Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of Amendment No. 2 to 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, 51521-51529 [2018-22096]

Download as PDF Federal Register / Vol. 83, No. 197 / Thursday, October 11, 2018 / Notices khammond on DSK30JT082PROD with NOTICES period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to approve or disapprove the proposed rule change.5 On April 5, 2018, the Commission instituted proceedings under Section 19(b)(2)(B) of the Exchange Act 6 to determine whether to approve or disapprove the proposed rule change.7 On June 28, 2018, the Commission extended the period for consideration of the proposed rule change to September 15, 2018.8 On August 21, 2018, CboeBZX filed Amendment No. 1 to the proposed rule change, stating that it was amending and replacing in its entirety the proposal as originally filed on January 5, 2018. On August 22, 2018, CboeBZX filed Amendment No. 2 to the proposed rule change, stating that it was amending and replacing in its entirety Amendment No. 1 to the proposed rule change. On August 22, 2018, the Division of Trading and Markets, pursuant to delegated authority,9 issued an order disapproving the proposed rule change.10 On August 23, 2018, the Secretary of the Commission notified BZX that, pursuant to Commission Rule of Practice 431,11 the Commission would review the Division’s action pursuant to delegated authority and that the Division’s action pursuant to delegated authority had been automatically stayed.12 On October 4, 2018, the Commission published notice of Amendment No. 2 to the proposed rule change.13 Accordingly, It is ordered, pursuant to Commission Rule of Practice 431, that by November 5, 2018, any party or other person may file a statement in support of, or in opposition to, the action made pursuant to delegated authority. It is further Ordered that the order disapproving proposed rule change SR– CboeBZX–2018–001 shall remain in effect pending the Commission’s review. 5 See Securities Exchange Act Release No. 82759 (Feb. 22, 2018), 83 FR 8719 (Feb. 28, 2018). 6 15 U.S.C. 78s(b)(2)(B). 7 See Securities Exchange Act Release No. 82995 (Apr. 5, 2018), 83 FR 15425 (Apr. 10, 2018). 8 See Securities Exchange Act Release No. 83548 (June 28, 2018), 83 FR 31246 (July 3, 2018). 9 17 CFR 200.30–3(a)(12). 10 See Securities Exchange Act Release No. 83913 (Aug. 22, 2018), 83 FR 43923 (Aug. 28, 2018) (SR– CboeBZX–2018–001). 11 See 17 CFR 201.431. 12 See Letter from Secretary of the Commission to Kyle Murray, Assistant General Counsel, BZX (Aug. 23, 2018), available at https://www.sec.gov/rules/ sro/cboebzx/2018/34-83913-letter-fromsecretary.pdf. 13 See Securities Exchange Act Release No. 84367 (Oct. 4, 2018). VerDate Sep<11>2014 20:54 Oct 10, 2018 Jkt 247001 By the Commission. Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–22084 Filed 10–10–18; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–84367; File No. SR– CboeBZX–2018–001] Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of Amendment No. 2 to 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 October 4, 2018. On January 5, 2018, Cboe BZX Exchange, Inc. (‘‘Exchange’’ or ‘‘BZX’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to list and trade shares of the GraniteShares Bitcoin ETF and the GraniteShares Short Bitcoin ETF issued by the GraniteShares ETP Trust under BZX Rule 14.11(f)(4). The proposed rule change was published for comment in the Federal Register on January 18, 2018.3 On February 22, 2018, pursuant to Section 19(b)(2) of the Exchange Act, the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to approve or disapprove the proposed rule change.4 On April 5, 2018, the Commission instituted proceedings under Section 19(b)(2)(B) of the Act 5 to determine whether to approve or disapprove the proposed rule change.6 On June 28, 2018, the Commission extended the period for consideration of the proposed rule change to September 15, 2018.7 As of August 21, 2018, the Commission had received 15 comments on the proposed rule change.8 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 82484 (Jan. 11, 2018), 83 FR 2704 (Jan. 18, 2018). 4 See Securities Exchange Act Release No. 82759 (Feb. 22, 2018), 83 FR 8719 (Feb. 28, 2018). 5 15 U.S.C. 78s(b)(2)(B). 6 See Securities Exchange Act Release No. 82995 (Apr. 5, 2018), 83 FR 15425 (Apr. 10, 2018). 7 See Securities Exchange Act Release No. 83548 (June 28, 2018), 83 FR 31246 (July 3, 2018). 8 All comments on the proposed rule change are available on the Commission’s website at: https:// PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 51521 On August 21, 2018, BZX filed Amendment No. 1 to the proposal, which amended and replaced in its entirety the proposal as originally filed on January 5, 2018. On August 22, 2018, BZX filed Amendment No. 2 to the proposal, which amended and replaced in its entirety the proposal as amended on August 21, 2018. On August 22, 2018, the Division of Trading and Markets (‘‘Division’’), acting by delegated authority, issued an order disapproving the proposed rule change.9 On August 23, 2018, the Secretary of the Commission notified BZX that, pursuant to Commission Rule of Practice 431,10 the Commission would review the Division’s action pursuant to delegated authority and that the Division’s action pursuant to delegated authority had been automatically stayed.11 On October 4, 2018, the Commission issued an Order Scheduling Filing of Statements on Review, setting November 5, 2018 as the date by which any party or other person may file a statement in support of, or in opposition to, the action by the Division pursuant to delegated authority.12 Pursuant to Section 19(b)(1) of the Act,13 and Rule 19b–4 thereunder,14 notice is hereby given that on August 22, 2018, BZX filed with the Commission Amendment No. 2 to 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 from interested persons on the proposed rule change, as modified by Amendment No. 2. 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.’’ www.sec.gov/comments/sr-cboebzx-2018-001/ cboebzx2018001.htm. 9 See Securities Exchange Act Release No. 83913 (Aug. 22, 2018), 83 FR 43923 (Aug. 28, 2018). 10 See 17 CFR 201.431. 11 See Letter from Secretary of the Commission to Kyle Murray, Assistant General Counsel, BZX (Aug. 23, 2018), available at https://www.sec.gov/rules/ sro/cboebzx/2018/34-83913-letter-fromsecretary.pdf. 12 See Securities Exchange Act Release No. 84368 (Oct. 4, 2018). 13 15 U.S.C. 78s(b)(1). 14 17 CFR 240.19b–4. E:\FR\FM\11OCN1.SGM 11OCN1 51522 Federal Register / Vol. 83, No. 197 / Thursday, October 11, 2018 / Notices 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. (A) Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose khammond on DSK30JT082PROD with NOTICES This Amendment No. 2 to SR– CboeBZX–2018–001 amends and replaces in its entirety Amendment No. 1 to the proposal as submitted on August 21, 2018, which amended and replaced in its entirety the proposal as originally submitted on January 5, 2018. The Exchange submits this Amendment No. 2 in order to clarify certain points and add additional details about the Fund. 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 15 on the Exchange.16 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.17 The Trust is registered as a commodity pool under the Commodity Exchange 15 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. 16 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). 17 15 U.S.C. 80a–1. VerDate Sep<11>2014 20:54 Oct 10, 2018 Jkt 247001 Act (‘‘CEA’’).18 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.19 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 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.20 On December 1, 2017, it was announced 21 that both Cboe Futures Exchange, Inc. (‘‘CFE’’) and Chicago Mercantile Exchange, Inc. (‘‘CME’’) had self18 17 U.S.C. 1. 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. 20 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). 21 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. 19 See PO 00000 Frm 00088 Fmt 4703 Sfmt 4703 certified with the CFTC new contracts for bitcoin 22 futures products.23 While the CFE bitcoin futures contracts (‘‘XBT Futures’’ and the ‘‘Benchmark Futures Contracts’’) 24 and the CME bitcoin futures contracts (‘‘CME Futures’’) 25 will differ in certain of their implementation details, both contracts will generally trade and settle like any other cash-settled commodity futures contracts.26 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 27 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. 22 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. 23 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. 24 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. 25 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. 26 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’’). 27 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. E:\FR\FM\11OCN1.SGM 11OCN1 Federal Register / Vol. 83, No. 197 / Thursday, October 11, 2018 / Notices 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. khammond on DSK30JT082PROD with NOTICES Investment Strategies Each Fund will, under Normal Market Conditions,28 hold substantially all of its assets in the Benchmark Futures Contracts and cash and Cash Equivalents 29 (which are used to 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’’). 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 28 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. 29 ‘‘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. VerDate Sep<11>2014 20:54 Oct 10, 2018 Jkt 247001 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. 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).30 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. 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 30 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. PO 00000 Frm 00089 Fmt 4703 Sfmt 4703 51523 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. 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 E:\FR\FM\11OCN1.SGM 11OCN1 51524 Federal Register / Vol. 83, No. 197 / Thursday, October 11, 2018 / Notices 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 Bitcoin Futures Contracts. The Funds are designed to, both for a single day and over time, match the performance (or the inverse) of lead month Benchmark Futures Contracts (and not the spot price of bitcoin). The Funds will continuously roll the contracts that they hold prior to expiration (generally at least one week before expiration) and will never hold a contract through settlement, such holdings will never be directly priced based on the spot bitcoin market price. This combined with the CFE, CME, and Exchange surveillance procedures related to the Bitcoin Futures, the Shares, and CFTC oversight,31 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. khammond on DSK30JT082PROD 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 31 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. VerDate Sep<11>2014 20:54 Oct 10, 2018 Jkt 247001 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. 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 PO 00000 Frm 00090 Fmt 4703 Sfmt 4703 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.32 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 32 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. E:\FR\FM\11OCN1.SGM 11OCN1 khammond on DSK30JT082PROD with NOTICES Federal Register / Vol. 83, No. 197 / Thursday, October 11, 2018 / Notices 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. 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. VerDate Sep<11>2014 20:54 Oct 10, 2018 Jkt 247001 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’’),33 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 34 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.35 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. 33 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. 34 Regular Trading Hours are 9:30 a.m. to 4:00 p.m. Eastern Time. 35 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. PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 51525 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 Regular Trading Hours.36 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, 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. 36 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. E:\FR\FM\11OCN1.SGM 11OCN1 khammond on DSK30JT082PROD with NOTICES 51526 Federal Register / Vol. 83, No. 197 / Thursday, October 11, 2018 / Notices Initial and Continued Listing Trading Halts 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 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. 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. VerDate Sep<11>2014 20:54 Oct 10, 2018 Jkt 247001 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 As discussed above, 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.37 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 37 See PO 00000 supra note 33. Frm 00092 Fmt 4703 Sfmt 4703 agreement.38 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. 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 39 and After Hours Trading Sessions 40 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 38 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. 39 The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m. Eastern Time. 40 The After Hours Trading Session is from 4:00 p.m. to 5:00 p.m. Eastern Time. E:\FR\FM\11OCN1.SGM 11OCN1 Federal Register / Vol. 83, No. 197 / Thursday, October 11, 2018 / Notices khammond on DSK30JT082PROD with NOTICES Commission from any rules under the Act. 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 41 in general and Section 6(b)(5) of the Act 42 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. 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; 41 15 42 15 U.S.C. 78f. U.S.C. 78f(b)(5). VerDate Sep<11>2014 20:54 Oct 10, 2018 Jkt 247001 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. 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. The Exchange also 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 Bitcoin Futures Contracts. The Funds are designed to, both for a single day and over time, match the performance (or the inverse) of lead month Benchmark Futures Contracts (and not the spot price of bitcoin). The Funds will continuously roll the contracts that they hold prior to expiration (generally at least one week before expiration) and will never hold a contract through settlement, such holdings will never be directly priced based on the spot bitcoin market price. This combined with the CFE, CME, and Exchange surveillance procedures related to the Bitcoin Futures, the Shares, and CFTC oversight, along with the difficulty in manipulating the bitcoin market described above will PO 00000 Frm 00093 Fmt 4703 Sfmt 4703 51527 mitigate the potential policy concerns and further prevent trading in the Shares from being susceptible to manipulation. 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. 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 E:\FR\FM\11OCN1.SGM 11OCN1 khammond on DSK30JT082PROD with NOTICES 51528 Federal Register / Vol. 83, No. 197 / Thursday, October 11, 2018 / Notices 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 VerDate Sep<11>2014 20:54 Oct 10, 2018 Jkt 247001 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 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, 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 PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 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. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as modified by Amendment No. 2, is consistent with the Act. Comments may be submitted by any of the following methods: E:\FR\FM\11OCN1.SGM 11OCN1 Federal Register / Vol. 83, No. 197 / Thursday, October 11, 2018 / Notices 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. khammond on DSK30JT082PROD with NOTICES 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 November 1, 2018. By the Commission. Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–22096 Filed 10–10–18; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–84361; File No. SR–MIAX– 2018–26] Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Exchange Rules 203, Qualification and Registration of Members and Associated Persons, 1301, Registration of Options Principals, and 1302, Registration of Representatives, Relating to Registration and Qualification Examinations Required for Members and Associated Persons of Members That Engage in Trading Activities on the Exchange October 4, 2018. Pursuant to the provisions of Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on September 27, 2018, Miami International Securities Exchange, LLC (‘‘MIAX Options’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a 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 is filing a proposal to amend Rules 203, Qualification and Registration of Members and Associated Persons, 1301, Registration of Options Principals, and 1302, Registration of Representatives, relating to registration and qualification examinations required for Members and Associated Persons of Members that engage in trading activities on the Exchange. The text of the proposed rule change is available on the Exchange’s website at https://www.miaxoptions.com/rulefilings/ at MIAX Options’ principal office, 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 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 20:54 Oct 10, 2018 Jkt 247001 PO 00000 Frm 00095 Fmt 4703 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 aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Securities and Exchange Commission (the ‘‘SEC’’ or the ‘‘Commission’’) recently approved a proposed rule change to restructure the Financial Industry Regulatory Authority (‘‘FINRA’’) representative-level qualification examination program.3 The rule change, which will become effective on October 1, 2018, restructures the examination program into a more efficient format whereby all new representative-level applicants will be required to take a general knowledge examination (the Securities Industry Essentials Examination (‘‘SIE’’)) and a tailored, specialized knowledge examination (a revised representativelevel qualification examination) for their particular registered role. Individuals are not required to be associated with the Exchange or any other selfregulatory organization (‘‘SRO’’) member to be eligible to take the SIE. However, passing the SIE alone will not qualify an individual for registration with the Exchange. To be eligible for registration, an individual must also be associated with a firm, pass an appropriate qualification examination for a representative or principal and satisfy the other requirements relating to the registration process. The SIE will assess basic product knowledge; the structure and function of the securities industry markets, regulatory agencies and their functions; and regulated and prohibited practices. In particular, the SIE will cover four major areas. The first, ‘‘Knowledge of Capital Markets,’’ focuses on topics such as types of markets and offerings, broker-dealers and depositories, and economic cycles. The second, ‘‘Understanding Products and Their Risks,’’ covers securities products at a high level as well as associated investment risks. The third, ‘‘Understanding Trading, Customer Accounts and Prohibited Activities,’’ focuses on accounts, orders, settlement and prohibited activities. The final, 3 See Securities Exchange Act Release No. 81098 (July 7, 2017), 82 FR 32419 (July 13, 2017) (Order Approving File No. SR–FINRA–2017–007). 1 15 VerDate Sep<11>2014 51529 Sfmt 4703 E:\FR\FM\11OCN1.SGM 11OCN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 83, Number 197 (Thursday, October 11, 2018)]
[Notices]
[Pages 51521-51529]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-22096]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84367; File No. SR-CboeBZX-2018-001]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of Amendment No. 2 to 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

October 4, 2018.
    On January 5, 2018, Cboe BZX Exchange, Inc. (``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade shares of the GraniteShares 
Bitcoin ETF and the GraniteShares Short Bitcoin ETF issued by the 
GraniteShares ETP Trust under BZX Rule 14.11(f)(4). The proposed rule 
change was published for comment in the Federal Register on January 18, 
2018.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 82484 (Jan. 11, 
2018), 83 FR 2704 (Jan. 18, 2018).
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    On February 22, 2018, pursuant to Section 19(b)(2) of the Exchange 
Act, the Commission designated a longer period within which to approve 
the proposed rule change, disapprove the proposed rule change, or 
institute proceedings to determine whether to approve or disapprove the 
proposed rule change.\4\ On April 5, 2018, the Commission instituted 
proceedings under Section 19(b)(2)(B) of the Act \5\ to determine 
whether to approve or disapprove the proposed rule change.\6\ On June 
28, 2018, the Commission extended the period for consideration of the 
proposed rule change to September 15, 2018.\7\ As of August 21, 2018, 
the Commission had received 15 comments on the proposed rule change.\8\
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    \4\ See Securities Exchange Act Release No. 82759 (Feb. 22, 
2018), 83 FR 8719 (Feb. 28, 2018).
    \5\ 15 U.S.C. 78s(b)(2)(B).
    \6\ See Securities Exchange Act Release No. 82995 (Apr. 5, 
2018), 83 FR 15425 (Apr. 10, 2018).
    \7\ See Securities Exchange Act Release No. 83548 (June 28, 
2018), 83 FR 31246 (July 3, 2018).
    \8\ All comments on the proposed rule change are available on 
the Commission's website at: https://www.sec.gov/comments/sr-cboebzx-2018-001/cboebzx2018001.htm.
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    On August 21, 2018, BZX filed Amendment No. 1 to the proposal, 
which amended and replaced in its entirety the proposal as originally 
filed on January 5, 2018. On August 22, 2018, BZX filed Amendment No. 2 
to the proposal, which amended and replaced in its entirety the 
proposal as amended on August 21, 2018.
    On August 22, 2018, the Division of Trading and Markets 
(``Division''), acting by delegated authority, issued an order 
disapproving the proposed rule change.\9\ On August 23, 2018, the 
Secretary of the Commission notified BZX that, pursuant to Commission 
Rule of Practice 431,\10\ the Commission would review the Division's 
action pursuant to delegated authority and that the Division's action 
pursuant to delegated authority had been automatically stayed.\11\ On 
October 4, 2018, the Commission issued an Order Scheduling Filing of 
Statements on Review, setting November 5, 2018 as the date by which any 
party or other person may file a statement in support of, or in 
opposition to, the action by the Division pursuant to delegated 
authority.\12\
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    \9\ See Securities Exchange Act Release No. 83913 (Aug. 22, 
2018), 83 FR 43923 (Aug. 28, 2018).
    \10\ See 17 CFR 201.431.
    \11\ See Letter from Secretary of the Commission to Kyle Murray, 
Assistant General Counsel, BZX (Aug. 23, 2018), available at https://www.sec.gov/rules/sro/cboebzx/2018/34-83913-letter-from-secretary.pdf.
    \12\ See Securities Exchange Act Release No. 84368 (Oct. 4, 
2018).
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    Pursuant to Section 19(b)(1) of the Act,\13\ and Rule 19b-4 
thereunder,\14\ notice is hereby given that on August 22, 2018, BZX 
filed with the Commission Amendment No. 2 to 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 from interested persons on the proposed rule change, as 
modified by Amendment No. 2.
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    \13\ 15 U.S.C. 78s(b)(1).
    \14\ 17 CFR 240.19b-4.
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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.''

[[Page 51522]]

    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.

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    This Amendment No. 2 to SR-CboeBZX-2018-001 amends and replaces in 
its entirety Amendment No. 1 to the proposal as submitted on August 21, 
2018, which amended and replaced in its entirety the proposal as 
originally submitted on January 5, 2018. The Exchange submits this 
Amendment No. 2 in order to clarify certain points and add additional 
details about the Fund.
    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 \15\ on the Exchange.\16\
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    \15\ 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.
    \16\ 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).
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    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.\17\ The Trust is 
registered as a commodity pool under the Commodity Exchange Act 
(``CEA'').\18\ 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.\19\
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    \17\ 15 U.S.C. 80a-1.
    \18\ 17 U.S.C. 1.
    \19\ 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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    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.\20\ On December 1, 2017, it was announced \21\ 
that both Cboe Futures Exchange, Inc. (``CFE'') and Chicago Mercantile 
Exchange, Inc. (``CME'') had self-certified with the CFTC new contracts 
for bitcoin \22\ futures products.\23\ While the CFE bitcoin futures 
contracts (``XBT Futures'' and the ``Benchmark Futures Contracts'') 
\24\ and the CME bitcoin futures contracts (``CME Futures'') \25\ will 
differ in certain of their implementation details, both contracts will 
generally trade and settle like any other cash-settled commodity 
futures contracts.\26\
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    \20\ 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).
    \21\ 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.
    \22\ 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.
    \23\ 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.
    \24\ 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.
    \25\ 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.
    \26\ 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'').
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    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 \27\ 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.
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    \27\ 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.

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[[Page 51523]]

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,\28\ hold 
substantially all of its assets in the Benchmark Futures Contracts and 
cash and Cash Equivalents \29\ (which are used to 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'').
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    \28\ 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.
    \29\ ``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.
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    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. 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).\30\ 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.
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    \30\ 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 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. 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

[[Page 51524]]

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 
Bitcoin Futures Contracts. The Funds are designed to, both for a single 
day and over time, match the performance (or the inverse) of lead month 
Benchmark Futures Contracts (and not the spot price of bitcoin). The 
Funds will continuously roll the contracts that they hold prior to 
expiration (generally at least one week before expiration) and will 
never hold a contract through settlement, such holdings will never be 
directly priced based on the spot bitcoin market price. This combined 
with the CFE, CME, and Exchange surveillance procedures related to the 
Bitcoin Futures, the Shares, and CFTC oversight,\31\ 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.
---------------------------------------------------------------------------

    \31\ 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.
    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.\32\
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    \32\ 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

[[Page 51525]]

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.
    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''),\33\ 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 \34\ 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.\35\ 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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    \33\ 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.
    \34\ Regular Trading Hours are 9:30 a.m. to 4:00 p.m. Eastern 
Time.
    \35\ 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.\36\ 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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    \36\ 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.
---------------------------------------------------------------------------

    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, 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.

[[Page 51526]]

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 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
    As discussed above, 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.\37\ 
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.\38\ 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.
---------------------------------------------------------------------------

    \37\ See supra note 33.
    \38\ 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 
\39\ and After Hours Trading Sessions \40\ 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.
---------------------------------------------------------------------------

    \39\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m. 
Eastern Time.
    \40\ The After Hours Trading Session is from 4:00 p.m. to 5:00 
p.m. Eastern Time.
---------------------------------------------------------------------------

    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

[[Page 51527]]

Commission from any rules under the Act.
    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 \41\ in general and Section 6(b)(5) of the Act \42\ 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.
---------------------------------------------------------------------------

    \41\ 15 U.S.C. 78f.
    \42\ 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. 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. 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.
    The Exchange also 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 Bitcoin 
Futures Contracts. The Funds are designed to, both for a single day and 
over time, match the performance (or the inverse) of lead month 
Benchmark Futures Contracts (and not the spot price of bitcoin). The 
Funds will continuously roll the contracts that they hold prior to 
expiration (generally at least one week before expiration) and will 
never hold a contract through settlement, such holdings will never be 
directly priced based on the spot bitcoin market price. This combined 
with the CFE, CME, and Exchange surveillance procedures related to the 
Bitcoin Futures, the Shares, and CFTC oversight, 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.
    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.
    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

[[Page 51528]]

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 
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, 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. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as modified by Amendment No. 2, is consistent with the Act. 
Comments may be submitted by any of the following methods:

[[Page 51529]]

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 November 1, 2018.

    By the Commission.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-22096 Filed 10-10-18; 8:45 am]
 BILLING CODE 8011-01-P

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