Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To List and Trade Shares of the GraniteShares Bitcoin ETF and the GraniteShares Short Bitcoin ETF, a Series of the GraniteShares ETP Trust, Under Rule 14.11(f)(4), Trust Issued Receipts, 2704-2712 [2018-00720]
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Federal Register / Vol. 83, No. 12 / Thursday, January 18, 2018 / Notices
Exchange notes that it operates in a
highly competitive market in which
market participants can readily favor
competing venues. In such an
environment, the Exchange must
continually review, and consider
adjusting, its fees and credits to remain
competitive with other exchanges. For
the reasons described above, the
Exchange believes that the proposed
rule change reflects this competitive
environment.
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
The foregoing rule change is effective
upon filing pursuant to Section
19(b)(3)(A) 30 of the Act and
subparagraph (f)(2) of Rule 19b–4 31
thereunder, because it establishes a due,
fee, or other charge imposed by the
Exchange.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 32 of the Act to
determine whether the proposed rule
change should be approved or
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:
sradovich on DSK3GMQ082PROD with NOTICES
Electronic Comments
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–NYSEAMER–2017–42. 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 website (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 website 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 also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NYSEAMER–2017–42 and
should be submitted on or before
February 8, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.33
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–00723 Filed 1–17–18; 8:45 am]
BILLING CODE 8011–01–P
• 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–
NYSEAMER–2017–42 on the subject
line.
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
32 15 U.S.C. 78s(b)(2)(B).
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82484; File No. SR–
CboeBZX–2018–001]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing of
a Proposed Rule Change To List and
Trade Shares of the GraniteShares
Bitcoin ETF and the GraniteShares
Short Bitcoin ETF, a Series of the
GraniteShares ETP Trust, Under Rule
14.11(f)(4), Trust Issued Receipts
January 11, 2018.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on January 5,
2018, Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) filed with the
Securities and Exchange Commission
(‘‘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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange filed a proposal to list
and trade shares of the GraniteShares
Bitcoin ETF and the GraniteShares
Short Bitcoin ETF (each a ‘‘Fund’’ and,
collectively, the ‘‘Funds’’), a series of
the GraniteShares ETP Trust (the
‘‘Trust’’), under Rule 14.11(f)(4) (‘‘Trust
Issued Receipts’’). The shares of the
Funds are referred to herein as the
‘‘Shares.’’
The text of the proposed rule change
is available at the Exchange’s website at
www.markets.cboe.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
Exchange 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 these
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.
30 15
31 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
18JAN1
Federal Register / Vol. 83, No. 12 / Thursday, January 18, 2018 / Notices
(A) Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
sradovich on DSK3GMQ082PROD with NOTICES
1. Purpose
The Exchange proposes to list and
trade shares of the GraniteShares
Bitcoin ETF (the ‘‘Long Fund’’) and the
GraniteShares Short Bitcoin ETF (the
‘‘Short Fund’’) under Rule 14.11(f)(4),
which governs the listing and trading of
Trust Issued Receipts 3 on the
Exchange.4
The Shares will be offered by the
Trust, which was established as a
Delaware statutory trust on November 7,
2016. The Trust will not be registered as
an investment company under the
Investment Company Act of 1940 and is
not required to register under such act.5
The Trust is registered as a commodity
pool under the Commodity Exchange
Act (‘‘CEA’’).6 The Shares of the Trust
will be registered with the Commission
by means of the Trust’s registration
statement on Form S–1 (the
‘‘Registration Statement’’) under the
Securities Act of 1933 (the ‘‘Securities
Act’’). The Registration Statement was
filed on December 15, 2017 and the
Registration Statement will be effective
as of the date of any offer and sale
pursuant to the Registration Statement.7
GraniteShares Advisors LLC (the
‘‘Sponsor’’) serves as the Trust’s sponsor
and commodity pool operator and is a
member of the National Futures
Association (the ‘‘NFA’’). As a member
of the NFA, the Sponsor is subject to
NFA standards relating to fair trade
practices, financial condition, and
consumer protection. Bank of New York
Mellon serves as administrator,
custodian, and transfer agent for the
Funds. Foreside Fund Services, LLC
(‘‘Marketing Agent’’) serves as the
distributor for the Trust.
The Funds are not actively managed
by traditional methods (e.g., by effecting
changes in the composition of a
portfolio on the basis of judgments
3 Rule 14.11(f)(4) applies to Trust Issued Receipts
that invest in ‘‘Financial Instruments.’’ The term
‘‘Financial Instruments,’’ as defined in Rule
14.11(f)(4)(A)(iv), means any combination of
investments, including cash; securities; options on
securities and indices; futures contracts; options on
futures contracts; forward contracts; equity caps,
collars and floors; and swap agreements.
4 The Commission approved BZX Rule 14.11(f)(4)
in Securities Exchange Act Release No. 68619
(January 10, 2013), 78 FR 3489 (January 16, 2013)
(SR–BATS–2012–044).
5 15 U.S.C. 80a–1.
6 17 U.S.C. 1.
7 See Registration Statement on Form S–1, dated
December 15, 2017 (File No. 333–222109). The
descriptions of the Trust and the Shares contained
herein are based, in part, on information in the
Registration Statement.
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2705
relating to economic, financial and
market considerations with a view
toward obtaining positive results under
all market conditions) other than for
cash management purposes and the
rolling methodology employed by the
Sponsor described below.
other cash-settled commodity futures
contracts.14
As such, the Exchange is proposing to
list and trade the Funds under Rule
14.11(f)(4), which governs the listing
and trading of Trust Issued Receipts on
the Exchange.
Bitcoin Futures Contracts
Prior to listing a new commodity
futures contract, a designated contract
market must either submit a selfcertification to the CFTC that the
contract complies with the CEA and
CFTC regulations or voluntarily submit
the contract for CFTC approval. This
process applies to all futures contracts
and all commodities underlying the
futures contracts, whether the new
futures contracts are related to oil, gold,
or any other commodity.8 On December
1, 2017, it was announced 9 that both
Cboe Futures Exchange, Inc. (‘‘CFE’’)
and Chicago Mercantile Exchange, Inc.
(‘‘CME’’) had self-certified with the
CFTC new contracts for bitcoin 10
futures products.11 While the CFE
bitcoin futures contracts (‘‘XBT
Futures’’ and the ‘‘Benchmark Futures
Contracts’’) 12 and the CME bitcoin
futures contracts (‘‘CME Futures’’) 13
will differ in certain of their
implementation details, both contracts
will generally trade and settle like any
GraniteShares Bitcoin ETF
The Long Fund seeks as its
investment objective results (before fees
and expenses) that, both for a single
day 15 and over time, match the
performance of lead month Benchmark
Futures Contracts. By being long Bitcoin
Futures Contracts, as defined below, the
Long Fund seeks to benefit from daily
increases in the price of the Bitcoin
Futures Contracts and will lose value
when the price of the Bitcoin Futures
Contracts decline.
8 Section 1a(9) of the CEA defines commodity to
include, among other things, ‘‘all services, rights,
and interests in which contracts for future delivery
are presently or in the future dealt in.’’ The
definition of commodity is broad. 7 U.S.C. 1a(9).
9 See ‘‘CFTC Statement on Self-Certification of
Bitcoin Products by CME, CFE and Cantor
Exchange,’’ dated December 1, 2017, available at
https://www.cftc.gov/PressRoom/PressReleases/
pr7654-17.
10 Bitcoin is a digital asset based on the
decentralized, open source protocol of the peer-topeer bitcoin computer network (the ‘‘Bitcoin
Network’’). No single entity owns or operates the
Bitcoin Network; the infrastructure is collectively
maintained by a decentralized user base. The
Bitcoin Network is accessed through software, and
software governs bitcoin’s creation, movement, and
ownership. The value of bitcoin is determined by
the supply of and demand for bitcoin on websites
that facilitate the transfer of bitcoin in exchange for
government-issued currencies, and in private enduser-to-end-user transactions.
11 Bitcoin is a commodity as defined in Section
1a(9) of the CEA. 7 U.S.C. 1a(9). See In re Coinflip,
Inc., No. 15–29 (CFTC Sept. 17, 2015), available at:
https://www.cftc.gov/ucm/groups/public/@
lrenforcementactions/documents/legalpleading/
enfcoinfliprorder09172015.pdf.
12 The XBT Futures are cash-settled futures
contracts based on the auction price of bitcoin in
U.S. dollars on the Gemini Exchange that will
expire on a weekly, monthly and quarterly basis.
XBT Futures are designed to reflect economic
exposure related to the price of bitcoin. XBT
Futures began trading on December 10, 2017.
13 The CME Futures are also cash-settled futures
contracts based on the CME CF Bitcoin Reference
Rate, which is based on an aggregation of trade flow
from several bitcoin spot exchanges, that will expire
on a monthly and quarterly basis. CME Futures
began trading on December 17, 2017.
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GraniteShares Short Bitcoin ETF
The Short Fund seeks to provide
investment results that, on a daily basis
correspond (before fees and expenses) to
the inverse (-1x) of the daily
performance of the Benchmark Futures
Contracts for a single day. By being
short Bitcoin Futures Contracts, as
defined below, the Short Fund seeks to
benefit from daily decreases in the price
of the Bitcoin Futures Contracts and
will lose value when the price of the
Bitcoin Futures Contracts increase.
Investment Strategies
Each Fund will, under Normal Market
Conditions,16 hold substantially all of
its assets in the Benchmark Futures
Contracts and cash and Cash
Equivalents 17 (which are used to
14 CFE and CME are registered with the CFTC and
seek to provide a neutral, regulated marketplace for
the trading of derivatives contracts for commodities,
such as futures, options and certain swaps. Both the
CFE and CME are both members of the Intermarket
Surveillance Group (‘‘ISG’’).
15 A ‘‘single day’’ is measured from the time a
Fund calculates its net asset value (‘‘NAV’’) to the
time of the Fund’s next NAV calculation. The NAV
calculation time for the Funds will typically be 4:00
p.m. Eastern time.
16 The term ‘‘Normal Market Conditions’’
includes, but is not limited to, the absence of
trading halts in the applicable financial markets
generally; operational issues causing dissemination
of inaccurate market information or system failures;
or force majeure type events such as natural or manmade disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption, or any similar
intervening circumstance.
17 ‘‘Cash and Cash Equivalents’’ means short-term
instruments with maturities of less than three
months, including: (i) U.S. Government securities,
including bills, notes, and bonds differing as to
maturity and rates of interest, which are either
issued or guaranteed by the U.S. Treasury or by U.S.
Government agencies or instrumentalities; (ii)
certificates of deposit issued against funds
deposited in a bank or savings and loan association;
(iii) bankers acceptances, which are short-term
credit instruments used to finance commercial
E:\FR\FM\18JAN1.SGM
Continued
18JAN1
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Federal Register / Vol. 83, No. 12 / Thursday, January 18, 2018 / Notices
collateralize the Benchmark Futures
Contracts) in order to achieve its
investment objective. Although the
Funds generally intend to invest
substantially all of their respective
assets in Benchmark Futures Contracts,
the Funds may invest in other U.S.
exchange-listed bitcoin futures
contracts, as available, in addition to the
Benchmark Futures Contracts
(collectively, with Benchmark Futures
Contracts, the ‘‘Bitcoin Futures
Contracts’’). In the event that position
price, or accountability limits are
reached with respect to Bitcoin Futures
Contracts, each Fund may invest in U.S.
listed swaps on bitcoin or the
Benchmark Futures Contracts (‘‘Listed
Bitcoin Swaps’’). In the event that
position price or accountability limits
are reached with respect to Listed
Bitcoin Swaps, each Fund may invest in
OTC swaps on bitcoin or the Benchmark
Futures Contracts.
Each Fund intends to enter into swap
agreements only with major, global
financial institutions that meet certain
credit quality standards and monitoring
policies. The Funds will each use
various techniques to minimize credit
risk, including posting collateral daily
that is marked to market, using different
counterparties, and limiting the net
amount due from any individual
counterparty.
Bitcoin Futures Contracts are
measures of the market’s expectation of
the price of bitcoin at certain points in
the future, and as such will behave
differently than current or spot bitcoin
prices. The Funds are not linked to
bitcoin and in many cases the Funds
could significantly underperform or
outperform the price of bitcoin.
The Funds do not intend to hold
Bitcoin Futures Contracts through
expiration, but instead intend to either
close or ‘‘roll’’ their respective
positions. When the market for these
contracts is such that the prices are
higher in the more distant delivery
months than in the nearer delivery
months, the sale during the course of
the ‘‘rolling process’’ of the more nearby
contract would take place at a price that
is lower than the price of the more
nearby Bitcoin Futures Contracts would
take place at a price that is lower than
the price of the more distant Bitcoin
Futures Contracts [sic]. This pattern of
higher futures prices for longer
expiration Bitcoin Futures Contracts is
referred to as ‘‘contango.’’ Alternatively,
when the market for certain Bitcoin
Futures Contracts is such that the prices
are higher in the nearer months than in
the more distant months, the sale during
the course of the ‘‘rolling process’’ of the
more nearby Bitcoin Futures Contracts
would take place at a price that is higher
than the price of the more distant
Bitcoin Futures Contracts. This pattern
of higher future prices for shorter
expiration Bitcoin Futures Contracts is
referred to as ‘‘backwardation.’’ The
presence of contango in the relevant
Bitcoin Futures Contracts at the time of
rolling would be expected to adversely
affect the long positions held by the
Long Fund, and positively affect the
short positions held by the Short Fund.
Similarly, the presence of
backwardation in Bitcoin Futures
Contracts at the time of rolling such
Bitcoin Futures Contracts would be
expected to adversely affect the short
positions held by the Short Fund and
positively affect the long positions held
by the Long Fund.
Each Fund’s investments will be
consistent with its investment objective
and will not be used to enhance
leverage (although certain derivatives
and other investments may result in
leverage).18 Each Fund’s investments
will not be used to seek performance
that is the multiple or inverse multiple
(i.e. 2x or -2x) of the Index. Each Fund’s
use of derivative instruments will be
collateralized.
transactions; (iv) repurchase agreements and reverse
repurchase agreements; (v) bank time deposits,
which are monies kept on deposit with banks or
savings and loan associations for a stated period of
time at a fixed rate of interest; (vi) commercial
paper, which are short-term unsecured promissory
notes; and (vii) money market funds.
18 The Funds will each include appropriate risk
disclosure in its offering documents, including
leveraging risk. Leveraging risk is the risk that
certain transactions of a fund, including a fund’s
use of derivatives, may give rise to leverage, causing
a fund to be more volatile than if it had not been
leveraged.
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Policy Considerations
The Exchange recognizes that certain
policy concerns exist as it relates to any
series of Trust Issued Receipts that are
listed on the Exchange, but that these
concerns, as well as certain other
concerns raised by this proposal
specifically, are mitigated as it relates to
the Funds and their holdings for the
reasons enumerated below.
First, the Exchange believes that the
policy concerns related to an underlying
reference asset and its susceptibility to
manipulation are mitigated as it relates
to bitcoin because the very nature of the
bitcoin ecosystem makes manipulation
of bitcoin difficult. The geographically
diverse and continuous nature of bitcoin
trading makes it difficult and
prohibitively costly to manipulate the
price of bitcoin and, in many instances,
that the bitcoin market is generally less
susceptible to manipulation than the
PO 00000
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equity, fixed income, and commodity
futures markets. There are a number of
reasons this is the case, including that
there is not inside information about
revenue, earnings, corporate activities,
or sources of supply; it is generally not
possible to disseminate false or
misleading information about bitcoin in
order to manipulate; manipulation of
the price on any single venue would
require manipulation of the global
bitcoin price in order to be effective; a
substantial over-the-counter market
provides liquidity and shock-absorbing
capacity; bitcoin’s 24/7/365 nature
provides constant arbitrage
opportunities across all trading venues;
and it is unlikely that any one actor
could obtain a dominant market share.
Further, bitcoin is arguably less
susceptible to manipulation than other
commodities that underlie ETPs; there
may be inside information relating to
the supply of the physical commodity
such as the discovery of new sources of
supply or significant disruptions at
mining facilities that supply the
commodity that simply are inapplicable
as it relates to bitcoin. Further, the
Exchange believes that the
fragmentation across bitcoin exchanges,
the relatively slow speed of
transactions, and the capital necessary
to maintain a significant presence on
each exchange make manipulation of
bitcoin prices through continuous
trading activity unlikely. Moreover, the
linkage between the bitcoin markets and
the presence of arbitrageurs in those
markets means that the manipulation of
the price of bitcoin price on any single
venue would require manipulation of
the global bitcoin price in order to be
effective. Arbitrageurs must have funds
distributed across multiple bitcoin
exchanges in order to take advantage of
temporary price dislocations, thereby
making it unlikely that there will be
strong concentration of funds on any
particular bitcoin exchange. As a result,
the potential for manipulation on a
particular bitcoin exchange would
require overcoming the liquidity supply
of such arbitrageurs who are effectively
eliminating any cross-market pricing
differences. For all of these reasons,
bitcoin is not particularly susceptible to
manipulation, especially as compared to
other approved ETP reference assets.
Second, the Exchange believes that
the policy concerns related to the
susceptibility to manipulation of an
underlying futures contract is, in
addition to the arguments above, further
mitigated by the significant liquidity
that the Exchange expects to exist in the
market for Bitcoin Futures Contracts.
This belief is based on numerous
conversations with market participants,
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18JAN1
Federal Register / Vol. 83, No. 12 / Thursday, January 18, 2018 / Notices
issuers, and discussions with personnel
of CFE. This expected liquidity in the
market for Bitcoin Futures Contracts
combined with the CFE, CME, and
Exchange surveillance procedures
related to the Bitcoin Futures, the
Shares, and CFTC oversight,19 along
with the difficulty in manipulating the
bitcoin market described above will
mitigate the potential policy concerns
and further prevent trading in the
Shares from being susceptible to
manipulation.
sradovich on DSK3GMQ082PROD with NOTICES
Net Asset Value
According to the Registration
Statement, the net asset value (‘‘NAV’’)
of the Shares of the Funds will be
calculated by dividing the value of the
net assets of the Fund (i.e., the value of
its total assets less total liabilities) by
the total number of Shares outstanding.
Expenses and fees, including the
management and administration fees,
are accrued daily and taken into account
for purposes of determining NAV. The
NAV of each Fund is generally
determined at 4:00 p.m. Eastern Time
each business day when the Exchange is
open for trading. If the Exchange or
market on which the Fund’s
investments are primarily traded closes
early, the NAV may be calculated prior
to its normal calculation time. Creation/
redemption transaction order time
cutoffs (as further described below)
would also be accelerated.
Bitcoin Futures Contracts are
generally valued at their settlement
price as determined by the relevant
exchange. Cash and Cash Equivalents
will generally be valued at their market
price using market quotations or
information provided by a pricing
service. Listed Bitcoin Swaps are
generally valued at their settlement
price as determined by the relevant
swap execution facility. OTC swaps will
be valued based on the then-current
disseminated levels for the Bitcoin
Futures Contracts or the applicable
19 The CFTC issued a press release on December
1, 2017, noting the self-certifications from CFE and
CME and highlighting the rigorous process that the
CFTC had undertaken in its engagement with CFE
and CME prior to the self-certification for the
Bitcoin Futures Contracts. The press release focused
on the ongoing surveillances that will occur on each
listing exchange, including surveillance based on
information sharing with the underlying cash
bitcoin exchanges as well as the actions that the
CFTC will undertake after the contracts are
launched, including monitoring and analyzing the
size and development of the market, positions and
changes in positions over time, open interest, initial
margin requirements, and variation margin
payments, stress testing positions, conduct reviews
of designated contract markets, derivatives clearing
organizations, clearing firms, and individual traders
involved in trading and clearing bitcoin futures. For
more information, see https://www.cftc.gov/
PressRoom/PressReleases/pr7654-17.
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18:27 Jan 17, 2018
Jkt 244001
reference price for bitcoin applicable to
the contract.
For more information regarding the
valuation of Fund investments in
calculating a Fund’s NAV, see the
Registration Statement.
The Shares
The Funds will issue and redeem
Shares on a continuous basis at the NAV
per Share only in large blocks of a
specified number of Shares or multiples
thereof (‘‘Creation Units’’) in
transactions with authorized
participants who have entered into
agreements with the Distributor. The
Adviser currently anticipates that a
Creation Unit will consist of 10,000
Shares, though this number may change
from time to time, including prior to
listing of the Shares. The exact number
of Shares that will constitute a Creation
Unit will be disclosed in the
Registration Statement. Once created,
Shares of the Funds may trade on the
secondary market in amounts less than
a Creation Unit.
Although the Adviser anticipates that
purchases and redemptions for Creation
Units will generally be executed on an
all-cash basis, the consideration for
purchase of Creation Units of the Funds
may consist of an in-kind deposit of a
designated portfolio of assets (including
any portion of such assets for which
cash may be substituted) (i.e., the
‘‘Deposit Assets’’), and the ‘‘Cash
Component’’ computed as described
below. Together, the Deposit Assets and
the Cash Component constitute the
‘‘Fund Deposit,’’ which represents the
minimum initial and subsequent
investment amount for a Creation Unit
of the Fund. The specific terms
surrounding the creation and
redemption of shares are at the
discretion of the Adviser.
The Deposit Assets and Fund
Securities (as defined below), as the
case may be, in connection with a
purchase or redemption of a Creation
Unit, generally will correspond pro rata,
to the extent practicable, to the assets
held by the Funds.
The Cash Component will be an
amount equal to the difference between
the NAV of the Shares (per Creation
Unit) and the ‘‘Deposit Amount,’’ which
will be an amount equal to the market
value of the Deposit Assets, and serve to
compensate for any differences between
the NAV per Creation Unit and the
Deposit Amount. The Funds generally
offer Creation Units partially or entirely
for cash. The Adviser will make
available through the National
Securities Clearing Corporation
(‘‘NSCC’’) on each business day, prior to
the opening of business on the
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2707
Exchange, the list of names and the
required number or par value of each
Deposit Asset and the amount of the
Cash Component to be included in the
current Fund Deposit (based on
information as of the end of the
previous business day) for the Fund.
The identity and number or par value
of the Deposit Assets may change
pursuant to changes in the composition
of a Fund’s portfolio as rebalancing and
rolling adjustments and corporate action
events occur from time to time. The
composition of the Deposit Assets may
also change in response to adjustments
to the weighting or composition of the
holdings of the Fund.
The Fund reserves the right to permit
or require the substitution of a ‘‘cash in
lieu’’ amount to be added to the Cash
Component to replace any Deposit Asset
that may not be available in sufficient
quantity for delivery or that may not be
eligible for transfer through the
Depository Trust Company (‘‘DTC’’) or
the clearing process through the
NSCC.20
Except as noted below, all creation
orders must be placed for one or more
Creation Units and must be received by
the Distributor at a time specified by the
Adviser. The Fund currently intends
that such orders must be received in
proper form no later than 2:00 p.m.
Eastern Time on the date such order is
placed in order for creation of Creation
Units to be effected based on the NAV
of Shares of each Fund as next
determined on such date after receipt of
the order in proper form. The
‘‘Settlement Date’’ is generally the
second business day after the
transmittal date. On days when the
Exchange or the futures markets close
earlier than normal, the Funds may
require orders to create or to redeem
Creation Units to be placed earlier in the
day.
Fund Deposits must be delivered
through either the Continuous Net
Settlement facility of the NSCC, the
Federal Reserve System (for cash and
government securities), through DTC
(for corporate securities), or through a
central depository account, such as with
Euroclear or DTC, maintained by each
Fund’s Custodian (a ‘‘Central Depository
Account’’), in any case at the discretion
of the Adviser, by an authorized
participant. Any portion of a Fund
Deposit that may not be delivered
through the NSCC, Federal Reserve
System or DTC must be delivered
through a Central Depository Account.
20 The Adviser represents that, to the extent the
Trust permits or requires a ‘‘cash in lieu’’ amount,
such transactions will be effected in the same or
equitable manner for all authorized participants.
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A standard creation transaction fee
may be imposed to offset the transfer
and other transaction costs associated
with the issuance of Creation Units.
Shares of the Funds may be redeemed
only in Creation Units at their NAV next
determined after receipt of a redemption
request in proper form by the
Distributor and only on a business day.
The Adviser will make available
through the NSCC, prior to the opening
of business on the Exchange on each
business day, the designated portfolio of
assets (including any portion of such
assets for which cash may be
substituted) that will be applicable
(subject to possible amendment or
correction) to redemption requests
received in proper form on that day
(‘‘Fund Securities’’). The redemption
proceeds for a Creation Unit generally
will consist of a specified amount of
cash less a redemption transaction fee.
The Fund generally will redeem
Creation Units entirely for cash.
A standard redemption transaction fee
may be imposed to offset transfer and
other transaction costs that may be
incurred by the Fund.
Redemption requests for Creation
Units of the Funds must be submitted to
the Distributor by or through an
authorized participant by a time
specified by the Adviser. The Fund
currently intends that such requests
must be received no later than 3:30 p.m.
Eastern Time on any business day, in
order to receive that day’s NAV. The
authorized participant must transmit the
request for redemption in the form
required by the Funds to the Distributor
in accordance with procedures set forth
in the authorized participant agreement.
Additional information regarding the
Shares and the Funds, including
investment strategies, risks, creation and
redemption procedures, fees and
expenses, portfolio holdings disclosure
policies, distributions, taxes and reports
to be distributed to beneficial owners of
the Shares can be found in the
Registration Statement or on the website
for the Funds
(www.GraniteShares.com), as
applicable.
Availability of Information
The Funds’ website, which will be
publicly available prior to the public
offering of Shares, will include a form
of the prospectus for each Fund that
may be downloaded. The websites will
include additional quantitative
information updated on a daily basis,
including, for the Fund: (1) The prior
business day’s reported NAV, the
closing market price or the midpoint of
the bid/ask spread at the time of
calculation of such NAV (the ‘‘Bid/Ask
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Price’’),21 daily trading volume, and a
calculation of the premium and
discount of the closing market price or
Bid/Ask Price against the NAV; and (2)
data in chart format displaying the
frequency distribution of discounts and
premiums of the daily closing market
price or Bid/Ask Price against the NAV,
within appropriate ranges, for each of
the four previous calendar quarters.
Daily trading volume information will
be available in the financial section of
newspapers, through subscription
services such as Bloomberg, Thomson
Reuters, and International Data
Corporation, which can be accessed by
authorized participants and other
investors, as well as through other
electronic services, including major
public websites. On each business day,
before commencement of trading in
Shares during Regular Trading Hours 22
on the Exchange, each Fund will
disclose on its website the identities and
quantities of the portfolio Bitcoin
Futures Contracts and other assets (the
‘‘Disclosed Portfolio’’) held by the Fund
that will form the basis for the Fund’s
calculation of NAV at the end of the
business day.23 The Disclosed Portfolio
will include, as applicable: Ticker
symbol or other identifier, a description
of the holding, identity of the asset upon
which the derivative is based, the
quantity of each security or other asset
held as measured by select metrics,
maturity date, coupon rate, effective
date, market value and percentage
weight of the holding in the portfolio.
The website and information will be
publicly available at no charge.
In addition, for each Fund, an
estimated value that reflects an
estimated intraday value of the Fund’s
portfolio (the ‘‘Intraday Indicative
Value’’), will be disseminated.
Moreover, the Intraday Indicative Value
will be based upon the current value for
the components of the Disclosed
Portfolio and will be updated and
widely disseminated by one or more
major market data vendors at least every
15 seconds during the Exchange’s
21 The Bid/Ask Price of each Fund will be
determined using the midpoint of the highest bid
and the lowest offer on the Exchange as of the time
of calculation of the Fund’s NAV. The records
relating to Bid/Ask Prices will be retained by the
Funds and their service providers.
22 Regular Trading Hours are 9:30 a.m. to 4:00
p.m. Eastern Time.
23 Under accounting procedures to be followed by
the Funds, trades made on the prior business day
(‘‘T’’) will be booked and reflected in NAV on the
current business day (‘‘T+1’’). Accordingly, each
Fund will be able to disclose at the beginning of the
business day the portfolio that will form the basis
for the NAV calculation at the end of the business
day.
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Regular Trading Hours.24 In addition,
the quotations of certain of each Fund’s
holdings may not be updated for
purposes of calculating Intraday
Indicative Value during U.S. trading
hours where the market on which the
underlying asset is traded settles prior
to the end of the Exchange’s Regular
Trading Hours.
The dissemination of the Intraday
Indicative Value, together with the
Disclosed Portfolio, will allow investors
to determine the value of the underlying
portfolio of each Fund on a daily basis
and provide an estimate of that value
throughout the trading day.
Intraday price quotations on Cash
Equivalents of the type held by the
Funds are available from major brokerdealer firms and from third-parties,
which may provide prices free with a
time delay, or ‘‘live’’ with a paid fee. For
Bitcoin Futures Contracts and Listed
Bitcoin Swaps, such intraday
information is available directly from
the applicable listing venue. Intraday
price information is also available
through subscription services, such as
Bloomberg and Thomson Reuters,
which can be accessed by authorized
participants and other investors. Pricing
information related to Cash Equivalents
will be available through issuer websites
and publicly available quotation
services such as Bloomberg, Markit and
Thomson Reuters.
Information regarding market price
and volume of the Shares will be
continually available on a real-time
basis throughout the day on brokers’
computer screens and other electronic
services. The previous day’s closing
price and trading volume information
for the Shares will be generally available
daily in the print and online financial
press. Quotation and last sale
information for the Shares will be
available on the facilities of the CTA.
Initial and Continued Listing
The Shares will be subject to BZX
Rule 14.11(f)(4), which sets forth the
initial and continued listing criteria
applicable to Trust Issued Receipts that
invest in Financial Instruments. The
Exchange will obtain a representation
that the Trust’s NAV will be calculated
daily and that these values and
information about the assets of the Trust
will be made available to all market
participants at the same time. The Trust
currently expects that there will be at
least 20,000 Shares outstanding at the
time of commencement of trading on the
24 Currently, it is the Exchange’s understanding
that several major market data vendors display and/
or make widely available Intraday Indicative Values
published via the Consolidated Tape Association
(‘‘CTA’’) or other data feeds.
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Exchange. Upon termination of the
Trust, the Shares will be removed from
listing. The Trustee, Wilmington Trust
Company, is a trust company having
substantial capital and surplus and the
experience and facilities for handling
corporate trust business, as required
under Rule 14.11(f)(2)(D)(iv)(a) and that
no change will be made to the trustee
without prior notice to and approval of
the Exchange.
As required in Rule 14.11(f)(4)(D), the
Exchange notes that any registered
market maker (‘‘Market Maker’’) in the
Shares must file with the Exchange in
a manner prescribed by the Exchange
and keep current a list identifying all
accounts for trading in an underlying
commodity, related commodity futures
or options on commodity futures, or any
other related commodity derivatives,
which the registered Market Maker may
have or over which it may exercise
investment discretion. No registered
Market Maker shall trade in an
underlying commodity, related
commodity futures or options on
commodity futures, or any other related
commodity derivatives, in an account in
which a registered Market Maker,
directly or indirectly, controls trading
activities, or has a direct interest in the
profits or losses thereof, which has not
been reported to the Exchange as
required by this Rule. In addition to the
existing obligations under Exchange
rules regarding the production of books
and records (see, e.g., Rule 4.2), the
registered Market Maker in Trust Issued
Receipts shall make available to the
Exchange such books, records or other
information pertaining to transactions
by such entity or registered or nonregistered employee affiliated with such
entity for its or their own accounts for
trading the underlying physical
commodity, related commodity futures
or options on commodity futures, or any
other related commodity derivatives, as
may be requested by the Exchange.
Trading Halts
With respect to trading halts, the
Exchange may consider all relevant
factors in exercising its discretion to
halt or suspend trading in the Shares.
The Exchange will halt trading in the
Shares under the conditions specified in
BZX Rule 11.18. Trading may be halted
because of market conditions or for
reasons that, in the view of the
Exchange, make trading in the Shares
inadvisable. These may include: (1) The
extent to which trading is not occurring
in the bitcoin underlying the Shares; or
(2) whether other unusual conditions or
circumstances detrimental to the
maintenance of a fair and orderly
market are present. Trading in the
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Shares also will be subject to Rule
14.11(f)(4)(C)(ii), which sets forth
circumstances under which trading in
the Shares may be halted and delisting
proceedings commenced.
Trading Rules
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. BZX will allow trading
in the Shares from 8:00 a.m. until 5:00
p.m. Eastern Time. The Exchange has
appropriate rules to facilitate
transactions in the Shares during all
trading sessions. As provided in BZX
Rule 11.11(a) the minimum price
variation for quoting and entry of orders
in securities traded on the Exchange is
$0.01 where the price is greater than
$1.00 per share or $0.0001 where the
price is less than $1.00 per share.
Surveillance
The Exchange believes that its
surveillance procedures are adequate to
properly monitor the trading of the
Shares on the Exchange during all
trading sessions and to deter and detect
violations of Exchange rules and the
applicable federal securities laws.
Additionally, the Bitcoin Futures
Contracts will be subject to the rules
and surveillance programs of CFE, CME,
and the CFTC.25 Trading of the Shares
through the Exchange will be subject to
the Exchange’s surveillance procedures
for derivative products, including Trust
Issued Receipts. The Exchange or
FINRA, on behalf of the Exchange, will
communicate as needed regarding
trading in the Shares and the underlying
Bitcoin Futures Contracts via ISG from
other exchanges who are members or
affiliates of the ISG or with which the
Exchange has entered into a
comprehensive surveillance sharing
agreement.26 The Exchange may also
25 The CFTC issued a press release on December
1, 2017, noting the self-certifications from CFE and
CME and highlighting the rigorous process that the
CFTC had undertaken in its engagement with CFE
and CME prior to the self-certification for the
Bitcoin Futures Contracts. The press release focused
on the ongoing surveillances that will occur on each
listing exchange, including surveillance based on
information sharing with the underlying cash
bitcoin exchanges as well as the actions that the
CFTC will undertake after the contracts are
launched, including monitoring and analyzing the
size and development of the market, positions and
changes in positions over time, open interest, initial
margin requirements, and variation margin
payments, stress testing positions, conduct reviews
of designated contract markets, derivatives clearing
organizations, clearing firms, and individual traders
involved in trading and clearing bitcoin futures. For
more information, see https://www.cftc.gov/
PressRoom/PressReleases/pr7654-17.
26 For a list of the current members and affiliate
members of ISG, see www.isgportal.com. The
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2709
obtain information regarding trading in
the spot bitcoin market from exchanges
with which the Exchange has entered
into a comprehensive surveillance
sharing agreement. In addition, the
Exchange is able to access, as needed,
trade information for certain fixed
income instruments reported to FINRA’s
Trade Reporting and Compliance Engine
(‘‘TRACE’’). The Exchange prohibits the
distribution of material non-public
information by its employees.
Information Circular
Prior to the commencement of
trading, the Exchange will inform its
members in an Information Circular of
the special characteristics and risks
associated with trading the Shares.
Specifically, the Information Circular
will discuss the following: (1) The
procedures for purchases and
redemptions of Shares in Creation Units
(and that Shares are not individually
redeemable); (2) Exchange Rule 3.7,
which imposes suitability obligations on
Exchange members with respect to
recommending transactions in the
Shares to customers; (3) how
information regarding the Intraday
Indicative Value is disseminated; (4) the
risks involved in trading the Shares
during the Pre-Opening 27 and After
Hours Trading Sessions 28 when an
updated Intraday Indicative Value will
not be calculated or publicly
disseminated; (5) the requirement that
members deliver a prospectus to
investors purchasing newly issued
Shares prior to or concurrently with the
confirmation of a transaction; and (6)
trading information.
In addition, the Information Circular
will advise members, prior to the
commencement of trading, of the
prospectus delivery requirements
applicable to the Fund. Members
purchasing Shares from the Funds for
resale to investors will deliver a
prospectus to such investors. The
Information Circular will also discuss
any exemptive, no-action, and
interpretive relief granted by the
Commission from any rules under the
Act.
Exchange notes that not all components of the
Disclosed Portfolio for each Fund may trade on
markets that are members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement. Not more than 10%
of the net assets of a Fund in the aggregate invested
in Bitcoin Futures Contracts shall consist of Bitcoin
Futures Contracts whose principal market is not a
member of the ISG or with which the Exchange has
in place a comprehensive surveillance sharing
agreement.
27 The Pre-Opening Session is from 8:00 a.m. to
9:30 a.m. Eastern Time.
28 The After Hours Trading Session is from 4:00
p.m. to 5:00 p.m. Eastern Time.
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In addition, the Information Circular
will reference that each Fund is subject
to various fees and expenses described
in the Registration Statement. The
Information Circular will also disclose
the trading hours of the Shares of the
Funds and the applicable NAV
calculation time for the Shares. The
Information Circular will disclose that
information about the Shares of the
Funds will be publicly available on that
Fund’s website. In addition, the
Information Circular will reference that
the Trust is subject to various fees and
expenses described in the Registration
Statement.
2. Statutory Basis
The Exchange believes that the
proposal is consistent with Section 6(b)
of the Act 29 in general and Section
6(b)(5) of the Act 30 in particular in that
it is designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system 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 Exchange
believes that its surveillance procedures
are adequate to properly monitor the
trading of the Shares on the Exchange
during all trading sessions and to deter
and detect violations of Exchange rules
and the applicable federal securities
laws. Additionally, the Bitcoin Futures
Contracts will be subject to the rules
and surveillance programs of CFE, CME,
and the CFTC. Trading of the Shares
through the Exchange will be subject to
the Exchange’s surveillance procedures
for derivative products, including Trust
Issued Receipts. The Exchange or
FINRA, on behalf of the Exchange, will
communicate as needed regarding
trading in the Shares and the underlying
Bitcoin Futures Contracts via ISG, from
other exchanges who are members or
affiliates of the ISG, or with which the
Exchange has entered into a
comprehensive surveillance sharing
agreement. The Exchange may also
obtain information regarding trading in
the spot bitcoin market via the ISG, from
other exchanges who are members or
affiliates of the ISG, or from other
exchanges with which the Exchange has
entered into a comprehensive
29 15
30 15
U.S.C. 78f.
U.S.C. 78f(b)(5).
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surveillance sharing agreement. In
addition, the Exchange is able to access,
as needed, trade information for certain
fixed income instruments reported to
TRACE. The Exchange prohibits the
distribution of material non-public
information by its employees. The
Exchange believes that its surveillance
procedures are adequate to properly
monitor the trading of the Shares on the
Exchange during all trading sessions
and to deter and detect violations of
Exchange rules and the applicable
federal securities laws.
The Exchange further believes that the
proposal is designed to prevent
fraudulent and manipulative acts and
practices in that the Exchange expects
that the market for Bitcoin Futures
Contracts will be sufficiently liquid to
support numerous ETPs shortly after
launch. This belief is based on
numerous conversations with market
participants, issuers, and discussions
with personnel of CFE. As such, the
Exchange believes that the expected
liquidity in the market for Bitcoin
Futures Contracts combined with the
Exchange surveillance procedures
related to the Shares and the broader
regulatory structure will prevent trading
in the Shares from being susceptible to
manipulation.
Because of its innovative features as a
cryptoasset, bitcoin has gained wide
acceptance as a secure means of
exchange in the commercial
marketplace and has generated
significant interest among investors. In
less than a decade since its creation in
2008, bitcoin has achieved significant
market penetration, with payments giant
PayPal and thousands of merchants and
businesses accepting it as a form of
commercial payment, as well as
receiving official recognition from
several governments, including Japan
and Australia. Accordingly, investor
interest in gaining exposure to bitcoin is
increasing exponentially as well. As
expected, the total volume of bitcoin
transactions in the market continues to
grow exponentially.
Despite the growing investor interest
in bitcoin, the primary means for
investors to gain access to bitcoin
exposure remains either through the
Bitcoin Futures Contracts or direct
investment through bitcoin exchanges
or over-the-counter trading. For regular
investors simply wishing to express an
investment viewpoint in bitcoin,
investment through the Bitcoin Futures
Contracts is complex and requires active
management and direct investment in
bitcoin brings with it significant
inconvenience, complexity, expense
and risk. The Shares would therefore
represent a significant innovation in the
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bitcoin market by providing an
inexpensive and simple vehicle for
investors to gain long or short exposure
to bitcoin in a secure and easily
accessible product that is familiar and
transparent to investors. Such an
innovation would help to perfect the
mechanism of a free and open market
and, in general, to protect investors and
the public interest by improving
investor access to bitcoin exposure
through efficient and transparent
exchange-traded derivative products.
In addition to improved convenience,
efficiency and transparency, the Funds
will also help to prevent fraudulent and
manipulative acts and practices by
enhancing the security afforded to
investors as compared to a direct
investment in bitcoin. Despite the
extensive security mechanisms built
into the Bitcoin network, a remaining
risk to owning bitcoin directly is the
need for the holder to retain and protect
the ‘‘private key’’ required to spend or
sell bitcoin after purchase. If a holder’s
private key is compromised or simply
lost, their bitcoin can be rendered
unavailable—i.e., effectively lost to the
investor. This risk will be eliminated by
the Long Fund because the exposure to
bitcoin is gained through cash-settled
Bitcoin Futures Contracts that do not
present any of the security issues that
exist with direct investment in bitcoin.
The Funds expect that they will
generally seek to remain fully exposed
to Bitcoin Futures Contracts even during
times of adverse market conditions.
Under Normal Market Conditions, the
Funds will generally hold only Bitcoin
Futures Contracts and cash and Cash
Equivalents (which are used to
collateralize the Bitcoin Futures
Contracts).
The proposed rule change is designed
to promote just and equitable principles
of trade and to protect investors and the
public interest in that the Exchange will
obtain a representation from the issuer
of the Shares that the NAV will be
calculated daily and that the NAV and
the Disclosed Portfolio will be made
available to all market participants at
the same time. In addition, a large
amount of information is publicly
available regarding the Funds and the
Shares, thereby promoting market
transparency. Moreover, the Intraday
Indicative Value will be disseminated
by one or more major market data
vendors at least every 15 seconds during
Regular Trading Hours. On each
business day, before commencement of
trading in Shares during Regular
Trading Hours, each Fund will disclose
on its website the Disclosed Portfolio
that will form the basis for the Fund’s
calculation of NAV at the end of the
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business day. Pricing information will
be available on each Fund’s website
including: (1) The prior business day’s
reported NAV, the Bid/Ask Price of the
Fund, and a calculation of the premium
and discount of the Bid/Ask Price
against the NAV; and (2) data in chart
format displaying the frequency
distribution of discounts and premiums
of the daily Bid/Ask Price against the
NAV, within appropriate ranges, for
each of the four previous calendar
quarters. Additionally, information
regarding market price and trading of
the Shares will be continually available
on a real-time basis throughout the day
on brokers’ computer screens and other
electronic services, and quotation and
last sale information for the Shares will
be available on the facilities of the CTA.
The website for each Fund will include
a form of the prospectus for the Fund
and additional data relating to NAV and
other applicable quantitative
information. Trading in Shares of the
Funds will be halted under the
conditions specified in BZX Rule 11.18.
Trading may also be halted because of
market conditions or for reasons that, in
the view of the Exchange, make trading
in the Shares inadvisable. Finally,
trading in the Shares will be subject to
BZX Rule 14.11(f)(4)(B)(ii), which sets
forth circumstances under which Shares
of the Funds may be halted and
delisting proceedings commenced. In
addition, as noted above, investors will
have ready access to information
regarding each Fund’s holdings, the
Intraday Indicative Value, the Disclosed
Portfolio, and quotation and last sale
information for the Shares.
Intraday price quotations on Cash
Equivalents of the type held by the
Funds are available from major brokerdealer firms and from third-parties,
which may provide prices free with a
time delay, or ‘‘live’’ with a paid fee. For
Bitcoin Futures Contracts and Listed
Bitcoin Swaps, such intraday
information is available directly from
the applicable listing venue. Intraday
price information is also available
through subscription services, such as
Bloomberg and Thomson Reuters,
which can be accessed by authorized
participants and other investors. Pricing
information related to Cash Equivalents
will be available through issuer websites
and publicly available quotation
services such as Bloomberg, Markit and
Thomson Reuters.
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 additional types of actively-managed
exchange-traded products that will
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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
comprehensive surveillance sharing
agreement as well as trade information
for certain fixed income instruments as
reported to FINRA’s TRACE. Not more
than 10% of the net assets of a Fund in
the aggregate invested in Bitcoin
Futures Contracts shall consist of
Bitcoin Futures Contracts whose
principal market is not a member of the
ISG or with which the Exchange has in
place a comprehensive surveillance
sharing agreement. In addition, as noted
above, investors will have ready access
to information regarding each Fund’s
holdings, the Intraday Indicative Value,
the Disclosed Portfolio, and quotation
and last sale information for the Shares.
For the above reasons, the Exchange
believes that the proposed rule change
is consistent with the requirements of
Section 6(b)(5) of the Act.
(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 purpose of the Act. The Exchange
notes that the proposed rule change,
rather will facilitate the listing and
trading of additional actively-managed
exchange-traded products that will
enhance competition among both
market participants and listing venues,
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
The Exchange has neither solicited
nor received written comments on 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 the
proposed rule change, or
PO 00000
Frm 00097
Fmt 4703
Sfmt 4703
2711
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–
CboeBZX–2018–001 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–CboeBZX–2018–001. 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 website (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 website 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.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CboeBZX–2018–001 and
should be submitted on or before
February 8, 2018.
E:\FR\FM\18JAN1.SGM
18JAN1
2712
Federal Register / Vol. 83, No. 12 / Thursday, January 18, 2018 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.31
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–00720 Filed 1–17–18; 8:45 am]
BILLING CODE 8011–01–P
SMALL BUSINESS ADMINISTRATION
[Disaster Declaration #15425 and #15426;
CALIFORNIA Disaster Number CA–00283]
Presidential Declaration Amendment of
a Major Disaster for Public Assistance
Only for the State of California
U.S. Small Business
Administration.
ACTION: Amendment 1.
AGENCY:
SMALL BUSINESS ADMINISTRATION
[Disaster Declaration #15302 and #15303;
FLORIDA Disaster Number FL–00130]
Presidential Declaration Amendment of
a Major Disaster for the State of Florida
U.S. Small Business
Administration.
ACTION: Amendment 8.
AGENCY:
This is an amendment of the
Presidential declaration of a major
disaster for the State of Florida (FEMA–
4337–DR), dated 09/10/2017.
Incident: Hurricane Irma.
Incident Period: 09/04/2017 through
10/18/2017.
DATES: Issued on 01/10/2018.
Physical Loan Application Deadline
Date: 11/24/2017.
Economic Injury (EIDL) Loan
Application Deadline Date: 06/11/2018.
ADDRESSES: Submit completed loan
applications to: U.S. Small Business
Administration, Processing and
Disbursement Center, 14925 Kingsport
Road, Fort Worth, TX 76155.
FOR FURTHER INFORMATION CONTACT: A.
Escobar, Office of Disaster Assistance,
U.S. Small Business Administration,
409 3rd Street SW, Suite 6050,
Washington, DC 20416, (202) 205–6734.
SUPPLEMENTARY INFORMATION: The notice
of the President’s major disaster
declaration for the State of Florida,
dated 09/10/2017, is hereby amended to
include the following areas as adversely
affected by the disaster:
Primary Counties (Physical Damage and
Economic Injury Loans): Hamilton
Contiguous Counties (Economic Injury
Loans Only):
Georgia: Lowndes
All other information in the original
declaration remains unchanged.
sradovich on DSK3GMQ082PROD with NOTICES
SUMMARY:
This is an amendment of the
Presidential declaration of a major
disaster for Public Assistance Only for
the State of California (FEMA–4353–
DR), dated 01/02/2018.
Incident: Flooding, Mudflows, and
Debris Flows directly related to the
Wildfires.
Incident Period: 12/04/2017 and
continuing.
SUMMARY:
Issued on 01/10/2018.
Physical Loan Application Deadline
Date: 03/05/2018.
Economic Injury (EIDL) Loan
Application Deadline Date: 10/02/2018.
ADDRESSES: Submit completed loan
applications to: U.S. Small Business
Administration, Processing and
Disbursement Center, 14925 Kingsport
Road, Fort Worth, TX 76155.
FOR FURTHER INFORMATION CONTACT: A.
Escobar, Office of Disaster Assistance,
U.S. Small Business Administration,
409 3rd Street SW, Suite 6050,
Washington, DC 20416, (202) 205–6734.
SUPPLEMENTARY INFORMATION: The notice
of the President’s major disaster
declaration for Private Non-Profit
organizations in the State of California,
dated 01/02/2018, is hereby amended to
expand the incident for this disaster to
include flooding, mudflow, and debris
flows directly related to the wildfires.
All other information in the original
declaration remains unchanged.
DATES:
(Catalog of Federal Domestic Assistance
Number 59008)
James E. Rivera,
Associate Administrator for Disaster
Assistance.
[FR Doc. 2018–00767 Filed 1–17–18; 8:45 am]
BILLING CODE 8025–01–P
DEPARTMENT OF STATE
(Catalog of Federal Domestic Assistance
Number 59008)
[Public Notice 10272]
James E. Rivera,
Associate Administrator for Disaster
Assistance.
Notice of Public Meeting
[FR Doc. 2018–00768 Filed 1–17–18; 8:45 am]
BILLING CODE 8025–01–P
31 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
18:27 Jan 17, 2018
Jkt 244001
The Department of State will conduct
an open meeting at 9:30 a.m. on
Tuesday, February 13, 2018, at the
headquarters of the Radio Technical
Commission for Maritime Services
(RTCM) in Suite 705, 1621 N. Kent
PO 00000
Frm 00098
Fmt 4703
Sfmt 4703
Street, Arlington, Virginia 22209. The
primary purpose of the meeting is to
prepare for the 5th session of the
International Maritime Organization’s
(IMO) Sub-Committee on Navigation,
Communication, and Search and Rescue
to be held at the IMO Headquarters,
United Kingdom, from February 19–23,
2018.
The agenda items to be considered
include:
—Decisions of other IMO bodies
—Routing measures and mandatory ship
reporting systems
—Updates to the LRIT system
—Application of the ‘‘Indian Regional
Navigation Satellite System (IRNSS)’’
in the maritime field and
development of performance
standards for shipborne IRNSS
receiver equipment
—Guidelines for the harmonized
display of navigation information
received via communications
equipment
—Guidelines on standardized modes of
operation, S-mode
—Develop guidance on definition and
harmonization of the format and
structure of Maritime Service
Portfolios (MSPs)
—Updating of the GMDSS master plan
and guidelines on MSI (maritime
safety information) provisions
—Consequential work related to the
new Polar Code
—Revision of SOLAS chapters III and IV
for Modernization of the Global
Maritime Distress and Safety System
(GMDSS), including related and
consequential amendments to other
existing instruments
—Response to matters related to the
Radio communication ITU–R Study
Group and ITU World Radio
Communication Conference
—Measures to protect the safety of
persons rescued at sea
—Developments in GMDSS satellite
services
—Revised Performance Standards for
EPIRBs operating on 406 MHz
(resolution A.810(19)) to include
Cospas-Sarsat MEOSAR and second
generation beacons
—Further development of the provision
of global maritime SAR services
—Guidelines on harmonized
aeronautical and maritime search and
rescue procedures, including SAR
training matters
—Amendments to the IAMSAR Manual
—Unified interpretation of provisions of
IMO safety, security, and
environment-related conventions
—Biennial status report and provisional
agenda for NCSR 6
—Election of Chair and Vice-Chair for
2019
E:\FR\FM\18JAN1.SGM
18JAN1
]]>Agencies
[Federal Register Volume 83, Number 12 (Thursday, January 18, 2018)]
[Notices]
[Pages 2704-2712]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-00720]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82484; File No. SR-CboeBZX-2018-001]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To List and Trade Shares of the
GraniteShares Bitcoin ETF and the GraniteShares Short Bitcoin ETF, a
Series of the GraniteShares ETP Trust, Under Rule 14.11(f)(4), Trust
Issued Receipts
January 11, 2018.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on January 5, 2018, Cboe BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission
(``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\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange filed a proposal to list and trade shares of the
GraniteShares Bitcoin ETF and the GraniteShares Short Bitcoin ETF (each
a ``Fund'' and, collectively, the ``Funds''), a series of the
GraniteShares ETP Trust (the ``Trust''), under Rule 14.11(f)(4)
(``Trust Issued Receipts''). The shares of the Funds are referred to
herein as the ``Shares.''
The text of the proposed rule change is available at the Exchange's
website at www.markets.cboe.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 Exchange 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 these 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.
[[Page 2705]]
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade shares of the GraniteShares
Bitcoin ETF (the ``Long Fund'') and the GraniteShares Short Bitcoin ETF
(the ``Short Fund'') under Rule 14.11(f)(4), which governs the listing
and trading of Trust Issued Receipts \3\ on the Exchange.\4\
---------------------------------------------------------------------------
\3\ Rule 14.11(f)(4) applies to Trust Issued Receipts that
invest in ``Financial Instruments.'' The term ``Financial
Instruments,'' as defined in Rule 14.11(f)(4)(A)(iv), means any
combination of investments, including cash; securities; options on
securities and indices; futures contracts; options on futures
contracts; forward contracts; equity caps, collars and floors; and
swap agreements.
\4\ The Commission approved BZX Rule 14.11(f)(4) in Securities
Exchange Act Release No. 68619 (January 10, 2013), 78 FR 3489
(January 16, 2013) (SR-BATS-2012-044).
---------------------------------------------------------------------------
The Shares will be offered by the Trust, which was established as a
Delaware statutory trust on November 7, 2016. The Trust will not be
registered as an investment company under the Investment Company Act of
1940 and is not required to register under such act.\5\ The Trust is
registered as a commodity pool under the Commodity Exchange Act
(``CEA'').\6\ The Shares of the Trust will be registered with the
Commission by means of the Trust's registration statement on Form S-1
(the ``Registration Statement'') under the Securities Act of 1933 (the
``Securities Act''). The Registration Statement was filed on December
15, 2017 and the Registration Statement will be effective as of the
date of any offer and sale pursuant to the Registration Statement.\7\
---------------------------------------------------------------------------
\5\ 15 U.S.C. 80a-1.
\6\ 17 U.S.C. 1.
\7\ See Registration Statement on Form S-1, dated December 15,
2017 (File No. 333-222109). The descriptions of the Trust and the
Shares contained herein are based, in part, on information in the
Registration Statement.
---------------------------------------------------------------------------
GraniteShares Advisors LLC (the ``Sponsor'') serves as the Trust's
sponsor and commodity pool operator and is a member of the National
Futures Association (the ``NFA''). As a member of the NFA, the Sponsor
is subject to NFA standards relating to fair trade practices, financial
condition, and consumer protection. Bank of New York Mellon serves as
administrator, custodian, and transfer agent for the Funds. Foreside
Fund Services, LLC (``Marketing Agent'') serves as the distributor for
the Trust.
The Funds are not actively managed by traditional methods (e.g., by
effecting changes in the composition of a portfolio on the basis of
judgments relating to economic, financial and market considerations
with a view toward obtaining positive results under all market
conditions) other than for cash management purposes and the rolling
methodology employed by the Sponsor described below.
Bitcoin Futures Contracts
Prior to listing a new commodity futures contract, a designated
contract market must either submit a self-certification to the CFTC
that the contract complies with the CEA and CFTC regulations or
voluntarily submit the contract for CFTC approval. This process applies
to all futures contracts and all commodities underlying the futures
contracts, whether the new futures contracts are related to oil, gold,
or any other commodity.\8\ On December 1, 2017, it was announced \9\
that both Cboe Futures Exchange, Inc. (``CFE'') and Chicago Mercantile
Exchange, Inc. (``CME'') had self-certified with the CFTC new contracts
for bitcoin \10\ futures products.\11\ While the CFE bitcoin futures
contracts (``XBT Futures'' and the ``Benchmark Futures Contracts'')
\12\ and the CME bitcoin futures contracts (``CME Futures'') \13\ will
differ in certain of their implementation details, both contracts will
generally trade and settle like any other cash-settled commodity
futures contracts.\14\
---------------------------------------------------------------------------
\8\ Section 1a(9) of the CEA defines commodity to include, among
other things, ``all services, rights, and interests in which
contracts for future delivery are presently or in the future dealt
in.'' The definition of commodity is broad. 7 U.S.C. 1a(9).
\9\ See ``CFTC Statement on Self-Certification of Bitcoin
Products by CME, CFE and Cantor Exchange,'' dated December 1, 2017,
available at https://www.cftc.gov/PressRoom/PressReleases/pr7654-17.
\10\ Bitcoin is a digital asset based on the decentralized, open
source protocol of the peer-to-peer bitcoin computer network (the
``Bitcoin Network''). No single entity owns or operates the Bitcoin
Network; the infrastructure is collectively maintained by a
decentralized user base. The Bitcoin Network is accessed through
software, and software governs bitcoin's creation, movement, and
ownership. The value of bitcoin is determined by the supply of and
demand for bitcoin on websites that facilitate the transfer of
bitcoin in exchange for government-issued currencies, and in private
end-user-to-end-user transactions.
\11\ Bitcoin is a commodity as defined in Section 1a(9) of the
CEA. 7 U.S.C. 1a(9). See In re Coinflip, Inc., No. 15-29 (CFTC Sept.
17, 2015), available at: https://www.cftc.gov/ucm/groups/public/@lrenforcementactions/documents/legalpleading/enfcoinfliprorder09172015.pdf.
\12\ The XBT Futures are cash-settled futures contracts based on
the auction price of bitcoin in U.S. dollars on the Gemini Exchange
that will expire on a weekly, monthly and quarterly basis. XBT
Futures are designed to reflect economic exposure related to the
price of bitcoin. XBT Futures began trading on December 10, 2017.
\13\ The CME Futures are also cash-settled futures contracts
based on the CME CF Bitcoin Reference Rate, which is based on an
aggregation of trade flow from several bitcoin spot exchanges, that
will expire on a monthly and quarterly basis. CME Futures began
trading on December 17, 2017.
\14\ CFE and CME are registered with the CFTC and seek to
provide a neutral, regulated marketplace for the trading of
derivatives contracts for commodities, such as futures, options and
certain swaps. Both the CFE and CME are both members of the
Intermarket Surveillance Group (``ISG'').
---------------------------------------------------------------------------
As such, the Exchange is proposing to list and trade the Funds
under Rule 14.11(f)(4), which governs the listing and trading of Trust
Issued Receipts on the Exchange.
GraniteShares Bitcoin ETF
The Long Fund seeks as its investment objective results (before
fees and expenses) that, both for a single day \15\ and over time,
match the performance of lead month Benchmark Futures Contracts. By
being long Bitcoin Futures Contracts, as defined below, the Long Fund
seeks to benefit from daily increases in the price of the Bitcoin
Futures Contracts and will lose value when the price of the Bitcoin
Futures Contracts decline.
---------------------------------------------------------------------------
\15\ A ``single day'' is measured from the time a Fund
calculates its net asset value (``NAV'') to the time of the Fund's
next NAV calculation. The NAV calculation time for the Funds will
typically be 4:00 p.m. Eastern time.
---------------------------------------------------------------------------
GraniteShares Short Bitcoin ETF
The Short Fund seeks to provide investment results that, on a daily
basis correspond (before fees and expenses) to the inverse (-1x) of the
daily performance of the Benchmark Futures Contracts for a single day.
By being short Bitcoin Futures Contracts, as defined below, the Short
Fund seeks to benefit from daily decreases in the price of the Bitcoin
Futures Contracts and will lose value when the price of the Bitcoin
Futures Contracts increase.
Investment Strategies
Each Fund will, under Normal Market Conditions,\16\ hold
substantially all of its assets in the Benchmark Futures Contracts and
cash and Cash Equivalents \17\ (which are used to
[[Page 2706]]
collateralize the Benchmark Futures Contracts) in order to achieve its
investment objective. Although the Funds generally intend to invest
substantially all of their respective assets in Benchmark Futures
Contracts, the Funds may invest in other U.S. exchange-listed bitcoin
futures contracts, as available, in addition to the Benchmark Futures
Contracts (collectively, with Benchmark Futures Contracts, the
``Bitcoin Futures Contracts''). In the event that position price, or
accountability limits are reached with respect to Bitcoin Futures
Contracts, each Fund may invest in U.S. listed swaps on bitcoin or the
Benchmark Futures Contracts (``Listed Bitcoin Swaps''). In the event
that position price or accountability limits are reached with respect
to Listed Bitcoin Swaps, each Fund may invest in OTC swaps on bitcoin
or the Benchmark Futures Contracts.
---------------------------------------------------------------------------
\16\ The term ``Normal Market Conditions'' includes, but is not
limited to, the absence of trading halts in the applicable financial
markets generally; operational issues causing dissemination of
inaccurate market information or system failures; or force majeure
type events such as natural or man-made disaster, act of God, armed
conflict, act of terrorism, riot or labor disruption, or any similar
intervening circumstance.
\17\ ``Cash and Cash Equivalents'' means short-term instruments
with maturities of less than three months, including: (i) U.S.
Government securities, including bills, notes, and bonds differing
as to maturity and rates of interest, which are either issued or
guaranteed by the U.S. Treasury or by U.S. Government agencies or
instrumentalities; (ii) certificates of deposit issued against funds
deposited in a bank or savings and loan association; (iii) bankers
acceptances, which are short-term credit instruments used to finance
commercial transactions; (iv) repurchase agreements and reverse
repurchase agreements; (v) bank time deposits, which are monies kept
on deposit with banks or savings and loan associations for a stated
period of time at a fixed rate of interest; (vi) commercial paper,
which are short-term unsecured promissory notes; and (vii) money
market funds.
---------------------------------------------------------------------------
Each Fund intends to enter into swap agreements only with major,
global financial institutions that meet certain credit quality
standards and monitoring policies. The Funds will each use various
techniques to minimize credit risk, including posting collateral daily
that is marked to market, using different counterparties, and limiting
the net amount due from any individual counterparty.
Bitcoin Futures Contracts are measures of the market's expectation
of the price of bitcoin at certain points in the future, and as such
will behave differently than current or spot bitcoin prices. The Funds
are not linked to bitcoin and in many cases the Funds could
significantly underperform or outperform the price of bitcoin.
The Funds do not intend to hold Bitcoin Futures Contracts through
expiration, but instead intend to either close or ``roll'' their
respective positions. When the market for these contracts is such that
the prices are higher in the more distant delivery months than in the
nearer delivery months, the sale during the course of the ``rolling
process'' of the more nearby contract would take place at a price that
is lower than the price of the more nearby Bitcoin Futures Contracts
would take place at a price that is lower than the price of the more
distant Bitcoin Futures Contracts [sic]. This pattern of higher futures
prices for longer expiration Bitcoin Futures Contracts is referred to
as ``contango.'' Alternatively, when the market for certain Bitcoin
Futures Contracts is such that the prices are higher in the nearer
months than in the more distant months, the sale during the course of
the ``rolling process'' of the more nearby Bitcoin Futures Contracts
would take place at a price that is higher than the price of the more
distant Bitcoin Futures Contracts. This pattern of higher future prices
for shorter expiration Bitcoin Futures Contracts is referred to as
``backwardation.'' The presence of contango in the relevant Bitcoin
Futures Contracts at the time of rolling would be expected to adversely
affect the long positions held by the Long Fund, and positively affect
the short positions held by the Short Fund. Similarly, the presence of
backwardation in Bitcoin Futures Contracts at the time of rolling such
Bitcoin Futures Contracts would be expected to adversely affect the
short positions held by the Short Fund and positively affect the long
positions held by the Long Fund.
Each Fund's investments will be consistent with its investment
objective and will not be used to enhance leverage (although certain
derivatives and other investments may result in leverage).\18\ Each
Fund's investments will not be used to seek performance that is the
multiple or inverse multiple (i.e. 2x or -2x) of the Index. Each Fund's
use of derivative instruments will be collateralized.
---------------------------------------------------------------------------
\18\ The Funds will each include appropriate risk disclosure in
its offering documents, including leveraging risk. Leveraging risk
is the risk that certain transactions of a fund, including a fund's
use of derivatives, may give rise to leverage, causing a fund to be
more volatile than if it had not been leveraged.
---------------------------------------------------------------------------
Policy Considerations
The Exchange recognizes that certain policy concerns exist as it
relates to any series of Trust Issued Receipts that are listed on the
Exchange, but that these concerns, as well as certain other concerns
raised by this proposal specifically, are mitigated as it relates to
the Funds and their holdings for the reasons enumerated below.
First, the Exchange believes that the policy concerns related to an
underlying reference asset and its susceptibility to manipulation are
mitigated as it relates to bitcoin because the very nature of the
bitcoin ecosystem makes manipulation of bitcoin difficult. The
geographically diverse and continuous nature of bitcoin trading makes
it difficult and prohibitively costly to manipulate the price of
bitcoin and, in many instances, that the bitcoin market is generally
less susceptible to manipulation than the equity, fixed income, and
commodity futures markets. There are a number of reasons this is the
case, including that there is not inside information about revenue,
earnings, corporate activities, or sources of supply; it is generally
not possible to disseminate false or misleading information about
bitcoin in order to manipulate; manipulation of the price on any single
venue would require manipulation of the global bitcoin price in order
to be effective; a substantial over-the-counter market provides
liquidity and shock-absorbing capacity; bitcoin's 24/7/365 nature
provides constant arbitrage opportunities across all trading venues;
and it is unlikely that any one actor could obtain a dominant market
share.
Further, bitcoin is arguably less susceptible to manipulation than
other commodities that underlie ETPs; there may be inside information
relating to the supply of the physical commodity such as the discovery
of new sources of supply or significant disruptions at mining
facilities that supply the commodity that simply are inapplicable as it
relates to bitcoin. Further, the Exchange believes that the
fragmentation across bitcoin exchanges, the relatively slow speed of
transactions, and the capital necessary to maintain a significant
presence on each exchange make manipulation of bitcoin prices through
continuous trading activity unlikely. Moreover, the linkage between the
bitcoin markets and the presence of arbitrageurs in those markets means
that the manipulation of the price of bitcoin price on any single venue
would require manipulation of the global bitcoin price in order to be
effective. Arbitrageurs must have funds distributed across multiple
bitcoin exchanges in order to take advantage of temporary price
dislocations, thereby making it unlikely that there will be strong
concentration of funds on any particular bitcoin exchange. As a result,
the potential for manipulation on a particular bitcoin exchange would
require overcoming the liquidity supply of such arbitrageurs who are
effectively eliminating any cross-market pricing differences. For all
of these reasons, bitcoin is not particularly susceptible to
manipulation, especially as compared to other approved ETP reference
assets.
Second, the Exchange believes that the policy concerns related to
the susceptibility to manipulation of an underlying futures contract
is, in addition to the arguments above, further mitigated by the
significant liquidity that the Exchange expects to exist in the market
for Bitcoin Futures Contracts. This belief is based on numerous
conversations with market participants,
[[Page 2707]]
issuers, and discussions with personnel of CFE. This expected liquidity
in the market for Bitcoin Futures Contracts combined with the CFE, CME,
and Exchange surveillance procedures related to the Bitcoin Futures,
the Shares, and CFTC oversight,\19\ along with the difficulty in
manipulating the bitcoin market described above will mitigate the
potential policy concerns and further prevent trading in the Shares
from being susceptible to manipulation.
---------------------------------------------------------------------------
\19\ The CFTC issued a press release on December 1, 2017, noting
the self-certifications from CFE and CME and highlighting the
rigorous process that the CFTC had undertaken in its engagement with
CFE and CME prior to the self-certification for the Bitcoin Futures
Contracts. The press release focused on the ongoing surveillances
that will occur on each listing exchange, including surveillance
based on information sharing with the underlying cash bitcoin
exchanges as well as the actions that the CFTC will undertake after
the contracts are launched, including monitoring and analyzing the
size and development of the market, positions and changes in
positions over time, open interest, initial margin requirements, and
variation margin payments, stress testing positions, conduct reviews
of designated contract markets, derivatives clearing organizations,
clearing firms, and individual traders involved in trading and
clearing bitcoin futures. For more information, see https://www.cftc.gov/PressRoom/PressReleases/pr7654-17.
---------------------------------------------------------------------------
Net Asset Value
According to the Registration Statement, the net asset value
(``NAV'') of the Shares of the Funds will be calculated by dividing the
value of the net assets of the Fund (i.e., the value of its total
assets less total liabilities) by the total number of Shares
outstanding. Expenses and fees, including the management and
administration fees, are accrued daily and taken into account for
purposes of determining NAV. The NAV of each Fund is generally
determined at 4:00 p.m. Eastern Time each business day when the
Exchange is open for trading. If the Exchange or market on which the
Fund's investments are primarily traded closes early, the NAV may be
calculated prior to its normal calculation time. Creation/redemption
transaction order time cutoffs (as further described below) would also
be accelerated.
Bitcoin Futures Contracts are generally valued at their settlement
price as determined by the relevant exchange. Cash and Cash Equivalents
will generally be valued at their market price using market quotations
or information provided by a pricing service. Listed Bitcoin Swaps are
generally valued at their settlement price as determined by the
relevant swap execution facility. OTC swaps will be valued based on the
then-current disseminated levels for the Bitcoin Futures Contracts or
the applicable reference price for bitcoin applicable to the contract.
For more information regarding the valuation of Fund investments in
calculating a Fund's NAV, see the Registration Statement.
The Shares
The Funds will issue and redeem Shares on a continuous basis at the
NAV per Share only in large blocks of a specified number of Shares or
multiples thereof (``Creation Units'') in transactions with authorized
participants who have entered into agreements with the Distributor. The
Adviser currently anticipates that a Creation Unit will consist of
10,000 Shares, though this number may change from time to time,
including prior to listing of the Shares. The exact number of Shares
that will constitute a Creation Unit will be disclosed in the
Registration Statement. Once created, Shares of the Funds may trade on
the secondary market in amounts less than a Creation Unit.
Although the Adviser anticipates that purchases and redemptions for
Creation Units will generally be executed on an all-cash basis, the
consideration for purchase of Creation Units of the Funds may consist
of an in-kind deposit of a designated portfolio of assets (including
any portion of such assets for which cash may be substituted) (i.e.,
the ``Deposit Assets''), and the ``Cash Component'' computed as
described below. Together, the Deposit Assets and the Cash Component
constitute the ``Fund Deposit,'' which represents the minimum initial
and subsequent investment amount for a Creation Unit of the Fund. The
specific terms surrounding the creation and redemption of shares are at
the discretion of the Adviser.
The Deposit Assets and Fund Securities (as defined below), as the
case may be, in connection with a purchase or redemption of a Creation
Unit, generally will correspond pro rata, to the extent practicable, to
the assets held by the Funds.
The Cash Component will be an amount equal to the difference
between the NAV of the Shares (per Creation Unit) and the ``Deposit
Amount,'' which will be an amount equal to the market value of the
Deposit Assets, and serve to compensate for any differences between the
NAV per Creation Unit and the Deposit Amount. The Funds generally offer
Creation Units partially or entirely for cash. The Adviser will make
available through the National Securities Clearing Corporation
(``NSCC'') on each business day, prior to the opening of business on
the Exchange, the list of names and the required number or par value of
each Deposit Asset and the amount of the Cash Component to be included
in the current Fund Deposit (based on information as of the end of the
previous business day) for the Fund.
The identity and number or par value of the Deposit Assets may
change pursuant to changes in the composition of a Fund's portfolio as
rebalancing and rolling adjustments and corporate action events occur
from time to time. The composition of the Deposit Assets may also
change in response to adjustments to the weighting or composition of
the holdings of the Fund.
The Fund reserves the right to permit or require the substitution
of a ``cash in lieu'' amount to be added to the Cash Component to
replace any Deposit Asset that may not be available in sufficient
quantity for delivery or that may not be eligible for transfer through
the Depository Trust Company (``DTC'') or the clearing process through
the NSCC.\20\
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\20\ The Adviser represents that, to the extent the Trust
permits or requires a ``cash in lieu'' amount, such transactions
will be effected in the same or equitable manner for all authorized
participants.
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Except as noted below, all creation orders must be placed for one
or more Creation Units and must be received by the Distributor at a
time specified by the Adviser. The Fund currently intends that such
orders must be received in proper form no later than 2:00 p.m. Eastern
Time on the date such order is placed in order for creation of Creation
Units to be effected based on the NAV of Shares of each Fund as next
determined on such date after receipt of the order in proper form. The
``Settlement Date'' is generally the second business day after the
transmittal date. On days when the Exchange or the futures markets
close earlier than normal, the Funds may require orders to create or to
redeem Creation Units to be placed earlier in the day.
Fund Deposits must be delivered through either the Continuous Net
Settlement facility of the NSCC, the Federal Reserve System (for cash
and government securities), through DTC (for corporate securities), or
through a central depository account, such as with Euroclear or DTC,
maintained by each Fund's Custodian (a ``Central Depository Account''),
in any case at the discretion of the Adviser, by an authorized
participant. Any portion of a Fund Deposit that may not be delivered
through the NSCC, Federal Reserve System or DTC must be delivered
through a Central Depository Account.
[[Page 2708]]
A standard creation transaction fee may be imposed to offset the
transfer and other transaction costs associated with the issuance of
Creation Units.
Shares of the Funds may be redeemed only in Creation Units at their
NAV next determined after receipt of a redemption request in proper
form by the Distributor and only on a business day. The Adviser will
make available through the NSCC, prior to the opening of business on
the Exchange on each business day, the designated portfolio of assets
(including any portion of such assets for which cash may be
substituted) that will be applicable (subject to possible amendment or
correction) to redemption requests received in proper form on that day
(``Fund Securities''). The redemption proceeds for a Creation Unit
generally will consist of a specified amount of cash less a redemption
transaction fee. The Fund generally will redeem Creation Units entirely
for cash.
A standard redemption transaction fee may be imposed to offset
transfer and other transaction costs that may be incurred by the Fund.
Redemption requests for Creation Units of the Funds must be
submitted to the Distributor by or through an authorized participant by
a time specified by the Adviser. The Fund currently intends that such
requests must be received no later than 3:30 p.m. Eastern Time on any
business day, in order to receive that day's NAV. The authorized
participant must transmit the request for redemption in the form
required by the Funds to the Distributor in accordance with procedures
set forth in the authorized participant agreement.
Additional information regarding the Shares and the Funds,
including investment strategies, risks, creation and redemption
procedures, fees and expenses, portfolio holdings disclosure policies,
distributions, taxes and reports to be distributed to beneficial owners
of the Shares can be found in the Registration Statement or on the
website for the Funds (www.GraniteShares.com), as applicable.
Availability of Information
The Funds' website, which will be publicly available prior to the
public offering of Shares, will include a form of the prospectus for
each Fund that may be downloaded. The websites will include additional
quantitative information updated on a daily basis, including, for the
Fund: (1) The prior business day's reported NAV, the closing market
price or the midpoint of the bid/ask spread at the time of calculation
of such NAV (the ``Bid/Ask Price''),\21\ daily trading volume, and a
calculation of the premium and discount of the closing market price or
Bid/Ask Price against the NAV; and (2) data in chart format displaying
the frequency distribution of discounts and premiums of the daily
closing market price or Bid/Ask Price against the NAV, within
appropriate ranges, for each of the four previous calendar quarters.
Daily trading volume information will be available in the financial
section of newspapers, through subscription services such as Bloomberg,
Thomson Reuters, and International Data Corporation, which can be
accessed by authorized participants and other investors, as well as
through other electronic services, including major public websites. On
each business day, before commencement of trading in Shares during
Regular Trading Hours \22\ on the Exchange, each Fund will disclose on
its website the identities and quantities of the portfolio Bitcoin
Futures Contracts and other assets (the ``Disclosed Portfolio'') held
by the Fund that will form the basis for the Fund's calculation of NAV
at the end of the business day.\23\ The Disclosed Portfolio will
include, as applicable: Ticker symbol or other identifier, a
description of the holding, identity of the asset upon which the
derivative is based, the quantity of each security or other asset held
as measured by select metrics, maturity date, coupon rate, effective
date, market value and percentage weight of the holding in the
portfolio. The website and information will be publicly available at no
charge.
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\21\ The Bid/Ask Price of each Fund will be determined using the
midpoint of the highest bid and the lowest offer on the Exchange as
of the time of calculation of the Fund's NAV. The records relating
to Bid/Ask Prices will be retained by the Funds and their service
providers.
\22\ Regular Trading Hours are 9:30 a.m. to 4:00 p.m. Eastern
Time.
\23\ Under accounting procedures to be followed by the Funds,
trades made on the prior business day (``T'') will be booked and
reflected in NAV on the current business day (``T+1''). Accordingly,
each Fund will be able to disclose at the beginning of the business
day the portfolio that will form the basis for the NAV calculation
at the end of the business day.
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In addition, for each Fund, an estimated value that reflects an
estimated intraday value of the Fund's portfolio (the ``Intraday
Indicative Value''), will be disseminated. Moreover, the Intraday
Indicative Value will be based upon the current value for the
components of the Disclosed Portfolio and will be updated and widely
disseminated by one or more major market data vendors at least every 15
seconds during the Exchange's Regular Trading Hours.\24\ In addition,
the quotations of certain of each Fund's holdings may not be updated
for purposes of calculating Intraday Indicative Value during U.S.
trading hours where the market on which the underlying asset is traded
settles prior to the end of the Exchange's Regular Trading Hours.
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\24\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available
Intraday Indicative Values published via the Consolidated Tape
Association (``CTA'') or other data feeds.
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The dissemination of the Intraday Indicative Value, together with
the Disclosed Portfolio, will allow investors to determine the value of
the underlying portfolio of each Fund on a daily basis and provide an
estimate of that value throughout the trading day.
Intraday price quotations on Cash Equivalents of the type held by
the Funds are available from major broker-dealer firms and from third-
parties, which may provide prices free with a time delay, or ``live''
with a paid fee. For Bitcoin Futures Contracts and Listed Bitcoin
Swaps, such intraday information is available directly from the
applicable listing venue. Intraday price information is also available
through subscription services, such as Bloomberg and Thomson Reuters,
which can be accessed by authorized participants and other investors.
Pricing information related to Cash Equivalents will be available
through issuer websites and publicly available quotation services such
as Bloomberg, Markit and Thomson Reuters.
Information regarding market price and volume of the Shares will be
continually available on a real-time basis throughout the day on
brokers' computer screens and other electronic services. The previous
day's closing price and trading volume information for the Shares will
be generally available daily in the print and online financial press.
Quotation and last sale information for the Shares will be available on
the facilities of the CTA.
Initial and Continued Listing
The Shares will be subject to BZX Rule 14.11(f)(4), which sets
forth the initial and continued listing criteria applicable to Trust
Issued Receipts that invest in Financial Instruments. The Exchange will
obtain a representation that the Trust's NAV will be calculated daily
and that these values and information about the assets of the Trust
will be made available to all market participants at the same time. The
Trust currently expects that there will be at least 20,000 Shares
outstanding at the time of commencement of trading on the
[[Page 2709]]
Exchange. Upon termination of the Trust, the Shares will be removed
from listing. The Trustee, Wilmington Trust Company, is a trust company
having substantial capital and surplus and the experience and
facilities for handling corporate trust business, as required under
Rule 14.11(f)(2)(D)(iv)(a) and that no change will be made to the
trustee without prior notice to and approval of the Exchange.
As required in Rule 14.11(f)(4)(D), the Exchange notes that any
registered market maker (``Market Maker'') in the Shares must file with
the Exchange in a manner prescribed by the Exchange and keep current a
list identifying all accounts for trading in an underlying commodity,
related commodity futures or options on commodity futures, or any other
related commodity derivatives, which the registered Market Maker may
have or over which it may exercise investment discretion. No registered
Market Maker shall trade in an underlying commodity, related commodity
futures or options on commodity futures, or any other related commodity
derivatives, in an account in which a registered Market Maker, directly
or indirectly, controls trading activities, or has a direct interest in
the profits or losses thereof, which has not been reported to the
Exchange as required by this Rule. In addition to the existing
obligations under Exchange rules regarding the production of books and
records (see, e.g., Rule 4.2), the registered Market Maker in Trust
Issued Receipts shall make available to the Exchange such books,
records or other information pertaining to transactions by such entity
or registered or non-registered employee affiliated with such entity
for its or their own accounts for trading the underlying physical
commodity, related commodity futures or options on commodity futures,
or any other related commodity derivatives, as may be requested by the
Exchange.
Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares. The Exchange will halt trading in the Shares
under the conditions specified in BZX Rule 11.18. Trading may be halted
because of market conditions or for reasons that, in the view of the
Exchange, make trading in the Shares inadvisable. These may include:
(1) The extent to which trading is not occurring in the bitcoin
underlying the Shares; or (2) whether other unusual conditions or
circumstances detrimental to the maintenance of a fair and orderly
market are present. Trading in the Shares also will be subject to Rule
14.11(f)(4)(C)(ii), which sets forth circumstances under which trading
in the Shares may be halted and delisting proceedings commenced.
Trading Rules
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. BZX will allow
trading in the Shares from 8:00 a.m. until 5:00 p.m. Eastern Time. The
Exchange has appropriate rules to facilitate transactions in the Shares
during all trading sessions. As provided in BZX Rule 11.11(a) the
minimum price variation for quoting and entry of orders in securities
traded on the Exchange is $0.01 where the price is greater than $1.00
per share or $0.0001 where the price is less than $1.00 per share.
Surveillance
The Exchange believes that its surveillance procedures are adequate
to properly monitor the trading of the Shares on the Exchange during
all trading sessions and to deter and detect violations of Exchange
rules and the applicable federal securities laws. Additionally, the
Bitcoin Futures Contracts will be subject to the rules and surveillance
programs of CFE, CME, and the CFTC.\25\ Trading of the Shares through
the Exchange will be subject to the Exchange's surveillance procedures
for derivative products, including Trust Issued Receipts. The Exchange
or FINRA, on behalf of the Exchange, will communicate as needed
regarding trading in the Shares and the underlying Bitcoin Futures
Contracts via ISG from other exchanges who are members or affiliates of
the ISG or with which the Exchange has entered into a comprehensive
surveillance sharing agreement.\26\ The Exchange may also obtain
information regarding trading in the spot bitcoin market from exchanges
with which the Exchange has entered into a comprehensive surveillance
sharing agreement. In addition, the Exchange is able to access, as
needed, trade information for certain fixed income instruments reported
to FINRA's Trade Reporting and Compliance Engine (``TRACE''). The
Exchange prohibits the distribution of material non-public information
by its employees.
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\25\ The CFTC issued a press release on December 1, 2017, noting
the self-certifications from CFE and CME and highlighting the
rigorous process that the CFTC had undertaken in its engagement with
CFE and CME prior to the self-certification for the Bitcoin Futures
Contracts. The press release focused on the ongoing surveillances
that will occur on each listing exchange, including surveillance
based on information sharing with the underlying cash bitcoin
exchanges as well as the actions that the CFTC will undertake after
the contracts are launched, including monitoring and analyzing the
size and development of the market, positions and changes in
positions over time, open interest, initial margin requirements, and
variation margin payments, stress testing positions, conduct reviews
of designated contract markets, derivatives clearing organizations,
clearing firms, and individual traders involved in trading and
clearing bitcoin futures. For more information, see https://www.cftc.gov/PressRoom/PressReleases/pr7654-17.
\26\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com. The Exchange notes that not all
components of the Disclosed Portfolio for each Fund may trade on
markets that are members of ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement. Not more than
10% of the net assets of a Fund in the aggregate invested in Bitcoin
Futures Contracts shall consist of Bitcoin Futures Contracts whose
principal market is not a member of the ISG or with which the
Exchange has in place a comprehensive surveillance sharing
agreement.
---------------------------------------------------------------------------
Information Circular
Prior to the commencement of trading, the Exchange will inform its
members in an Information Circular of the special characteristics and
risks associated with trading the Shares. Specifically, the Information
Circular will discuss the following: (1) The procedures for purchases
and redemptions of Shares in Creation Units (and that Shares are not
individually redeemable); (2) Exchange Rule 3.7, which imposes
suitability obligations on Exchange members with respect to
recommending transactions in the Shares to customers; (3) how
information regarding the Intraday Indicative Value is disseminated;
(4) the risks involved in trading the Shares during the Pre-Opening
\27\ and After Hours Trading Sessions \28\ when an updated Intraday
Indicative Value will not be calculated or publicly disseminated; (5)
the requirement that members deliver a prospectus to investors
purchasing newly issued Shares prior to or concurrently with the
confirmation of a transaction; and (6) trading information.
---------------------------------------------------------------------------
\27\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m.
Eastern Time.
\28\ The After Hours Trading Session is from 4:00 p.m. to 5:00
p.m. Eastern Time.
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In addition, the Information Circular will advise members, prior to
the commencement of trading, of the prospectus delivery requirements
applicable to the Fund. Members purchasing Shares from the Funds for
resale to investors will deliver a prospectus to such investors. The
Information Circular will also discuss any exemptive, no-action, and
interpretive relief granted by the Commission from any rules under the
Act.
[[Page 2710]]
In addition, the Information Circular will reference that each Fund
is subject to various fees and expenses described in the Registration
Statement. The Information Circular will also disclose the trading
hours of the Shares of the Funds and the applicable NAV calculation
time for the Shares. The Information Circular will disclose that
information about the Shares of the Funds will be publicly available on
that Fund's website. In addition, the Information Circular will
reference that the Trust is subject to various fees and expenses
described in the Registration Statement.
2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act \29\ in general and Section 6(b)(5) of the Act \30\ in
particular in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system and, in general, to protect investors and the
public interest.
---------------------------------------------------------------------------
\29\ 15 U.S.C. 78f.
\30\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Exchange believes that its surveillance procedures are adequate to
properly monitor the trading of the Shares on the Exchange during all
trading sessions and to deter and detect violations of Exchange rules
and the applicable federal securities laws. Additionally, the Bitcoin
Futures Contracts will be subject to the rules and surveillance
programs of CFE, CME, and the CFTC. Trading of the Shares through the
Exchange will be subject to the Exchange's surveillance procedures for
derivative products, including Trust Issued Receipts. The Exchange or
FINRA, on behalf of the Exchange, will communicate as needed regarding
trading in the Shares and the underlying Bitcoin Futures Contracts via
ISG, from other exchanges who are members or affiliates of the ISG, or
with which the Exchange has entered into a comprehensive surveillance
sharing agreement. The Exchange may also obtain information regarding
trading in the spot bitcoin market via the ISG, from other exchanges
who are members or affiliates of the ISG, or from other exchanges with
which the Exchange has entered into a comprehensive surveillance
sharing agreement. In addition, the Exchange is able to access, as
needed, trade information for certain fixed income instruments reported
to TRACE. The Exchange prohibits the distribution of material non-
public information by its employees. The Exchange believes that its
surveillance procedures are adequate to properly monitor the trading of
the Shares on the Exchange during all trading sessions and to deter and
detect violations of Exchange rules and the applicable federal
securities laws.
The Exchange further believes that the proposal is designed to
prevent fraudulent and manipulative acts and practices in that the
Exchange expects that the market for Bitcoin Futures Contracts will be
sufficiently liquid to support numerous ETPs shortly after launch. This
belief is based on numerous conversations with market participants,
issuers, and discussions with personnel of CFE. As such, the Exchange
believes that the expected liquidity in the market for Bitcoin Futures
Contracts combined with the Exchange surveillance procedures related to
the Shares and the broader regulatory structure will prevent trading in
the Shares from being susceptible to manipulation.
Because of its innovative features as a cryptoasset, bitcoin has
gained wide acceptance as a secure means of exchange in the commercial
marketplace and has generated significant interest among investors. In
less than a decade since its creation in 2008, bitcoin has achieved
significant market penetration, with payments giant PayPal and
thousands of merchants and businesses accepting it as a form of
commercial payment, as well as receiving official recognition from
several governments, including Japan and Australia. Accordingly,
investor interest in gaining exposure to bitcoin is increasing
exponentially as well. As expected, the total volume of bitcoin
transactions in the market continues to grow exponentially.
Despite the growing investor interest in bitcoin, the primary means
for investors to gain access to bitcoin exposure remains either through
the Bitcoin Futures Contracts or direct investment through bitcoin
exchanges or over-the-counter trading. For regular investors simply
wishing to express an investment viewpoint in bitcoin, investment
through the Bitcoin Futures Contracts is complex and requires active
management and direct investment in bitcoin brings with it significant
inconvenience, complexity, expense and risk. The Shares would therefore
represent a significant innovation in the bitcoin market by providing
an inexpensive and simple vehicle for investors to gain long or short
exposure to bitcoin in a secure and easily accessible product that is
familiar and transparent to investors. Such an innovation would help to
perfect the mechanism of a free and open market and, in general, to
protect investors and the public interest by improving investor access
to bitcoin exposure through efficient and transparent exchange-traded
derivative products.
In addition to improved convenience, efficiency and transparency,
the Funds will also help to prevent fraudulent and manipulative acts
and practices by enhancing the security afforded to investors as
compared to a direct investment in bitcoin. Despite the extensive
security mechanisms built into the Bitcoin network, a remaining risk to
owning bitcoin directly is the need for the holder to retain and
protect the ``private key'' required to spend or sell bitcoin after
purchase. If a holder's private key is compromised or simply lost,
their bitcoin can be rendered unavailable--i.e., effectively lost to
the investor. This risk will be eliminated by the Long Fund because the
exposure to bitcoin is gained through cash-settled Bitcoin Futures
Contracts that do not present any of the security issues that exist
with direct investment in bitcoin.
The Funds expect that they will generally seek to remain fully
exposed to Bitcoin Futures Contracts even during times of adverse
market conditions. Under Normal Market Conditions, the Funds will
generally hold only Bitcoin Futures Contracts and cash and Cash
Equivalents (which are used to collateralize the Bitcoin Futures
Contracts).
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of the
Shares that the NAV will be calculated daily and that the NAV and the
Disclosed Portfolio will be made available to all market participants
at the same time. In addition, a large amount of information is
publicly available regarding the Funds and the Shares, thereby
promoting market transparency. Moreover, the Intraday Indicative Value
will be disseminated by one or more major market data vendors at least
every 15 seconds during Regular Trading Hours. On each business day,
before commencement of trading in Shares during Regular Trading Hours,
each Fund will disclose on its website the Disclosed Portfolio that
will form the basis for the Fund's calculation of NAV at the end of the
[[Page 2711]]
business day. Pricing information will be available on each Fund's
website including: (1) The prior business day's reported NAV, the Bid/
Ask Price of the Fund, and a calculation of the premium and discount of
the Bid/Ask Price against the NAV; and (2) data in chart format
displaying the frequency distribution of discounts and premiums of the
daily Bid/Ask Price against the NAV, within appropriate ranges, for
each of the four previous calendar quarters. Additionally, information
regarding market price and trading of the Shares will be continually
available on a real-time basis throughout the day on brokers' computer
screens and other electronic services, and quotation and last sale
information for the Shares will be available on the facilities of the
CTA. The website for each Fund will include a form of the prospectus
for the Fund and additional data relating to NAV and other applicable
quantitative information. Trading in Shares of the Funds will be halted
under the conditions specified in BZX Rule 11.18. Trading may also be
halted because of market conditions or for reasons that, in the view of
the Exchange, make trading in the Shares inadvisable. Finally, trading
in the Shares will be subject to BZX Rule 14.11(f)(4)(B)(ii), which
sets forth circumstances under which Shares of the Funds may be halted
and delisting proceedings commenced. In addition, as noted above,
investors will have ready access to information regarding each Fund's
holdings, the Intraday Indicative Value, the Disclosed Portfolio, and
quotation and last sale information for the Shares.
Intraday price quotations on Cash Equivalents of the type held by
the Funds are available from major broker-dealer firms and from third-
parties, which may provide prices free with a time delay, or ``live''
with a paid fee. For Bitcoin Futures Contracts and Listed Bitcoin
Swaps, such intraday information is available directly from the
applicable listing venue. Intraday price information is also available
through subscription services, such as Bloomberg and Thomson Reuters,
which can be accessed by authorized participants and other investors.
Pricing information related to Cash Equivalents will be available
through issuer websites and publicly available quotation services such
as Bloomberg, Markit and Thomson Reuters.
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
additional types of actively-managed exchange-traded products 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 comprehensive
surveillance sharing agreement as well as trade information for certain
fixed income instruments as reported to FINRA's TRACE. Not more than
10% of the net assets of a Fund in the aggregate invested in Bitcoin
Futures Contracts shall consist of Bitcoin Futures Contracts whose
principal market is not a member of the ISG or with which the Exchange
has in place a comprehensive surveillance sharing agreement. In
addition, as noted above, investors will have ready access to
information regarding each Fund's holdings, the Intraday Indicative
Value, the Disclosed Portfolio, and quotation and last sale information
for the Shares.
For the above reasons, the Exchange believes that the proposed rule
change is consistent with the requirements of Section 6(b)(5) of the
Act.
(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 purpose of the Act. The Exchange notes that the
proposed rule change, rather will facilitate the listing and trading of
additional actively-managed exchange-traded products that will enhance
competition among both market participants and listing venues, 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
The Exchange has neither solicited nor received written comments on
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 the 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 [email protected]. Please include
File Number SR-CboeBZX-2018-001 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-CboeBZX-2018-001. 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 website (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 website 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CboeBZX-2018-001 and should be submitted
on or before February 8, 2018.
[[Page 2712]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
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\31\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-00720 Filed 1-17-18; 8:45 am]
BILLING CODE 8011-01-P
