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 Grayscale Bitcoin Trust (BTC) Under NYSE Arca Rule 8.201-E, 7889-7891 [2022-02781]
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Federal Register / Vol. 87, No. 28 / Thursday, February 10, 2022 / Notices
19b–4(f)(6) thereunder.15 Because the
proposed rule change does not: (i)
Significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 16 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
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–
NYSEAMER–2022–10 on the subject
line.
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–NYSEAMER–2022–10. 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
15 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
16 15 U.S.C. 78s(b)(2)(B).
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only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions.
You should submit only information
that you wish to make available
publicly. All submissions should refer
to File Number SR–NYSEAMER–2022–
10 and should be submitted on or before
March 3, 2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022–02782 Filed 2–9–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–94151; File No. SR–
NYSEArca–2021–90]
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 Grayscale Bitcoin Trust (BTC) Under
NYSE Arca Rule 8.201–E
February 4, 2022.
On October 19, 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
17 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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7889
change to list and trade shares
(‘‘Shares’’) of Grayscale Bitcoin Trust
(BTC) (‘‘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 8, 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 for the value of the Shares (based on
bitcoin per Share) to reflect the value of
the bitcoins held by the Trust, as
determined by reference to the ‘‘Index
Price,’’ less the Trust’s expenses and
other liabilities.8 The ‘‘Index Price’’ is
the U.S. dollar value of a bitcoin as
represented by the ‘‘Index,’’ calculated
at 4:00 p.m., New York time, on each
business day.9 According to the
Exchange, the Index Provider develops,
calculates, and publishes the Index on
3 See Securities Exchange Act Release No. 93504
(Nov. 2, 2021), 86 FR 61804 (‘‘Notice’’). Comments
received on the proposed rule change are available
at: https://www.sec.gov/comments/sr-nysearca2021-90/srnysearca202190.htm.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 93788,
86 FR 72291 (Dec. 21, 2021). The Commission
designated February 6, 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 61805. Grayscale Investments, LLC
(‘‘Sponsor’’) is the sponsor of the Trust and is a
wholly-owned subsidiary of Digital Currency
Group, Inc. Delaware Trust Company (‘‘Trustee’’) is
the trustee of the Trust, the custodian for the Trust
is Coinbase Custody Trust Company, LLC
(‘‘Custodian’’), and the distribution and marketing
agent for the Trust is Genesis. The Trust operates
pursuant to a trust agreement (‘‘Trust Agreement’’)
between the Sponsor and the Trustee. See id.
9 See id. at 61810. The index provider for the
Trust is TradeBlock, Inc. (‘‘Index Provider’’). See id.
at 61805. While the Exchange does not name the
Index that the Trust would use to value the bitcoin
held by the Trust, the Exchange provides that the
value of the Index, as well as additional information
regarding the Index, may be found at: https://
tradeblock.com/markets/index/xbx. See id. at
61817.
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Federal Register / Vol. 87, No. 28 / Thursday, February 10, 2022 / Notices
a continuous basis using the volumeweighted price at certain bitcoin spot
trading platforms selected by the Index
Provider. As of June 30, 2021, the
bitcoin spot trading platforms included
in the Index were: Coinbase Pro,
Bitstamp, Kraken, and LMAX Digital
(‘‘Constituent Platforms’’). The Index
applies an algorithm to the 24-hour
volume-weighted average price of
bitcoin on the Constituent Platforms
calculated on a per second basis.10 To
calculate volume weighted price, the
weighting algorithm is applied to the
price and volume of all inputs for the
immediately preceding 24-hour period
at 4:00 p.m., New York time, on the
trade date.11 The Trust’s assets will
consist solely of bitcoins; Incidental
Rights; 12 IR Virtual Currency; 13
proceeds from the sale of bitcoins,
Incidental Rights, and IR Virtual
Currency pending use of such cash for
payment of Additional Trust
Expenses 14 or distribution to the
shareholders; and any rights of the Trust
pursuant to any agreements, other than
the Trust Agreement, to which the Trust
is a party. Each Share represents a
proportional interest, based on the total
number of Shares outstanding, in each
of the Trust’s assets as determined in
the case of bitcoin by reference to the
Index Price, less the Trust’s expenses
and other liabilities (which include
accrued but unpaid fees and
expenses).15
On each business day at 4:00 p.m.,
New York time, or as soon thereafter as
practicable, the Sponsor will evaluate
the bitcoin held by the Trust and
calculate and publish the ‘‘Digital Asset
Holdings’’ 16 of the Trust. The Trust’s
website, as well as one or more major
market data vendors, will provide an
intra-day indicative value (‘‘IIV’’) per
Share updated every 15 seconds, as
calculated by the Exchange or a third
party financial data provider during the
10 See
id. at 61809.
id.
12 ‘‘Incidental Rights’’ are rights to acquire, or
otherwise establish dominion and control over, any
virtual currency or other asset or right, which rights
are incident to the Trust’s ownership of bitcoins
and arise without any action of the Trust, or of the
Sponsor or Trustee on behalf of the Trust. See id.
at 61805 n.9.
13 ‘‘IR Virtual Currency’’ is any virtual currency
tokens, or other asset or right, acquired by the Trust
through the exercise (subject to the applicable
provisions of the Trust Agreement) of any
Incidental Right. See id. at 61805 n.10.
14 ‘‘Additional Trust Expenses’’ are any expenses
incurred by the Trust in addition to the Sponsor’s
fee that are not Sponsor-paid expenses. See id. at
61805 n.11.
15 See id. at 61805, 61807.
16 The Exchange does not define this term in the
proposed rule change. Additional information about
the calculation of the Digital Asset Holdings can be
found in the Notice. See id. at 61807.
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11 See
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Exchange’s Core Trading Session (9:30
a.m. to 4:00 p.m., E.T.). The IIV will be
calculated using the same methodology
as the Digital Asset Holdings of the
Trust, specifically by using the prior
day’s closing Digital Asset Holdings per
Share as a base and updating that value
during the NYSE Arca Core Trading
Session to reflect changes in the value
of the Trust’s Digital Asset Holdings
during the trading day.17 In addition,
according to the Exchange, ‘‘each
investor will have access to the current
Digital Asset Holdings of the Trust
through the Trust’s website, as well as
from one or more major market data
vendors.’’ 18
The Trust will issue Shares to
authorized participants from time to
time, but only in one or more Baskets
(each ‘‘Basket’’ being a block of 100
Shares).19 The creation of Baskets will
be made only in exchange for the
delivery to the Trust of the number of
whole and fractional bitcoins
represented by each Basket being
created. The Trust may redeem Shares
from time to time but only in Baskets.
The redemption of Baskets requires the
distribution by the Trust of the number
of bitcoins represented by the Baskets
being redeemed. The redemption of a
Basket will be made only in exchange
for the distribution by the Trust of the
number of whole and fractional bitcoins
represented by each Basket being
redeemed.20
II. Proceedings To Determine Whether
To Approve or Disapprove SR–
NYSEArca–2021–90 and Grounds for
Disapproval under Consideration
The Commission is instituting
proceedings pursuant to Section
19(b)(2)(B) of the Act 21 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.
Pursuant to Section 19(b)(2)(B) of the
Act,22 the Commission is providing
notice of the grounds for disapproval
id. at 61817.
id.
19 See id. at 61815.
20 See id. at 61816.
21 15 U.S.C. 78s(b)(2)(B).
22 Id.
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.’’ 23
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,24 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?
2. The Exchange asserts that ‘‘the
Index represents a novel means to
prevent fraud and manipulation from
impacting a reference price for [b]itcoin
and that it offers protections beyond
those that exist in traditional
commodity markets or equity
markets.’’ 25 Specifically, the Exchange
states that the Index Price is determined
through a process in which trade data is
cleansed and compiled ‘‘in such a
manner as to algorithmically reduce the
impact of anomalistic or manipulative
trading . . . by adjusting the weight of
each data input based on price deviation
relative to the observable set, as well as
recent and long-term trading volume at
each venue relative to the observable
set’’ 26 and that the Index Price only
includes data from executed trades on
Constituent [Platforms] that charge
trading fees to its users ‘‘in order to
attach a real, quantifiable cost to any
manipulation attempts.’’ 27 The
Exchange concludes that, ‘‘[b]y
referencing multiple trading venues and
17 See
18 See
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Fmt 4703
23 15
U.S.C. 78f(b)(5).
Notice, supra note 3.
25 See id. at 61812.
26 See id. at 61808–09.
27 See id. at 61809–10.
24 See
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Federal Register / Vol. 87, No. 28 / Thursday, February 10, 2022 / Notices
weighting them based on trade activity,
. . . the impact of any potential fraud,
manipulation or anomalous trading
activity occurring on any single venue is
reduced.’’ 28 What are commenters’
views of these assertions and
conclusion?
3. The Exchange also asserts that,
although the global spot bitcoin market
‘‘is not inherently resistant to fraud and
manipulation, the Index serves as a
means sufficient to mitigate the impact
of instances of fraud and manipulation
on a reference price for [b]itcoin.’’ 29 Are
the characteristics of the Index that the
Exchange identifies sufficient to support
a determination that the proposal to list
and trade the Shares is designed to
protect investors and the public interest
and is consistent with the other
applicable requirements of Section
6(b)(5) of the Act?
4. The Exchange asserts that the
Sponsor ‘‘conducted a lead/lag analysis
of per minute data comparing the
[b]itcoin futures maker, as represented
by the [Chicago Mercantile Exchange
(‘‘CME’’)] futures market, to the [b]itcoin
spot market, as represented by the
Index’’ and that ‘‘[b]ased on this
analysis, the Sponsor has concluded
that there does not appear to be a
significant lead/lag relationship
between the two instruments for the
period of November 1, 2019 to August
31, 2021.’’ 30 What are commenters’
views on this assertion?
5. The Exchange states that,
‘‘[a]lthough there is no significant lead/
lag relationship’’ between the bitcoin
futures and the bitcoin spot market, ‘‘the
CME futures market represents a large,
surveilled and regulated market.’’ 31 The
Exchange also asserts that ‘‘[g]iven the
significant size of the CME futures
markets . . . there is a reasonable
likelihood that a person attempting to
manipulate the ETP would also have to
trade on that market to successfully
manipulate the ETP, since arbitrage
between the derivative and spot markets
would tend to counter an attempt to
manipulate the spot market alone.’’ 32
What are commenters’ views regarding
these assertions? Do these assertions
provide an appropriate basis for
determining that the proposal is
consistent with the applicable
requirements of Section 6(b)(5) of the
Act? Based on data provided by the
Exchange, do commenters agree that the
CME bitcoin futures market now
represents a regulated market of
28 See
id.
id. at 61818.
30 See id. at 61814.
31 See id.
32 See id. at 61815.
29 See
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Jkt 256001
significant size? 33 What are
commenters’ views on whether there is
a reasonable likelihood that a person
attempting to manipulate the Shares
would also have to trade on CME to
manipulate the Shares?
6. The Exchange states that, if ‘‘the
Commission is open to reviewing and
potentially approving proposals for
[b]itcoin-based ETPs registered under
the [Investment Act of 1940], then it
should take a similar view towards
proposals for [b]itcoin based ETPs
registered under the [Securities Act of
1933], given that both products would
be reliant on [b]itcoin’s underlying price
in the spot markets.’’ 34 The Exchange
further states that ‘‘any potential fraud
or manipulation in the underlying
[bitcoin spot market] would impact both
types of ETP proposals.’’ 35 What are
commenters’ views on such assertions?
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.36
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
proposal should be approved or
disapproved by March 3, 2022. Any
person who wishes to file a rebuttal to
any other person’s submission must file
that rebuttal by March 17, 2022.
Comments may be submitted by any
of the following methods:
33 See
id. at 61814–15.
id. at 61815.
35 See id.
36 Section 19(b)(2) of the Act, as amended by the
Securities Act Amendments of 1975, Pub. L. 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).
34 See
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Fmt 4703
Sfmt 9990
7891
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–2021–90 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–2021–90. 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–2021–90 and
should be submitted by March 3, 2022.
Rebuttal comments should be submitted
by March 17, 2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.37
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022–02781 Filed 2–9–22; 8:45 am]
BILLING CODE 8011–01–P
37 17
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CFR 200.30–3(a)(57).
10FEN1
]]>Agencies
[Federal Register Volume 87, Number 28 (Thursday, February 10, 2022)]
[Notices]
[Pages 7889-7891]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-02781]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94151; File No. SR-NYSEArca-2021-90]
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 Grayscale Bitcoin Trust (BTC)
Under NYSE Arca Rule 8.201-E
February 4, 2022.
On October 19, 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 Grayscale
Bitcoin Trust (BTC) (``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 8, 2021.\3\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 93504 (Nov. 2,
2021), 86 FR 61804 (``Notice''). Comments received on the proposed
rule change are available at: https://www.sec.gov/comments/sr-nysearca-2021-90/srnysearca202190.htm.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 93788, 86 FR 72291
(Dec. 21, 2021). The Commission designated February 6, 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).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\7\ See Notice, supra note 3.
---------------------------------------------------------------------------
The investment objective of the Trust is for the value of the
Shares (based on bitcoin per Share) to reflect the value of the
bitcoins held by the Trust, as determined by reference to the ``Index
Price,'' less the Trust's expenses and other liabilities.\8\ The
``Index Price'' is the U.S. dollar value of a bitcoin as represented by
the ``Index,'' calculated at 4:00 p.m., New York time, on each business
day.\9\ According to the Exchange, the Index Provider develops,
calculates, and publishes the Index on
[[Page 7890]]
a continuous basis using the volume-weighted price at certain bitcoin
spot trading platforms selected by the Index Provider. As of June 30,
2021, the bitcoin spot trading platforms included in the Index were:
Coinbase Pro, Bitstamp, Kraken, and LMAX Digital (``Constituent
Platforms''). The Index applies an algorithm to the 24-hour volume-
weighted average price of bitcoin on the Constituent Platforms
calculated on a per second basis.\10\ To calculate volume weighted
price, the weighting algorithm is applied to the price and volume of
all inputs for the immediately preceding 24-hour period at 4:00 p.m.,
New York time, on the trade date.\11\ The Trust's assets will consist
solely of bitcoins; Incidental Rights; \12\ IR Virtual Currency; \13\
proceeds from the sale of bitcoins, Incidental Rights, and IR Virtual
Currency pending use of such cash for payment of Additional Trust
Expenses \14\ or distribution to the shareholders; and any rights of
the Trust pursuant to any agreements, other than the Trust Agreement,
to which the Trust is a party. Each Share represents a proportional
interest, based on the total number of Shares outstanding, in each of
the Trust's assets as determined in the case of bitcoin by reference to
the Index Price, less the Trust's expenses and other liabilities (which
include accrued but unpaid fees and expenses).\15\
---------------------------------------------------------------------------
\8\ See id. at 61805. Grayscale Investments, LLC (``Sponsor'')
is the sponsor of the Trust and is a wholly-owned subsidiary of
Digital Currency Group, Inc. Delaware Trust Company (``Trustee'') is
the trustee of the Trust, the custodian for the Trust is Coinbase
Custody Trust Company, LLC (``Custodian''), and the distribution and
marketing agent for the Trust is Genesis. The Trust operates
pursuant to a trust agreement (``Trust Agreement'') between the
Sponsor and the Trustee. See id.
\9\ See id. at 61810. The index provider for the Trust is
TradeBlock, Inc. (``Index Provider''). See id. at 61805. While the
Exchange does not name the Index that the Trust would use to value
the bitcoin held by the Trust, the Exchange provides that the value
of the Index, as well as additional information regarding the Index,
may be found at: https://tradeblock.com/markets/index/xbx. See id.
at 61817.
\10\ See id. at 61809.
\11\ See id.
\12\ ``Incidental Rights'' are rights to acquire, or otherwise
establish dominion and control over, any virtual currency or other
asset or right, which rights are incident to the Trust's ownership
of bitcoins and arise without any action of the Trust, or of the
Sponsor or Trustee on behalf of the Trust. See id. at 61805 n.9.
\13\ ``IR Virtual Currency'' is any virtual currency tokens, or
other asset or right, acquired by the Trust through the exercise
(subject to the applicable provisions of the Trust Agreement) of any
Incidental Right. See id. at 61805 n.10.
\14\ ``Additional Trust Expenses'' are any expenses incurred by
the Trust in addition to the Sponsor's fee that are not Sponsor-paid
expenses. See id. at 61805 n.11.
\15\ See id. at 61805, 61807.
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On each business day at 4:00 p.m., New York time, or as soon
thereafter as practicable, the Sponsor will evaluate the bitcoin held
by the Trust and calculate and publish the ``Digital Asset Holdings''
\16\ of the Trust. The Trust's website, as well as one or more major
market data vendors, will provide an intra-day indicative value
(``IIV'') per Share updated every 15 seconds, as calculated by the
Exchange or a third party financial data provider during the Exchange's
Core Trading Session (9:30 a.m. to 4:00 p.m., E.T.). The IIV will be
calculated using the same methodology as the Digital Asset Holdings of
the Trust, specifically by using the prior day's closing Digital Asset
Holdings per Share as a base and updating that value during the NYSE
Arca Core Trading Session to reflect changes in the value of the
Trust's Digital Asset Holdings during the trading day.\17\ In addition,
according to the Exchange, ``each investor will have access to the
current Digital Asset Holdings of the Trust through the Trust's
website, as well as from one or more major market data vendors.'' \18\
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\16\ The Exchange does not define this term in the proposed rule
change. Additional information about the calculation of the Digital
Asset Holdings can be found in the Notice. See id. at 61807.
\17\ See id. at 61817.
\18\ See id.
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The Trust will issue Shares to authorized participants from time to
time, but only in one or more Baskets (each ``Basket'' being a block of
100 Shares).\19\ The creation of Baskets will be made only in exchange
for the delivery to the Trust of the number of whole and fractional
bitcoins represented by each Basket being created. The Trust may redeem
Shares from time to time but only in Baskets. The redemption of Baskets
requires the distribution by the Trust of the number of bitcoins
represented by the Baskets being redeemed. The redemption of a Basket
will be made only in exchange for the distribution by the Trust of the
number of whole and fractional bitcoins represented by each Basket
being redeemed.\20\
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\19\ See id. at 61815.
\20\ See id. at 61816.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEArca-2021-90 and Grounds for Disapproval under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \21\ 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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\21\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\22\ 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.'' \23\
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\22\ Id.
\23\ 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,\24\ 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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\24\ 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?
2. The Exchange asserts that ``the Index represents a novel means
to prevent fraud and manipulation from impacting a reference price for
[b]itcoin and that it offers protections beyond those that exist in
traditional commodity markets or equity markets.'' \25\ Specifically,
the Exchange states that the Index Price is determined through a
process in which trade data is cleansed and compiled ``in such a manner
as to algorithmically reduce the impact of anomalistic or manipulative
trading . . . by adjusting the weight of each data input based on price
deviation relative to the observable set, as well as recent and long-
term trading volume at each venue relative to the observable set'' \26\
and that the Index Price only includes data from executed trades on
Constituent [Platforms] that charge trading fees to its users ``in
order to attach a real, quantifiable cost to any manipulation
attempts.'' \27\ The Exchange concludes that, ``[b]y referencing
multiple trading venues and
[[Page 7891]]
weighting them based on trade activity, . . . the impact of any
potential fraud, manipulation or anomalous trading activity occurring
on any single venue is reduced.'' \28\ What are commenters' views of
these assertions and conclusion?
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\25\ See id. at 61812.
\26\ See id. at 61808-09.
\27\ See id. at 61809-10.
\28\ See id.
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3. The Exchange also asserts that, although the global spot bitcoin
market ``is not inherently resistant to fraud and manipulation, the
Index serves as a means sufficient to mitigate the impact of instances
of fraud and manipulation on a reference price for [b]itcoin.'' \29\
Are the characteristics of the Index that the Exchange identifies
sufficient to support a determination that the proposal to list and
trade the Shares is designed to protect investors and the public
interest and is consistent with the other applicable requirements of
Section 6(b)(5) of the Act?
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\29\ See id. at 61818.
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4. The Exchange asserts that the Sponsor ``conducted a lead/lag
analysis of per minute data comparing the [b]itcoin futures maker, as
represented by the [Chicago Mercantile Exchange (``CME'')] futures
market, to the [b]itcoin spot market, as represented by the Index'' and
that ``[b]ased on this analysis, the Sponsor has concluded that there
does not appear to be a significant lead/lag relationship between the
two instruments for the period of November 1, 2019 to August 31,
2021.'' \30\ What are commenters' views on this assertion?
---------------------------------------------------------------------------
\30\ See id. at 61814.
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5. The Exchange states that, ``[a]lthough there is no significant
lead/lag relationship'' between the bitcoin futures and the bitcoin
spot market, ``the CME futures market represents a large, surveilled
and regulated market.'' \31\ The Exchange also asserts that ``[g]iven
the significant size of the CME futures markets . . . there is a
reasonable likelihood that a person attempting to manipulate the ETP
would also have to trade on that market to successfully manipulate the
ETP, since arbitrage between the derivative and spot markets would tend
to counter an attempt to manipulate the spot market alone.'' \32\ What
are commenters' views regarding these assertions? Do these assertions
provide an appropriate basis for determining that the proposal is
consistent with the applicable requirements of Section 6(b)(5) of the
Act? Based on data provided by the Exchange, do commenters agree that
the CME bitcoin futures market now represents a regulated market of
significant size? \33\ What are commenters' views on whether there is a
reasonable likelihood that a person attempting to manipulate the Shares
would also have to trade on CME to manipulate the Shares?
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\31\ See id.
\32\ See id. at 61815.
\33\ See id. at 61814-15.
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6. The Exchange states that, if ``the Commission is open to
reviewing and potentially approving proposals for [b]itcoin-based ETPs
registered under the [Investment Act of 1940], then it should take a
similar view towards proposals for [b]itcoin based ETPs registered
under the [Securities Act of 1933], given that both products would be
reliant on [b]itcoin's underlying price in the spot markets.'' \34\ The
Exchange further states that ``any potential fraud or manipulation in
the underlying [bitcoin spot market] would impact both types of ETP
proposals.'' \35\ What are commenters' views on such assertions?
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\34\ See id. at 61815.
\35\ See id.
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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.\36\
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\36\ Section 19(b)(2) of the Act, as amended by the Securities
Act Amendments of 1975, Pub. L. 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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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposal should be approved or
disapproved by March 3, 2022. Any person who wishes to file a rebuttal
to any other person's submission must file that rebuttal by March 17,
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-2021-90 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-2021-90. 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-2021-90 and should be submitted
by March 3, 2022. Rebuttal comments should be submitted by March 17,
2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\37\
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\37\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-02781 Filed 2-9-22; 8:45 am]
BILLING CODE 8011-01-P
