Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To List and Trade Shares of the VanEck SolidX Bitcoin Trust, 24188-24191 [2019-10858]
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Federal Register / Vol. 84, No. 101 / Friday, May 24, 2019 / Notices
SUPPLEMENTARY INFORMATION:
Correction:
In the Federal Register of May 17,
2019, in FR Doc. 84 FR 22525, on page
22526, in the second column, the notice
cross references another notice that
revises the normal cost percentage
under the Federal Employees’
Retirement System (FERS) Act of 1986,
Public Law 99–335. It states that the
Federal Employees’ Retirement System
(FERS) Normal Cost notice was
published May 17, 2019. It was actually
published May 20, 2019.
Office of Personnel Management.
Alexys Stanley,
Regulatory Affairs Analyst.
[FR Doc. 2019–10851 Filed 5–23–19; 8:45 am]
BILLING CODE 6325–38–P
OFFICE OF PERSONNEL
MANAGEMENT
Federal Employees’ Retirement
System; Present Value Factors
Office of Personnel
Management.
ACTION: Notice, correction.
AGENCY:
The Office of Personnel
Management published a document in
the Federal Register of May 17, 2019,
concerning adjusted present value
factors applicable to retirees who elect
to provide survivor annuity benefits to
a spouse based on post-retirement
marriage, and to retiring employees who
elect the alternative form of annuity or
elect to credit certain service with
nonappropriated fund instrumentalities.
The document referenced a different,
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FOR FURTHER INFORMATION CONTACT:
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SUPPLEMENTARY INFORMATION:
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SUMMARY:
Correction
In the Federal Register of May 17,
2019, in FR Doc. 84 FR 22527, on page
22528, in the first column, the notice
cross references another notice that
revises the normal cost percentage
under the Federal Employees’
Retirement System (FERS) Act of 1986,
Public Law 99–335. It states that the
Federal Employees’ Retirement System
(FERS) Normal Cost notice was
published May 17, 2019. It was actually
published May 20, 2019.
Office of Personnel Management.
Alexys Stanley,
Regulatory Affairs Analyst.
[FR Doc. 2019–10850 Filed 5–23–19; 8:45 am]
BILLING CODE 6325–38–P
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85896; File No. SR–
CboeBZX–2019–004]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Order Instituting
Proceedings To Determine Whether To
Approve or Disapprove a Proposed
Rule Change To List and Trade Shares
of the VanEck SolidX Bitcoin Trust
May 20, 2019.
On January 30, 2019, Cboe BZX
Exchange, Inc. (‘‘BZX’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to list and trade shares of SolidX
Bitcoin Shares (‘‘Shares’’) issued by the
VanEck SolidX Bitcoin Trust (‘‘Trust’’)
under BZX Rule 14.11(e)(4),
Commodity-Based Trust Shares. The
proposed rule change was published for
comment in the Federal Register on
February 20, 2019.3
On March 29, 2019, pursuant to
Section 19(b)(2) of the Act,4 the
Commission designated a longer period
within which to approve the proposed
rule change, disapprove the proposed
rule change, or institute proceedings to
determine whether to disapprove the
proposed rule change.5 The Commission
has received 25 comment letters on the
proposed rule change.6 This order
institutes proceedings under Section
19(b)(2)(B) of the Act 7 to determine
whether to approve or disapprove the
proposed rule change.
I. Summary of the Proposal
As described in detail in the Notice,8
the Exchange proposes to list and trade
the Shares under BZX Rule 14.11(e)(4),
which governs the listing and trading of
Commodity-Based Trust Shares on the
Exchange.9 Each Share would represent
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 85119
(Feb. 13, 2019), 84 FR 5140 (Feb. 20, 2019)
(‘‘Notice’’).
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 85475
(Mar. 29, 2019), 84 FR 13345 (Apr. 4, 2019). The
Commission designated May 21, 2019, as the date
by which it should approve, disapprove, or institute
proceedings to determine whether to disapprove the
proposed rule change.
6 Comments on the proposed rule change can be
found at: https://www.sec.gov/comments/srcboebzx-2019-004/srcboebzx2019004.htm.
7 15 U.S.C. 78s(b)(2)(B).
8 See Notice, supra note 3.
9 See BZX Rule 14.11(e)(4) (permitting the listing
and trading of ‘‘Commodity-Based Trust Shares,’’
defined as a security (a) that is used by a trust
which holds a specified commodity deposited with
2 17
PO 00000
Frm 00114
Fmt 4703
Sfmt 4703
a fractional undivided beneficial
interest in the Trust’s net assets. The
Trust’s assets would consist of bitcoin,
and the Trust would be responsible for
custody of the Trust’s bitcoin.10 SolidX
Management LLC would be the sponsor
of the Trust (‘‘Sponsor’’). The Bank of
New York Mellon would be the
Administrator, transfer agent, and the
custodian with respect to cash of the
Trust. Foreside Fund Services, LLC
would be the marketing agent in
connection with the creation and
redemption of baskets of Shares. Van
Eck Securities Corporation would
provide assistance in the marketing of
the Shares.11
According to the Exchange, the
investment objective of the Trust would
be for the Shares to reflect the
performance of the price of bitcoin, less
the expenses of the Trust’s operations.
The Trust would not be actively
managed and would not engage in
activities designed to obtain a profit
from, or to ameliorate losses caused by,
changes in the price of bitcoin.12 The
Administrator would generally use the
closing price set for bitcoin by the MVIS
Bitcoin OTC Index (‘‘MVBTCO’’) to
calculate the Fund’s net asset value
(‘‘NAV’’) on each business day that the
Exchange is open for regular trading, as
promptly as practicable after 4:00 p.m.
E.T.13
According to the Exchange, the
MVBTCO represents the value of one
bitcoin in U.S. dollars at any point in
time. The Exchange represents that the
MVBTCO calculates the intra-day price
of bitcoin every 15 seconds and a
closing price as of 4:00 p.m. E.T., each
the trust; (b) that is issued by such trust in a
specified aggregate minimum number in return for
a deposit of a quantity of the underlying
commodity; and (c) that, when aggregated in the
same specified minimum number, may be
redeemed at a holder’s request by such trust which
will deliver to the redeeming holder the quantity of
the underlying commodity).
10 See Notice, supra note 3, 84 FR at 5141.
11 See id.
12 See id.
13 See id. at 5147. In the event that the Sponsor
determines that this valuation method has failed,
the Sponsor will determine the bitcoin market price
on the valuation date according to a set of
alternative methods to be used in the following
order: (a) The mid-point price of the bid/ask spread
as of 4:00 p.m. E.T. obtained by the Sponsor from
any bitcoin over-the-counter (‘‘OTC’’) platform that
is part of the MVBTCO index; (b) the volumeweighted average price over the 24-hour period
ending at 4:00 p.m. E.T. as published by a public
data feed that is calculated based upon a volumeweighted average bitcoin price obtained from the
major U.S. dollar-denominated bitcoin exchanges
and that the Sponsor determines is reasonably
reliable; and (c) the Sponsor’s best judgment of a
good faith estimate of the bitcoin market price.
Greater detail concerning the alternative pricing
procedures if the MVBTCO cannot be utilized as the
basis for NAV calculations can be found in the
Notice. See id.
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weekday and that the intra-day levels of
the MVBTCO incorporate the real-time
price of bitcoin based on executable
bids and asks derived from constituent
bitcoin OTC platforms that have entered
into an agreement with MV Index
Solutions GmbH to provide such
information.14 According to the
Exchange, the intra-day price and
closing level of the MVBTCO are
calculated using a proprietary
methodology collecting executable bid/
ask spreads and calculating a mid-point
price from these U.S.-based bitcoin OTC
platforms.15
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II. Proceedings To Determine Whether
To Approve or Disapprove SR–
CboeBZX–2019–004 and Grounds for
Disapproval Under Consideration
The Commission is instituting
proceedings pursuant to Section
19(b)(2)(B) of the Act 16 to determine
whether the proposed rule change
should be approved or disapproved.
Institution of such proceedings is
appropriate at this time in view of the
legal and policy issues raised by the
proposed rule change. Institution of
proceedings does not indicate that the
Commission has reached any
conclusions with respect to any of the
issues involved. Rather, as described
below, the Commission seeks and
encourages interested persons to
provide comments on the proposed rule
change.
Pursuant to Section 19(b)(2)(B) of the
Act,17 the Commission is providing
notice of the grounds for disapproval
under consideration. The Commission is
instituting proceedings to allow for
additional analysis of the proposed rule
change’s consistency with Section
6(b)(5) of the Act, which requires,
among other things, that the rules of a
national securities exchange be
‘‘designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade,’’ and ‘‘to protect investors and the
public interest.’’ 18
14 According to the Exchange, each OTC
constituent platform or ‘‘OTC Trading Desk’’ will
offer constant, executable bids and offers of at least
$250,000 worth of bitcoin, and the MVBTCO value
will be based on these bids and offers. The
Exchange represents that it will have in place a
comprehensive surveillance sharing agreement with
each of these OTC Trading Desks prior to the Shares
listing on the Exchange. See id. at 5145, n.35.
15 According to the Sponsor, the MVBTCO’s
methodology decreases the influence on the
MVBTCO of any particular OTC platform that
diverges from the rest of the data points used by the
MVBTCO, which reduces the possibility of an
attempt to manipulate the price of bitcoin as
reflected by the MVBTCO. See id. at 5146.
16 15 U.S.C. 78s(b)(2)(B).
17 Id.
18 15 U.S.C. 78f(b)(5).
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The Commission asks that
commenters address the sufficiency of
the Exchange’s statements in support of
the proposal, which are set forth in the
Notice,19 in addition to any other
comments they may wish to submit
about the proposed rule change. In
particular, the Commission seeks
comment on the following questions
and asks commenters to submit data
where appropriate to support their
views:
1. What are commenters’ views on
whether the Exchange has entered into
a surveillance-sharing agreement with a
regulated market of significant size
related to bitcoin? What are
commenters’ views of the Exchange’s
assertion that the trading volume in
bitcoin futures makes the market for
bitcoin futures a regulated market of
significant size related to bitcoin? What
are commenters’ views on whether there
is a reasonable likelihood that a person
attempting to manipulate the Shares
would also have to trade in the bitcoin
futures market to manipulate the
Shares? What are commenters’ views on
whether it is likely that trading in the
Shares would be the predominant
influence on prices in the bitcoin
futures market?
2. What are commenters’ views on the
relationship between the bitcoin futures
market and the bitcoin spot market? For
example, what is the relative size of
these markets, and where does bitcoin
price formation occur? Does the market,
spot or futures, in which price
formation occurs affect commenters’
analysis of whether it is reasonably
likely that someone attempting to
manipulate the Shares would have to
trade in the bitcoin futures market, or
that trading in the Shares would be the
predominant influence on prices in the
bitcoin futures market? To what extent,
if at all, do recent developments in the
bitcoin futures market—namely, the
cessation of new bitcoin futures contract
trading on the Chicago Futures
Exchange—affect commenters’ analysis
of these questions?
3. What are commenters’ views on
whether the trading relationship
between the market for bitcoin futures
contracts and the proposed Trust, which
would hold physical bitcoins, would be
similar to, or different from, the
relationship between the market for
freight futures contracts and the
Breakwave Dry Bulk Shipping ETF
(cited by the Exchange in the Notice),20
which directly holds futures contracts
traded on that market? What are
commenters’ views on how these
19 See
20 See
PO 00000
Notice, supra note 3.
id. at 5142–45.
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Fmt 4703
Sfmt 4703
24189
similarities or differences might affect
an analysis of whether it is reasonably
likely that someone attempting to
manipulate the Shares would have to
trade in the bitcoin futures market, or
that trading in the Shares would be the
predominant influence on prices in the
bitcoin futures market?
4. What are commenters’ views on the
Trust’s proposal to value its bitcoin
holdings based on an index—the
MVBTCO—that is calculated through a
proprietary, non-public methodology
that uses the privately reported bid/ask
spreads of an unidentified set of U.S.based market-makers in the OTC
marketplace, which, the Exchange says,
has no formal structure and no openoutcry meeting place? Is the use of a
non-public, proprietary index to value
holdings based on OTC activity an
appropriate means to calculate the NAV
of an exchange-traded product (‘‘ETP’’)?
What are commenters’ views on
whether determining NAV based on the
index value at 4:00 p.m. E.T. might, or
might not, create an opportunity for
manipulation of the NAV or of the
Shares? What are commenters’ views on
the assertion in the Notice that,
according to the Sponsor, the
MVBTCO’s methodology reduces the
possibility of an attempt to manipulate
the price of bitcoin as reflected by the
MVBTCO? What are commenters’ views
on the Sponsor’s assertion, as described
by the Exchange in the Notice, that ‘‘the
OTC desks have a better measure of the
market than any exchange-specific
reference price, whether individually or
indexed across multiple exchanges’’?
5. What are commenters’ views on the
Exchange’s representation that it will
have in place a comprehensive
surveillance sharing agreement with
each of the OTC platforms that
constitute the MVBTCO prior to the
Shares listing on the Exchange? What
are commenters’ views on the
Exchange’s assertion that the regulated
nature of each of the OTC platforms that
make up the MVBTCO, the notional
volume of trading and liquidity
available on these platforms, the
principal-to-principal nature of these
platforms, and comprehensive
surveillance sharing agreements with
each of the OTC platforms (in addition
to the Exchange’s standard surveillance
procedures) are sufficient to prevent
fraudulent and manipulative acts and
practices in the Shares? What are
commenters’ views on the extent to
which each of these OTC platforms is
regulated? What are commenters’ views
on the extent to which each of these
OTC platforms can, or does, conduct
surveillance of bitcoin trading activity?
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6. What are commenters’ views on the
size, liquidity, transparency, number
and nature of market participants, and
price discovery in the OTC market for
bitcoin, both on an absolute basis and
relative to the bitcoin spot market as a
whole? What are commenters’ views on
whether the volume of U.S. dollar
trading of bitcoin—which excludes
bitcoin trading against other sovereign
currencies or digital assets—is a
meaningful or appropriate measure of
bitcoin market volume?
7. The Exchange states that the Trust
does not intend to report its OTC
trading. What are commenters’ views on
how the Trust’s unreported OTC trades
may affect the calculation of the Trust’s
NAV and the ability of market makers
to engage in arbitrage?
8. What are commenters’ views on
each of the set of alternative means by
which the Trust proposes to value its
holdings in the event that the Sponsor
determines that the MVBTCO, or
another alternate pricing mechanism,
has failed, is unavailable, or is deemed
unreliable? What are commenters’ views
on whether any of these pricing
mechanisms, primary or alternate,
would be affected by, or resistant to,
manipulative activity in bitcoin
markets?
9. What are commenters’ views on the
assertion by the Exchange that the
dissemination of information on the
Trust’s website, along with quotations
for and last-sale prices of transactions in
the Shares and the intra-day indicative
value (or ‘‘IIV’’) and NAV of the Trust,
will help to reduce the ability of market
participants to manipulate the bitcoin
market or the price of the Shares and
that the Trust’s arbitrage mechanism
will facilitate the correction of price
discrepancies in bitcoin and the Shares?
What are commenters’ views on
whether the liquidity of the OTC bitcoin
market is sufficient to support efficient
arbitrage between the price of the Shares
and the spot price of bitcoin?
10. The Exchange represents that it
has entered into a comprehensive
surveillance-sharing agreement with the
Gemini Exchange and is working to
establish similar agreements with other
bitcoin venues. What are commenters’
views on whether the Gemini Exchange
is a regulated market of significant size?
What are commenters’ views on
whether there is a reasonable likelihood
that a person attempting to manipulate
the proposed ETP would also have to
trade on the Gemini Exchange? What are
commenters’ views on whether trading
in the proposed ETP would be the
predominant influence on prices in the
Gemini Exchange? What are
commenters’ views on whether the
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Exchange could enter into surveillancesharing agreements with regulated spot
markets of significant size related to
bitcoin?
11. What are commenters’ views of
the Exchange’s assertions that bitcoin is
arguably less susceptible to
manipulation than other commodities
that underlie ETPs; that the
geographically diverse and continuous
nature of bitcoin trading makes it
difficult and prohibitively costly to
manipulate the price of bitcoin; that
trading on inside information regarding
bitcoin is unlikely; that the
fragmentation across bitcoin markets,
the relatively slow speed of
transactions, and the capital necessary
to maintain a significant presence on
each trading platform make
manipulation of bitcoin prices through
continuous trading activity unlikely;
that manipulation of the price on any
single venue would require
manipulation of the global bitcoin price
to be effective; that a substantial OTC
bitcoin market provides liquidity and
shock-absorbing capacity; that bitcoin’s
‘‘24/7/365 nature’’ 21 provides constant
arbitrage opportunities across all trading
venues; and that it is unlikely that any
one actor could obtain a dominant
market share?
12. What are commenters’ views of
the Exchange’s assertions that
transacting in the Shares will be geared
toward more sophisticated institutional
investors and will be cost-prohibitive
for smaller retail investors? What are
commenters’ views regarding whether
broker-dealers are likely to offer
fractional shares in the Trust to retail
investors, permitting retail investment
with a smaller financial commitment?
What are commenters’ views of the
Exchange’s assertions that the Sponsor
believes that demand from new, larger
investors accessing bitcoin through
investment in the Shares will broaden
the investor base in bitcoin, which
could further reduce the possibility of
collusion among market participants to
manipulate the bitcoin market, in light
of the possibility that broker-dealers
may offer fractional shares to their
customers?
13. What are commenters’ views on
the Exchange’s assertion that a
minimum of 100 Shares outstanding at
the time of commencement of trading
will be sufficient to provide adequate
market liquidity? What are commenters’
views on whether the 100-share
minimum would affect the arbitrage
mechanism? What are commenters’
views on the Exchange’s assertion that,
even though the Trust would not
21 See
PO 00000
id. at 5142 n.11, 5156 n.46.
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Fmt 4703
Sfmt 4703
comply with the minimum number of
shares outstanding required by
Exchange rules, the policy concerns
underlying that requirement would be
otherwise mitigated in the case of the
Trust, because the lower number of
Shares is merely a function of the price
of the Shares and will have no effect on
the creation and redemption process or
on arbitrage?
14. What are commenters’ views of
whether the Trust’s proposed insurance
coverage would affect trading in the
Shares or in the underlying bitcoins?
What are commenters’ views regarding
the Trust’s proposed security, control,
and insurance measures?
III. Procedure: Request for Written
Comments
The Commission requests that
interested persons provide written
submissions of their views, data, and
arguments with respect to the issues
identified above, as well as any other
concerns they may have with the
proposal. In particular, the Commission
invites the written views of interested
persons concerning whether the
proposal is consistent with Section
6(b)(5) or any other provision of the Act,
and the rules and regulations
thereunder. Although there do not
appear to be any issues relevant to
approval or disapproval that would be
facilitated by an oral presentation of
views, data, and arguments, the
Commission will consider, pursuant to
Rule 19b–4, any request for an
opportunity to make an oral
presentation.22
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
proposal should be approved or
disapproved by June 14, 2019. Any
person who wishes to file a rebuttal to
any other person’s submission must file
that rebuttal by June 28, 2019.
Comments may be submitted by any
of the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CboeBZX–2019–004 on the subject line.
22 Section 19(b)(2) of the Act, as amended by the
Securities Act Amendments of 1975, Public Law
94–29 (June 4, 1975), grants the Commission
flexibility to determine what type of proceeding—
either oral or notice and opportunity for written
comments—is appropriate for consideration of a
particular proposal by a self-regulatory
organization. See Securities Act Amendments of
1975, Senate Comm. on Banking, Housing & Urban
Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30
(1975).
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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–2019–004. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CboeBZX–2019–004 and
should be submitted by June 14, 2019.
Rebuttal comments should be submitted
by June 28, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
Eduardo A. Aleman,
Deputy Secretary.
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BILLING CODE 8011–01–P
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85892; File No. SR–
NASDAQ–2019–004]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing of Amendment No. 1 and Order
Granting Accelerated Approval of a
Proposed Rule Change, as Modified by
Amendment No. 1, To Adopt a New
MIDP Routing Option Under Rule 4758
and Make Conforming Changes to Rule
4703(e)
May 20, 2019.
I. Introduction
On January 31, 2019, The Nasdaq
Stock Market LLC (‘‘Exchange’’ or
‘‘Nasdaq’’) filed with the Securities and
Exchange Commission (‘‘Commission’’),
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a
proposed rule change to adopt a new
MIDP routing option under Nasdaq Rule
4758 and make conforming changes to
Nasdaq Rule 4703(e). The proposed rule
change was published for comment in
the Federal Register on February 19,
2019.3 On April 3, 2019, pursuant to
Section 19(b)(2) of the Act,4 the
Commission designated a longer period
within which to approve the proposed
rule change, disapprove the proposed
rule change, or institute proceedings to
determine whether to disapprove the
proposed rule change.5 On May 10,
2019, the Exchange filed Amendment
No. 1 to the proposed rule change.6 The
Commission received no comment
letters on the proposed rule change. The
Commission is publishing this notice to
solicit comments on Amendment No. 1
from interested persons, and is
approving the proposed rule change, as
modified by Amendment No. 1, on an
accelerated basis.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 85113
(February 12, 2019), 84 FR 4885.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 85498,
84 FR 14171 (April 9, 2019). The Commission
designated May 20, 2019 as the date by which the
Commission shall approve or disapprove, or
institute proceedings to determine whether to
disapprove, the proposed rule change.
6 In Amendment No. 1, the Exchange: (1)
Provided clarification and additional details
regarding the operation of the MIDP routing option;
(2) provided additional arguments supporting the
proposed rule change; and (3) made technical and
conforming changes. Amendment No. 1 is available
at https://www.sec.gov/comments/sr-nasdaq-2019004/srnasdaq2019004-5485246-185147.pdf.
2 17
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24191
II. Description of the Proposal
The Exchange proposes to adopt
MIDP, a new order routing option under
Nasdaq Rule 4758(a)(1)(A).7 The MIDP
routing option would allow Nasdaq
members to seek midpoint liquidity on
Nasdaq and other markets on the
Nasdaq system routing table.8 The MIDP
routing option would be available only
for a non-displayed order 9 with a
midpoint pegging order attribute.10 The
Exchange would accept an order with
the MIDP routing option (‘‘MIDP order’’)
only with a time-in-force of Market
Hours DAY or IOC, and a MIDP order
could not be flagged to participate in
any of the Nasdaq crosses.11
As proposed, a MIDP order would
check the Nasdaq system for available
shares and any remaining shares would
then be routed to destinations on the
system routing table that support
midpoint eligible orders.12 A MIDP
order to buy (sell) would be routed with
a limit price that is at the lesser (greater)
of: (1) The current NBO (NBB); or (2) the
order’s entered limit price (if
applicable).13 If shares remain
unexecuted after routing, the order
would return to Nasdaq and check the
Nasdaq system for available shares, with
remaining shares posted on the Nasdaq
book as a non-displayed order with a
midpoint pegging order attribute (unless
7 See
8 See
proposed Nasdaq Rule 4758(a)(1)(A)(xvi).
id.; see also Amendment No. 1, supra note
6, at 4.
9 See Nasdaq Rule 4702(b)(3) (defining Nasdaq’s
non-displayed order type).
10 See proposed Nasdaq Rule 4758(a)(1)(A)(xvi).
See also Nasdaq Rule 4703(d) (defining Nasdaq’s
midpoint pegging order attribute).
11 See proposed Nasdaq Rule 4758(a)(1)(A)(xvi).
The Exchange proposes a conforming change to
Nasdaq Rule 4758(a)(1), which currently provides
that order routing is available during Nasdaq
System Hours, to allow for the times-in-force
applicable to the MIDP routing option (i.e., Market
Hours Day or IOC).
12 See proposed Nasdaq Rule 4758(a)(1)(A)(xvi).
MIDP orders (including those that have a minimum
quantity order attribute) would route sequentially
and in their full amount to the various venues on
the Nasdaq system routing table. See Amendment
No. 1, supra note 6, at 5 n.7.
13 See proposed Nasdaq Rule 4758(a)(1)(A)(xvi). If
the entered limit price of a buy (sell) MIDP order
is less (greater) than the current midpoint price, the
order would not be routed but would instead be
posted on the Nasdaq book as a non-displayed order
with a midpoint pegging order attribute, unless the
order has a time-in-force of IOC, in which case the
order would be cancelled. See id. Once on the
Nasdaq book, if the NBBO moves and the order’s
limit price is equal to the midpoint of the NBBO
(i.e., the price of the resting order is not being
updated to a new midpoint price), the order would
not subsequently route. See Amendment No. 1,
supra note 6, at 5 n.8. If the NBBO updates so that
a resting MIDP order would be updated to a new
midpoint price, it would be routed again and, if
shares remain unexecuted after routing, the order
would check the Nasdaq system for available shares
with any remaining shares reposted to the Nasdaq
book. See proposed Nasdaq Rule 4758(a)(1)(A)(xvi).
E:\FR\FM\24MYN1.SGM
24MYN1
]]>Agencies
[Federal Register Volume 84, Number 101 (Friday, May 24, 2019)]
[Notices]
[Pages 24188-24191]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-10858]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85896; File No. SR-CboeBZX-2019-004]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
Proposed Rule Change To List and Trade Shares of the VanEck SolidX
Bitcoin Trust
May 20, 2019.
On January 30, 2019, Cboe BZX Exchange, Inc. (``BZX'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to list and trade shares of SolidX Bitcoin Shares
(``Shares'') issued by the VanEck SolidX Bitcoin Trust (``Trust'')
under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares. The proposed
rule change was published for comment in the Federal Register on
February 20, 2019.\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. 85119 (Feb. 13,
2019), 84 FR 5140 (Feb. 20, 2019) (``Notice'').
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On March 29, 2019, pursuant to Section 19(b)(2) of the Act,\4\ the
Commission designated a longer period within which to approve the
proposed rule change, disapprove the proposed rule change, or institute
proceedings to determine whether to disapprove the proposed rule
change.\5\ The Commission has received 25 comment letters on the
proposed rule change.\6\ This order institutes proceedings under
Section 19(b)(2)(B) of the Act \7\ to determine whether to approve or
disapprove the proposed rule change.
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\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 85475 (Mar. 29,
2019), 84 FR 13345 (Apr. 4, 2019). The Commission designated May 21,
2019, as the date by which it should approve, disapprove, or
institute proceedings to determine whether to disapprove the
proposed rule change.
\6\ Comments on the proposed rule change can be found at:
https://www.sec.gov/comments/sr-cboebzx-2019-004/srcboebzx2019004.htm.
\7\ 15 U.S.C. 78s(b)(2)(B).
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I. Summary of the Proposal
As described in detail in the Notice,\8\ the Exchange proposes to
list and trade the Shares under BZX Rule 14.11(e)(4), which governs the
listing and trading of Commodity-Based Trust Shares on the Exchange.\9\
Each Share would represent a fractional undivided beneficial interest
in the Trust's net assets. The Trust's assets would consist of bitcoin,
and the Trust would be responsible for custody of the Trust's
bitcoin.\10\ SolidX Management LLC would be the sponsor of the Trust
(``Sponsor''). The Bank of New York Mellon would be the Administrator,
transfer agent, and the custodian with respect to cash of the Trust.
Foreside Fund Services, LLC would be the marketing agent in connection
with the creation and redemption of baskets of Shares. Van Eck
Securities Corporation would provide assistance in the marketing of the
Shares.\11\
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\8\ See Notice, supra note 3.
\9\ See BZX Rule 14.11(e)(4) (permitting the listing and trading
of ``Commodity-Based Trust Shares,'' defined as a security (a) that
is used by a trust which holds a specified commodity deposited with
the trust; (b) that is issued by such trust in a specified aggregate
minimum number in return for a deposit of a quantity of the
underlying commodity; and (c) that, when aggregated in the same
specified minimum number, may be redeemed at a holder's request by
such trust which will deliver to the redeeming holder the quantity
of the underlying commodity).
\10\ See Notice, supra note 3, 84 FR at 5141.
\11\ See id.
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According to the Exchange, the investment objective of the Trust
would be for the Shares to reflect the performance of the price of
bitcoin, less the expenses of the Trust's operations. The Trust would
not be actively managed and would not engage in activities designed to
obtain a profit from, or to ameliorate losses caused by, changes in the
price of bitcoin.\12\ The Administrator would generally use the closing
price set for bitcoin by the MVIS Bitcoin OTC Index (``MVBTCO'') to
calculate the Fund's net asset value (``NAV'') on each business day
that the Exchange is open for regular trading, as promptly as
practicable after 4:00 p.m. E.T.\13\
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\12\ See id.
\13\ See id. at 5147. In the event that the Sponsor determines
that this valuation method has failed, the Sponsor will determine
the bitcoin market price on the valuation date according to a set of
alternative methods to be used in the following order: (a) The mid-
point price of the bid/ask spread as of 4:00 p.m. E.T. obtained by
the Sponsor from any bitcoin over-the-counter (``OTC'') platform
that is part of the MVBTCO index; (b) the volume-weighted average
price over the 24-hour period ending at 4:00 p.m. E.T. as published
by a public data feed that is calculated based upon a volume-
weighted average bitcoin price obtained from the major U.S. dollar-
denominated bitcoin exchanges and that the Sponsor determines is
reasonably reliable; and (c) the Sponsor's best judgment of a good
faith estimate of the bitcoin market price. Greater detail
concerning the alternative pricing procedures if the MVBTCO cannot
be utilized as the basis for NAV calculations can be found in the
Notice. See id.
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According to the Exchange, the MVBTCO represents the value of one
bitcoin in U.S. dollars at any point in time. The Exchange represents
that the MVBTCO calculates the intra-day price of bitcoin every 15
seconds and a closing price as of 4:00 p.m. E.T., each
[[Page 24189]]
weekday and that the intra-day levels of the MVBTCO incorporate the
real-time price of bitcoin based on executable bids and asks derived
from constituent bitcoin OTC platforms that have entered into an
agreement with MV Index Solutions GmbH to provide such information.\14\
According to the Exchange, the intra-day price and closing level of the
MVBTCO are calculated using a proprietary methodology collecting
executable bid/ask spreads and calculating a mid-point price from these
U.S.-based bitcoin OTC platforms.\15\
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\14\ According to the Exchange, each OTC constituent platform or
``OTC Trading Desk'' will offer constant, executable bids and offers
of at least $250,000 worth of bitcoin, and the MVBTCO value will be
based on these bids and offers. The Exchange represents that it will
have in place a comprehensive surveillance sharing agreement with
each of these OTC Trading Desks prior to the Shares listing on the
Exchange. See id. at 5145, n.35.
\15\ According to the Sponsor, the MVBTCO's methodology
decreases the influence on the MVBTCO of any particular OTC platform
that diverges from the rest of the data points used by the MVBTCO,
which reduces the possibility of an attempt to manipulate the price
of bitcoin as reflected by the MVBTCO. See id. at 5146.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBZX-2019-004 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \16\ to determine whether the proposed rule
change should be approved or disapproved. Institution of such
proceedings is appropriate at this time in view of the legal and policy
issues raised by the proposed rule change. Institution of proceedings
does not indicate that the Commission has reached any conclusions with
respect to any of the issues involved. Rather, as described below, the
Commission seeks and encourages interested persons to provide comments
on the proposed rule change.
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\16\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\17\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of the proposed rule change's consistency with Section 6(b)(5)
of the Act, which requires, among other things, that the rules of a
national securities exchange be ``designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade,'' and ``to protect investors and the public
interest.'' \18\
---------------------------------------------------------------------------
\17\ Id.
\18\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Commission asks that commenters address the sufficiency of the
Exchange's statements in support of the proposal, which are set forth
in the Notice,\19\ in addition to any other comments they may wish to
submit about the proposed rule change. In particular, the Commission
seeks comment on the following questions and asks commenters to submit
data where appropriate to support their views:
---------------------------------------------------------------------------
\19\ See Notice, supra note 3.
---------------------------------------------------------------------------
1. What are commenters' views on whether the Exchange has entered
into a surveillance-sharing agreement with a regulated market of
significant size related to bitcoin? What are commenters' views of the
Exchange's assertion that the trading volume in bitcoin futures makes
the market for bitcoin futures a regulated market of significant size
related to bitcoin? What are commenters' views on whether there is a
reasonable likelihood that a person attempting to manipulate the Shares
would also have to trade in the bitcoin futures market to manipulate
the Shares? What are commenters' views on whether it is likely that
trading in the Shares would be the predominant influence on prices in
the bitcoin futures market?
2. What are commenters' views on the relationship between the
bitcoin futures market and the bitcoin spot market? For example, what
is the relative size of these markets, and where does bitcoin price
formation occur? Does the market, spot or futures, in which price
formation occurs affect commenters' analysis of whether it is
reasonably likely that someone attempting to manipulate the Shares
would have to trade in the bitcoin futures market, or that trading in
the Shares would be the predominant influence on prices in the bitcoin
futures market? To what extent, if at all, do recent developments in
the bitcoin futures market--namely, the cessation of new bitcoin
futures contract trading on the Chicago Futures Exchange--affect
commenters' analysis of these questions?
3. What are commenters' views on whether the trading relationship
between the market for bitcoin futures contracts and the proposed
Trust, which would hold physical bitcoins, would be similar to, or
different from, the relationship between the market for freight futures
contracts and the Breakwave Dry Bulk Shipping ETF (cited by the
Exchange in the Notice),\20\ which directly holds futures contracts
traded on that market? What are commenters' views on how these
similarities or differences might affect an analysis of whether it is
reasonably likely that someone attempting to manipulate the Shares
would have to trade in the bitcoin futures market, or that trading in
the Shares would be the predominant influence on prices in the bitcoin
futures market?
---------------------------------------------------------------------------
\20\ See id. at 5142-45.
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4. What are commenters' views on the Trust's proposal to value its
bitcoin holdings based on an index--the MVBTCO--that is calculated
through a proprietary, non-public methodology that uses the privately
reported bid/ask spreads of an unidentified set of U.S.-based market-
makers in the OTC marketplace, which, the Exchange says, has no formal
structure and no open-outcry meeting place? Is the use of a non-public,
proprietary index to value holdings based on OTC activity an
appropriate means to calculate the NAV of an exchange-traded product
(``ETP'')? What are commenters' views on whether determining NAV based
on the index value at 4:00 p.m. E.T. might, or might not, create an
opportunity for manipulation of the NAV or of the Shares? What are
commenters' views on the assertion in the Notice that, according to the
Sponsor, the MVBTCO's methodology reduces the possibility of an attempt
to manipulate the price of bitcoin as reflected by the MVBTCO? What are
commenters' views on the Sponsor's assertion, as described by the
Exchange in the Notice, that ``the OTC desks have a better measure of
the market than any exchange-specific reference price, whether
individually or indexed across multiple exchanges''?
5. What are commenters' views on the Exchange's representation that
it will have in place a comprehensive surveillance sharing agreement
with each of the OTC platforms that constitute the MVBTCO prior to the
Shares listing on the Exchange? What are commenters' views on the
Exchange's assertion that the regulated nature of each of the OTC
platforms that make up the MVBTCO, the notional volume of trading and
liquidity available on these platforms, the principal-to-principal
nature of these platforms, and comprehensive surveillance sharing
agreements with each of the OTC platforms (in addition to the
Exchange's standard surveillance procedures) are sufficient to prevent
fraudulent and manipulative acts and practices in the Shares? What are
commenters' views on the extent to which each of these OTC platforms is
regulated? What are commenters' views on the extent to which each of
these OTC platforms can, or does, conduct surveillance of bitcoin
trading activity?
[[Page 24190]]
6. What are commenters' views on the size, liquidity, transparency,
number and nature of market participants, and price discovery in the
OTC market for bitcoin, both on an absolute basis and relative to the
bitcoin spot market as a whole? What are commenters' views on whether
the volume of U.S. dollar trading of bitcoin--which excludes bitcoin
trading against other sovereign currencies or digital assets--is a
meaningful or appropriate measure of bitcoin market volume?
7. The Exchange states that the Trust does not intend to report its
OTC trading. What are commenters' views on how the Trust's unreported
OTC trades may affect the calculation of the Trust's NAV and the
ability of market makers to engage in arbitrage?
8. What are commenters' views on each of the set of alternative
means by which the Trust proposes to value its holdings in the event
that the Sponsor determines that the MVBTCO, or another alternate
pricing mechanism, has failed, is unavailable, or is deemed unreliable?
What are commenters' views on whether any of these pricing mechanisms,
primary or alternate, would be affected by, or resistant to,
manipulative activity in bitcoin markets?
9. What are commenters' views on the assertion by the Exchange that
the dissemination of information on the Trust's website, along with
quotations for and last-sale prices of transactions in the Shares and
the intra-day indicative value (or ``IIV'') and NAV of the Trust, will
help to reduce the ability of market participants to manipulate the
bitcoin market or the price of the Shares and that the Trust's
arbitrage mechanism will facilitate the correction of price
discrepancies in bitcoin and the Shares? What are commenters' views on
whether the liquidity of the OTC bitcoin market is sufficient to
support efficient arbitrage between the price of the Shares and the
spot price of bitcoin?
10. The Exchange represents that it has entered into a
comprehensive surveillance-sharing agreement with the Gemini Exchange
and is working to establish similar agreements with other bitcoin
venues. What are commenters' views on whether the Gemini Exchange is a
regulated market of significant size? What are commenters' views on
whether there is a reasonable likelihood that a person attempting to
manipulate the proposed ETP would also have to trade on the Gemini
Exchange? What are commenters' views on whether trading in the proposed
ETP would be the predominant influence on prices in the Gemini
Exchange? What are commenters' views on whether the Exchange could
enter into surveillance-sharing agreements with regulated spot markets
of significant size related to bitcoin?
11. What are commenters' views of the Exchange's assertions that
bitcoin is arguably less susceptible to manipulation than other
commodities that underlie ETPs; that the geographically diverse and
continuous nature of bitcoin trading makes it difficult and
prohibitively costly to manipulate the price of bitcoin; that trading
on inside information regarding bitcoin is unlikely; that the
fragmentation across bitcoin markets, the relatively slow speed of
transactions, and the capital necessary to maintain a significant
presence on each trading platform make manipulation of bitcoin prices
through continuous trading activity unlikely; that manipulation of the
price on any single venue would require manipulation of the global
bitcoin price to be effective; that a substantial OTC bitcoin market
provides liquidity and shock-absorbing capacity; that bitcoin's ``24/7/
365 nature'' \21\ provides constant arbitrage opportunities across all
trading venues; and that it is unlikely that any one actor could obtain
a dominant market share?
---------------------------------------------------------------------------
\21\ See id. at 5142 n.11, 5156 n.46.
---------------------------------------------------------------------------
12. What are commenters' views of the Exchange's assertions that
transacting in the Shares will be geared toward more sophisticated
institutional investors and will be cost-prohibitive for smaller retail
investors? What are commenters' views regarding whether broker-dealers
are likely to offer fractional shares in the Trust to retail investors,
permitting retail investment with a smaller financial commitment? What
are commenters' views of the Exchange's assertions that the Sponsor
believes that demand from new, larger investors accessing bitcoin
through investment in the Shares will broaden the investor base in
bitcoin, which could further reduce the possibility of collusion among
market participants to manipulate the bitcoin market, in light of the
possibility that broker-dealers may offer fractional shares to their
customers?
13. What are commenters' views on the Exchange's assertion that a
minimum of 100 Shares outstanding at the time of commencement of
trading will be sufficient to provide adequate market liquidity? What
are commenters' views on whether the 100-share minimum would affect the
arbitrage mechanism? What are commenters' views on the Exchange's
assertion that, even though the Trust would not comply with the minimum
number of shares outstanding required by Exchange rules, the policy
concerns underlying that requirement would be otherwise mitigated in
the case of the Trust, because the lower number of Shares is merely a
function of the price of the Shares and will have no effect on the
creation and redemption process or on arbitrage?
14. What are commenters' views of whether the Trust's proposed
insurance coverage would affect trading in the Shares or in the
underlying bitcoins? What are commenters' views regarding the Trust's
proposed security, control, and insurance measures?
III. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposal is
consistent with Section 6(b)(5) or any other provision of the Act, and
the rules and regulations thereunder. Although there do not appear to
be any issues relevant to approval or disapproval that would be
facilitated by an oral presentation of views, data, and arguments, the
Commission will consider, pursuant to Rule 19b-4, any request for an
opportunity to make an oral presentation.\22\
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\22\ Section 19(b)(2) of the Act, as amended by the Securities
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Act Amendments of 1975, Senate Comm. on
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
---------------------------------------------------------------------------
Interested persons are invited to submit written data, views, and
arguments regarding whether the proposal should be approved or
disapproved by June 14, 2019. Any person who wishes to file a rebuttal
to any other person's submission must file that rebuttal by June 28,
2019.
Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CboeBZX-2019-004 on the subject line.
[[Page 24191]]
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-2019-004. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CboeBZX-2019-004 and should be submitted
by June 14, 2019. Rebuttal comments should be submitted by June 28,
2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(57).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-10858 Filed 5-23-19; 8:45 am]
BILLING CODE 8011-01-P
