Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Relating to the Listing and Trading of Shares of the EtherIndex Ether Trust Under NYSE Arca Equities Rule 8.201, 7891-7898 [2017-01296]
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Federal Register / Vol. 82, No. 13 / Monday, January 23, 2017 / Notices
available publicly. All submissions
should refer to File Number SR–
NYSEArca–2016–177 and should be
submitted on or before February 13,
2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–01297 Filed 1–19–17; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–79792; File No. SR–
NYSEARCA–2016–176]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change Relating to the Listing
and Trading of Shares of the
EtherIndex Ether Trust Under NYSE
Arca Equities Rule 8.201
January 13, 2017.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on December
30, 2016, NYSE Arca, Inc. (the
‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade shares of the following under
NYSE Arca Equities Rule 8.201:
EtherIndex Ether Trust (‘‘Trust’’). The
proposed rule change is available on the
Exchange’s Web site at www.nyse.com,
at the principal office of the Exchange,
and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
20 17
CFR 200.30–3(a)(12).
U.S.C.78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
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19:02 Jan 19, 2017
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
SECURITIES AND EXCHANGE
COMMISSION
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on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
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Under NYSE Arca Equities Rule
8.201, the Exchange may propose to list
and/or trade pursuant to unlisted
trading privileges (‘‘UTP’’)
‘‘Commodity-Based Trust Shares.’’ 4 The
Exchange proposes to list and trade
shares (‘‘Shares’’) of the Trust pursuant
to NYSE Arca Equities Rule 8.201.5
The sponsor of the Trust is EtherIndex
LLC (‘‘Sponsor’’), a Delaware limited
liability company. Delaware Trust
Company is the trustee of the Trust
(‘‘Trustee’’). The Bank of New York
Mellon will be the administrator
(‘‘Administrator’’) and custodian of cash
of the Trust (‘‘Cash Custodian’’).
Coinbase will be the custodian of the
ether of the Trust (‘‘Ether Custodian’’).
According to the Registration
Statement, each Share will represent a
unit of fractional undivided beneficial
interest in and ownership of the Trust.
The activities of the Trust will be
limited to (i) issuing ‘‘Baskets’’ (as
described below) to ‘‘Authorized
Participants’’ (as described below) in
exchange for the cash or, in the
Sponsor’s discretion, ether (as described
below), (ii) selling ether or transferring
ether, at the Sponsor’s discretion, as
necessary to cover the Sponsor’s fee and
as necessary to pay Trust expenses not
assumed by the Sponsor and other
liabilities, (iii) selling or transferring
ether in exchange for Baskets
surrendered for redemption by the
Authorized Participants, (iv) causing the
Administrator to sell ether on the
termination of the Trust and (v)
engaging in all administrative and
custodial procedures necessary to
accomplish such activities in
accordance with the provisions of
relevant agreements.
4 Commodity-Based Trust Shares are securities
issued by a trust that represent investors’ discrete
identifiable and undivided beneficial ownership
interest in the commodities deposited into the
Trust.
5 On November 28, 2016, the Trust filed an
amended registration statement (‘‘Registration
Statement’’) on Form S–1 under the Securities Act
of 1933 (15 U.S.C. 77a) (File No. 333–212533). The
descriptions of the Trust, the Shares and ether
contained herein are based, in part, on the
Registration Statement.
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According to the Registration
Statement, the Trust is neither an
investment company registered under
the Investment Company Act of 1940, as
amended,6 nor a commodity pool for
purposes of the Commodity Exchange
Act (‘‘CEA’’),7 and neither the Sponsor
nor the Trustee is subject to regulation
as a commodity pool operator or a
commodity trading adviser in
connection with the operation of the
Trust.
Investment Objective
According to the Registration
Statement and as further described
below, the Trust’s purpose will be to
provide shareholders with exposure to
the daily change in the U.S. dollar price
of ether, before expenses and liabilities
of the Trust, as measured by the price
of ether in U.S. dollars as reported by
the Global Digital Asset Exchange
(‘‘GDAX’’) as of 4:00 p.m., Eastern Time
(‘‘E.T.’’), each day (‘‘GDAX Price’’).
The Trust will not be actively
managed. It will not engage in any
activities designed to obtain a profit
from, or to ameliorate losses caused by,
changes in the market prices of ether.
Ether and the Ethereum Network
According to the Registration
Statement, ether is a digital asset similar
to bitcoin. It is not issued by any
government, bank or central
organization but rather is issued by, and
transmitted through, the decentralized,
open source protocol of the peer-to-peer
Ethereum computer network
(‘‘Ethereum Network’’). The Ethereum
Network is a decentralized network of
computers that run applications on a
custom built ‘‘blockchain’’ (‘‘Ethereum
Blockchain’’) that enables developers to
create markets, store registries of debts
or promises, represent the ownership of
property and move funds in accordance
with instructions given in the past, all
without the involvement of an
intermediary or counterparty. The
Ethereum Blockchain is a decentralized
public transaction ledger hosted on the
Ethereum Network on which all ether is
recorded; the blockchain records ether
balances and every ether address
associated with a quantity of ether (see
‘‘Ethereum Blockchain’’ below). No
single entity owns or operates the
Ethereum Network.
According to the Registration
Statement, unlike bitcoin, ether was not
designed to function purely as a store of
value. Instead, ether was meant to pay
for specific actions on the Ethereum
Network. However, ether’s market is
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currently supported by many of the
same online exchanges and the same
infrastructure that has developed
around the bitcoin network. Users who
have historically purchased bitcoin on
online exchange platforms can now buy
ether on these Web sites. Ether can be
converted to fiat currencies, such as the
U.S. dollar, or to bitcoin, at rates
determined on ether exchanges or in
individual end-user-to-end-user
transactions under a barter system. Each
ether transaction is broadcast to the
Ethereum Network and recorded in the
Ethereum Blockchain.
According to the Registration
Statement, unlike bitcoin, which has a
fixed limit of 21,000,000 bitcoin, no
limit has been established on the total
supply of ether. The initial creation of
ether was in connection with a crowd
funding transaction in 2014 in which
60,000,000 ether were pre-sold. Another
12,000,000 ether were created for the
benefit of a development fund. All
additional ether have been and will be
created through the ‘‘mining’’ process
(see ‘‘Ether Blockchain’’ below).
According to the terms of the 2014
presale, the issuance of ether from
mining is capped at 18,000,000 ether
per year. According to the Registration
Statement, it has been reported that
approximately 9,700,000 million ether
have been created to date through the
mining process.
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Ethereum Blockchain
According to the Registration
Statement, the Ethereum Blockchain is
a record of every ether transaction
(including the creation or ‘‘mining’’ of
new ether) and every Ethereum Network
public address associated with a
quantity of ether. A beta version of the
live blockchain was publicly launched
in July 2015, and the initial production
version was launched in March 2016.
The Ethereum Blockchain is
comprised of a digital file, downloaded
and stored, in whole or in part, on all
Ethereum Network users’ software
programs. The Ethereum Network
software can interpret the Ethereum
Blockchain to determine the exact ether
balance, if any, of any public ether
address listed in the Ethereum
Blockchain which has taken part in a
transaction on the Ethereum Network.
Mining is the act of using a computer
to run computations designed to help
build the next block in the Ethereum
Blockchain. As a computer solves a
complex computational calculation
related to the building of a block, its
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owner is rewarded with ether.8 The
Ethereum Blockchain includes all
blocks that have been solved by miners
and is updated to include new blocks as
they are solved. As each newly solved
block refers back to and connects with
the immediately prior solved block, the
addition of a new block adds to the
Ethereum Blockchain in a manner
similar to a new link being added to a
chain. Each new block records
outstanding ether transactions, and
outstanding transactions are settled and
validated through such recording.
Therefore, the Ethereum Blockchain
represents a complete, transparent and
unbroken history of all transactions of
the Ethereum Network.
According to the Registration
Statement, in June 2016, the DAO, a
decentralized autonomous organization
using the Ethereum Network, was
hacked, resulting in a loss to that
organization of approximately 3.6
million ether. In response to this loss,
the Ethereum community agreed to
create a new ‘‘hard fork’’ on the
Ethereum Blockchain which returned
the lost ether to the DAO. A hard fork
is a change to the underlying Ethereum
protocol, which creates new rules for
the Ethereum system; all Ethereum
clients needed to upgrade, otherwise
they would remain on the old
blockchain. In creating the hard fork,
the intent was to have all users of the
Ethereum Network migrate to the new
fork, rendering the ether on the old
blockchain held by the DAO hacker
useless. However, a number of users
have continued to develop the old
blockchain, now referred to as
‘‘Ethereum Classic,’’ resulting in a
separate version of ether referred to as
‘‘ether classic.’’ Ether classic is now
traded on several crypto currency
exchanges. The Shares will provide
shareholders with exposure to the daily
change in the U.S. dollar price of ether,
before expenses and liabilities of the
Trust, as measured by the GDAX Price
and not the price of ether classic.
Uses of Ether Blockchain
According to the Registration
Statement, the Ethereum Blockchain is
a general-purpose, global blockchain
that can govern both financial and nonfinancial types of application states.
Ether can be used to pay for goods and
services or can be converted to fiat
currencies, such as the U.S. dollar, at
rates determined on ether exchanges
(‘‘Ether Exchange’’) 9 or in individual
8 Attached as Exhibit 3, Item 1 is a chart
illustrating the supply growth of ether during the
period October 2015 through October 2016.
9 An Ether Exchange is an online marketplace
with a central limit order book, where market
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end-user-to-end-user transactions under
a barter system.10 An ether private key
controls the transfer or ‘‘spending’’ of
ether from its associated public ether
address. An ether ‘‘wallet’’ is a
collection of private keys and their
associated public ether addresses.
According to the Registration
Statement, while the bitcoin network
permits users primarily to execute value
transfers, the Ethereum Network allows
users to program any arbitrary code and
execute it, including value transfers.
Accordingly, the Ethereum Network
may be viewed as a global,
decentralized computer in comparison
to the bitcoin network, which is more
similar to a global, decentralized
payment network. In addition to value
transfers, the Ethereum Network enables
decentralized business logic, known as
‘‘smart contracts.’’ A smart contract is a
collection of code (its functions) and
data (its state) that resides at a specific
address on the Ethereum Blockchain.
Smart contracts can interact with other
contracts, make decisions, store data
and send ether to others. Smart
contracts are capable of automatically
enforcing the terms of a given agreement
among a number of parties. This code
can define strict rules and consequences
in the same way that a traditional legal
document would, stating the
obligations, benefits and penalties
which may be due to either party in
various different circumstances. But,
unlike a traditional contract, it can also
take information as an input, process
that information through the rules set
out in the contract and take any actions
required of it as a result.
Custody of the Trust’s Ether
According to the Registration
Statement, the private keys that control
the Trust’s ether will be secured by the
Ether Custodian and stored completely
offline in a ‘‘cold storage’’ system. The
Ether Custodian’s cold storage system is
founded on the principles of (i) building
participants may buy, sell and trade ether. The
largest Ether Exchanges are typically open on a 24hour per day, seven-days per week basis, and
publish public market data such as transaction
price and volume data. Examples of Ether
Exchanges are: (i) Coinbase, a digital currency
wallet and platform based in San Francisco where
merchants and consumers can transact with certain
digital currencies; (ii) Kraken, an online exchange
based in San Francisco; (iii) Bitfinex, an online
exchange founded in Hong Kong; and (iv) Gemini,
a New York-based online exchange that has
obtained a BitLicense from the New York
Department of Financial Services.
10 Attached as Exhibit 3, Item 2 is a chart setting
forth a summary of the daily number of ether
transactions (i.e., transfers of ether between parties
on the Ethereum Network, which is different than
and should not be confused with ether exchangetraded volume) from October 2015 through October
2016.
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defense-in-depth against external
threats, (ii) protecting against human
error and (iii) guarding against misuse of
insider access. The Ether Custodian’s
cold storage mechanism involves
generating private keys on an ‘‘airgapped’’ computer, i.e., a computer that
has never been connected to the
internet, then splitting these keys into
segments using a special algorithm to
ensure no one individual knows how
the key was fragmented, and finally
distributing these fragments
geographically so no one entity can
access the cold storage without the other
individuals contributing their fragment
of the key. The Ether Custodian
maintains insurance against theft and
electronic compromise in an amount
that exceeds the average value of ether
and bitcoin that it holds online at any
one time.
The Ether Custodian will maintain
approximately three times the average of
the expected creation and redemption
Baskets in ether at all times in a ‘‘hot
wallet,’’ which is connected to the
internet, in order to provide fast access
to withdrawal when needed. The
average ether amount to be held in the
hot wallet will initially be determined
by the Sponsor and Authorized
Participants. The Sponsor may direct
the Ether Custodian to transfer ether
from the cold storage system to the hot
wallet if additional ether is required for
creation and redemption Baskets. It is
anticipated that less than five percent of
the Trust’s ether will be held in the hot
wallet. The Ether Custodian will
maintain the Trust’s remaining ether in
its cold storage system and will hold the
Trust’s ether in the Trust’s ether custody
account. The Ether Custodian will
segregate the Trust’s ether which will be
held in unique Ethereum Network
public addresses with balances that can
be directly verified on the Ethereum
Blockchain.
According to the Registration
Statement, each Custodian will accept,
on behalf of the Trust, cash or the
delivery of ether from Authorized
Participants into the Trust’s custody
accounts creation orders. In order for an
Authorized Participant to redeem a
Basket and receive cash or a distribution
of ether from the Trust, the Custodians,
upon receiving instructions from the
Administrator, will sign transactions
necessary to transfer ether out of the
Trust’s ether custody account for sale or
to distribute the ether to the Ethereum
Network public address specified by the
Authorized Participant.
According to the Registration
Statement, the Sponsor will engage an
independent audit firm to periodically
audit the Ether Custodian’s storage of
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private keys and its internal controls
and report to the Sponsor at least
annually on such matters. Additionally,
the Sponsor will engage an independent
audit firm to biannually verify that the
Ether Custodian can demonstrate ‘‘proof
of control’’ of the private keys that
control the Trust’s ether. One such
‘‘proof of control’’ audit will be
conducted at the end of each calendar
year and the other at random.
Ether Market Price
According to the Registration
Statement, the value of ether is
determined by the value that various
market participants place on ether
through their transactions. The most
common means of determining the
value of ether is by surveying one or
more Ether Exchanges where ether is
traded publicly and transparently (e.g.,
GDAX, Poloniex or Kraken).11 On each
online Ether Exchange, ether is traded
with publicly disclosed valuations for
each executed trade, measured by one or
more fiat currencies such as the U.S.
dollar or euro or by the widely used
digital asset bitcoin.
According to the Trust, since its
initial trading, ether has experienced
one-day (i.e., the greatest one-day
change in ether price experienced on
any trading day), one-month (i.e., the
greatest change in ether price
experienced during any calendar
month), one-year (i.e., the greatest
change in ether price experienced
during any calendar year) and sinceinception 12 changes of 67.5% (or
$2.93), 214.8% (or $2.04), 2,748.5% (or
$20.56) and 32,416% (or $21.33),
respectively. All changes listed
represent increases in the price of
ether.13
11 Attached as Exhibit 3, Item 3 is a chart
comparing the ether price on Coinbase, Kraken,
Gemini, Poloniex, Cexlo and Bitfinex during the
period May 27, 2016 through October 21, 2016.
Attached as Exhibit 3, Item 4 is a chart comparing
the ether price, in 15 minute intervals, on Coinbase,
Kraken and Bitfinex during the period of November
21, 2016 and into November 22, 2016.
12 For purposes of this data, the Trust has used
August 8, 2015 as the inception date.
13 Attached as Exhibit 3, Item 5 is a chart
illustrating the changes in the price of ether during
the period September 2015 into October 2016.
Attached as Exhibit 3, Item 6 is a chart comparing
three-month volatility in the price of ether
compared to three-month volatility in the prices of
bitcoin, gold, silver, WTI crude oil, copper, natural
gas, soybeans and coffee (‘‘Comparison
Commodities’’) during the period July 2016 through
September 2016. Attached as Exhibit 3, Item 7 is a
chart comparing the six-month volatility in the
price of ether compared to the six-month volatility
in the prices of the Comparison Commodities
during the period April 2016 through September
2016. Attached as Exhibit 3, Item 8 is a chart
comparing the twelve-month volatility in the price
of ether compared to the twelve-month volatility in
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The Trust
According to the Registration
Statement, the Trust’s assets will consist
of ether. The Trust will occasionally
hold cash for short periods in
connection with the creation and
redemption process, and to pay certain
fees, expenses and liabilities. The ether
held by the Ether Custodian on behalf
of the Trust will only be transferred out
of the Trust’s ether custody account in
the following circumstances: (i)
Transferred to pay the Sponsor’s fee; (ii)
transferred to be sold for cash or
distributed to Authorized Participants
in connection with the redemption of
Baskets; (iii) transferred to the Trust’s
expense account to be sold on an asneeded basis to pay Trust expenses not
assumed by the Sponsor; or (iv) sold on
behalf of the Trust in the event the Trust
terminates and liquidates its assets or as
otherwise required by law or regulation.
According to the Registration
Statement, while the Sponsor will not
exercise day-to-day oversight over the
Trust, the Sponsor will engage the
Administrator and the Custodians to
assist in implementing the creation and
redemption process for the Trust. The
Sponsor will assume certain
administrative and marketing expenses
incurred by the Trust. The Trust will
pay the Sponsor a fee.
Net Asset Value
On each business day, the
Administrator will calculate the net
asset value (‘‘NAV’’) of the Trust as
measured at 4:00 p.m., E.T., using the
GDAX Price. The NAV of the Trust is
the asset value of the Trust less its
liabilities (which include accrued but
unpaid fees and expenses) divided by
the number of outstanding Shares as of
4:00 p.m., E.T., each business day.
In the event that the GDAX Price is
unavailable or the Sponsor determines
that the GDAX Price is not an
appropriate basis for evaluation of the
Trust’s ether, the Sponsor will instruct
the Administrator to use as an
alternative basis for calculating the
Trust’s NAV either (i) the price of ether
in U.S. dollars as reported by Kraken
Bitcoin Exchange as measured at 4:00
p.m., E.T., on each business day, (ii) if
the Sponsor determines that the Kraken
Bitcoin Exchange price is not an
appropriate basis for evaluation of the
Trust’s ether, the price of ether in U.S.
dollars as reported by the Gemini
Exchange as measured at the 4:00 p.m.,
E.T., on each business day or (iii) if the
Sponsor determines that the Kraken
Bitcoin Exchange and the Gemini
the prices of the Comparison Commodities during
the period October 2016 through September 2016.
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Exchange prices are not appropriate
bases for evaluation of the Trust’s ether,
the Sponsor’s good faith estimate of the
market price of ether. Any
determination that the GDAX Price or
the price on the other exchanges
mentioned above is not an appropriate
basis for calculating the Trust’s NAV
would be based upon extraordinary
criteria, such as a disruption in the
operation of the exchange, material
reporting or calculation inaccuracies by
the exchange or a material decrease in
trading volume not experienced by
other exchanges. In determining fair
market value for ether, the Sponsor may
consider the market price for ether on
other Ether Exchanges or in other
forums for which ether prices are
published publicly.
The Sponsor will publish the Trust’s
NAV on the Trust’s Web site as soon as
practicable after calculation by the
Administrator. To the extent that the
NAV has been calculated using a price
per ether other than the GDAX Price for
such business day, the publication on
the Trust’s Web site will note the
valuation methodology and the price
per ether resulting from such
calculation.
According to the Registration
Statement, Authorized Participants, or
their clients or customers, may have an
opportunity to realize a riskless profit if
they can create a Basket at a discount to
the public trading price of the Shares or
can redeem a Basket at a premium over
the public trading price of the Shares.
The Sponsor expects that the
exploitation of such arbitrage
opportunities by Authorized
Participants and their clients and
customers will tend to cause the public
trading price to track the NAV closely
over time.
Creation and Redemption of Shares
According to the Registration
Statement, the Trust will issue and
redeem Baskets, each equal to a block of
10,000 Shares, principally in exchange
for the delivery to the Trust or the
distribution by the Trust of the amount
of cash, or at the discretion of the
Sponsor, ether represented by the NAV
of the Baskets being created or
redeemed, the amount of which will be
based on the combined ether
represented by the number of Shares
included in the Baskets being created or
redeemed determined on the day the
order to create or redeem Baskets is
properly received. The Trust will issue
and redeem Shares in Baskets to and
from Authorized Participants. The size
of a Basket is subject to change.
Orders to create and redeem Baskets
may be placed only by Authorized
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Participants.14 A transaction fee may be
imposed to offset transfer and other
transaction costs associated with
creation or redemption.
Creation Procedures
On any business day, an Authorized
Participant may place an order with the
Transfer Agent to create one or more
Baskets. Purchase orders must be placed
by 1:00 p.m., E.T. The day on which the
Transfer Agent receives a valid purchase
order is the purchase order date.
Purchase orders are irrevocable.
The total payment required to create
each Basket is determined by
calculating the NAV of 10,000 Shares as
of the closing time of the NYSE Arca on
the purchase order date. Baskets will be
issued as of 9:30 a.m., E.T., on the
business day immediately following the
purchase order date at the applicable
NAV as of the closing time of NYSE
Arca on the purchase order date, but
only if the required payment has been
timely received.
Orders to purchase Baskets must be
placed no later than 1:00 p.m., E.T., but
the total payment required to create a
Basket will not be determined until 4:00
p.m., E.T., on the date the purchase
order is received. Authorized
Participants therefore will not know the
total amount of the payment required to
create a Basket at the time they submit
an irrevocable purchase order for the
Basket.
The payment required to create a
Basket typically will be made in cash,
but it may also be made partially or
wholly in-kind at the discretion of the
Sponsor if the Authorized Participant
requests to convey ether directly to the
Trust. To the extent the Authorized
Participant places an in-kind order to
create, the Authorized Participant must
deliver ether directly to the Ether
Custodian and an amount of cash (or
ether) referred to as the Balancing
Amount 15 each no later than 1:00 p.m.,
14 An Authorized Participant must: (1) Be a
registered broker-dealer or other securities market
participant, such as a bank or other financial
institution, which is not required to register as a
broker-dealer to engage in securities transactions
and (2) be a participant in Depository Trust
Company (‘‘DTC’’). To become an Authorized
Participant, a person must enter into an
‘‘Authorized Participant Agreement’’ with the
Administrator and the Sponsor on behalf of the
Trust. The Authorized Participant Agreement
provides the procedures for the creation and
redemption of Baskets as well as the amount of
ether required for delivery or distribution for such
creations and redemptions.
15 The Balancing Amount is an amount equal to
the difference between the NAV of the Shares (per
Basket) and the ‘‘Deposit Amount,’’ which is an
amount equal to the market value of ether (per
Basket) which, for this purpose, is calculated in the
same manner as the Trust values ether. The
Balancing Amount serves to compensate for any
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E.T., on the date the purchase order is
received. The amount of ether delivered
by the Authorized Participant must be
in an amount equal to the number of
ether necessary to create a Basket as of
4:00 p.m., E.T., on the date the purchase
order is received. Upon delivery of the
ether to the Ether Custodian and the
Balancing Amount to the Cash
Custodian (or the ether component of
the Balancing Amount, if applicable, to
the Ether Custodian), the Administrator
will cause the Trust to issue a Basket to
the Authorized Participant.
According to the Registration
Statement, the Sponsor acting by itself
or through the Administrator may reject
a creation order if: (i) It is not in proper
form; (ii) it is determined by the
Sponsor not to be in the best interest of
the shareholders; (iii) the acceptance or
receipt of the creation order would have
adverse tax consequences to the Trust or
shareholders; (iv) the acceptance or
receipt of the creation order would, in
the opinion of counsel to the Sponsor,
be unlawful; (v) if circumstances
outside the control of the Sponsor or its
designee make it, for all practical
purposes, not feasible, as determined by
the Sponsor in its sole discretion, to
process creations of Baskets; or (vi) for
any other reason set forth in the
Authorized Participant Agreement
entered into with that Authorized
Participant.
Redemption Procedures
According to the Registration
Statement, the procedures by which an
Authorized Participant can redeem one
or more Baskets will mirror the
procedures for the creation of Baskets.
On any business day, an Authorized
Participant may place an order with the
Transfer Agent to redeem one or more
Baskets. Redemption orders must be
placed no later than 1:00 p.m., E.T. The
day on which the Transfer Agent
receives a valid redemption order is the
redemption order date. Redemption
orders are irrevocable. By placing a
redemption order, an Authorized
Participant agrees to deliver the Baskets
to be redeemed through DTC’s bookentry system to the Trust not later than
1:00 p.m., E.T., on the business day
immediately following the redemption
order date.
The redemption proceeds from the
Trust consist of the ‘‘cash redemption
amount’’ and, if making an in-kind
redemption, ether. The cash redemption
amount is equal to the NAV of the
number of Baskets of the Trust
requested in the Authorized
difference between the NAV per Basket and the
Deposit Amount.
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Participant’s redemption order as of the
closing time of NYSE Arca on the
redemption order date. The Cash
Custodian will distribute the cash
redemption amount at 4:00 p.m., E.T.,
on the business day immediately
following the redemption order date
through DTC to the account of the
Authorized Participant as recorded on
DTC’s book-entry system. At the
discretion of the Sponsor and if the
Authorized Participant requests to
receive ether directly, some or all of the
redemption proceeds may be distributed
to the Authorized Participant in-kind.
The redemption proceeds due from
the Trust are delivered to the
Authorized Participant at 4:00 p.m.,
E.T., on the business day immediately
following the redemption order date if,
by such time on such business day
immediately following the redemption
order date, the Trust’s DTC account has
been credited with the Baskets to be
redeemed. If the Trust’s DTC account
has not been credited with all of the
Baskets to be redeemed by such time,
the redemption distribution will be
delivered to the extent of whole Baskets
received. Any remainder of the
redemption distribution is delivered on
the next business day to the extent of
remaining whole Baskets received if the
Sponsor receives the fee applicable to
the extension of the redemption
distribution date which the Sponsor
may, from time to time, determine and
the remaining Baskets to be redeemed
are credited to the Trust’s DTC account
by 4:00 p.m., E.T., on such next
business day. Any further outstanding
amount of the redemption order shall be
cancelled.
To the extent that Authorized
Participant places an in-kind order to
redeem a Basket, the Ether Custodian
will deliver, on the business day
immediately following the day the
redemption order is received, ether to
the Authorized Participant in an amount
equal to the number of ether necessary
to redeemed [sic] a Basket as of 4:00
p.m., E.T.
mstockstill on DSK3G9T082PROD with NOTICES
Availability of Information
The Trust’s Web site will provide an
intra-day indicative value (‘‘IIV’’) per
Share updated every 15 seconds, as
calculated by the Exchange or a third
party financial data provider during the
Exchange’s Core Trading Session. The
IIV will be calculated by using the prior
day’s closing NAV per Share as a base
and updating that value during the
NYSE Arca Core Trading Session to
reflect changes in the value of the
Trust’s ether holdings during the trading
day.
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The IIV disseminated during the
NYSE Arca Core Trading Session should
not be viewed as an actual real-time
update of the NAV, which will be
calculated only once at the end of each
trading day. The IIV will be widely
disseminated on a per Share basis every
15 seconds during the NYSE Arca Core
Trading Session by one or more major
market data vendors. In addition, the IIV
will be available through on-line
information services.
The Web site for the Trust, which will
be publicly accessible at no charge, will
contain the following information: (a)
The current NAV per Share daily and
the prior business day’s NAV and the
reported closing price; (b) the mid-point
of the bid-ask price 16 in relation to the
NAV as of the time the NAV is
calculated (‘‘Bid-Ask Price’’) and a
calculation of the premium or discount
of such price against such NAV; (c) data
in chart form displaying the frequency
distribution of discounts and premiums
of the Bid-Ask Price against the NAV,
within appropriate ranges for each of
the four previous calendar quarters (or
for the life of the Trust, if shorter); (d)
the prospectus; and (e) other applicable
quantitative information. The Trust will
also disseminate the Trust’s holdings on
a daily basis on the Trust’s Web site.
The price of ether will be made
available by one or more major market
data vendors, updated at least every 15
seconds during the Exchange’s Core
Trading Session.
The NAV for the Trust will be
calculated by the Administrator once a
day and will be disseminated daily to
all market participants at the same time.
In addition, ether prices are available
from automated quotation systems,
published or other public sources or online information services. Quotation and
last-sale information regarding the
Shares will be disseminated through the
facilities of the Consolidated Tape
Association (‘‘CTA’’).
Quotation and last sale information
for ether will be widely disseminated
through a variety of major market data
vendors. The spot price of ether is
available on a 24-hour basis from major
market data vendors. Information
relating to trading, including price and
volume information, in ether will be
available from major market data
vendors and from the exchanges on
which ether are traded. The normal
trading hours for ether exchanges are
24-hours per day, 365-days per year.
16 The bid-ask price of the Trust is determined
using the highest bid and lowest offer on the
Consolidated Tape as of the time of calculation of
the closing day NAV.
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7895
The Trust will provide Web site
disclosure of its ether holdings daily.
The Web site disclosure of the Trust’s
portfolio composition will occur at the
same time as the disclosure by the
Sponsor of the portfolio composition to
Authorized Participants so that all
market participants are provided
portfolio composition information at the
same time. Therefore, the same portfolio
information will be provided on the
public Web site as well as in electronic
files provided to Authorized
Participants. Accordingly, each investor
will have access to the current portfolio
composition of the Trust through the
Trust’s Web site.
Trading Rules
The Trust will be subject to the
criteria in NYSE Arca Equities Rule
8.201, including 8.201(e), for initial and
continued listing of the Shares. A
minimum of 100,000 Shares will be
required to be outstanding at the start of
trading. With respect to application of
Rule 10A–3 under the Act, the Trust
will rely on the exception contained in
Rule 10A–3(c)(7). The Exchange
believes that the anticipated minimum
number of Shares outstanding at the
start of trading is sufficient to provide
adequate market liquidity.
The Exchange deems the Shares to be
equity securities, thus rendering trading
in the Shares subject to the Exchange’s
existing rules governing the trading of
equity securities. Trading in the Shares
on the Exchange will occur in
accordance with NYSE Arca Equities
Rule 7.34(a). The Exchange has
appropriate rules to facilitate
transactions in the Shares during all
trading sessions. As provided in NYSE
Arca Equities Rule 7.6, the minimum
price variation (‘‘MPV’’) for quoting and
entry of orders in equity securities
traded on the NYSE Arca Marketplace is
$0.01, with the exception of securities
that are priced less than $1.00 for which
the MPV for order entry is $0.0001.
Further, NYSE Arca Equities Rule
8.201 sets forth certain restrictions on
Equity Trading Permit Holders (‘‘ETP
Holders’’) acting as registered Market
Makers in the Shares to facilitate
surveillance. Pursuant to NYSE Arca
Equities Rule 8.201(g), an ETP Holder
acting as a registered Market Maker in
the Shares is required to provide the
Exchange with information relating to
its trading in the underlying ether.
Commentary .04 of NYSE Arca Equities
Rule 6.3 requires an ETP Holder acting
as a registered Market Maker, and its
affiliates, in the Shares to establish,
maintain and enforce written policies
and procedures reasonably designed to
prevent the misuse of any material,
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mstockstill on DSK3G9T082PROD with NOTICES
nonpublic information with respect to
such products, any components of the
related products, any physical asset or
commodity underlying the product,
applicable currencies, underlying
indexes, related futures or options on
futures and any related derivative
instruments (including the Shares).
With respect to trading halts, the
Exchange may consider all relevant
factors in exercising its discretion to
halt or suspend trading in the Shares.
Trading on the Exchange in the Shares
may be halted because of market
conditions or for reasons that, in the
view of the Exchange, make trading in
the Shares inadvisable. In addition,
trading in Shares will be subject to
trading halts caused by extraordinary
market volatility pursuant to the
Exchange’s ‘‘circuit breaker’’rule.17
The Exchange will halt trading in the
Shares if the NAV of the Trust is not
calculated or disseminated daily. The
Exchange may halt trading during the
day in which an interruption occurs to
the dissemination of the IIV. If the
interruption to the dissemination of the
IIV persists past the trading day in
which it occurs, the Exchange will halt
trading no later than the beginning of
the trading day following the
interruption. In addition, if the
Exchange becomes aware that the NAV
with respect to the Shares is not
disseminated to all market participants
at the same time, it will halt trading in
the Shares until such time as the NAV
is available to all market participants.
Surveillance
The Exchange represents that trading
in the Shares will be subject to the
existing trading surveillances
administered by the Exchange, as well
as cross-market surveillances
administered by the Financial Industry
Regulatory Authority (‘‘FINRA’’) on
behalf of the Exchange, which are
designed to detect violations of
Exchange rules and applicable federal
securities laws.18 The Exchange
represents that these procedures are
adequate to properly monitor Exchange
trading of the Shares in all trading
sessions and to deter and detect
violations of Exchange rules and federal
securities laws applicable to trading on
the Exchange.
The surveillances referred to above
generally focus on detecting securities
trading outside their normal patterns,
which could be indicative of
17 See
NYSE Arca Equities Rule 7.12.
conducts cross market surveillances on
behalf of the Exchange pursuant to a regulatory
services agreement. The Exchange is responsible for
FINRA’s performance under this regulatory services
agreement.
18 FINRA
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19:02 Jan 19, 2017
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manipulative or other violative activity.
When such situations are detected,
surveillance analysis follows and
investigations are opened, where
appropriate, to review the behavior of
all relevant parties for all relevant
trading violations.
The Exchange or FINRA, on behalf of
the Exchange, or both, will
communicate as needed regarding
trading in the Shares with other markets
and other entities that are members of
the Intermarket Surveillance Group
(‘‘ISG’’), and the Exchange or FINRA, on
behalf of the Exchange, or both, may
obtain trading information regarding
trading in the Shares from such markets
and other entities. In addition, the
Exchange may obtain information
regarding trading in the Shares from
markets and other entities that are
members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement
(‘‘CSSA’’).19
Also, pursuant to NYSE Arca Equities
Rule 8.201(g), the Exchange is able to
obtain information regarding trading in
the Shares and the underlying ether
through ETP Holders acting as
registered Market Makers, in connection
with such ETP Holders’ proprietary or
customer trades through ETP Holders
which they effect on any relevant
market.
The Exchange also has a general
policy prohibiting the distribution of
material, non-public information by its
employees.
All statements and representations
made in this filing regarding (i) the
description of the portfolio and (ii)
limitations on portfolio holdings or
reference assets shall constitute
continued listing requirements for
listing the Shares on the Exchange. The
issuer has represented to the Exchange
that it will advise the Exchange of any
failure by the Fund to comply with the
continued listing requirements, and,
pursuant to its obligations under
Section 19(g)(1) of the Act, the Exchange
will monitor for compliance with the
continued listing requirements. If the
Fund is not in compliance with the
applicable listing requirements, the
Exchange will commence delisting
procedures under NYSE Arca Equities
Rule 5.5(m).
Information Bulletin
Prior to the commencement of
trading, the Exchange will inform its
ETP Holders in an ‘‘Information
Bulletin’’ of the special characteristics
and risks associated with trading the
19 For the list of current members of ISG, see
https://www.isgportal.org/home.html.
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Shares. Specifically, the Information
Bulletin will discuss the following: (1)
The procedures for purchases and
redemptions of Shares in Baskets
(including noting that the Shares are not
individually redeemable); (2) NYSE
Arca Equities Rule 9.2(a), which
imposes a duty of due diligence on its
ETP Holders to learn the essential facts
relating to every customer prior to
trading the Shares; (3) how [sic]
information regarding how GDAX Price
and the IIV are disseminated; (4) the
requirement that ETP Holders deliver a
prospectus to investors purchasing
newly issued Shares prior to or
concurrently with the confirmation of a
transaction; (5) the possibility that
trading spreads and the resulting
premium or discount on the Shares may
widen during the Opening and Late
Trading Sessions, when an updated IIV
will not be calculated or publicly
disseminated; and (6) trading
information.
In addition, the Information Bulletin
will reference that the Trust is subject
to various fees and expenses as
described in the Registration Statement.
The Information Bulletin will disclose
that information about the Shares of the
Trust is publicly available on the Trust’s
Web site.
The Information Bulletin will also
discuss any relief, if granted, by the
Commission or the staff from any rules
under the Act.
2. Statutory Basis
The basis under the Act for this
proposed rule change is the requirement
under Section 6(b)(5) 20 that an
exchange have rules that are designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to remove
impediments to, and perfect the
mechanism of a free and open market
and, in general, to protect investors and
the public interest.
The Exchange believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices in that the Shares will
be listed and traded on the Exchange
pursuant to the initial and continued
listing criteria in NYSE Arca Equities
Rule 8.201. The Exchange has in place
surveillance procedures that are
adequate to properly monitor trading in
the Shares in all trading sessions and to
deter and detect violations of Exchange
rules and applicable federal securities
laws. The Exchange or FINRA, on behalf
of the Exchange, or both, will
communicate as needed regarding
trading in the Shares with other markets
20 15
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U.S.C. 78f(b)(5).
23JAN1
mstockstill on DSK3G9T082PROD with NOTICES
Federal Register / Vol. 82, No. 13 / Monday, January 23, 2017 / Notices
that are members of the ISG, and the
Exchange or FINRA, on behalf of the
Exchange, or both, may obtain trading
information regarding trading in the
Shares from such markets. In addition,
the Exchange may obtain information
regarding trading in the Shares from
markets that are members of ISG or with
which the Exchange has in place a
CSSA. Also, pursuant to NYSE Arca
Equities Rule 8.201(g), the Exchange is
able to obtain information regarding
trading in the Shares and the underlying
ether through ETP Holders acting as
registered Market Makers, in connection
with such ETP Holders’ proprietary or
customer trades through ETP Holders
which they effect on any relevant
market.
The proposed rule change is designed
to promote just and equitable principles
of trade and to protect investors and the
public interest in that there is a
considerable amount of ether price and
ether market information available on
public Web sites and through
professional and subscription services.
Investors may obtain on a 24-hour basis
ether pricing information based on the
spot price for ether from various
financial information service providers.
The closing price and settlement prices
of ether are readily available from the
Ether Exchanges and other publicly
available Web sites. In addition, such
prices are published in public sources
or on-line information services. The
Trust will provide Web site disclosure
of its ether holdings daily.
Quotation and last-sale information
regarding the Shares will be
disseminated through the facilities of
the CTA. The IIV will be widely
disseminated on a per Share basis every
15 seconds during the NYSE Arca Core
Trading Session by one or more major
market data vendors. In addition, the IIV
will be available through on-line
information services. The Exchange
represents that the Exchange may halt
trading during the day in which an
interruption to the dissemination of the
IIV occurs. If the interruption to the
dissemination of the IIV persists past
the trading day in which it occurred, the
Exchange will halt trading no later than
the beginning of the trading day
following the interruption. In addition,
if the Exchange becomes aware that the
NAV with respect to the Shares is not
disseminated to all market participants
at the same time, it will halt trading in
the Shares until such time as the NAV
is available to all market participants.
The NAV per Share will be calculated
daily and made available to all market
participants at the same time. One or
more major market data vendors will
disseminate for the Trust on a daily
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19:02 Jan 19, 2017
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basis information with respect to the
recent NAV per Share and Shares
outstanding.
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of an additional type of exchange-traded
product that will enhance competition
among market participants, to the
benefit of investors and the marketplace.
As noted above, the Exchange has in
place surveillance procedures relating to
trading in the Shares and may obtain
information via ISG from other
exchanges that are members of ISG or
with which the Exchange has entered
into a CSSA. In addition, as noted
above, investors will have ready access
to information regarding the Trust’s
ether holdings, IIV and quotation and
last sale information for the Shares.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange notes that the proposed rule
change will facilitate the listing and
trading of an additional type of
exchange-traded product, and the first
such product based on ether, which will
enhance competition among market
participants, to the benefit of investors
and the marketplace.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will: (a) By
order approve or disapprove such
proposed rule change; or (b) institute
proceedings to determine whether the
proposed rule change should be
disapproved.
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
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–2016–176 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
Number SR–NYSEARCA–2016–176.
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 the
filing will also 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–2016–176 and should be
submitted on or before February 13,
2017.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
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Federal Register / Vol. 82, No. 13 / Monday, January 23, 2017 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–01296 Filed 1–19–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79801; File No. SR–MSRB–
2016–15]
Self-Regulatory Organizations;
Municipal Securities Rulemaking
Board; Notice of Filing of Amendment
No. 1 and Order Granting Accelerated
Approval of a Proposed Rule Change,
as Modified by Amendment No. 1, To
Extend the MSRB’s Customer
Complaint and Related Recordkeeping
Rules to Municipal Advisors and To
Modernize Those Rules
January 13, 2017.
I. Introduction
On November 1, 2016, the Municipal
Securities Rulemaking Board (the
‘‘MSRB’’ or ‘‘Board’’) filed with the
Securities and Exchange Commission
(the ‘‘SEC’’ or ‘‘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 consisting of (i) proposed
amendments to Rule G–10, on delivery
of investor brochure, Rule G–8, on
books and records to be made by
brokers, dealers, and municipal
securities dealers and municipal
advisors, and Rule G–9, on preservation
of records, and (ii) a proposed Board
notice regarding electronic delivery and
receipt of information by municipal
advisors under Rule G–32, on
disclosures in connection with primary
offerings (collectively, the ‘‘proposed
rule change’’). The proposed rule
change was published for comment in
the Federal Register on November 18,
2016.3
The Commission received five
comment letters on the proposed rule
change.4 On January 10, 2017, the
21 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Securities Exchange Act Release No. 79295
(November 14, 2016) (the ‘‘Notice of Filing’’), 81 FR
81837 (November 18, 2016).
4 See Letters to Secretary, Commission, from Mike
Nicholas, Chief Executive Officer, Bond Dealers of
America (‘‘BDA’’), dated December 9, 2016 (the
‘‘BDA Letter’’); Matthew J. Gavaghan, Associate
General Counsel, Janney Montgomery Scott LLC
(‘‘Janney’’), dated December 9, 2016 (the ‘‘Janney
Letter’’); Marnie Lambert, President, Public
Investors Arbitration Bar Association (‘‘PIABA’’),
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1 15
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MSRB responded to the comments
received by the Commission 5 and filed
Amendment No. 1 to the proposed rule
change (‘‘Amendment No. 1’’).6 The
Commission is publishing this notice to
solicit comments on Amendment No. 1
to the proposed rule change from
interested persons and is approving the
proposed rule change, as modified by
Amendment No. 1, on an accelerated
basis.
II. Description of Proposed Rule Change
The proposed rule change, as
modified by Amendment No. 1, consists
of (i) proposed amendments to Rule G–
10, on delivery of investor brochure,
Rule G–8, on books and records to be
made by brokers, dealers, and municipal
securities dealers and municipal
advisors, and Rule G–9, on preservation
of records, and (ii) a proposed MSRB
notice regarding electronic delivery and
receipt of information by municipal
advisors under Rule G–32, on
disclosures in connection with primary
offerings.7
Following the financial crisis of 2008,
Congress enacted the Dodd-Frank Wall
Street Reform and Consumer Protection
Act (the ‘‘Dodd-Frank Act’’).8 The DoddFrank Act amended Section 15B of the
Exchange Act to establish a new federal
regulatory regime requiring municipal
advisors to register with the
Commission, deeming them to owe a
fiduciary duty to their municipal entity
clients and granting the MSRB
rulemaking authority over them. The
MSRB, in the exercise of that
rulemaking authority, has been
developing a comprehensive regulatory
dated December 9, 2016 (the ‘‘PIABA Letter’’);
Susan Gaffney, Executive Director, National
Association of Municipal Advisors (‘‘NAMA’’),
dated December 12, 2016 (the ‘‘NAMA Letter’’); and
Leo Karwejna, Chief Compliance Officer and Cheryl
Maddox, General Counsel, Public Financial
Management, Inc. and PFM Financial Advisors LLC
(collectively, ‘‘PFM’’), dated December 13, 2016 (the
‘‘PFM Letter’’).
5 See Letter to Secretary, Commission, from
Pamela K. Ellis, Associate General Counsel, MSRB,
dated January 10, 2017 (the ‘‘MSRB Response
Letter’’), available at https://www.sec.gov/
comments/sr-msrb-2016-15/msrb201615-1473509130471.pdf.
6 See Letter to Secretary, Commission, from
Pamela K. Ellis, Associate General Counsel, MSRB,
dated January 10, 2017, available at https://
www.sec.gov/comments/sr-msrb-2016-15/
msrb201615-1473522-130450.pdf. In Amendment
No. 1, the MSRB partially amended the text of the
proposed rule change to provide certain
clarifications relating to the notifications that would
be provided by municipal advisors to their
municipal advisory clients and to the terms used
with the recordkeeping of municipal advisory client
complaints, to extend the proposed effective date,
and to make other technical changes to clarify or
simplify rule text.
7 See Notice of Filing.
8 Public Law No. 111–203, 124 Stat. 1376 (2010).
PO 00000
Frm 00116
Fmt 4703
Sfmt 4703
framework for municipal advisors and
their associated persons.9
Further, and concurrent with its
efforts to develop a comprehensive
regulatory framework for municipal
advisors and their associated persons,
the MSRB initiated a review of its rules
and related interpretive guidance for
brokers, dealers and municipal
securities dealers (collectively,
‘‘dealers’’) and municipal advisors
(municipal advisors, together with
dealers, ‘‘regulated entities’’). The
MSRB initiated that review in the
context of the Board’s obligation to
protect investors, municipal entities,
obligated persons, and the public
interest. As part of that review, the
MSRB solicited comments from market
participants.10 In response, market
participants recommended that the
Board update Rule G–10.11 The MSRB
has stated that the proposed rule
change, as modified by Amendment No.
1, consisting of amendments to Rule G–
10 and its related recordkeeping rules,
Rules G–8 and G–9, and guidance under
Rule G–32, is an important element of
both MSRB regulatory initiatives.12
To extend its customer complaint and
recordkeeping rules to municipal
advisors and to modernize those rules,
the Board filed the proposed rule
change, as modified by Amendment No.
1, with the Commission. Specifically,
9 MSRB Rule D–11 defines ‘‘associated persons’’
as follows:
Unless the context otherwise requires or a rule of
the Board otherwise specifically provides, the terms
‘‘broker,’’ ‘‘dealer,’’ ‘‘municipal securities broker,’’
‘‘municipal securities dealer,’’ ‘‘bank dealer,’’ and
‘‘municipal advisor’’ shall refer to and include their
respective associated persons. Unless otherwise
specified, persons whose functions are solely
clerical or ministerial shall not be considered
associated persons for purposes of the Board’s rules.
10 MSRB Notice 2012–63, Request for Comment
on MSRB Rules and Interpretive Guidance (Dec. 18,
2012).
11 See, e.g., Letter from David L. Cohen, Managing
Director and Associate General Counsel, Securities
Industry and Financial Markets Association, dated
February 19, 2013, to Ronald W. Smith, Corporate
Secretary, Municipal Securities Rulemaking Board
(commenting that (i) the requirement to deliver an
investor brochure under Rule G–10 should be
eliminated, (ii) the investor brochure is of limited
value, if any, to institutional investors as well as
investors in municipal fund securities, and (iii)
alternatively, the MSRB could accomplish the
objective of Rule G–10 by posting the investor
brochure on its Web site); Letter from Gerald K.
Mayfield, Senior Counsel, Wells Fargo & Company
Law Department, dated February 19, 2013, to
Ronald W. Smith, Corporate Secretary, Municipal
Securities Rulemaking Board (commenting that (i)
the requirement to deliver an investor brochure
under Rule G–10 should be eliminated, (ii) the
investor brochure is of limited value, if any, to
institutional investors as well as investors in
municipal fund securities, and (iii) alternatively,
the MSRB could accomplish the objective of Rule
G–10 by posting the investor brochure on its Web
site).
12 See Notice of Filing.
E:\FR\FM\23JAN1.SGM
23JAN1
]]>Agencies
[Federal Register Volume 82, Number 13 (Monday, January 23, 2017)]
[Notices]
[Pages 7891-7898]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-01296]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79792; File No. SR-NYSEARCA-2016-176]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating to the Listing and Trading of Shares
of the EtherIndex Ether Trust Under NYSE Arca Equities Rule 8.201
January 13, 2017.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on December 30, 2016, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the Exchange. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C.78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade shares of the following
under NYSE Arca Equities Rule 8.201: EtherIndex Ether Trust
(``Trust''). The proposed rule change is available on the Exchange's
Web site at www.nyse.com, at the principal office of the Exchange, and
at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
Under NYSE Arca Equities Rule 8.201, the Exchange may propose to
list and/or trade pursuant to unlisted trading privileges (``UTP'')
``Commodity-Based Trust Shares.'' \4\ The Exchange proposes to list and
trade shares (``Shares'') of the Trust pursuant to NYSE Arca Equities
Rule 8.201.\5\
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\4\ Commodity-Based Trust Shares are securities issued by a
trust that represent investors' discrete identifiable and undivided
beneficial ownership interest in the commodities deposited into the
Trust.
\5\ On November 28, 2016, the Trust filed an amended
registration statement (``Registration Statement'') on Form S-1
under the Securities Act of 1933 (15 U.S.C. 77a) (File No. 333-
212533). The descriptions of the Trust, the Shares and ether
contained herein are based, in part, on the Registration Statement.
---------------------------------------------------------------------------
The sponsor of the Trust is EtherIndex LLC (``Sponsor''), a
Delaware limited liability company. Delaware Trust Company is the
trustee of the Trust (``Trustee''). The Bank of New York Mellon will be
the administrator (``Administrator'') and custodian of cash of the
Trust (``Cash Custodian''). Coinbase will be the custodian of the ether
of the Trust (``Ether Custodian'').
According to the Registration Statement, each Share will represent
a unit of fractional undivided beneficial interest in and ownership of
the Trust. The activities of the Trust will be limited to (i) issuing
``Baskets'' (as described below) to ``Authorized Participants'' (as
described below) in exchange for the cash or, in the Sponsor's
discretion, ether (as described below), (ii) selling ether or
transferring ether, at the Sponsor's discretion, as necessary to cover
the Sponsor's fee and as necessary to pay Trust expenses not assumed by
the Sponsor and other liabilities, (iii) selling or transferring ether
in exchange for Baskets surrendered for redemption by the Authorized
Participants, (iv) causing the Administrator to sell ether on the
termination of the Trust and (v) engaging in all administrative and
custodial procedures necessary to accomplish such activities in
accordance with the provisions of relevant agreements.
According to the Registration Statement, the Trust is neither an
investment company registered under the Investment Company Act of 1940,
as amended,\6\ nor a commodity pool for purposes of the Commodity
Exchange Act (``CEA''),\7\ and neither the Sponsor nor the Trustee is
subject to regulation as a commodity pool operator or a commodity
trading adviser in connection with the operation of the Trust.
---------------------------------------------------------------------------
\6\ 15 U.S.C. 80a-1.
\7\ 17 U.S.C. 1.
---------------------------------------------------------------------------
Investment Objective
According to the Registration Statement and as further described
below, the Trust's purpose will be to provide shareholders with
exposure to the daily change in the U.S. dollar price of ether, before
expenses and liabilities of the Trust, as measured by the price of
ether in U.S. dollars as reported by the Global Digital Asset Exchange
(``GDAX'') as of 4:00 p.m., Eastern Time (``E.T.''), each day (``GDAX
Price'').
The Trust will not be actively managed. It will not engage in any
activities designed to obtain a profit from, or to ameliorate losses
caused by, changes in the market prices of ether.
Ether and the Ethereum Network
According to the Registration Statement, ether is a digital asset
similar to bitcoin. It is not issued by any government, bank or central
organization but rather is issued by, and transmitted through, the
decentralized, open source protocol of the peer-to-peer Ethereum
computer network (``Ethereum Network''). The Ethereum Network is a
decentralized network of computers that run applications on a custom
built ``blockchain'' (``Ethereum Blockchain'') that enables developers
to create markets, store registries of debts or promises, represent the
ownership of property and move funds in accordance with instructions
given in the past, all without the involvement of an intermediary or
counterparty. The Ethereum Blockchain is a decentralized public
transaction ledger hosted on the Ethereum Network on which all ether is
recorded; the blockchain records ether balances and every ether address
associated with a quantity of ether (see ``Ethereum Blockchain''
below). No single entity owns or operates the Ethereum Network.
According to the Registration Statement, unlike bitcoin, ether was
not designed to function purely as a store of value. Instead, ether was
meant to pay for specific actions on the Ethereum Network. However,
ether's market is
[[Page 7892]]
currently supported by many of the same online exchanges and the same
infrastructure that has developed around the bitcoin network. Users who
have historically purchased bitcoin on online exchange platforms can
now buy ether on these Web sites. Ether can be converted to fiat
currencies, such as the U.S. dollar, or to bitcoin, at rates determined
on ether exchanges or in individual end-user-to-end-user transactions
under a barter system. Each ether transaction is broadcast to the
Ethereum Network and recorded in the Ethereum Blockchain.
According to the Registration Statement, unlike bitcoin, which has
a fixed limit of 21,000,000 bitcoin, no limit has been established on
the total supply of ether. The initial creation of ether was in
connection with a crowd funding transaction in 2014 in which 60,000,000
ether were pre-sold. Another 12,000,000 ether were created for the
benefit of a development fund. All additional ether have been and will
be created through the ``mining'' process (see ``Ether Blockchain''
below). According to the terms of the 2014 presale, the issuance of
ether from mining is capped at 18,000,000 ether per year. According to
the Registration Statement, it has been reported that approximately
9,700,000 million ether have been created to date through the mining
process.
Ethereum Blockchain
According to the Registration Statement, the Ethereum Blockchain is
a record of every ether transaction (including the creation or
``mining'' of new ether) and every Ethereum Network public address
associated with a quantity of ether. A beta version of the live
blockchain was publicly launched in July 2015, and the initial
production version was launched in March 2016.
The Ethereum Blockchain is comprised of a digital file, downloaded
and stored, in whole or in part, on all Ethereum Network users'
software programs. The Ethereum Network software can interpret the
Ethereum Blockchain to determine the exact ether balance, if any, of
any public ether address listed in the Ethereum Blockchain which has
taken part in a transaction on the Ethereum Network.
Mining is the act of using a computer to run computations designed
to help build the next block in the Ethereum Blockchain. As a computer
solves a complex computational calculation related to the building of a
block, its owner is rewarded with ether.\8\ The Ethereum Blockchain
includes all blocks that have been solved by miners and is updated to
include new blocks as they are solved. As each newly solved block
refers back to and connects with the immediately prior solved block,
the addition of a new block adds to the Ethereum Blockchain in a manner
similar to a new link being added to a chain. Each new block records
outstanding ether transactions, and outstanding transactions are
settled and validated through such recording. Therefore, the Ethereum
Blockchain represents a complete, transparent and unbroken history of
all transactions of the Ethereum Network.
---------------------------------------------------------------------------
\8\ Attached as Exhibit 3, Item 1 is a chart illustrating the
supply growth of ether during the period October 2015 through
October 2016.
---------------------------------------------------------------------------
According to the Registration Statement, in June 2016, the DAO, a
decentralized autonomous organization using the Ethereum Network, was
hacked, resulting in a loss to that organization of approximately 3.6
million ether. In response to this loss, the Ethereum community agreed
to create a new ``hard fork'' on the Ethereum Blockchain which returned
the lost ether to the DAO. A hard fork is a change to the underlying
Ethereum protocol, which creates new rules for the Ethereum system; all
Ethereum clients needed to upgrade, otherwise they would remain on the
old blockchain. In creating the hard fork, the intent was to have all
users of the Ethereum Network migrate to the new fork, rendering the
ether on the old blockchain held by the DAO hacker useless. However, a
number of users have continued to develop the old blockchain, now
referred to as ``Ethereum Classic,'' resulting in a separate version of
ether referred to as ``ether classic.'' Ether classic is now traded on
several crypto currency exchanges. The Shares will provide shareholders
with exposure to the daily change in the U.S. dollar price of ether,
before expenses and liabilities of the Trust, as measured by the GDAX
Price and not the price of ether classic.
Uses of Ether Blockchain
According to the Registration Statement, the Ethereum Blockchain is
a general-purpose, global blockchain that can govern both financial and
non-financial types of application states. Ether can be used to pay for
goods and services or can be converted to fiat currencies, such as the
U.S. dollar, at rates determined on ether exchanges (``Ether
Exchange'') \9\ or in individual end-user-to-end-user transactions
under a barter system.\10\ An ether private key controls the transfer
or ``spending'' of ether from its associated public ether address. An
ether ``wallet'' is a collection of private keys and their associated
public ether addresses.
---------------------------------------------------------------------------
\9\ An Ether Exchange is an online marketplace with a central
limit order book, where market participants may buy, sell and trade
ether. The largest Ether Exchanges are typically open on a 24-hour
per day, seven-days per week basis, and publish public market data
such as transaction price and volume data. Examples of Ether
Exchanges are: (i) Coinbase, a digital currency wallet and platform
based in San Francisco where merchants and consumers can transact
with certain digital currencies; (ii) Kraken, an online exchange
based in San Francisco; (iii) Bitfinex, an online exchange founded
in Hong Kong; and (iv) Gemini, a New York-based online exchange that
has obtained a BitLicense from the New York Department of Financial
Services.
\10\ Attached as Exhibit 3, Item 2 is a chart setting forth a
summary of the daily number of ether transactions (i.e., transfers
of ether between parties on the Ethereum Network, which is different
than and should not be confused with ether exchange-traded volume)
from October 2015 through October 2016.
---------------------------------------------------------------------------
According to the Registration Statement, while the bitcoin network
permits users primarily to execute value transfers, the Ethereum
Network allows users to program any arbitrary code and execute it,
including value transfers. Accordingly, the Ethereum Network may be
viewed as a global, decentralized computer in comparison to the bitcoin
network, which is more similar to a global, decentralized payment
network. In addition to value transfers, the Ethereum Network enables
decentralized business logic, known as ``smart contracts.'' A smart
contract is a collection of code (its functions) and data (its state)
that resides at a specific address on the Ethereum Blockchain. Smart
contracts can interact with other contracts, make decisions, store data
and send ether to others. Smart contracts are capable of automatically
enforcing the terms of a given agreement among a number of parties.
This code can define strict rules and consequences in the same way that
a traditional legal document would, stating the obligations, benefits
and penalties which may be due to either party in various different
circumstances. But, unlike a traditional contract, it can also take
information as an input, process that information through the rules set
out in the contract and take any actions required of it as a result.
Custody of the Trust's Ether
According to the Registration Statement, the private keys that
control the Trust's ether will be secured by the Ether Custodian and
stored completely offline in a ``cold storage'' system. The Ether
Custodian's cold storage system is founded on the principles of (i)
building
[[Page 7893]]
defense-in-depth against external threats, (ii) protecting against
human error and (iii) guarding against misuse of insider access. The
Ether Custodian's cold storage mechanism involves generating private
keys on an ``air-gapped'' computer, i.e., a computer that has never
been connected to the internet, then splitting these keys into segments
using a special algorithm to ensure no one individual knows how the key
was fragmented, and finally distributing these fragments geographically
so no one entity can access the cold storage without the other
individuals contributing their fragment of the key. The Ether Custodian
maintains insurance against theft and electronic compromise in an
amount that exceeds the average value of ether and bitcoin that it
holds online at any one time.
The Ether Custodian will maintain approximately three times the
average of the expected creation and redemption Baskets in ether at all
times in a ``hot wallet,'' which is connected to the internet, in order
to provide fast access to withdrawal when needed. The average ether
amount to be held in the hot wallet will initially be determined by the
Sponsor and Authorized Participants. The Sponsor may direct the Ether
Custodian to transfer ether from the cold storage system to the hot
wallet if additional ether is required for creation and redemption
Baskets. It is anticipated that less than five percent of the Trust's
ether will be held in the hot wallet. The Ether Custodian will maintain
the Trust's remaining ether in its cold storage system and will hold
the Trust's ether in the Trust's ether custody account. The Ether
Custodian will segregate the Trust's ether which will be held in unique
Ethereum Network public addresses with balances that can be directly
verified on the Ethereum Blockchain.
According to the Registration Statement, each Custodian will
accept, on behalf of the Trust, cash or the delivery of ether from
Authorized Participants into the Trust's custody accounts creation
orders. In order for an Authorized Participant to redeem a Basket and
receive cash or a distribution of ether from the Trust, the Custodians,
upon receiving instructions from the Administrator, will sign
transactions necessary to transfer ether out of the Trust's ether
custody account for sale or to distribute the ether to the Ethereum
Network public address specified by the Authorized Participant.
According to the Registration Statement, the Sponsor will engage an
independent audit firm to periodically audit the Ether Custodian's
storage of private keys and its internal controls and report to the
Sponsor at least annually on such matters. Additionally, the Sponsor
will engage an independent audit firm to biannually verify that the
Ether Custodian can demonstrate ``proof of control'' of the private
keys that control the Trust's ether. One such ``proof of control''
audit will be conducted at the end of each calendar year and the other
at random.
Ether Market Price
According to the Registration Statement, the value of ether is
determined by the value that various market participants place on ether
through their transactions. The most common means of determining the
value of ether is by surveying one or more Ether Exchanges where ether
is traded publicly and transparently (e.g., GDAX, Poloniex or
Kraken).\11\ On each online Ether Exchange, ether is traded with
publicly disclosed valuations for each executed trade, measured by one
or more fiat currencies such as the U.S. dollar or euro or by the
widely used digital asset bitcoin.
---------------------------------------------------------------------------
\11\ Attached as Exhibit 3, Item 3 is a chart comparing the
ether price on Coinbase, Kraken, Gemini, Poloniex, Cexlo and
Bitfinex during the period May 27, 2016 through October 21, 2016.
Attached as Exhibit 3, Item 4 is a chart comparing the ether price,
in 15 minute intervals, on Coinbase, Kraken and Bitfinex during the
period of November 21, 2016 and into November 22, 2016.
---------------------------------------------------------------------------
According to the Trust, since its initial trading, ether has
experienced one-day (i.e., the greatest one-day change in ether price
experienced on any trading day), one-month (i.e., the greatest change
in ether price experienced during any calendar month), one-year (i.e.,
the greatest change in ether price experienced during any calendar
year) and since-inception \12\ changes of 67.5% (or $2.93), 214.8% (or
$2.04), 2,748.5% (or $20.56) and 32,416% (or $21.33), respectively. All
changes listed represent increases in the price of ether.\13\
---------------------------------------------------------------------------
\12\ For purposes of this data, the Trust has used August 8,
2015 as the inception date.
\13\ Attached as Exhibit 3, Item 5 is a chart illustrating the
changes in the price of ether during the period September 2015 into
October 2016. Attached as Exhibit 3, Item 6 is a chart comparing
three-month volatility in the price of ether compared to three-month
volatility in the prices of bitcoin, gold, silver, WTI crude oil,
copper, natural gas, soybeans and coffee (``Comparison
Commodities'') during the period July 2016 through September 2016.
Attached as Exhibit 3, Item 7 is a chart comparing the six-month
volatility in the price of ether compared to the six-month
volatility in the prices of the Comparison Commodities during the
period April 2016 through September 2016. Attached as Exhibit 3,
Item 8 is a chart comparing the twelve-month volatility in the price
of ether compared to the twelve-month volatility in the prices of
the Comparison Commodities during the period October 2016 through
September 2016.
---------------------------------------------------------------------------
The Trust
According to the Registration Statement, the Trust's assets will
consist of ether. The Trust will occasionally hold cash for short
periods in connection with the creation and redemption process, and to
pay certain fees, expenses and liabilities. The ether held by the Ether
Custodian on behalf of the Trust will only be transferred out of the
Trust's ether custody account in the following circumstances: (i)
Transferred to pay the Sponsor's fee; (ii) transferred to be sold for
cash or distributed to Authorized Participants in connection with the
redemption of Baskets; (iii) transferred to the Trust's expense account
to be sold on an as-needed basis to pay Trust expenses not assumed by
the Sponsor; or (iv) sold on behalf of the Trust in the event the Trust
terminates and liquidates its assets or as otherwise required by law or
regulation.
According to the Registration Statement, while the Sponsor will not
exercise day-to-day oversight over the Trust, the Sponsor will engage
the Administrator and the Custodians to assist in implementing the
creation and redemption process for the Trust. The Sponsor will assume
certain administrative and marketing expenses incurred by the Trust.
The Trust will pay the Sponsor a fee.
Net Asset Value
On each business day, the Administrator will calculate the net
asset value (``NAV'') of the Trust as measured at 4:00 p.m., E.T.,
using the GDAX Price. The NAV of the Trust is the asset value of the
Trust less its liabilities (which include accrued but unpaid fees and
expenses) divided by the number of outstanding Shares as of 4:00 p.m.,
E.T., each business day.
In the event that the GDAX Price is unavailable or the Sponsor
determines that the GDAX Price is not an appropriate basis for
evaluation of the Trust's ether, the Sponsor will instruct the
Administrator to use as an alternative basis for calculating the
Trust's NAV either (i) the price of ether in U.S. dollars as reported
by Kraken Bitcoin Exchange as measured at 4:00 p.m., E.T., on each
business day, (ii) if the Sponsor determines that the Kraken Bitcoin
Exchange price is not an appropriate basis for evaluation of the
Trust's ether, the price of ether in U.S. dollars as reported by the
Gemini Exchange as measured at the 4:00 p.m., E.T., on each business
day or (iii) if the Sponsor determines that the Kraken Bitcoin Exchange
and the Gemini
[[Page 7894]]
Exchange prices are not appropriate bases for evaluation of the Trust's
ether, the Sponsor's good faith estimate of the market price of ether.
Any determination that the GDAX Price or the price on the other
exchanges mentioned above is not an appropriate basis for calculating
the Trust's NAV would be based upon extraordinary criteria, such as a
disruption in the operation of the exchange, material reporting or
calculation inaccuracies by the exchange or a material decrease in
trading volume not experienced by other exchanges. In determining fair
market value for ether, the Sponsor may consider the market price for
ether on other Ether Exchanges or in other forums for which ether
prices are published publicly.
The Sponsor will publish the Trust's NAV on the Trust's Web site as
soon as practicable after calculation by the Administrator. To the
extent that the NAV has been calculated using a price per ether other
than the GDAX Price for such business day, the publication on the
Trust's Web site will note the valuation methodology and the price per
ether resulting from such calculation.
According to the Registration Statement, Authorized Participants,
or their clients or customers, may have an opportunity to realize a
riskless profit if they can create a Basket at a discount to the public
trading price of the Shares or can redeem a Basket at a premium over
the public trading price of the Shares. The Sponsor expects that the
exploitation of such arbitrage opportunities by Authorized Participants
and their clients and customers will tend to cause the public trading
price to track the NAV closely over time.
Creation and Redemption of Shares
According to the Registration Statement, the Trust will issue and
redeem Baskets, each equal to a block of 10,000 Shares, principally in
exchange for the delivery to the Trust or the distribution by the Trust
of the amount of cash, or at the discretion of the Sponsor, ether
represented by the NAV of the Baskets being created or redeemed, the
amount of which will be based on the combined ether represented by the
number of Shares included in the Baskets being created or redeemed
determined on the day the order to create or redeem Baskets is properly
received. The Trust will issue and redeem Shares in Baskets to and from
Authorized Participants. The size of a Basket is subject to change.
Orders to create and redeem Baskets may be placed only by
Authorized Participants.\14\ A transaction fee may be imposed to offset
transfer and other transaction costs associated with creation or
redemption.
---------------------------------------------------------------------------
\14\ An Authorized Participant must: (1) Be a registered broker-
dealer or other securities market participant, such as a bank or
other financial institution, which is not required to register as a
broker-dealer to engage in securities transactions and (2) be a
participant in Depository Trust Company (``DTC''). To become an
Authorized Participant, a person must enter into an ``Authorized
Participant Agreement'' with the Administrator and the Sponsor on
behalf of the Trust. The Authorized Participant Agreement provides
the procedures for the creation and redemption of Baskets as well as
the amount of ether required for delivery or distribution for such
creations and redemptions.
---------------------------------------------------------------------------
Creation Procedures
On any business day, an Authorized Participant may place an order
with the Transfer Agent to create one or more Baskets. Purchase orders
must be placed by 1:00 p.m., E.T. The day on which the Transfer Agent
receives a valid purchase order is the purchase order date. Purchase
orders are irrevocable.
The total payment required to create each Basket is determined by
calculating the NAV of 10,000 Shares as of the closing time of the NYSE
Arca on the purchase order date. Baskets will be issued as of 9:30
a.m., E.T., on the business day immediately following the purchase
order date at the applicable NAV as of the closing time of NYSE Arca on
the purchase order date, but only if the required payment has been
timely received.
Orders to purchase Baskets must be placed no later than 1:00 p.m.,
E.T., but the total payment required to create a Basket will not be
determined until 4:00 p.m., E.T., on the date the purchase order is
received. Authorized Participants therefore will not know the total
amount of the payment required to create a Basket at the time they
submit an irrevocable purchase order for the Basket.
The payment required to create a Basket typically will be made in
cash, but it may also be made partially or wholly in-kind at the
discretion of the Sponsor if the Authorized Participant requests to
convey ether directly to the Trust. To the extent the Authorized
Participant places an in-kind order to create, the Authorized
Participant must deliver ether directly to the Ether Custodian and an
amount of cash (or ether) referred to as the Balancing Amount \15\ each
no later than 1:00 p.m., E.T., on the date the purchase order is
received. The amount of ether delivered by the Authorized Participant
must be in an amount equal to the number of ether necessary to create a
Basket as of 4:00 p.m., E.T., on the date the purchase order is
received. Upon delivery of the ether to the Ether Custodian and the
Balancing Amount to the Cash Custodian (or the ether component of the
Balancing Amount, if applicable, to the Ether Custodian), the
Administrator will cause the Trust to issue a Basket to the Authorized
Participant.
---------------------------------------------------------------------------
\15\ The Balancing Amount is an amount equal to the difference
between the NAV of the Shares (per Basket) and the ``Deposit
Amount,'' which is an amount equal to the market value of ether (per
Basket) which, for this purpose, is calculated in the same manner as
the Trust values ether. The Balancing Amount serves to compensate
for any difference between the NAV per Basket and the Deposit
Amount.
---------------------------------------------------------------------------
According to the Registration Statement, the Sponsor acting by
itself or through the Administrator may reject a creation order if: (i)
It is not in proper form; (ii) it is determined by the Sponsor not to
be in the best interest of the shareholders; (iii) the acceptance or
receipt of the creation order would have adverse tax consequences to
the Trust or shareholders; (iv) the acceptance or receipt of the
creation order would, in the opinion of counsel to the Sponsor, be
unlawful; (v) if circumstances outside the control of the Sponsor or
its designee make it, for all practical purposes, not feasible, as
determined by the Sponsor in its sole discretion, to process creations
of Baskets; or (vi) for any other reason set forth in the Authorized
Participant Agreement entered into with that Authorized Participant.
Redemption Procedures
According to the Registration Statement, the procedures by which an
Authorized Participant can redeem one or more Baskets will mirror the
procedures for the creation of Baskets. On any business day, an
Authorized Participant may place an order with the Transfer Agent to
redeem one or more Baskets. Redemption orders must be placed no later
than 1:00 p.m., E.T. The day on which the Transfer Agent receives a
valid redemption order is the redemption order date. Redemption orders
are irrevocable. By placing a redemption order, an Authorized
Participant agrees to deliver the Baskets to be redeemed through DTC's
book-entry system to the Trust not later than 1:00 p.m., E.T., on the
business day immediately following the redemption order date.
The redemption proceeds from the Trust consist of the ``cash
redemption amount'' and, if making an in-kind redemption, ether. The
cash redemption amount is equal to the NAV of the number of Baskets of
the Trust requested in the Authorized
[[Page 7895]]
Participant's redemption order as of the closing time of NYSE Arca on
the redemption order date. The Cash Custodian will distribute the cash
redemption amount at 4:00 p.m., E.T., on the business day immediately
following the redemption order date through DTC to the account of the
Authorized Participant as recorded on DTC's book-entry system. At the
discretion of the Sponsor and if the Authorized Participant requests to
receive ether directly, some or all of the redemption proceeds may be
distributed to the Authorized Participant in-kind.
The redemption proceeds due from the Trust are delivered to the
Authorized Participant at 4:00 p.m., E.T., on the business day
immediately following the redemption order date if, by such time on
such business day immediately following the redemption order date, the
Trust's DTC account has been credited with the Baskets to be redeemed.
If the Trust's DTC account has not been credited with all of the
Baskets to be redeemed by such time, the redemption distribution will
be delivered to the extent of whole Baskets received. Any remainder of
the redemption distribution is delivered on the next business day to
the extent of remaining whole Baskets received if the Sponsor receives
the fee applicable to the extension of the redemption distribution date
which the Sponsor may, from time to time, determine and the remaining
Baskets to be redeemed are credited to the Trust's DTC account by 4:00
p.m., E.T., on such next business day. Any further outstanding amount
of the redemption order shall be cancelled.
To the extent that Authorized Participant places an in-kind order
to redeem a Basket, the Ether Custodian will deliver, on the business
day immediately following the day the redemption order is received,
ether to the Authorized Participant in an amount equal to the number of
ether necessary to redeemed [sic] a Basket as of 4:00 p.m., E.T.
Availability of Information
The Trust's Web site will provide an intra-day indicative value
(``IIV'') per Share updated every 15 seconds, as calculated by the
Exchange or a third party financial data provider during the Exchange's
Core Trading Session. The IIV will be calculated by using the prior
day's closing NAV per Share as a base and updating that value during
the NYSE Arca Core Trading Session to reflect changes in the value of
the Trust's ether holdings during the trading day.
The IIV disseminated during the NYSE Arca Core Trading Session
should not be viewed as an actual real-time update of the NAV, which
will be calculated only once at the end of each trading day. The IIV
will be widely disseminated on a per Share basis every 15 seconds
during the NYSE Arca Core Trading Session by one or more major market
data vendors. In addition, the IIV will be available through on-line
information services.
The Web site for the Trust, which will be publicly accessible at no
charge, will contain the following information: (a) The current NAV per
Share daily and the prior business day's NAV and the reported closing
price; (b) the mid-point of the bid-ask price \16\ in relation to the
NAV as of the time the NAV is calculated (``Bid-Ask Price'') and a
calculation of the premium or discount of such price against such NAV;
(c) data in chart form displaying the frequency distribution of
discounts and premiums of the Bid-Ask Price against the NAV, within
appropriate ranges for each of the four previous calendar quarters (or
for the life of the Trust, if shorter); (d) the prospectus; and (e)
other applicable quantitative information. The Trust will also
disseminate the Trust's holdings on a daily basis on the Trust's Web
site. The price of ether will be made available by one or more major
market data vendors, updated at least every 15 seconds during the
Exchange's Core Trading Session.
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\16\ The bid-ask price of the Trust is determined using the
highest bid and lowest offer on the Consolidated Tape as of the time
of calculation of the closing day NAV.
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The NAV for the Trust will be calculated by the Administrator once
a day and will be disseminated daily to all market participants at the
same time. In addition, ether prices are available from automated
quotation systems, published or other public sources or on-line
information services. Quotation and last-sale information regarding the
Shares will be disseminated through the facilities of the Consolidated
Tape Association (``CTA'').
Quotation and last sale information for ether will be widely
disseminated through a variety of major market data vendors. The spot
price of ether is available on a 24-hour basis from major market data
vendors. Information relating to trading, including price and volume
information, in ether will be available from major market data vendors
and from the exchanges on which ether are traded. The normal trading
hours for ether exchanges are 24-hours per day, 365-days per year.
The Trust will provide Web site disclosure of its ether holdings
daily. The Web site disclosure of the Trust's portfolio composition
will occur at the same time as the disclosure by the Sponsor of the
portfolio composition to Authorized Participants so that all market
participants are provided portfolio composition information at the same
time. Therefore, the same portfolio information will be provided on the
public Web site as well as in electronic files provided to Authorized
Participants. Accordingly, each investor will have access to the
current portfolio composition of the Trust through the Trust's Web
site.
Trading Rules
The Trust will be subject to the criteria in NYSE Arca Equities
Rule 8.201, including 8.201(e), for initial and continued listing of
the Shares. A minimum of 100,000 Shares will be required to be
outstanding at the start of trading. With respect to application of
Rule 10A-3 under the Act, the Trust will rely on the exception
contained in Rule 10A-3(c)(7). The Exchange believes that the
anticipated minimum number of Shares outstanding at the start of
trading is sufficient to provide adequate market liquidity.
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Trading in the Shares
on the Exchange will occur in accordance with NYSE Arca Equities Rule
7.34(a). The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions. As provided in NYSE Arca
Equities Rule 7.6, the minimum price variation (``MPV'') for quoting
and entry of orders in equity securities traded on the NYSE Arca
Marketplace is $0.01, with the exception of securities that are priced
less than $1.00 for which the MPV for order entry is $0.0001.
Further, NYSE Arca Equities Rule 8.201 sets forth certain
restrictions on Equity Trading Permit Holders (``ETP Holders'') acting
as registered Market Makers in the Shares to facilitate surveillance.
Pursuant to NYSE Arca Equities Rule 8.201(g), an ETP Holder acting as a
registered Market Maker in the Shares is required to provide the
Exchange with information relating to its trading in the underlying
ether. Commentary .04 of NYSE Arca Equities Rule 6.3 requires an ETP
Holder acting as a registered Market Maker, and its affiliates, in the
Shares to establish, maintain and enforce written policies and
procedures reasonably designed to prevent the misuse of any material,
[[Page 7896]]
nonpublic information with respect to such products, any components of
the related products, any physical asset or commodity underlying the
product, applicable currencies, underlying indexes, related futures or
options on futures and any related derivative instruments (including
the Shares).
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares. Trading on the Exchange in the Shares may be
halted because of market conditions or for reasons that, in the view of
the Exchange, make trading in the Shares inadvisable. In addition,
trading in Shares will be subject to trading halts caused by
extraordinary market volatility pursuant to the Exchange's ``circuit
breaker''rule.\17\
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\17\ See NYSE Arca Equities Rule 7.12.
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The Exchange will halt trading in the Shares if the NAV of the
Trust is not calculated or disseminated daily. The Exchange may halt
trading during the day in which an interruption occurs to the
dissemination of the IIV. If the interruption to the dissemination of
the IIV persists past the trading day in which it occurs, the Exchange
will halt trading no later than the beginning of the trading day
following the interruption. In addition, if the Exchange becomes aware
that the NAV with respect to the Shares is not disseminated to all
market participants at the same time, it will halt trading in the
Shares until such time as the NAV is available to all market
participants.
Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances administered by the Exchange, as
well as cross-market surveillances administered by the Financial
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange,
which are designed to detect violations of Exchange rules and
applicable federal securities laws.\18\ The Exchange represents that
these procedures are adequate to properly monitor Exchange trading of
the Shares in all trading sessions and to deter and detect violations
of Exchange rules and federal securities laws applicable to trading on
the Exchange.
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\18\ FINRA conducts cross market surveillances on behalf of the
Exchange pursuant to a regulatory services agreement. The Exchange
is responsible for FINRA's performance under this regulatory
services agreement.
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The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares with other
markets and other entities that are members of the Intermarket
Surveillance Group (``ISG''), and the Exchange or FINRA, on behalf of
the Exchange, or both, may obtain trading information regarding trading
in the Shares from such markets and other entities. In addition, the
Exchange may obtain information regarding trading in the Shares from
markets and other entities that are members of ISG or with which the
Exchange has in place a comprehensive surveillance sharing agreement
(``CSSA'').\19\
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\19\ For the list of current members of ISG, see https://www.isgportal.org/home.html.
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Also, pursuant to NYSE Arca Equities Rule 8.201(g), the Exchange is
able to obtain information regarding trading in the Shares and the
underlying ether through ETP Holders acting as registered Market
Makers, in connection with such ETP Holders' proprietary or customer
trades through ETP Holders which they effect on any relevant market.
The Exchange also has a general policy prohibiting the distribution
of material, non-public information by its employees.
All statements and representations made in this filing regarding
(i) the description of the portfolio and (ii) limitations on portfolio
holdings or reference assets shall constitute continued listing
requirements for listing the Shares on the Exchange. The issuer has
represented to the Exchange that it will advise the Exchange of any
failure by the Fund to comply with the continued listing requirements,
and, pursuant to its obligations under Section 19(g)(1) of the Act, the
Exchange will monitor for compliance with the continued listing
requirements. If the Fund is not in compliance with the applicable
listing requirements, the Exchange will commence delisting procedures
under NYSE Arca Equities Rule 5.5(m).
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its
ETP Holders in an ``Information Bulletin'' of the special
characteristics and risks associated with trading the Shares.
Specifically, the Information Bulletin will discuss the following: (1)
The procedures for purchases and redemptions of Shares in Baskets
(including noting that the Shares are not individually redeemable); (2)
NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence
on its ETP Holders to learn the essential facts relating to every
customer prior to trading the Shares; (3) how [sic] information
regarding how GDAX Price and the IIV are disseminated; (4) the
requirement that ETP Holders deliver a prospectus to investors
purchasing newly issued Shares prior to or concurrently with the
confirmation of a transaction; (5) the possibility that trading spreads
and the resulting premium or discount on the Shares may widen during
the Opening and Late Trading Sessions, when an updated IIV will not be
calculated or publicly disseminated; and (6) trading information.
In addition, the Information Bulletin will reference that the Trust
is subject to various fees and expenses as described in the
Registration Statement. The Information Bulletin will disclose that
information about the Shares of the Trust is publicly available on the
Trust's Web site.
The Information Bulletin will also discuss any relief, if granted,
by the Commission or the staff from any rules under the Act.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \20\ that an exchange have rules that
are designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
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\20\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in NYSE Arca Equities Rule
8.201. The Exchange has in place surveillance procedures that are
adequate to properly monitor trading in the Shares in all trading
sessions and to deter and detect violations of Exchange rules and
applicable federal securities laws. The Exchange or FINRA, on behalf of
the Exchange, or both, will communicate as needed regarding trading in
the Shares with other markets
[[Page 7897]]
that are members of the ISG, and the Exchange or FINRA, on behalf of
the Exchange, or both, may obtain trading information regarding trading
in the Shares from such markets. In addition, the Exchange may obtain
information regarding trading in the Shares from markets that are
members of ISG or with which the Exchange has in place a CSSA. Also,
pursuant to NYSE Arca Equities Rule 8.201(g), the Exchange is able to
obtain information regarding trading in the Shares and the underlying
ether through ETP Holders acting as registered Market Makers, in
connection with such ETP Holders' proprietary or customer trades
through ETP Holders which they effect on any relevant market.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that there is a considerable amount of ether price and ether market
information available on public Web sites and through professional and
subscription services. Investors may obtain on a 24-hour basis ether
pricing information based on the spot price for ether from various
financial information service providers. The closing price and
settlement prices of ether are readily available from the Ether
Exchanges and other publicly available Web sites. In addition, such
prices are published in public sources or on-line information services.
The Trust will provide Web site disclosure of its ether holdings daily.
Quotation and last-sale information regarding the Shares will be
disseminated through the facilities of the CTA. The IIV will be widely
disseminated on a per Share basis every 15 seconds during the NYSE Arca
Core Trading Session by one or more major market data vendors. In
addition, the IIV will be available through on-line information
services. The Exchange represents that the Exchange may halt trading
during the day in which an interruption to the dissemination of the IIV
occurs. If the interruption to the dissemination of the IIV persists
past the trading day in which it occurred, the Exchange will halt
trading no later than the beginning of the trading day following the
interruption. In addition, if the Exchange becomes aware that the NAV
with respect to the Shares is not disseminated to all market
participants at the same time, it will halt trading in the Shares until
such time as the NAV is available to all market participants. The NAV
per Share will be calculated daily and made available to all market
participants at the same time. One or more major market data vendors
will disseminate for the Trust on a daily basis information with
respect to the recent NAV per Share and Shares outstanding.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of exchange-traded product that will enhance
competition among market participants, to the benefit of investors and
the marketplace. As noted above, the Exchange has in place surveillance
procedures relating to trading in the Shares and may obtain information
via ISG from other exchanges that are members of ISG or with which the
Exchange has entered into a CSSA. In addition, as noted above,
investors will have ready access to information regarding the Trust's
ether holdings, IIV and quotation and last sale information for the
Shares.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange notes that the
proposed rule change will facilitate the listing and trading of an
additional type of exchange-traded product, and the first such product
based on ether, which will enhance competition among market
participants, to the benefit of investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(a) By order approve or disapprove such proposed rule change; or (b)
institute proceedings to determine whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. 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-2016-176 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 Number SR-NYSEARCA-2016-176. 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 the filing will also 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-2016-176 and should
be submitted on or before February 13, 2017.
[[Page 7898]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-01296 Filed 1-19-17; 8:45 am]
BILLING CODE 8011-01-P
