fmt 4703 Sfmt 4703 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.9 Brent J. Fields, Secretary. [FR Doc. 2016–26404 Filed 11–1–16; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–79171; File No. SR– NYSEArca–2016–101] Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change Relating to the Listing and Trading of Shares of SolidX Bitcoin Trust Under NYSE Arca Equities Rule 8.201 October 27, 2016. On July 13, 2016, NYSE Arca, Inc. (‘‘NYSE Arca’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to list and trade shares (‘‘Shares’’) of the SolidX Bitcoin Trust (‘‘Trust’’) under NYSE Arca Equities Rule 8.201. The proposed rule change was published for comment in the Federal Register on August 2, 2016.3 On September 6, 2016, pursuant to Section 19(b)(2) of the Act,4 the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.5 The Commission has received no comments on the proposed rule change. This order institutes proceedings under Section 19(b)(2)(B) of the Act 6 to determine whether to approve or disapprove the proposed rule change. I. Summary of the Proposal 7 The Exchange proposes to list and trade the Shares under NYSE Arca 9 17 CFR 200.30–3(a)(57). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 78426 (Jul. 27, 2016), 81 FR 50763 (‘‘Notice’’). 4 15 U.S.C. 78s(b)(2). 5 See Securities Exchange Act Release No. 78770, 81 FR 62780 (Sept. 12, 2016). The Commission designated October 31, 2016, as the date by which it should approve, disapprove, or institute proceedings to determine whether to disapprove the proposed rule change. 6 15 U.S.C. 78s(b)(2)(B). 7 The Commission notes that additional information regarding the Trust and the Shares can 1 15 E:\FR\FM\02NON1.SGM 02NON1 Federal Register / Vol. 81, No. 212 / Wednesday, November 2, 2016 / Notices sradovich on DSK3GMQ082PROD with NOTICES Equities Rule 8.201, which governs the listing and trading of Commodity-Based Trust Shares on the Exchange.8 Each Share will represent a fractional undivided beneficial interest in the Trust’s net assets. SolidX Management LLC will be the sponsor of the Trust (‘‘Sponsor’’). The Bank of New York Mellon will be the administrator and the custodian, with respect to cash, for the Trust. According to the Exchange, the Trust will normally hold only bitcoins as an asset, but may hold a limited amount of cash in connection with the creation and redemption process and to pay Trust expenses. The investment objective of the Trust is to provide investors with exposure to the daily change in the U.S. dollar price of bitcoin, before expenses and liabilities of the Trust, as measured by the TradeBlock XBX Index (‘‘XBX’’). The Trust intends to achieve this objective by investing substantially all of its assets in bitcoin traded on various domestic and international bitcoin exchanges and OTC markets, depending on liquidity and other factors at the Sponsor’s discretion. The Trust is not actively managed and will not engage in activities designed to obtain a profit from, or to ameliorate losses caused by, changes in the price of bitcoin. The Trust will generally use the XBX to calculate the Trust’s net asset value (‘‘NAV’’) on each business day that the NYSE Arca is open for regular trading, as promptly as practicable after 4:00 p.m., Eastern time (‘‘E.T.’’).9 According to the proposal, given the novelty and unique digital be found in the Notice (see supra note 3) and the registration statement filed with the Commission on Form S–1 on July 11, 2016 under the Securities Act of 1933 (‘‘Registration Statement’’), as applicable. This additional information addresses the Trust’s investment objectives, risks, creation and redemption procedures, fees, portfolio holdings disclosure policies, calculation of NAV, distributions, and taxes, as well as additional background information about bitcoins and the ‘‘Bitcoin Network,’’ including information relating to Bitcoin Network operations, bitcoin transfers and transactions, cryptographic security used in the Bitcoin Network, bitcoin mining and creation of new bitcoins, the mathematically controlled supply of bitcoins, and modifications to the bitcoin protocol, among other things. 8 See NYSE Arca Equities Rule 8.201 (permitting the listing and trading of ‘‘Commodity-Based Trust Shares,’’ defined as a security ‘‘(a) that is issued by a trust that holds a specified commodity deposited with the Trust; (b) that is issued by such Trust in a specified aggregate minimum number in return for a deposit of a quantity of the underlying commodity; and (c) that, when aggregated in the same specified minimum number, may be redeemed at a holder’s request by such Trust which will deliver to the redeeming holder the quantity of the underlying commodity’’). 9 See Notice, supra note 3 (describing in greater detail the alternative procedures if the XBX cannot be utilized as the basis for NAV calculations). VerDate Sep<11>2014 17:18 Nov 01, 2016 Jkt 241001 characteristics of bitcoin as an innovative asset class, traditional custodians who normally custody assets do not currently offer custodial services for bitcoin. Accordingly, the Sponsor will secure the bitcoin held by the Trust using multi-signature ‘‘cold storage wallets,’’ which the Exchange describes as an industry best practice.10 The Trust will issue and redeem the Shares in ‘‘Baskets’’ only to certain Authorized Participants.11 According to the Exchange, the creation and redemption of Baskets will principally be made in exchange for the delivery to the Trust, or the distribution by the Trust, of the amount of cash or bitcoin represented by the combined NAV of the Baskets being created or redeemed. This combined NAV will be based on the aggregate number of bitcoins represented by the Shares included in a Basket, as determined on the day an order to create or redeem the Basket is properly received. According to the Exchange, Authorized Participants and market makers can hedge their exposure to bitcoin, whether creating and redeeming baskets in-kind or for cash, by using non-deliverable forward contracts (‘‘NDFs’’) or swap contracts that will create synthetic long or short exposure to bitcoin. NDFs will be offered by several participants, including the Sponsor itself, operating on a principal basis. Such arrangements, according to the Exchange, will make it possible for Authorized Participants that lack the trading infrastructure to transact in bitcoin to be able to hedge their exposure by entering into an NDF or a swap contract. In addition, according to the Exchange, the Sponsor will, to the extent requested by Authorized Participants and market makers, act as agent by buying and selling bitcoin on behalf of the Authorized Participants and market makers, including-short sale orders for hedging purposes.12 II. Proceedings To Determine Whether To Approve or Disapprove SR– NYSEArca–2016–101 and Grounds for Disapproval Under Consideration The Commission is instituting proceedings pursuant to Section 19(b)(2)(B) of the Act 13 to determine 76401 whether the proposed rule change should be approved or disapproved. Institution of such proceedings is appropriate at this time in view of the legal and policy issues raised by the proposed rule change. Institution of proceedings does not indicate that the Commission has reached any conclusions with respect to any of the issues involved. Rather, as described below, the Commission seeks and encourages interested persons to provide comments on the proposed rule change. Pursuant to Section 19(b)(2)(B) of the Act,14 the Commission is providing notice of the grounds for disapproval under consideration. The Commission is instituting proceedings to allow for additional analysis of the proposed rule change’s consistency with Section 6(b)(5) of the Act, which requires, among other things, that the rules of a national securities exchange be ‘‘designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade,’’ and ‘‘to protect investors and the public interest.’’ 15 III. Procedure: Request for Written Comments The Commission requests that interested persons provide written submissions of their views, data, and arguments with respect to the issues identified above, as well as any other concerns they may have with the proposal. In particular, the Commission invites the written views of interested persons concerning whether the proposal is consistent with Section 6(b)(5) or any other provision of the Act, or the rules and regulations thereunder. Although there do not appear to be any issues relevant to approval or disapproval that would be facilitated by an oral presentation of views, data, and arguments, the Commission will consider, pursuant to Rule 19b–4, any request for an opportunity to make an oral presentation.16 Interested persons are invited to submit written data, views, and arguments regarding whether the proposal should be approved or disapproved by November 23, 2016. 14 Id. 10 According to the Exchange, the Sponsor will employ security procedures, described in greater detail in the Notice and the Registration Statement, to safeguard the bitcoin assets of the Trust. See Notice and Registration Statement, supra notes 3 and 7, respectively. 11 Each Basket will consist of 10,000 Shares, and the value of the Basket will be equal to the value of 10,000 Shares at their NAV per Share on that day. 12 See Notice, supra note 3, 81 FR at 50771. 13 15 U.S.C. 78s(b)(2)(B). PO 00000 Frm 00071 Fmt 4703 Sfmt 4703 15 15 U.S.C. 78f(b)(5). 19(b)(2) of the Act, as amended by the Securities Act Amendments of 1975, Public Law 94–29 (June 4, 1975), grants the Commission flexibility to determine what type of proceeding— either oral or notice and opportunity for written comments—is appropriate for consideration of a particular proposal by a self-regulatory organization. See Securities Act Amendments of 1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975). 16 Section E:\FR\FM\02NON1.SGM 02NON1 sradovich on DSK3GMQ082PROD with NOTICES 76402 Federal Register / Vol. 81, No. 212 / Wednesday, November 2, 2016 / Notices Any person who wishes to file a rebuttal to any other person’s submission must file that rebuttal by December 7, 2016. The Commission asks that commenters address the sufficiency of the Exchange’s statements in support of the proposal, which are set forth in the Notice,17 in addition to any other comments they may wish to submit about the proposed rule change. In particular, the Commission seeks comment on the following: 1. There are currently no exchangetraded products (‘‘ETPs’’) available on U.S. markets that hold a digital asset such as bitcoins, which have neither a physical form (unlike commodities) nor an issuer that is currently registered with any regulatory body (unlike securities, futures, or derivatives), and whose fundamental properties and ownership can, by coordination among a majority of its network processing power, be changed (unlike any of the above). What are commenters’ views about the current stability, resilience, fairness, and efficiency of the markets on which bitcoins are traded? What are commenters’ views on whether an asset with the novel and unique properties of a bitcoin is an appropriate underlying asset for a product that will be traded on a national securities exchange? What are commenters’ views on the risk of loss via computer hacking posed by such an asset? What are commenters’ views on whether an ETP based on such an asset would be susceptible to manipulation? 2. According to the Exchange, the logic utilized for the derivation of the daily closing index level for the XBX is intended to analyze actual bitcoin transactional data, verify and refine the data set, and yield an objective, fairmarket value of one bitcoin as of 4:00 p.m., E.T., each weekday, priced in U.S. dollars. What are commenters’ views on the Trust’s proposal to value its holdings based on XBX and on the methodology used by XBX? What are commenters’ views on the alternative and sequential manner in which the Trust proposes to value its holdings in the event that the Sponsor determines that a rule has failed if a pricing source is unavailable or, in the judgment of the Sponsor, is deemed unreliable? 3. Given the novelty and unique digital characteristics of bitcoin as an asset class, and in the interest of adequate security and investor confidence in bitcoin control, what are commenters’ views regarding the Trust’s proposed security, control, and insurance measures? 4. The proposal states that bitcoin trades on more than 30 exchanges 17 See supra note 3. VerDate Sep<11>2014 17:18 Nov 01, 2016 Jkt 241001 globally on a 24-hour basis and that, therefore, it is difficult for attempted market manipulation on any one exchange to affect the global market price of bitcoin. The proposal further states that any attempt to manipulate the price would result in an arbitrage opportunity among exchanges, which typically would be acted upon by market participants. What are commenters views on the cost and the efficiency of the arbitrage among the various global markets for bitcoin? What are commenters’ views generally with respect to the liquidity and transparency of the bitcoin market, susceptibility to manipulation, and thus the suitability of bitcoins as an underlying asset for an ETP? 5. The proposal states that the dissemination of information on the Trust’s Web site, along with quotations for and last-sale prices of transactions in the Shares and the intra-day indicative value and NAV of the Trust will help to reduce the ability of market participants to manipulate the bitcoin market or the price of the Shares. The proposal further states that the Trust’s arbitrage mechanism will facilitate the correction of price discrepancies in bitcoin and the Shares and that demand from new investors accessing bitcoin through investment in the Shares will broaden the investor base in bitcoin, which could further reduce the possibility of collusion among market participants to manipulate the bitcoin market. What are commenters’ views regarding these statements? Do commenters’ agree or disagree with the assertion that Authorized Participants and other market makers will be able to make efficient and liquid markets in the Shares at prices generally in line with the NAV? 6. The proposal states that the Sponsor of the Fund may engage in principal trades of NDFs with market makers and Authorized Participants in order to facilitate hedging for Authorized Participants who do not possess the technical abilities to transact directly in bitcoin. In addition, to the extent requested by Authorized Participants and market makers, the Sponsor would act as agent by buying and selling bitcoin on behalf of the Authorized Participants and market makers. What are commenters’ views on any potential conflict of interest that may be created by this arrangement, which would involve the Sponsor acting in a capacity other than as agent for the Fund? Would this arrangement affect the effectiveness and efficiency of the arbitrage mechanism and, if so, how? What other effects, if any, might this PO 00000 Frm 00072 Fmt 4703 Sfmt 4703 activity by the Sponsor have on the operation of the Fund? 7. Under the proposal, Baskets may be created or redeemed utilizing bitcoin or cash.18 What are commenters’ views on whether cash creations and redemptions are consistent with the requirements under NYSE Arca Rule 8.201, which governs the listing and trading of Commodity-Based Trust Shares on the Exchange? 8. Under the proposal, creation or redemption orders for the Fund would have to be submitted by 1:00 p.m. E.T. to be effected the same business day. The proposal also sets forth conditions under which the Fund’s administrator may reject Basket purchase orders. One such condition would be ‘‘if the Sponsor thinks it is necessary or advisable for any reason, which the Sponsor determines is in the best interests of the Trust or shareholders.’’ Similarly, the proposal states that the Fund’s administrator ‘‘may, in its discretion, suspend the right of redemption or postpone the redemption settlement date (1) for any period during which an emergency exists as a result of which the redemption distribution is not reasonably practicable or (2) for such other period as the Sponsor determines to be necessary for the protection of the shareholders.’’ What are commenters’ views on the 1:00 p.m. cut-off for order submission and on the necessity and scope of the discretion to reject creation or redemption orders? Are these provisions likely to have an effect on the arbitrage mechanisms and, if so, how? Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NYSEArca–2016–101 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Numbers SR–NYSEArca–2016–101. 18 See supra note 8; see also NYSE Arca Equities Rule 8.201 (specifically defining Commodity-Based Trust Shares as a security that is issued in a specified aggregate minimum number in return for a deposit of a quantity of the underlying commodity, and that, when aggregated in the same specified minimum number, may be redeemed at a holder’s request by such Trust which will deliver to the redeeming holder the quantity of the underlying commodity). E:\FR\FM\02NON1.SGM 02NON1 Federal Register / Vol. 81, No. 212 / Wednesday, November 2, 2016 / Notices This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https:// www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of these filings also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– NYSEArca–2016–101 and should be submitted on or before November 23, 2016. Rebuttal comments should be submitted by December 7, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.19 Brent J. Fields, Secretary. [FR Doc. 2016–26405 Filed 11–1–16; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–79187; File No. SR–NYSE– 2016–58] Self-Regulatory Organizations; New York Stock Exchange LLC; Order Granting Approval of Proposed Rule Change Amending Section 907.00 of the NYSE Listed Company Manual To Adjust the Timing of Entitlements to Complimentary Products and Services for Special Purpose Acquisition Companies October 28, 2016. I. Introduction On August 26, 2016, New York Stock Exchange LLC (‘‘NYSE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to amend Section 907.00 of the NYSE Listed Company Manual (‘‘Manual’’) to adjust the timing of entitlements to certain complimentary products and services for special purpose acquisition companies. The proposed rule change was published in the Federal Register on September 13, 2016.3 The Commission received no comments on the proposal. This order grants approval of the proposed rule change. II. Description of the Proposal The Exchange proposed to amend Section 907.00 of the Manual to adjust the timing of certain entitlements to complimentary products and services for special purpose acquisition companies (‘‘SPACs’’) under that rule. In its filing, the Exchange stated that a SPAC is a special purpose company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more operating businesses or assets.4 The Exchange further stated that to qualify for initial listing, a SPAC must meet the requirements of Sections 102.01A 5 and 102.06 of the Manual. Section 102.06 of the Manual provides that the Exchange 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 78782 (September 7, 2016), 81 FR 62937 (September 13, 2016) (‘‘Notice’’). 4 Id. at 62938. 5 Section 102.01A sets forth the minimum share distribution criteria for listing, and requires that companies listing in connection with an initial public offering have at least 400 holders of 100 shares or more and at least 1,100,000 publicly held shares. sradovich on DSK3GMQ082PROD with NOTICES 2 17 19 17 CFR 200.30–3(a)(57). VerDate Sep<11>2014 17:18 Nov 01, 2016 Jkt 241001 PO 00000 Frm 00073 Fmt 4703 Sfmt 4703 76403 will consider on a case-by-case basis the appropriateness for listing of SPACs that conduct an initial public offering of which at least 90% of the proceeds, together with the proceeds of any other concurrent sales of the SPAC’s equity securities, will be held in a trust account controlled by an independent custodian until consummation of a business combination in the form of a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more operating businesses or assets with a fair market value equal to at least 80% of the net assets held in trust (a ‘‘Business Combination’’ or the ‘‘Business Combination Condition’’).6 As set forth in Section 907.00 of the Manual, the Exchange offers complimentary products and services for a period of 24 calendar months from the date of initial listing to a category of listed companies defined as ‘‘Eligible New Listings.’’ 7 Under the current rule, Eligible New Listings are defined as: (i) Any U.S. company that lists common stock on the Exchange for the first time and any non-U.S. company that lists an equity security on the Exchange under Section 102.01 or 103.00 of the Manual for the first time, regardless of whether such U.S. or non-U.S. company conducts an offering; and (ii) any U.S. or non-U.S. company emerging from a bankruptcy, spinoff (where a company lists new shares in the absence of a public offering), and carve-out (where a company carves out a business line or division, which then conducts a separate initial public offering). Currently, pursuant to Section 907.00 of the Manual, Eligible New Listings are eligible for services as either a Tier A or Tier B company.8 Under Tier A, for 6 See Notice, supra note 3, at 62938. Section 102.06 also provides, among other things, that the SPAC must be liquidated if no Business Combination has been consummated within a specified time period not to exceed three years, and that the Exchange will promptly commence delisting procedures with respect to any SPAC that fails to consummate its Business Combination within (i) the time period specified by its constitutive documents or by contract or (ii) three years, whichever is shorter. 7 Under Section 907.00 of the Manual the Exchange also offers certain complimentary products and services to ‘‘Eligible Current Listings’’ that satisfy the requirements of that Section as well as other products and services that all listed issuers are eligible to receive. 8 The Commission previously found that providing these services and products to companies in different tiers is consistent with the Act, explaining that ‘‘[w]hile not all issuers receive the same level of services, NYSE has stated that trading volume and market activity are related to the level of services that the listed companies would use in the absence of the complimentary services arrangements’’ and that ‘‘the criteria for satisfying E:\FR\FM\02NON1.SGM Continued 02NON1

Agencies

[Federal Register Volume 81, Number 212 (Wednesday, November 2, 2016)]
[Notices]
[Pages 76400-76403]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-26405]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79171; File No. SR-NYSEArca-2016-101]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting 
Proceedings To Determine Whether To Approve or Disapprove a Proposed 
Rule Change Relating to the Listing and Trading of Shares of SolidX 
Bitcoin Trust Under NYSE Arca Equities Rule 8.201

October 27, 2016.
    On July 13, 2016, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
list and trade shares (``Shares'') of the SolidX Bitcoin Trust 
(``Trust'') under NYSE Arca Equities Rule 8.201. The proposed rule 
change was published for comment in the Federal Register on August 2, 
2016.\3\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 78426 (Jul. 27, 
2016), 81 FR 50763 (``Notice'').
---------------------------------------------------------------------------

    On September 6, 2016, pursuant to Section 19(b)(2) of the Act,\4\ 
the Commission designated a longer period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to disapprove the proposed rule 
change.\5\ The Commission has received no comments on the proposed rule 
change.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 78770, 81 FR 62780 
(Sept. 12, 2016). The Commission designated October 31, 2016, as the 
date by which it should approve, disapprove, or institute 
proceedings to determine whether to disapprove the proposed rule 
change.
---------------------------------------------------------------------------

    This order institutes proceedings under Section 19(b)(2)(B) of the 
Act \6\ to determine whether to approve or disapprove the proposed rule 
change.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

I. Summary of the Proposal 7
---------------------------------------------------------------------------

    \7\ The Commission notes that additional information regarding 
the Trust and the Shares can be found in the Notice (see supra note 
3) and the registration statement filed with the Commission on Form 
S-1 on July 11, 2016 under the Securities Act of 1933 
(``Registration Statement''), as applicable. This additional 
information addresses the Trust's investment objectives, risks, 
creation and redemption procedures, fees, portfolio holdings 
disclosure policies, calculation of NAV, distributions, and taxes, 
as well as additional background information about bitcoins and the 
``Bitcoin Network,'' including information relating to Bitcoin 
Network operations, bitcoin transfers and transactions, 
cryptographic security used in the Bitcoin Network, bitcoin mining 
and creation of new bitcoins, the mathematically controlled supply 
of bitcoins, and modifications to the bitcoin protocol, among other 
things.
---------------------------------------------------------------------------

    The Exchange proposes to list and trade the Shares under NYSE Arca

[[Page 76401]]

Equities Rule 8.201, which governs the listing and trading of 
Commodity-Based Trust Shares on the Exchange.\8\ Each Share will 
represent a fractional undivided beneficial interest in the Trust's net 
assets. SolidX Management LLC will be the sponsor of the Trust 
(``Sponsor''). The Bank of New York Mellon will be the administrator 
and the custodian, with respect to cash, for the Trust.
---------------------------------------------------------------------------

    \8\ See NYSE Arca Equities Rule 8.201 (permitting the listing 
and trading of ``Commodity-Based Trust Shares,'' defined as a 
security ``(a) that is issued by a trust that holds a specified 
commodity deposited with the Trust; (b) that is issued by such Trust 
in a specified aggregate minimum number in return for a deposit of a 
quantity of the underlying commodity; and (c) that, when aggregated 
in the same specified minimum number, may be redeemed at a holder's 
request by such Trust which will deliver to the redeeming holder the 
quantity of the underlying commodity'').
---------------------------------------------------------------------------

    According to the Exchange, the Trust will normally hold only 
bitcoins as an asset, but may hold a limited amount of cash in 
connection with the creation and redemption process and to pay Trust 
expenses. The investment objective of the Trust is to provide investors 
with exposure to the daily change in the U.S. dollar price of bitcoin, 
before expenses and liabilities of the Trust, as measured by the 
TradeBlock XBX Index (``XBX'').
    The Trust intends to achieve this objective by investing 
substantially all of its assets in bitcoin traded on various domestic 
and international bitcoin exchanges and OTC markets, depending on 
liquidity and other factors at the Sponsor's discretion. The Trust is 
not actively managed and will not engage in activities designed to 
obtain a profit from, or to ameliorate losses caused by, changes in the 
price of bitcoin. The Trust will generally use the XBX to calculate the 
Trust's net asset value (``NAV'') on each business day that the NYSE 
Arca is open for regular trading, as promptly as practicable after 4:00 
p.m., Eastern time (``E.T.'').\9\
---------------------------------------------------------------------------

    \9\ See Notice, supra note 3 (describing in greater detail the 
alternative procedures if the XBX cannot be utilized as the basis 
for NAV calculations).
---------------------------------------------------------------------------

    According to the proposal, given the novelty and unique digital 
characteristics of bitcoin as an innovative asset class, traditional 
custodians who normally custody assets do not currently offer custodial 
services for bitcoin. Accordingly, the Sponsor will secure the bitcoin 
held by the Trust using multi-signature ``cold storage wallets,'' which 
the Exchange describes as an industry best practice.\10\
---------------------------------------------------------------------------

    \10\ According to the Exchange, the Sponsor will employ security 
procedures, described in greater detail in the Notice and the 
Registration Statement, to safeguard the bitcoin assets of the 
Trust. See Notice and Registration Statement, supra notes 3 and 7, 
respectively.
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    The Trust will issue and redeem the Shares in ``Baskets'' only to 
certain Authorized Participants.\11\ According to the Exchange, the 
creation and redemption of Baskets will principally be made in exchange 
for the delivery to the Trust, or the distribution by the Trust, of the 
amount of cash or bitcoin represented by the combined NAV of the 
Baskets being created or redeemed. This combined NAV will be based on 
the aggregate number of bitcoins represented by the Shares included in 
a Basket, as determined on the day an order to create or redeem the 
Basket is properly received.
---------------------------------------------------------------------------

    \11\ Each Basket will consist of 10,000 Shares, and the value of 
the Basket will be equal to the value of 10,000 Shares at their NAV 
per Share on that day.
---------------------------------------------------------------------------

    According to the Exchange, Authorized Participants and market 
makers can hedge their exposure to bitcoin, whether creating and 
redeeming baskets in-kind or for cash, by using non-deliverable forward 
contracts (``NDFs'') or swap contracts that will create synthetic long 
or short exposure to bitcoin. NDFs will be offered by several 
participants, including the Sponsor itself, operating on a principal 
basis. Such arrangements, according to the Exchange, will make it 
possible for Authorized Participants that lack the trading 
infrastructure to transact in bitcoin to be able to hedge their 
exposure by entering into an NDF or a swap contract. In addition, 
according to the Exchange, the Sponsor will, to the extent requested by 
Authorized Participants and market makers, act as agent by buying and 
selling bitcoin on behalf of the Authorized Participants and market 
makers, including-short sale orders for hedging purposes.\12\
---------------------------------------------------------------------------

    \12\ See Notice, supra note 3, 81 FR at 50771.
---------------------------------------------------------------------------

II. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEArca-2016-101 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \13\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change. Institution of proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved. Rather, as described below, the 
Commission seeks and encourages interested persons to provide comments 
on the proposed rule change.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act,\14\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposed rule change's consistency with Section 6(b)(5) 
of the Act, which requires, among other things, that the rules of a 
national securities exchange be ``designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade,'' and ``to protect investors and the public 
interest.'' \15\
---------------------------------------------------------------------------

    \14\ Id.
    \15\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

III. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposal is 
consistent with Section 6(b)(5) or any other provision of the Act, or 
the rules and regulations thereunder. Although there do not appear to 
be any issues relevant to approval or disapproval that would be 
facilitated by an oral presentation of views, data, and arguments, the 
Commission will consider, pursuant to Rule 19b-4, any request for an 
opportunity to make an oral presentation.\16\
---------------------------------------------------------------------------

    \16\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
---------------------------------------------------------------------------

    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal should be approved or 
disapproved by November 23, 2016.

[[Page 76402]]

Any person who wishes to file a rebuttal to any other person's 
submission must file that rebuttal by December 7, 2016. The Commission 
asks that commenters address the sufficiency of the Exchange's 
statements in support of the proposal, which are set forth in the 
Notice,\17\ in addition to any other comments they may wish to submit 
about the proposed rule change. In particular, the Commission seeks 
comment on the following:
---------------------------------------------------------------------------

    \17\ See supra note 3.
---------------------------------------------------------------------------

    1. There are currently no exchange-traded products (``ETPs'') 
available on U.S. markets that hold a digital asset such as bitcoins, 
which have neither a physical form (unlike commodities) nor an issuer 
that is currently registered with any regulatory body (unlike 
securities, futures, or derivatives), and whose fundamental properties 
and ownership can, by coordination among a majority of its network 
processing power, be changed (unlike any of the above). What are 
commenters' views about the current stability, resilience, fairness, 
and efficiency of the markets on which bitcoins are traded? What are 
commenters' views on whether an asset with the novel and unique 
properties of a bitcoin is an appropriate underlying asset for a 
product that will be traded on a national securities exchange? What are 
commenters' views on the risk of loss via computer hacking posed by 
such an asset? What are commenters' views on whether an ETP based on 
such an asset would be susceptible to manipulation?
    2. According to the Exchange, the logic utilized for the derivation 
of the daily closing index level for the XBX is intended to analyze 
actual bitcoin transactional data, verify and refine the data set, and 
yield an objective, fair-market value of one bitcoin as of 4:00 p.m., 
E.T., each weekday, priced in U.S. dollars. What are commenters' views 
on the Trust's proposal to value its holdings based on XBX and on the 
methodology used by XBX? What are commenters' views on the alternative 
and sequential manner in which the Trust proposes to value its holdings 
in the event that the Sponsor determines that a rule has failed if a 
pricing source is unavailable or, in the judgment of the Sponsor, is 
deemed unreliable?
    3. Given the novelty and unique digital characteristics of bitcoin 
as an asset class, and in the interest of adequate security and 
investor confidence in bitcoin control, what are commenters' views 
regarding the Trust's proposed security, control, and insurance 
measures?
    4. The proposal states that bitcoin trades on more than 30 
exchanges globally on a 24-hour basis and that, therefore, it is 
difficult for attempted market manipulation on any one exchange to 
affect the global market price of bitcoin. The proposal further states 
that any attempt to manipulate the price would result in an arbitrage 
opportunity among exchanges, which typically would be acted upon by 
market participants. What are commenters views on the cost and the 
efficiency of the arbitrage among the various global markets for 
bitcoin? What are commenters' views generally with respect to the 
liquidity and transparency of the bitcoin market, susceptibility to 
manipulation, and thus the suitability of bitcoins as an underlying 
asset for an ETP?
    5. The proposal states that the dissemination of information on the 
Trust's Web site, along with quotations for and last-sale prices of 
transactions in the Shares and the intra-day indicative value and NAV 
of the Trust will help to reduce the ability of market participants to 
manipulate the bitcoin market or the price of the Shares. The proposal 
further states that the Trust's arbitrage mechanism will facilitate the 
correction of price discrepancies in bitcoin and the Shares and that 
demand from new investors accessing bitcoin through investment in the 
Shares will broaden the investor base in bitcoin, which could further 
reduce the possibility of collusion among market participants to 
manipulate the bitcoin market. What are commenters' views regarding 
these statements? Do commenters' agree or disagree with the assertion 
that Authorized Participants and other market makers will be able to 
make efficient and liquid markets in the Shares at prices generally in 
line with the NAV?
    6. The proposal states that the Sponsor of the Fund may engage in 
principal trades of NDFs with market makers and Authorized Participants 
in order to facilitate hedging for Authorized Participants who do not 
possess the technical abilities to transact directly in bitcoin. In 
addition, to the extent requested by Authorized Participants and market 
makers, the Sponsor would act as agent by buying and selling bitcoin on 
behalf of the Authorized Participants and market makers. What are 
commenters' views on any potential conflict of interest that may be 
created by this arrangement, which would involve the Sponsor acting in 
a capacity other than as agent for the Fund? Would this arrangement 
affect the effectiveness and efficiency of the arbitrage mechanism and, 
if so, how? What other effects, if any, might this activity by the 
Sponsor have on the operation of the Fund?
    7. Under the proposal, Baskets may be created or redeemed utilizing 
bitcoin or cash.\18\ What are commenters' views on whether cash 
creations and redemptions are consistent with the requirements under 
NYSE Arca Rule 8.201, which governs the listing and trading of 
Commodity-Based Trust Shares on the Exchange?
---------------------------------------------------------------------------

    \18\ See supra note 8; see also NYSE Arca Equities Rule 8.201 
(specifically defining Commodity-Based Trust Shares as a security 
that is issued in a specified aggregate minimum number in return for 
a deposit of a quantity of the underlying commodity, and that, when 
aggregated in the same specified minimum number, may be redeemed at 
a holder's request by such Trust which will deliver to the redeeming 
holder the quantity of the underlying commodity).
---------------------------------------------------------------------------

    8. Under the proposal, creation or redemption orders for the Fund 
would have to be submitted by 1:00 p.m. E.T. to be effected the same 
business day. The proposal also sets forth conditions under which the 
Fund's administrator may reject Basket purchase orders. One such 
condition would be ``if the Sponsor thinks it is necessary or advisable 
for any reason, which the Sponsor determines is in the best interests 
of the Trust or shareholders.'' Similarly, the proposal states that the 
Fund's administrator ``may, in its discretion, suspend the right of 
redemption or postpone the redemption settlement date (1) for any 
period during which an emergency exists as a result of which the 
redemption distribution is not reasonably practicable or (2) for such 
other period as the Sponsor determines to be necessary for the 
protection of the shareholders.'' What are commenters' views on the 
1:00 p.m. cut-off for order submission and on the necessity and scope 
of the discretion to reject creation or redemption orders? Are these 
provisions likely to have an effect on the arbitrage mechanisms and, if 
so, how?
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2016-101 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Numbers SR-NYSEArca-2016-101.

[[Page 76403]]

This file number should be included on the subject line if email is 
used. To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for Web site 
viewing and printing in the Commission's Public Reference Room, 100 F 
Street NE., Washington, DC 20549, on official business days between the 
hours of 10:00 a.m. and 3:00 p.m. Copies of these filings also will be 
available for inspection and copying at the principal office of the 
Exchange. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
NYSEArca-2016-101 and should be submitted on or before November 23, 
2016. Rebuttal comments should be submitted by December 7, 2016.
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(57).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
Brent J. Fields,
Secretary.
[FR Doc. 2016-26405 Filed 11-1-16; 8:45 am]
 BILLING CODE 8011-01-P
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