Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To List and Trade Shares of the Bitwise Bitcoin ETP Trust Under NYSE Arca Rule 8.201-E, 6903-6906 [2022-02433]
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Federal Register / Vol. 87, No. 25 / Monday, February 7, 2022 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 270–802, OMB Control No.
3235–0758]
jspears on DSK121TN23PROD with NOTICES1
Proposed Collection; Comment
Request; Extension: Rule 30e–3
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.) (‘‘Paperwork
Reduction Act’’), the Securities and
Exchange Commission (the
‘‘Commission’’) is soliciting comments
on the collection of information
summarized below. The Commission
plans to submit this existing collection
of information to the Office of
Management and Budget (‘‘OMB’’) for
extension and approval.
Section 30(e) of the Investment
Company Act of 1940 (15 U.S.C. 80a–1
et seq.) (‘‘Investment Company Act’’)
requires a registered investment
company (‘‘fund’’) to transmit to its
shareholders, at least semi-annually,
reports containing financial statements
and other financial information as the
Commission may prescribe by rules and
regulations. Rules 30e–1 (17 CFR
270.30e–1) and 30e–2 (17 CFR 270.30e–
2) under the Investment Company Act
require most funds to send their
shareholders annual and semiannual
reports containing financial information
on the fund.
Rule 30e–3 (17 CFR 270.30e–3) under
the Investment Company Act (15 U.S.C.
80a–1 et seq.) provides certain funds
and unit investment trusts with an
optional method to satisfy shareholder
report transmission requirements by
making such reports and certain other
materials publicly accessible on a
website, as long as they satisfy certain
other conditions of the rule regarding:
(a) Availability of the report and other
materials; (b) notice to investors of the
website availability of the report; and (c)
delivery of paper copies of materials
upon request. Reliance on the rule is
voluntary. Responses to the disclosure
requirements are not kept confidential.
The Commission estimates that
13,079 funds could rely on rule 30e–3.
Of these funds, we estimate that 90% (or
11,771 funds) are currently relying on
rule 30e–3. With respect to these 11,771
funds, we estimate that 90% (or 10,594
funds) already post shareholder reports
on their websites for other purposes. In
total, rule 30e 3 will impose an average
total annual hour burden of 24,719
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hours on applicable funds. Based on the
Commission’s estimate of 24,719 hours
and an estimated wage rate of about
$362 per hour, the total annual cost to
registrants of the hour burden for
complying with rule 30 3 is about $8.9
million.
Estimates of average burden hours are
made solely for the purposes of the
Paperwork Reduction Act and are not
derived from a comprehensive or even
representative survey or study of the
costs of Commission rules and forms.
The collection of information under rule
30e–3 is mandatory. The information
provided under rule 30e–3 will not be
kept confidential. An agency may not
conduct or sponsor, and a person is not
required to respond to, a collection of
information unless it displays a
currently valid OMB control number.
Written comments are invited on: (a)
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
agency, including whether the
information will have practical utility;
(b) the accuracy of the agency’s estimate
of the burden of the collection of
information; (c) ways to enhance the
quality, utility, and clarity of the
information collected; and (d) ways to
minimize the burden of the collection of
information on respondents, including
through the use of automated collection
techniques or other forms of information
technology. Consideration will be given
to comments and suggestions submitted
in writing within 60 days of this
publication.
Please direct your written comments
to David Bottom, Director/Chief
Information Officer, Securities and
Exchange Commission, C/O John R.
Pezzullo, 100 F Street NE, Washington,
DC 20549; or send an email to: PRA_
Mailbox@sec.gov.
Dated: February 2, 2022.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022–02502 Filed 2–4–22; 8:45 am]
BILLING CODE 8011–01–P
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–94126; File No. SR–
NYSEArca–2021–89]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Order Instituting
Proceedings To Determine Whether To
Approve or Disapprove a Proposed
Rule Change To List and Trade Shares
of the Bitwise Bitcoin ETP Trust Under
NYSE Arca Rule 8.201–E
February 1, 2022.
On October 14, 2021, NYSE Arca, Inc.
(‘‘NYSE Arca’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to list and trade shares
(‘‘Shares’’) of the Bitwise Bitcoin ETP
Trust (‘‘Trust’’) under NYSE Arca Rule
8.201–E (Commodity-Based Trust
Shares). The proposed rule change was
published for comment in the Federal
Register on November 3, 2021.3
On December 15, 2021, 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 This order
institutes proceedings under Section
19(b)(2)(B) of the Act 6 to determine
whether to approve or disapprove the
proposed rule change.
I. Summary of the Proposal
As described in more detail in the
Notice,7 the Exchange proposes to list
and trade the Shares of the Trust under
NYSE Arca Rule 8.201–E, which
governs the listing and trading of
Commodity-Based Trust Shares on the
Exchange.
The investment objective of the Trust
is to seek to provide exposure to the
value of bitcoin held by the Trust, less
the expenses of the Trust’s operations.8
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 93445
(Oct. 28, 2021), 86 FR 60695 (‘‘Notice’’). No
comments have been received on the proposed rule
change.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 93790,
86 FR 72300 (Dec. 21, 2021). The Commission
designated February 1, 2022, as the date by which
it should approve, disapprove, or institute
proceedings to determine whether to disapprove the
proposed rule change.
6 15 U.S.C. 78s(b)(2)(B).
7 See Notice, supra note 3.
8 See id. at 60696. Bitwise Investment Advisers,
LLC (‘‘Sponsor’’) is the sponsor of the Trust, and
2 17
Continued
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The Shares will represent units of
undivided beneficial ownership of the
Trust.9 Under normal circumstances,
the Trust’s only asset will be bitcoin,
and, under limited circumstances,
cash.10 The Trust will not use
derivatives that may subject the Trust to
counterparty and credit risks.11
The Trust’s net asset value (‘‘NAV’’)
and NAV per Share will be determined
by the Administrator once each
Exchange trading day as of 4:00 p.m.
E.T., or as soon thereafter as practicable,
by reference to the CF Bitcoin-Dollar US
Settlement Price (‘‘CME US Reference
Rate’’).12 The Administrator will
calculate the NAV by multiplying the
number of bitcoin held by the Trust by
the CME US Reference Rate for such
day, and subtracting the accrued but
unpaid expenses and liabilities of the
Trust.13 The CME US Reference Rate is
a daily reference rate of the U.S. dollar
price of one bitcoin, calculated at 4:00
p.m. E.T.14
The CME US Reference Rate
aggregates during a calculation window
the trade flow of several spot bitcoin
trading platforms into the U.S. dollar
price of one bitcoin as of its calculation
time. The current constituent bitcoin
platforms of the CME US Reference Rate
are Bitstamp, Coinbase, Gemini, itBit,
and Kraken (‘‘Constituent Platforms’’).
In calculating the CME US Reference
Rate, the methodology creates a joint list
of certain trade prices and sizes from the
Constituent Platforms. The methodology
then divides this list into a number of
equally sized time intervals, and it
calculates the volume-weighted median
trade price for each of those intervals.
The CME US Reference Rate is the
equally weighted average of the volumeweighted medians of all intervals.15
Delaware Trust Company is the trustee. The Trust
will engage a third party custodian to maintain
custody of the Trust’s bitcoin assets. The Trust also
will engage a third party service provider to serve
as the administrator (‘‘Administrator’’) and transfer
agent of the Trust. See id.
9 See id. at 60699.
10 See id. at 60696. The Trust may sell bitcoin and
temporarily hold cash as part of a liquidation of the
Trust or to pay certain extraordinary expenses not
assumed by the Sponsor. According to the
Exchange, the Trust also may, from time to time,
passively receive, by virtue of holding bitcoin,
certain additional digital assets or rights to receive
such digital assets through a fork of the Blockchain
or an airdrop of assets. See id. n.12.
11 See id. at 60696.
12 See id. at 60696, 60699.
13 See id. at 60699.
14 The Exchange states that the CME US Reference
Rate utilizes the same methodology as the CME CF
Bitcoin Reference Rate, which is calculated at 4:00
p.m. London time and is used to settle bitcoin
futures on the CME. See id. at 60696 n.11; 60698–
99.
15 See id. at 60699.
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The Trust will provide website
disclosure of its holdings daily.16 In
addition, each trading day, the
Exchange will calculate and disseminate
an intraday trust value (‘‘ITV’’) every 15
seconds during the NYSE Arca Core
Trading Session.17 The ITV will be
calculated throughout the trading day
by using the prior day’s holdings at
close of business and the most recently
reported price level of the CME Bitcoin
Real Time Price 18 as reported by
Bloomberg, L.P., or another reporting
service, or another price of bitcoin
derived from updated bids and offers
indicative of the spot price of bitcoin.19
The Trust will create and redeem
Shares from time to time, but only in
one or more Creation Units. A Creation
Unit will initially consist of at least
25,000 Shares, but may be subject to
change.20 The Trust will process all
creations and redemptions in-kind, and
accrue all ordinary fees in bitcoin
(rather than cash), as a way of seeking
to ensure that the Trust holds the
desired amount of bitcoin-per-share.
The Trust will not purchase or sell
bitcoin, other than if the Trust
liquidates or must pay expenses not
contractually assumed by the Sponsor.
Instead, financial institutions
authorized to create and redeem Shares
(‘‘Authorized Participants’’) will deliver,
or cause to be delivered, bitcoin to the
Trust in exchange for Shares of the
Trust, and the Trust will deliver bitcoin
to Authorized Participants when those
Authorized Participants redeem Shares
of the Trust.21
II. Proceedings To Determine Whether
To Approve or Disapprove SR–
NYSEArca–2021–89 and Grounds for
Disapproval Under Consideration
The Commission is instituting
proceedings pursuant to Section
19(b)(2)(B) of the Act 22 to determine
whether the proposed rule change
should be approved or disapproved.
Institution of proceedings is appropriate
at this time in view of the legal and
policy issues raised by the proposed
rule change, as discussed below.
Institution of proceedings does not
indicate that the Commission has
reached any conclusions with respect to
16 See
id. at 60715.
id. at 60699. The ITV will also be widely
disseminated by one or more major market data
vendors during the NYSE Arca Core Trading
Session. See id.
18 The CME Bitcoin Real Time Price is a
continuous real-time bitcoin price index published
by the CME Group and Crypto Facilities Ltd. using
data from the Constituent Platforms. See id.
19 See id.
20 See id.
21 See id. at 60696.
22 15 U.S.C. 78s(b)(2)(B).
17 See
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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,23 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’’ and
‘‘to protect investors and the public
interest.’’ 24
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,25 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 proposed Trust and Shares
would be susceptible to manipulation?
What are commenters’ views generally
on whether the Exchange’s proposal is
designed to prevent fraudulent and
manipulative acts and practices? What
are commenters’ views generally with
respect to the liquidity and transparency
of the bitcoin markets, the bitcoin
markets’ susceptibility to manipulation,
and thus the suitability of bitcoin as an
underlying asset for an exchange-traded
product (‘‘ETP’’)?
2. The Exchange asserts that ‘‘the
exclusive use of in-kind creations,
redemptions and fee accruals, in all
situations except when the Trust is
required to liquidate or to pay
extraordinary expenses, provides longterm investors in the Trust with
redundant but strong protection.’’ 26 The
Exchange further asserts that ‘‘[t]he inkind structure ensures that the Trust
maintains the appropriate amount of
bitcoin-per-Share in all scenarios,
regardless of the U.S. dollar calculation
of NAV or the CME US Reference
Rate.’’ 27 What are commenters’ views of
these assertions?
3. The Exchange asserts that, ‘‘through
extensive statistical analysis and careful
23 Id.
24 15
U.S.C. 78f(b)(5).
Notice, supra note 3.
26 See id. at 60700.
27 See id.
25 See
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consideration of third-party evaluations
of these markets, the Sponsor has
demonstrated that the CME [bitcoin
futures] Market leads the bitcoin spot
market and the unregulated bitcoin
futures market, such that it is reasonably
likely that a person attempting to
manipulate the ETP would also have to
trade on the CME [bitcoin futures]
Market.’’ 28 The Exchange further asserts
‘‘both existing academic literature and
the Sponsor’s own studies show that the
CME [bitcoin futures] Market leads price
discovery relative to the bitcoin spot
market.’’ 29 Do commenters agree or
disagree?
• Specifically, what are commenters’
views of the Sponsor’s methodology
used to arrive at this conclusion? The
Exchange describes how the Sponsor
used data from the CME Group and Coin
Metrics, supplemented with data from
CoinAPI, to perform pairwise
information share/component share
(‘‘IS/CS’’) price discovery analysis and
pairwise time-shift lead-lag (‘‘TSLL’’)
analysis between the CME bitcoin
futures market and 10 bitcoin spot
markets and seven unregulated futures
markets.30 What are commenters’ views
on, for example, the Sponsor’s choices
for, and level of explanation of: The
sources for the tick-level trade data; the
aggregation (if any) the Sponsor
performed on the tick-level trade data;
the spot and unregulated futures trading
platforms the Sponsor included in its
pairwise analyses; the particular IS/CS
and TSLL paradigms used to perform its
pairwise analyses; the full-period and
monthly results of its pairwise analyses;
the statistical significance of the results;
and the sensitivity of the results to the
Sponsor’s methodological choices?
• What are commenters’ views on
how the Commission should weigh the
Sponsor’s pairwise results compared to
the previous academic and industry
lead-lag studies that the Sponsor
cites? 31 What are commenters’ views on
the accuracy of the Sponsor’s
summaries of such past studies?
• What are commenters’ views on the
robustness of the Sponsor’s twodimensional, pairwise results? Do
commenters believe the Exchange has
adequately addressed the extent of any
relationship between prices on
unregulated bitcoin futures markets and
the CME bitcoin futures market, the
bitcoin spot markets, and/or the
Constituent Platforms, or where price
formation occurs when the entirety of
bitcoin futures markets, not just the
CME, is considered?
• What are commenters’ views on
whether the Sponsor’s lead-lag results
sufficiently demonstrate a reasonable
likelihood that a would-be manipulator
of the proposed ETP would have to
trade on the CME bitcoin futures market
to successfully manipulate the proposed
ETP? Do commenters believe that the
Exchange has adequately explained
and/or demonstrated how the Sponsor’s
market-level, statistical results provide
sufficient evidence of the likely trading
behavior of a would-be manipulator?
4. The Exchange asserts that ‘‘the
Sponsor’s analysis shows that trading in
the Trust is unlikely to become the
predominant influence on prices in the
CME [bitcoin futures] Market, even
when assuming aggressive estimates of
first-year flows of $4.7 billion and
average daily trading volume of $143
million.’’ 32 Do commenters agree or
disagree?
• Specifically, what are commenters’
views of the Exchange’s estimates of the
Trust’s first-year flows? What are
commenters’ views of the methodology
used to arrive at those estimates? 33 Do
commenters agree with the Exchange
that ‘‘it is unlikely that a bitcoin ETP
will experience the highest first-year
flows in history,’’ 34 and that the 2020
inflows to the Grayscale Bitcoin Trust
(GBTC) of $4.7 billion is an ‘‘aggressive’’
working estimate for first-year flows
into a new bitcoin ETP? 35
• The Exchange describes how the
Sponsor correlated the daily and weekly
flows into GBTC with the corresponding
daily or weekly price of bitcoin
(calculated using the 4:00 p.m. E.T.
bitcoin reference rate from Coin
Metrics), and concludes that ‘‘there is
no meaningful relationship between
daily and weekly flows into GBTC and
changes in the price of bitcoin.’’ 36 What
are commenters’ views on the data
sources used, methodology selected,
and results obtained by the Sponsor?
The Exchange states that the Sponsor
concluded from this analysis that ‘‘it is
unlikely that the aggressive estimate of
first-year flows into a bitcoin ETP ($4.7
billion) would cause it to become the
predominant influence on prices in the
CME [bitcoin futures] Market.’’ 37 What
are commenters’ views on how well the
Sponsor’s analysis of the historical
correlation between GBTC inflows and
the spot price of bitcoin predicts the
32 See
id. at 60711.
id. at 60711–12.
34 See id. at 60711.
35 See id. at 60712.
36 See id. at 60712–13.
37 See id. at 60713.
33 See
28 See
id. at 60704.
id. at 60716.
30 See id. at 60704–11.
31 See id. at 60705–07.
29 See
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6905
future impact of inflows into the
proposed ETP on prices in the CME
bitcoin futures market?
• What are commenters’ views of the
Exchange’s estimate of the likely
average daily trading volume of the
Shares ($143 million)? What are
commenters’ views on the methodology
used to arrive at that estimate (which
was based on an assessment of GBTC’s
and SPDR Gold (GLD)’s ratios of average
daily trading volume to assets under
management)? 38 Do commenters agree
with the Exchange that $143 million is
an ‘‘aggressive’’ working estimate for
average daily trading volume of a new
bitcoin ETP? 39
• The Exchange states that ‘‘[g]iven
that the average daily trading volume of
the CME [bitcoin futures] Market in
2020 was 174% higher at $392 million
than the Sponsor’s aggressive estimate
of a new bitcoin ETP’s potential trading
volume of $143 million, the Sponsor
found that it is unlikely that trading in
a new bitcoin ETP will cause such ETP
to become the predominant influence on
prices in the CME [bitcoin futures]
Market.’’ 40 Do commenters agree or
disagree with the Sponsor’s conclusion?
Why or why not?
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.41
38 See
id. at 60713–14.
id. at 60714.
40 See id. at 60715.
41 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).
39 See
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Interested persons are invited to
submit written data, views, and
arguments regarding whether the
proposal should be approved or
disapproved by February 28, 2022. Any
person who wishes to file a rebuttal to
any other person’s submission must file
that rebuttal by March 14, 2022.
Comments may be submitted by any
of the following methods:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.42
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022–02433 Filed 2–4–22; 8:45 am]
BILLING CODE 8011–01–P
Paper Comments
jspears on DSK121TN23PROD with NOTICES1
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEArca–2021–89. 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–NYSEArca–2021–89 and
should be submitted by February 28,
2022. Rebuttal comments should be
submitted by March 14, 2022.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEArca–2021–89 on the subject line.
the most significant aspects of such
statements.
[Release No. 34–94117; File No. SR–MRX–
2022–02]
Self-Regulatory Organizations; Nasdaq
MRX, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change to Proposed Rule Change
To Update the Obvious Error Rule
February 1, 2022.
Pursuant to 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 January
26, 2022, Nasdaq MRX, LLC (‘‘MRX’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III, 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 proposes to amend
Options 3, Section 20 (Nullification and
Adjustment of Options Transactions
including Obvious Errors).
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/mrx/rules, 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
42 17
CFR 200.30–3(a)(57).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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The purpose of this proposed rule
change is to amend Options 3, Section
20 (Nullification and Adjustment of
Options Transactions including Obvious
Errors) to improve the operation of the
Rule. Following discussions with other
exchanges and a cross-section of
industry participants and in
coordination with the Listed Options
Market Structure Working Group
(‘‘LOMSWG’’) (collectively, the
‘‘Industry Working Group’’), the
Exchange proposes: (1) To amend
section (b)(3) of the Rule to permit the
Exchange to determine the Theoretical
Price of a Customer option transaction
in a wide market so long as a narrow
market exists at any point during the 10second period after an opening or reopening; and (2) to amend section
(c)(4)(B) of the Rule to adjust, rather
than nullify, Customer transactions in
Obvious Error situations, provided the
adjustment does not violate the limit
price. The foregoing changes are based
on the recently amended rules of NYSE
Arca, Inc. (‘‘Arca’’).3 Further, the
Exchange proposes to make nonsubstantive, corrective changes. Each
change is discussed in detail below.
Proposed Change to Section (b)(3)
Options 3, Section 20 has been part of
various harmonization efforts by the
Industry Working Group.4 These efforts
have often centered around the
Theoretical Price for which an options
transaction should be compared to
determine whether an Obvious Error has
occurred. For instance, all options
exchanges have adopted language
comparable to Supplementary Material
.06,5 which explains how an exchange
is to determine Theoretical Price at the
open, when there are no valid quotes,
and when there is a wide quote. This
includes at times the use of a singular
3 See Arca Rule 6.87–O. See also Securities
Exchange Act Release No. 93818 (December 17,
2021), 86 FR 73009 (December 23, 2021) (SR–
NYSEArca–2021–91) (Order Approving a Proposed
Rule Change to Amend Rule 6.87–O).
4 The Exchange’s application for registration as a
national securities exchange, as approved by the
Commission, incorporated the changes made
previously by the other options exchanges. See
Securities Exchange Act Release No. 76998 (January
29, 2016); 81 FR 6066 (Feb. 4, 2016).
5 See, e.g., Securities Exchange Act Release No.
81353 (August 8, 2017), 82 FR 37926 (August 14,
2017) (SR–MRX–2017–16).
E:\FR\FM\07FEN1.SGM
07FEN1
]]>Agencies
[Federal Register Volume 87, Number 25 (Monday, February 7, 2022)]
[Notices]
[Pages 6903-6906]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-02433]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94126; File No. SR-NYSEArca-2021-89]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting
Proceedings To Determine Whether To Approve or Disapprove a Proposed
Rule Change To List and Trade Shares of the Bitwise Bitcoin ETP Trust
Under NYSE Arca Rule 8.201-E
February 1, 2022.
On October 14, 2021, NYSE Arca, Inc. (``NYSE Arca'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to list and trade shares (``Shares'') of the
Bitwise Bitcoin ETP Trust (``Trust'') under NYSE Arca Rule 8.201-E
(Commodity-Based Trust Shares). The proposed rule change was published
for comment in the Federal Register on November 3, 2021.\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. 93445 (Oct. 28,
2021), 86 FR 60695 (``Notice''). No comments have been received on
the proposed rule change.
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On December 15, 2021, 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\ This order institutes proceedings under Section 19(b)(2)(B)
of the Act \6\ to determine whether to approve or disapprove the
proposed rule change.
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\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 93790, 86 FR 72300
(Dec. 21, 2021). The Commission designated February 1, 2022, as the
date by which it should approve, disapprove, or institute
proceedings to determine whether to disapprove the proposed rule
change.
\6\ 15 U.S.C. 78s(b)(2)(B).
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I. Summary of the Proposal
As described in more detail in the Notice,\7\ the Exchange proposes
to list and trade the Shares of the Trust under NYSE Arca Rule 8.201-E,
which governs the listing and trading of Commodity-Based Trust Shares
on the Exchange.
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\7\ See Notice, supra note 3.
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The investment objective of the Trust is to seek to provide
exposure to the value of bitcoin held by the Trust, less the expenses
of the Trust's operations.\8\
[[Page 6904]]
The Shares will represent units of undivided beneficial ownership of
the Trust.\9\ Under normal circumstances, the Trust's only asset will
be bitcoin, and, under limited circumstances, cash.\10\ The Trust will
not use derivatives that may subject the Trust to counterparty and
credit risks.\11\
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\8\ See id. at 60696. Bitwise Investment Advisers, LLC
(``Sponsor'') is the sponsor of the Trust, and Delaware Trust
Company is the trustee. The Trust will engage a third party
custodian to maintain custody of the Trust's bitcoin assets. The
Trust also will engage a third party service provider to serve as
the administrator (``Administrator'') and transfer agent of the
Trust. See id.
\9\ See id. at 60699.
\10\ See id. at 60696. The Trust may sell bitcoin and
temporarily hold cash as part of a liquidation of the Trust or to
pay certain extraordinary expenses not assumed by the Sponsor.
According to the Exchange, the Trust also may, from time to time,
passively receive, by virtue of holding bitcoin, certain additional
digital assets or rights to receive such digital assets through a
fork of the Blockchain or an airdrop of assets. See id. n.12.
\11\ See id. at 60696.
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The Trust's net asset value (``NAV'') and NAV per Share will be
determined by the Administrator once each Exchange trading day as of
4:00 p.m. E.T., or as soon thereafter as practicable, by reference to
the CF Bitcoin-Dollar US Settlement Price (``CME US Reference
Rate'').\12\ The Administrator will calculate the NAV by multiplying
the number of bitcoin held by the Trust by the CME US Reference Rate
for such day, and subtracting the accrued but unpaid expenses and
liabilities of the Trust.\13\ The CME US Reference Rate is a daily
reference rate of the U.S. dollar price of one bitcoin, calculated at
4:00 p.m. E.T.\14\
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\12\ See id. at 60696, 60699.
\13\ See id. at 60699.
\14\ The Exchange states that the CME US Reference Rate utilizes
the same methodology as the CME CF Bitcoin Reference Rate, which is
calculated at 4:00 p.m. London time and is used to settle bitcoin
futures on the CME. See id. at 60696 n.11; 60698-99.
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The CME US Reference Rate aggregates during a calculation window
the trade flow of several spot bitcoin trading platforms into the U.S.
dollar price of one bitcoin as of its calculation time. The current
constituent bitcoin platforms of the CME US Reference Rate are
Bitstamp, Coinbase, Gemini, itBit, and Kraken (``Constituent
Platforms''). In calculating the CME US Reference Rate, the methodology
creates a joint list of certain trade prices and sizes from the
Constituent Platforms. The methodology then divides this list into a
number of equally sized time intervals, and it calculates the volume-
weighted median trade price for each of those intervals. The CME US
Reference Rate is the equally weighted average of the volume-weighted
medians of all intervals.\15\
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\15\ See id. at 60699.
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The Trust will provide website disclosure of its holdings
daily.\16\ In addition, each trading day, the Exchange will calculate
and disseminate an intraday trust value (``ITV'') every 15 seconds
during the NYSE Arca Core Trading Session.\17\ The ITV will be
calculated throughout the trading day by using the prior day's holdings
at close of business and the most recently reported price level of the
CME Bitcoin Real Time Price \18\ as reported by Bloomberg, L.P., or
another reporting service, or another price of bitcoin derived from
updated bids and offers indicative of the spot price of bitcoin.\19\
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\16\ See id. at 60715.
\17\ See id. at 60699. The ITV will also be widely disseminated
by one or more major market data vendors during the NYSE Arca Core
Trading Session. See id.
\18\ The CME Bitcoin Real Time Price is a continuous real-time
bitcoin price index published by the CME Group and Crypto Facilities
Ltd. using data from the Constituent Platforms. See id.
\19\ See id.
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The Trust will create and redeem Shares from time to time, but only
in one or more Creation Units. A Creation Unit will initially consist
of at least 25,000 Shares, but may be subject to change.\20\ The Trust
will process all creations and redemptions in-kind, and accrue all
ordinary fees in bitcoin (rather than cash), as a way of seeking to
ensure that the Trust holds the desired amount of bitcoin-per-share.
The Trust will not purchase or sell bitcoin, other than if the Trust
liquidates or must pay expenses not contractually assumed by the
Sponsor. Instead, financial institutions authorized to create and
redeem Shares (``Authorized Participants'') will deliver, or cause to
be delivered, bitcoin to the Trust in exchange for Shares of the Trust,
and the Trust will deliver bitcoin to Authorized Participants when
those Authorized Participants redeem Shares of the Trust.\21\
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\20\ See id.
\21\ See id. at 60696.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEArca-2021-89 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \22\ to determine whether the proposed rule
change should be approved or disapproved. Institution of proceedings is
appropriate at this time in view of the legal and policy issues raised
by the proposed rule change, as discussed below. 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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\22\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\23\ 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'' and ``to protect investors and the
public interest.'' \24\
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\23\ Id.
\24\ 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,\25\ 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:
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\25\ See Notice, supra note 3.
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1. What are commenters' views on whether the proposed Trust and
Shares would be susceptible to manipulation? What are commenters' views
generally on whether the Exchange's proposal is designed to prevent
fraudulent and manipulative acts and practices? What are commenters'
views generally with respect to the liquidity and transparency of the
bitcoin markets, the bitcoin markets' susceptibility to manipulation,
and thus the suitability of bitcoin as an underlying asset for an
exchange-traded product (``ETP'')?
2. The Exchange asserts that ``the exclusive use of in-kind
creations, redemptions and fee accruals, in all situations except when
the Trust is required to liquidate or to pay extraordinary expenses,
provides long-term investors in the Trust with redundant but strong
protection.'' \26\ The Exchange further asserts that ``[t]he in-kind
structure ensures that the Trust maintains the appropriate amount of
bitcoin-per-Share in all scenarios, regardless of the U.S. dollar
calculation of NAV or the CME US Reference Rate.'' \27\ What are
commenters' views of these assertions?
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\26\ See id. at 60700.
\27\ See id.
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3. The Exchange asserts that, ``through extensive statistical
analysis and careful
[[Page 6905]]
consideration of third-party evaluations of these markets, the Sponsor
has demonstrated that the CME [bitcoin futures] Market leads the
bitcoin spot market and the unregulated bitcoin futures market, such
that it is reasonably likely that a person attempting to manipulate the
ETP would also have to trade on the CME [bitcoin futures] Market.''
\28\ The Exchange further asserts ``both existing academic literature
and the Sponsor's own studies show that the CME [bitcoin futures]
Market leads price discovery relative to the bitcoin spot market.''
\29\ Do commenters agree or disagree?
---------------------------------------------------------------------------
\28\ See id. at 60704.
\29\ See id. at 60716.
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Specifically, what are commenters' views of the Sponsor's
methodology used to arrive at this conclusion? The Exchange describes
how the Sponsor used data from the CME Group and Coin Metrics,
supplemented with data from CoinAPI, to perform pairwise information
share/component share (``IS/CS'') price discovery analysis and pairwise
time-shift lead-lag (``TSLL'') analysis between the CME bitcoin futures
market and 10 bitcoin spot markets and seven unregulated futures
markets.\30\ What are commenters' views on, for example, the Sponsor's
choices for, and level of explanation of: The sources for the tick-
level trade data; the aggregation (if any) the Sponsor performed on the
tick-level trade data; the spot and unregulated futures trading
platforms the Sponsor included in its pairwise analyses; the particular
IS/CS and TSLL paradigms used to perform its pairwise analyses; the
full-period and monthly results of its pairwise analyses; the
statistical significance of the results; and the sensitivity of the
results to the Sponsor's methodological choices?
---------------------------------------------------------------------------
\30\ See id. at 60704-11.
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What are commenters' views on how the Commission should
weigh the Sponsor's pairwise results compared to the previous academic
and industry lead-lag studies that the Sponsor cites? \31\ What are
commenters' views on the accuracy of the Sponsor's summaries of such
past studies?
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\31\ See id. at 60705-07.
---------------------------------------------------------------------------
What are commenters' views on the robustness of the
Sponsor's two-dimensional, pairwise results? Do commenters believe the
Exchange has adequately addressed the extent of any relationship
between prices on unregulated bitcoin futures markets and the CME
bitcoin futures market, the bitcoin spot markets, and/or the
Constituent Platforms, or where price formation occurs when the
entirety of bitcoin futures markets, not just the CME, is considered?
What are commenters' views on whether the Sponsor's lead-
lag results sufficiently demonstrate a reasonable likelihood that a
would-be manipulator of the proposed ETP would have to trade on the CME
bitcoin futures market to successfully manipulate the proposed ETP? Do
commenters believe that the Exchange has adequately explained and/or
demonstrated how the Sponsor's market-level, statistical results
provide sufficient evidence of the likely trading behavior of a would-
be manipulator?
4. The Exchange asserts that ``the Sponsor's analysis shows that
trading in the Trust is unlikely to become the predominant influence on
prices in the CME [bitcoin futures] Market, even when assuming
aggressive estimates of first-year flows of $4.7 billion and average
daily trading volume of $143 million.'' \32\ Do commenters agree or
disagree?
---------------------------------------------------------------------------
\32\ See id. at 60711.
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Specifically, what are commenters' views of the Exchange's
estimates of the Trust's first-year flows? What are commenters' views
of the methodology used to arrive at those estimates? \33\ Do
commenters agree with the Exchange that ``it is unlikely that a bitcoin
ETP will experience the highest first-year flows in history,'' \34\ and
that the 2020 inflows to the Grayscale Bitcoin Trust (GBTC) of $4.7
billion is an ``aggressive'' working estimate for first-year flows into
a new bitcoin ETP? \35\
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\33\ See id. at 60711-12.
\34\ See id. at 60711.
\35\ See id. at 60712.
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The Exchange describes how the Sponsor correlated the
daily and weekly flows into GBTC with the corresponding daily or weekly
price of bitcoin (calculated using the 4:00 p.m. E.T. bitcoin reference
rate from Coin Metrics), and concludes that ``there is no meaningful
relationship between daily and weekly flows into GBTC and changes in
the price of bitcoin.'' \36\ What are commenters' views on the data
sources used, methodology selected, and results obtained by the
Sponsor? The Exchange states that the Sponsor concluded from this
analysis that ``it is unlikely that the aggressive estimate of first-
year flows into a bitcoin ETP ($4.7 billion) would cause it to become
the predominant influence on prices in the CME [bitcoin futures]
Market.'' \37\ What are commenters' views on how well the Sponsor's
analysis of the historical correlation between GBTC inflows and the
spot price of bitcoin predicts the future impact of inflows into the
proposed ETP on prices in the CME bitcoin futures market?
---------------------------------------------------------------------------
\36\ See id. at 60712-13.
\37\ See id. at 60713.
---------------------------------------------------------------------------
What are commenters' views of the Exchange's estimate of
the likely average daily trading volume of the Shares ($143 million)?
What are commenters' views on the methodology used to arrive at that
estimate (which was based on an assessment of GBTC's and SPDR Gold
(GLD)'s ratios of average daily trading volume to assets under
management)? \38\ Do commenters agree with the Exchange that $143
million is an ``aggressive'' working estimate for average daily trading
volume of a new bitcoin ETP? \39\
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\38\ See id. at 60713-14.
\39\ See id. at 60714.
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The Exchange states that ``[g]iven that the average daily
trading volume of the CME [bitcoin futures] Market in 2020 was 174%
higher at $392 million than the Sponsor's aggressive estimate of a new
bitcoin ETP's potential trading volume of $143 million, the Sponsor
found that it is unlikely that trading in a new bitcoin ETP will cause
such ETP to become the predominant influence on prices in the CME
[bitcoin futures] Market.'' \40\ Do commenters agree or disagree with
the Sponsor's conclusion? Why or why not?
---------------------------------------------------------------------------
\40\ See id. at 60715.
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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.\41\
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\41\ 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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[[Page 6906]]
Interested persons are invited to submit written data, views, and
arguments regarding whether the proposal should be approved or
disapproved by February 28, 2022. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
March 14, 2022.
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-NYSEArca-2021-89 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2021-89. 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-NYSEArca-2021-89 and should be submitted
by February 28, 2022. Rebuttal comments should be submitted by March
14, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\42\
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\42\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-02433 Filed 2-4-22; 8:45 am]
BILLING CODE 8011-01-P
