Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To List and Trade Shares of the WisdomTree Bitcoin Trust Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares, 8318-8335 [2022-03019]
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Federal Register / Vol. 87, No. 30 / Monday, February 14, 2022 / Notices
market share percentages for granted’
because ‘no exchange possesses a
monopoly, regulatory or otherwise, in
the execution of order flow from broker
dealers’ . . . .’’. Accordingly, the
Exchange does not believe its proposed
fee change imposes any burden on
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 12 and paragraph (f) of Rule
19b–4 13 thereunder. At any time within
60 days of the filing of the 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 will institute proceedings
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:
jspears on DSK121TN23PROD with NOTICES1
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–
CboeEDGX–2022–006 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–CboeEDGX–2022–006. 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–CboeEDGX–2022–006 and
should be submitted on or before March
7, 2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022–03021 Filed 2–11–22; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–94184; File No. SR–
CboeBZX–2022–006]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing of
a Proposed Rule Change To List and
Trade Shares of the WisdomTree
Bitcoin Trust Under BZX Rule
14.11(e)(4), Commodity-Based Trust
Shares
February 8, 2022.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on January
14 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
12 15
U.S.C. 78s(b)(3)(A).
13 17 CFR 240.19b–4(f).
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25, 2022, Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) filed with the
Securities and Exchange Commission
(the ‘‘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 rule change to
list and trade shares of the WisdomTree
Bitcoin Trust (the ‘‘Trust’’),3 under BZX
Rule 14.11(e)(4), Commodity-Based
Trust Shares. The shares of the Trust are
referred to herein as the ‘‘Shares.’’
The text of the proposed rule change
is available on the Exchange’s website
(https://markets.cboe.com/us/equities/
regulation/rule_filings/bzx/), at the
Exchange’s Office of the Secretary, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to list and
trade the Shares under BZX Rule
14.11(e)(4),4 which governs the listing
and trading of Commodity-Based Trust
Shares on the Exchange.5 6 WisdomTree
3 The Trust was formed as a Delaware statutory
trust on March 8, 2021 and is operated as a grantor
trust for U.S. federal tax purposes. The Trust has
no fixed termination date.
4 The Commission approved BZX Rule 14.11(e)(4)
in Securities Exchange Act Release No. 65225
(August 30, 2011), 76 FR 55148 (September 6, 2011)
(SR–BATS–2011–018).
5 All statements and representations made in this
filing regarding (a) the description of the portfolio,
(b) limitations on portfolio holdings or reference
assets, or (c) the applicability of Exchange rules and
surveillance procedures shall constitute continued
listing requirements for listing the Shares on the
Exchange.
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Digital Commodity Services, LLC is the
sponsor of the Trust (the ‘‘Sponsor’’).
The Shares will be registered with the
Commission by means of the Trust’s
registration statement on Form S–1 (the
‘‘Registration Statement’’).7 As further
discussed below, the Commission has
historically approved or disapproved
exchange filings to list and trade series
of Trust Issued Receipts, including spotbased Commodity-Based Trust Shares,
on the basis of whether the listing
exchange has in place a comprehensive
surveillance sharing agreement with a
regulated market of significant size
related to the underlying commodity.8 A
survey of previously approved series of
Commodity-Based Trust Shares and
Currency Trust Shares makes clear that
the spot markets for commodities and
currencies held in such ETPs are
generally unregulated. In fact, the
Commission specifically noted in the
Winklevoss Order that the first gold ETP
approval order, which was also the first
commodity-trust ETP, ‘‘was based on an
assumption that the currency market
and the spot gold market were largely
unregulated.’’ 9 This makes clear that
the applicable standard is not whether
the underlying commodity market itself
is regulated. Further to this point, prior
orders have also emphasized that in
every prior approval order for
Commodity-Based Trust Shares there
was a regulated derivatives market of
significant size, generally a Commodity
The Exchange notes that a different proposal to
list and trade shares of the WisdomTree Bitcoin
Trust was disapproved by the Commission on
December 1, 2021. See Exchange Act Release No.
93700 (December 1, 2021), 86 FR 69322 (December
7, 2021). The Sponsor has subsequently submitted
an amended Registration Statement that includes a
number of additional voluntary disclosures and
shareholder protections that the Sponsor intends to
undertake. This proposal is also significantly
different than the previously disapproved proposal
in that it includes additional information related to
such voluntary disclosures and protections,
additional information related to Bitcoin Futures
ETFs, as defined below, and additional statistical
and statutory analysis that seeks to respond to the
concerns of the Commission.
7 The Trust has filed an amended registration
statement on Form S–1 under the Securities Act of
1933, dated December 8, 2021 (File No. 333–
254134) (‘‘Registration Statement’’). The description
of the Trust and the Shares contained herein are
based on the Registration Statement. The
Registration Statement for the Trust is not yet
effective and the Shares will not trade on the
Exchange until such time that the Registration
Statement is effective.
8 See Securities Exchange Act Release No. 83723
(July 26, 2018), 83 FR 37579 (August 1, 2018). This
proposal was subsequently disapproved by the
Commission. See Securities Exchange Act Release
No. 83723 (July 26, 2018), 83 FR 37579 (August 1,
2018) (the ‘‘Winklevoss Order’’).
9 See Winklevoss Order at 37592 and Exchange
Act Release No. 50603 (Oct. 28, 2004), 69 FR 64614
(Nov. 5, 2004) (SR–NYSE–2004–22) (order
approving the listing and trading of streetTRACKS
Gold Shares) (the ‘‘First Gold Approval Order’’).
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Futures Trading Commission (the
‘‘CFTC’’) regulated futures market.10
10 See Winklevoss Order at 37592. See also the
First Gold Approval Order at 64618–19; iShares
COMEX Gold Trust, Exchange Act Release No.
51058 (Jan. 19, 2005), 70 FR 3749, 3751, 3754–55
(Jan. 26, 2005) (SR–Amex–2004–38); iShares Silver
Trust, Exchange Act Release No. 53521 (Mar. 20,
2006), 71 FR 14967, 14968, 14973–74 (Mar. 24,
2006) (SR–Amex–2005–072); ETFS Gold Trust,
Exchange Act Release No. 59895 (May 8, 2009), 74
FR 22993, 22994–95, 22998, 23000 (May 15, 2009)
(SR–NYSEArca–2009–40); ETFS Silver Trust,
Exchange Act Release No. 59781 (Apr. 17, 2009), 74
FR 18771, 18772, 18775–77 (Apr. 24, 2009) (SR–
NYSEArca–2009–28); ETFS Palladium Trust,
Exchange Act Release No. 61220 (Dec. 22, 2009), 74
FR 68895, 68896 (Dec. 29, 2009) (SR–NYSEArca–
2009–94) (notice of proposed rule change included
NYSE Arca’s representation that ‘‘[t]he most
significant palladium futures exchanges are the
NYMEX and the Tokyo Commodity Exchange,’’ that
‘‘NYMEX is the largest exchange in the world for
trading precious metals futures and options,’’ and
that NYSE Arca ‘‘may obtain trading information
via the Intermarket Surveillance Group,’’ of which
NYMEX is a member, Exchange Act Release No.
60971 (Nov. 9, 2009), 74 FR 59283, 59285–86,
59291 (Nov. 17, 2009)); ETFS Platinum Trust,
Exchange Act Release No. 61219 (Dec. 22, 2009), 74
FR 68886, 68887–88 (Dec. 29, 2009) (SR–
NYSEArca–2009–95) (notice of proposed rule
change included NYSE Arca’s representation that
‘‘[t]he most significant platinum futures exchanges
are the NYMEX and the Tokyo Commodity
Exchange,’’ that ‘‘NYMEX is the largest exchange in
the world for trading precious metals futures and
options,’’ and that NYSE Arca ‘‘may obtain trading
information via the Intermarket Surveillance
Group,’’ of which NYMEX is a member, Exchange
Act Release No. 60970 (Nov. 9, 2009), 74 FR 59319,
59321, 59327 (Nov. 17, 2009)); Sprott Physical Gold
Trust, Exchange Act Release No. 61496 (Feb. 4,
2010), 75 FR 6758, 6760 (Feb. 10, 2010) (SR–
NYSEArca–2009–113) (notice of proposed rule
change included NYSE Arca’s representation that
the COMEX is one of the ‘‘major world gold
markets,’’ that NYSE Arca ‘‘may obtain trading
information via the Intermarket Surveillance
Group,’’ and that NYMEX, of which COMEX is a
division, is a member of the Intermarket
Surveillance Group, Exchange Act Release No.
61236 (Dec. 23, 2009), 75 FR 170, 171, 174 (Jan. 4,
2010)); Sprott Physical Silver Trust, Exchange Act
Release No. 63043 (Oct. 5, 2010), 75 FR 62615,
62616, 62619, 62621 (Oct. 12, 2010) (SR–
NYSEArca–2010–84); ETFS Precious Metals Basket
Trust, Exchange Act Release No. 62692 (Aug. 11,
2010), 75 FR 50789, 50790 (Aug. 17, 2010) (SR–
NYSEArca–2010–56) (notice of proposed rule
change included NYSE Arca’s representation that
‘‘the most significant gold, silver, platinum and
palladium futures exchanges are the COMEX and
the TOCOM’’ and that NYSE Arca ‘‘may obtain
trading information via the Intermarket
Surveillance Group,’’ of which COMEX is a
member, Exchange Act Release No. 62402 (Jun. 29,
2010), 75 FR 39292, 39295, 39298 (July 8, 2010));
ETFS White Metals Basket Trust, Exchange Act
Release No. 62875 (Sept. 9, 2010), 75 FR 56156,
56158 (Sept. 15, 2010) (SR–NYSEArca–2010–71)
(notice of proposed rule change included NYSE
Arca’s representation that ‘‘the most significant
silver, platinum and palladium futures exchanges
are the COMEX and the TOCOM’’ and that NYSE
Arca ‘‘may obtain trading information via the
Intermarket Surveillance Group,’’ of which COMEX
is a member, Exchange Act Release No. 62620 (July
30, 2010), 75 FR 47655, 47657, 47660 (Aug. 6,
2010)); ETFS Asian Gold Trust, Exchange Act
Release No. 63464 (Dec. 8, 2010), 75 FR 77926,
77928 (Dec. 14, 2010) (SR–NYSEArca–2010–95)
(notice of proposed rule change included NYSE
Arca’s representation that ‘‘the most significant gold
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8319
Despite the lack of regulation of the
underlying spot commodity and
currency markets, the Commission
approved series of Currency and
Commodity-Based Trust Shares,
including those that held gold, silver,
futures exchanges are the COMEX and the Tokyo
Commodity Exchange,’’ that ‘‘COMEX is the largest
exchange in the world for trading precious metals
futures and options,’’ and that NYSE Arca ‘‘may
obtain trading information via the Intermarket
Surveillance Group,’’ of which COMEX is a
member, Exchange Act Release No. 63267 (Nov. 8,
2010), 75 FR 69494, 69496, 69500–01 (Nov. 12,
2010)); Sprott Physical Platinum and Palladium
Trust, Exchange Act Release No. 68430 (Dec. 13,
2012), 77 FR 75239, 75240–41 (Dec. 19, 2012) (SR–
NYSEArca–2012–111) (notice of proposed rule
change included NYSE Arca’s representation that
‘‘[f]utures on platinum and palladium are traded on
two major exchanges: The New York Mercantile
Exchange ... and Tokyo Commodities Exchange’’
and that NYSE Arca ‘‘may obtain trading
information via the Intermarket Surveillance
Group,’’ of which COMEX is a member, Exchange
Act Release No. 68101 (Oct. 24, 2012), 77 FR 65732,
65733, 65739 (Oct. 30, 2012)); APMEX Physical—
1 oz. Gold Redeemable Trust, Exchange Act Release
No. 66930 (May 7, 2012), 77 FR 27817, 27818 (May
11, 2012) (SR–NYSEArca–2012–18) (notice of
proposed rule change included NYSE Arca’s
representation that NYSE Arca ‘‘may obtain trading
information via the Intermarket Surveillance
Group,’’ of which COMEX is a member, and that
gold futures are traded on COMEX and the Tokyo
Commodity Exchange, with a cross-reference to the
proposed rule change to list and trade shares of the
ETFS Gold Trust, in which NYSE Arca represented
that COMEX is one of the ‘‘major world gold
markets,’’ Exchange Act Release No. 66627 (Mar.
20, 2012), 77 FR 17539, 17542–43, 17547 (Mar. 26,
2012)); JPM XF Physical Copper Trust, Exchange
Act Release No. 68440 (Dec. 14, 2012), 77 FR 75468,
75469–70, 75472, 75485–86 (Dec. 20, 2012) (SR–
NYSEArca–2012–28); iShares Copper Trust,
Exchange Act Release No. 68973 (Feb. 22, 2013), 78
FR 13726, 13727, 13729–30, 13739–40 (Feb. 28,
2013) (SR–NYSEArca–2012–66); First Trust Gold
Trust, Exchange Act Release No. 70195 (Aug. 14,
2013), 78 FR 51239, 51240 (Aug. 20, 2013) (SR–
NYSEArca–2013–61) (notice of proposed rule
change included NYSE Arca’s representation that
FINRA, on behalf of the exchange, may obtain
trading information regarding gold futures and
options on gold futures from members of the
Intermarket Surveillance Group, including COMEX,
or from markets ‘‘with which [NYSE Arca] has in
place a comprehensive surveillance sharing
agreement,’’ and that gold futures are traded on
COMEX and the Tokyo Commodity Exchange, with
a cross-reference to the proposed rule change to list
and trade shares of the ETFS Gold Trust, in which
NYSE Arca represented that COMEX is one of the
‘‘major world gold markets,’’ Exchange Act Release
No. 69847 (June 25, 2013), 78 FR 39399, 39400,
39405 (July 1, 2013)); Merk Gold Trust, Exchange
Act Release No. 71378 (Jan. 23, 2014), 79 FR 4786,
4786–87 (Jan. 29, 2014) (SR–NYSEArca–2013–137)
(notice of proposed rule change included NYSE
Arca’s representation that ‘‘COMEX is the largest
gold futures and options exchange’’ and that NYSE
Arca ‘‘may obtain trading information via the
Intermarket Surveillance Group,’’ including with
respect to transactions occurring on COMEX
pursuant to CME and NYMEX’s membership, or
from exchanges ‘‘with which [NYSE Arca] has in
place a comprehensive surveillance sharing
agreement,’’ Exchange Act Release No. 71038 (Dec.
11, 2013), 78 FR 76367, 76369, 76374 (Dec. 17,
2013)); Long Dollar Gold Trust, Exchange Act
Release No. 79518 (Dec. 9, 2016), 81 FR 90876,
90881, 90886, 90888 (Dec. 15, 2016) (SR–
NYSEArca–2016–84).
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platinum, palladium, copper, and other
commodities and currencies, because it
determined that the futures markets for
these commodities and currencies
represented regulated markets of
significant size and that the listing
exchange had a surveillance sharing
agreement in place with that market.11
The Exchange acknowledges that
largely unregulated currency and spot
commodity markets do not provide the
same protections as the markets that are
subject to the Commission’s oversight.
However, the Commission has
consistently looked to surveillance
sharing agreements with an underlying
futures market to determine whether
ETPs holding currency or commodities
were consistent with the Act, as
established above. As such, the
Commission’s regulated market of
significant size test does not require that
the spot bitcoin market be regulated to
approve this proposal. To the contrary,
precedent makes clear that any
requirement that the spot bitcoin market
be a ‘‘regulated market’’ prior to
approval would be incongruous with all
prior spot commodity and currency
approval orders. With this in mind, the
CME Bitcoin Futures market is the
proper market for the Commission to
consider in determining whether this
proposal is consistent with the Act. The
Exchange has a comprehensive
surveillance sharing agreement in place
with CME, which operates a bitcoin
futures market that, as established by
the included analysis below, represents
a regulated market of significant size
related to the underlying commodity
(bitcoin) to be held by the Trust.
Therefore, both the Exchange and the
Sponsor believe that the CME Bitcoin
Futures market satisfies the standard
that the Commission has applied to all
previously approved series of
Commodity-Based Trust Shares and that
this proposal should be approved.
Background
Bitcoin is a digital asset based on the
decentralized, open source protocol of
the peer-to-peer computer network
launched in 2009 that governs the
creation, movement, and ownership of
bitcoin and hosts the public ledger, or
‘‘blockchain,’’ on which all bitcoin
transactions are recorded (the ‘‘Bitcoin
Network’’ or ‘‘Bitcoin’’). The
decentralized nature of the Bitcoin
Network allows parties to transact
directly with one another based on
cryptographic proof instead of relying
on a trusted third party. The protocol
also lays out the rate of issuance of new
bitcoin within the Bitcoin Network, a
11 Id.
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rate that is reduced by half
approximately every four years with an
eventual hard cap of 21 million. It’s
generally understood that the
combination of these two features—a
systemic hard cap of 21 million bitcoin
and the ability to transact trustlessly
with anyone connected to the Bitcoin
Network—gives bitcoin its value.12
The first rule filing proposing to list
an exchange-traded product to provide
exposure to bitcoin in the U.S. was
submitted by the Exchange on June 30,
2016.13 At that time, blockchain
technology, and digital assets that
utilized it, were relatively new to the
broader public. The market cap of all
bitcoin in existence at that time was
approximately $10 billion. No registered
offering of digital asset securities or
shares in an investment vehicle with
exposure to bitcoin or any other
cryptocurrency had yet been conducted,
and the regulated infrastructure for
conducting a digital asset securities
offering had not begun to develop.14
Similarly, regulated U.S. bitcoin futures
contracts did not exist. The CFTC had
determined that bitcoin is a
commodity,15 but had not engaged in
significant enforcement actions in the
space. The New York Department of
Financial Services (‘‘NYDFS’’) adopted
its final BitLicense regulatory
framework in 2015, but had only
approved four entities to engage in
activities relating to virtual currencies
(whether through granting a BitLicense
or a limited-purpose trust charter) as of
June 30, 2016.16 While the first over-the12 For additional information about bitcoin and
the Bitcoin Network, see https://bitcoin.org/en/
getting-started; https://www.wisdomtree.com/
strategies/crypto; https://
www.fidelitydigitalassets.com/articles/addressingbitcoin-criticisms; and https://www.vaneck.com/
education/investment-ideas/investing-in-bitcoinand-digital-assets/.
13 See Winklevoss Order.
14 Digital assets that are securities under U.S. law
are referred to throughout this proposal as ‘‘digital
asset securities.’’ All other digital assets, including
bitcoin, are referred to interchangeably as
‘‘cryptocurrencies’’ or ‘‘virtual currencies.’’ The
term ‘‘digital assets’’ refers to all digital assets,
including both digital asset securities and
cryptocurrencies, together.
15 See ‘‘In the Matter of Coinflip, Inc.’’
(‘‘Coinflip’’) (CFTC Docket 15–29 (September 17,
2015)) (order instituting proceedings pursuant to
Sections 6(c) and 6(d) of the CEA, making findings
and imposing remedial sanctions), in which the
CFTC stated:
‘‘Section 1a(9) of the CEA defines ‘commodity’ to
include, among other things, ‘all services, rights,
and interests in which contracts for future delivery
are presently or in the future dealt in.’ 7 U.S.C.
1a(9). The definition of a ‘commodity’ is broad. See,
e.g., Board of Trade of City of Chicago v. SEC, 677
F. 2d 1137, 1142 (7th Cir. 1982). Bitcoin and other
virtual currencies are encompassed in the definition
and properly defined as commodities.’’
16 A list of virtual currency businesses that are
entities regulated by the NYDFS is available on the
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counter bitcoin fund launched in 2013,
public trading was limited and the fund
had only $60 million in assets.17 There
were very few, if any, traditional
financial institutions engaged in the
space, whether through investment or
providing services to digital asset
companies. In January 2018, the Staff of
the Commission noted in a letter to the
Investment Company Institute and
SIFMA that it was not aware, at that
time, of a single custodian providing
fund custodial services for digital
assets.18
Fast forward to the fourth quarter of
2021 and the digital assets financial
ecosystem, including bitcoin, has
progressed significantly. The
development of a regulated market for
digital asset securities has significantly
evolved, with market participants
having conducted registered public
offerings of both digital asset
securities 19 and shares in investment
vehicles holding bitcoin futures.20
Additionally, licensed and regulated
service providers have emerged to
provide fund custodial services for
digital assets, among other services. For
example, in May 2021, the Staff of the
Commission released a statement
permitting open-end mutual funds to
invest in cash-settled bitcoin futures; in
December 2020, the Commission
adopted a conditional no-action
position permitting certain special
purpose broker-dealers to custody
digital asset securities under Rule 15c3–
3 under the Exchange Act (the ‘‘Custody
Statement’’); 21 in September 2020, the
Staff of the Commission released a noNYDFS website. See https://www.dfs.ny.gov/apps_
and_licensing/virtual_currency_businesses/
regulated_entities.
17 Data as of March 31, 2016 according to publicly
available filings. See Bitcoin Investment Trust Form
S–1, dated May 27, 2016, available: https://
www.sec.gov/Archives/edgar/data/1588489/
000095012316017801/filename1.htm.
18 See letter from Dalia Blass, Director, Division
of Investment Management, U.S. Securities and
Exchange Commission to Paul Schott Stevens,
President & CEO, Investment Company Institute
and Timothy W. Cameron, Asset Management
Group—Head, Securities Industry and Financial
Markets Association (January 18, 2018), available at
https://www.sec.gov/divisions/investment/
noaction/2018/cryptocurrency-011818.htm.
19 See Prospectus supplement filed pursuant to
Rule 424(b)(1) for INX Tokens (Registration No.
333–233363), available at: https://www.sec.gov/
Archives/edgar/data/1725882/
000121390020023202/ea125858-424b1_
inxlimited.htm.
20 See Prospectus filed by Stone Ridge Trust VI
on behalf of NYDIG Bitcoin Strategy Fund
Registration, available at: https://www.sec.gov/
Archives/edgar/data/1764894/
000119312519309942/d693146d497.htm.
21 See Securities Exchange Act Release No. 90788,
86 FR 11627 (February 26, 2021) (File Number S7–
25–20) (Custody of Digital Asset Securities by
Special Purpose Broker-Dealers).
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action letter permitting certain brokerdealers to operate a non-custodial
Alternative Trading System (‘‘ATS’’) for
digital asset securities, subject to
specified conditions; 22 and in October
2019, the Staff of the Commission
granted temporary relief from the
clearing agency registration requirement
to an entity seeking to establish a
securities clearance and settlement
system based on distributed ledger
technology,23 and multiple transfer
agents who provide services for digital
asset securities registered with the
Commission.24
Outside the Commission’s purview,
the regulatory landscape has changed
significantly since 2016, and
cryptocurrency markets have grown and
evolved as well. The market for bitcoin
is approximately 100 times larger, with
a market cap of over $1 trillion.25
According to the CME Bitcoin Futures
Report, from October 25, 2021 through
November 19, 2021, CFTC regulated
bitcoin futures represented
approximately $2.9 billion in notional
trading volume on Chicago Mercantile
Exchange (‘‘CME’’) (‘‘CME Bitcoin
Futures’’) on a daily basis and notional
volume was never below $1.2 billion
per day.26 Open interest was over $4
billion for the entirety of the period and
at one point reached $5.5 billion. The
CFTC has exercised its regulatory
jurisdiction in bringing a number of
enforcement actions related to bitcoin
and against trading platforms that offer
22 See letter from Elizabeth Baird, Deputy
Director, Division of Trading and Markets, U.S.
Securities and Exchange Commission to Kris
Dailey, Vice President, Risk Oversight &
Operational Regulation, Financial Industry
Regulatory Authority (September 25, 2020),
available at: https://www.sec.gov/divisions/
marketreg/mr-noaction/2020/finra-ats-role-insettlement-of-digital-asset-security-trades09252020.pdf.
23 See letter from Jeffrey S. Mooney, Associate
Director, Division of Trading and Markets, U.S.
Securities and Exchange Commission to Charles G.
Cascarilla & Daniel M. Burstein, Paxos Trust
Company, LLC (October 28, 2019), available at:
https://www.sec.gov/divisions/marketreg/mrnoaction/2019/paxos-trust-company-10281917a.pdf.
24 See, e.g., Form TA–1/A filed by Securrency
Transfers, Inc. (CIK: 0001846640) on August 13,
2021, available at https://www.sec.gov/Archives/
edgar/data/0001846640/000184664021000006/
xslFTA1X01/primary_doc.xml; and Form TA–1/A
filed by Tokensoft Transfer Agent LLC (CIK:
0001794142) on January 8, 2021, available at:
https://www.sec.gov/Archives/edgar/data/1794142/
000179414219000001/xslFTA1X01/primary_
doc.xml.
25 As of December 1, 2021, the total market cap
of all bitcoin in circulation was approximately
$1.08 trillion.
26 Data sourced from the CME Bitcoin Futures
Report: 19 Nov, 2021, available at: https://
www.cmegroup.com/ftp/bitcoinfutures/Bitcoin_
Futures_Liquidity_Report.pdf.
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cryptocurrency trading.27 The U.S.
Office of the Comptroller of the
Currency (the ‘‘OCC’’) has made clear
that federally-chartered banks are able
to provide custody services for
cryptocurrencies and other digital
assets 28 and major U.S. banks that
currently serve as asset custodians for
investment companies registered under
the Investment Company Act of 1940, as
amended (‘‘1940 Act’’), are now serving,
or have expressed an intention of
serving, as bitcoin custodians.29 One
such bank, U.S. Bank, N.A., will be
serving as the custodian of the Trust
(the ‘‘Custodian’’). The OCC has also
recently granted conditional approval of
two charter conversions by statechartered trust companies to national
banks, both of which provide
cryptocurrency custody services.30
NYDFS has granted no fewer than
twenty-five BitLicenses, including to
established public payment companies
like PayPal Holdings, Inc. and Square,
Inc., and limited purpose trust charters
to entities providing cryptocurrency
custody services. The U.S. Treasury
Financial Crimes Enforcement Network
(‘‘FinCEN’’) has released extensive
guidance regarding the applicability of
the Bank Secrecy Act (‘‘BSA’’) and
implementing regulations to virtual
currency businesses,31 and has
proposed rules imposing requirements
on entities subject to the BSA that are
specific to the technological context of
27 The CFTC’s annual report for Fiscal Year 2020
(which ended on September 30, 2020) noted that
the CFTC ‘‘continued to aggressively prosecute
misconduct involving digital assets that fit within
the CEA’s definition of ‘‘commodity’’ and ‘‘brought
a record setting seven cases involving digital
assets.’’ See CFTC FY2020 Division of Enforcement
Annual Report, available at: https://www.cftc.gov/
media/5321/DOE_FY2020_AnnualReport_120120/
download. Additionally, the CFTC filed on October
1, 2020, a civil enforcement action against the
owner/operators of the BitMEX trading platform,
which was one of the largest bitcoin derivative
exchanges. See CFTC Release No. 8270–20 (October
1, 2020) available at: https://www.cftc.gov/
PressRoom/PressReleases/8270-20.
28 See OCC News Release 2021–2 (January 4,
2021) available at: https://www.occ.gov/newsissuances/news-releases/2021/nr-occ-2021-2.html.
29 See U.S. Bank Announces New Cryptocurrenty
Custodian Services for Institutional Investment
Managers (October 5, 2021) available at: https://
ir.usbank.com/news-releases/news-release-details/
us-bank-announces-new-cryptocurrency-custodyservices.
30 See OCC News Release 2021–6 (January 13,
2021) available at: https://www.occ.gov/newsissuances/news-releases/2021/nr-occ-2021-6.html
and OCC News Release 2021–19 (February 5, 2021)
available at: https://www.occ.gov/news-issuances/
news-releases/2021/nr-occ-2021-19.html.
31 See FinCEN Guidance FIN–2019–G001 (May 9,
2019) (Application of FinCEN’s Regulations to
Certain Business Models Involving Convertible
Virtual Currencies) available at: https://
www.fincen.gov/sites/default/files/2019-05/
FinCEN%20Guidance%20CVC%20FINAL
%20508.pdf.
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virtual currencies.32 In addition, the
Treasury’s Office of Foreign Assets
Control (‘‘OFAC’’) has brought
enforcement actions over apparent
violations of the sanctions laws in
connection with the provision of wallet
management services for digital assets.33
In addition to the regulatory
developments laid out above, more
traditional financial market participants
have embraced and continue to embrace
cryptocurrency: Large insurance
companies,34 asset managers,35
university endowments,36 pension
funds,37 and even historically bitcoin
skeptical fund managers 38 are allocating
to bitcoin. The largest over-the-counter
bitcoin fund previously filed a Form 10
registration statement, which the Staff of
the Commission reviewed and which
took effect automatically, and is now a
32 See U.S. Department of the Treasury Press
Release: ‘‘The Financial Crimes Enforcement
Network Proposes Rule Aimed at Closing AntiMoney Laundering Regulatory Gaps for Certain
Convertible Virtual Currency and Digital Asset
Transactions’’ (December 18, 2020), available at:
https://home.treasury.gov/news/press-releases/
sm1216.
33 See U.S. Department of the Treasury
Enforcement Release: ‘‘OFAC Enters Into $98,830
Settlement with BitGo, Inc. for Apparent Violations
of Multiple Sanctions Programs Related to Digital
Currency Transactions’’ (December 30, 2020)
available at: https://home.treasury.gov/system/files/
126/20201230_bitgo.pdf.
34 On December 10, 2020, Massachusetts Mutual
Life Insurance Company (MassMutual) announced
that it had purchased $100 million in bitcoin for its
general investment account. See MassMutual Press
Release ‘‘Institutional Bitcoin provider NYDIG
announces minority stake purchase by
MassMutual’’ (December 10, 2020) available at:
https://www.massmutual.com/about-us/news-andpress-releases/press-releases/2020/12/institutionalbitcoin-provider-nydig-announces-minority-stakepurchase-by-massmutual.
35 See e.g., ‘‘BlackRock’s Rick Rieder says the
world’s largest asset manager has ‘started to dabble’
in bitcoin’’ (February 17, 2021) available at: https://
www.cnbc.com/2021/02/17/blackrock-has-startedto-dabble-in-bitcoin-says-rick-rieder.html and
‘‘Guggenheim’s Scott Minerd Says Bitcoin Should
Be Worth $400,000’’ (December 16, 2020) available
at: https://www.bloomberg.com/news/articles/202012-16/guggenheim-s-scott-minerd-says-bitcoinshould-be-worth-400-000.
36 See e.g., ‘‘Harvard and Yale Endowments
Among Those Reportedly Buying Crypto’’ (January
25, 2021) available at: https://www.bloomberg.com/
news/articles/2021-01-26/harvard-and-yaleendowments-among-those-reportedly-buyingcrypto.
37 See e.g., ‘‘Virginia Police Department Reveals
Why its Pension Fund is Betting on Bitcoin’’
(February 14, 2019) available at: https://
finance.yahoo.com/news/virginia-policedepartment-reveals-why-194558505.html.
38 See e.g., ‘‘Bridgewater: Our Thoughts on
Bitcoin’’ (January 28, 2021) available at: https://
www.bridgewater.com/research-and-insights/ourthoughts-on-bitcoin and ‘‘Paul Tudor Jones says he
likes bitcoin even more now, rally still in the ‘first
inning’ ’’ (October 22, 2020) available at: https://
www.cnbc.com/2020/10/22/-paul-tudor-jones-sayshe-likes-bitcoin-even-more-now-rally-still-in-thefirst-inning.html.
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reporting company.39 Established
companies like Tesla, Inc.,40
MicroStrategy Incorporated,41 and
Square, Inc.,42 among others, have
recently announced substantial
investments in bitcoin in amounts as
large as 43,200 BTC,43 worth around
$2.5 billion (Tesla) valued at a BTCUSD
price of $60,000 and 121,043 BTC worth
$7.2 billion (MicroStrategy). The
foregoing examples demonstrate that
bitcoin has gained mainstream usage
and recognition.
Despite these developments, access
for U.S. retail investors to gain exposure
to bitcoin via a transparent and U.S.
regulated, U.S. exchange-traded vehicle
remains limited. Instead current options
include: (i) Paying a potentially high
premium (and high management fees) to
buy over-the-counter bitcoin funds
(‘‘OTC Bitcoin Funds’’), to the
advantage of more sophisticated
investors that are able to create shares
at net asset value (‘‘NAV’’) directly with
the issuing trust; 44 (ii) facing the
39 See Letter from Division of Corporation
Finance, Office of Real Estate & Construction to
Barry E. Silbert, Chief Executive Officer, Grayscale
Bitcoin Trust (January 31, 2020) https://
www.sec.gov/Archives/edgar/data/1588489/
000000000020000953/filename1.pdf.
40 See Form 10–K submitted by Tesla, Inc. for the
fiscal year ended December 31, 2020 at 23: https://
www.sec.gov/ix?doc=/Archives/edgar/data/
1318605/000156459021004599/tsla-10k_
20201231.htm.
41 See Form 10–Q submitted by MicroStrategy
Incorporated for the quarterly period ended
September 30, 2020 at 8: https://www.sec.gov/
ix?doc=/Archives/edgar/data/1050446/0001564590
20047995/mstr-10q_20200930.htm.
42 See Form 10–Q submitted by Square, Inc. for
the quarterly period ended September 30, 2020 at
51: https://www.sec.gov/ix?doc=/Archives/edgar/
data/1512673/000151267320000012/sq20200930.htm.
43 Amount obtained from https://
bitcointreasuries.net as of December 3, 2021.
44 The largest OTC Bitcoin Fund has grown its
AUM from approximately $2.6 billion on February
26, 2020, the date on which the Commission issued
the disapproval order for the United States Bitcoin
and Treasury Investment Trust, to $37.1 billion on
December 1, 2021, according to Grayscale’s website.
See Securities Exchange Act Release No. 88284
(February 26, 2020), 85 FR 12595 (March 3, 2020)
(SR–NYSEArca–2019–39) (the ‘‘Wilshire Phoenix
Disapproval’’). While the price of one bitcoin has
increased approximately 690% in the intervening
period, the total AUM has increased by
approximately 1540%, indicating that the increase
in AUM was created beyond just price appreciation
in bitcoin. The premium and discount for OTC
Bitcoin Funds is known to move rapidly. For
example, over the period of 12/21/20 to 1/21/20, the
premium for the largest OTC Bitcoin Fund went
from 40.18% to 2.79%. While the price of bitcoin
appreciated significantly during this period and
NAV per share increased by 41.25%, the price per
share increased by only 3.58%. This means that
investors are buying shares of a fund that
experiences significant volatility in its premium
and discount outside of the fluctuations in price of
the underlying asset. Even operating within the
normal premium and discount range, it’s possible
for an investor to buy shares of an OTC Bitcoin
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technical risk, complexity and generally
high fees associated with buying spot
bitcoin; (iii) purchasing shares of
operating companies that they believe
will provide proxy exposure to bitcoin
with limited disclosure about the
associated risks; 45 or (iv) through the
purchase of CME Bitcoin Futures ETFs,
which represent a sub-optimal structure
for long-term investors that will cost
them collectively tens of millions of
dollars every year, as further discussed
below. Meanwhile, investors in many
Fund only to have those shares quickly lose 10%
or more in dollar value excluding any movement of
the price of bitcoin. That is to say—the price of
bitcoin could have stayed exactly the same from
market close on one day to market open the next,
yet the value of the shares held by the investor
decreased only because of the fluctuation of the
premium. As more investment vehicles, including
mutual funds and ETFs, seek to gain exposure to
bitcoin, the easiest option for a buy and hold
strategy for such vehicles is often an OTC Bitcoin
Fund, meaning that even investors that do not
directly buy OTC Bitcoin Funds can be
disadvantaged by extreme premiums (or discounts)
and premium volatility. Trading at a premium (or
a discount) is not unique to OTC Bitcoin Funds and
is not in itself problematic, but the Commission has
recognized the risks that are posed by a persistent
premium or discount and accordingly mandated
website disclosure for ETFs under Rule 6c–11. That
mandate was in the context of a persistent 2%
premium or discount, whereas OTC Bitcoin Funds
have had persistent premiums or discounts at least
10 times that percentage.
45 Recently a number of operating companies
engaged in unrelated businesses—such as Tesla (a
car manufacturer) and MicroStrategy (an enterprise
software company)—have announced investments
as large as $5.3 billion in bitcoin. Without access
to bitcoin exchange-traded products, retail investors
seeking investment exposure to bitcoin may end up
purchasing shares in these companies in order to
gain the exposure to bitcoin that they seek. In fact,
mainstream financial news networks have written
a number of articles providing investors with
guidance for obtaining bitcoin exposure through
publicly traded companies (such as MicroStrategy,
Tesla, and bitcoin mining companies, among
others) instead of dealing with the complications
associated with buying spot bitcoin in the absence
of a bitcoin ETP. See e.g., ‘‘7 public companies with
exposure to bitcoin’’ (February 8, 2021) available at:
https://finance.yahoo.com/news/7-publiccompanies-with-exposure-to-bitcoin154201525.html; and ‘‘Want to get in the crypto
trade without holding bitcoin yourself? Here are
some investing ideas’’ (February 19, 2021) available
at: https://www.cnbc.com/2021/02/19/ways-toinvest-in-bitcoin-without-holding-thecryptocurrency-yourself-.html. Such operating
companies, however, are imperfect bitcoin proxies
and provide investors with partial bitcoin exposure
paired with a host of additional risks associated
with whichever operating company they decide to
purchase. Additionally, the disclosures provided by
such operating companies with respect to risks
relating to their bitcoin holdings are generally
substantially smaller than the registration statement
of a bitcoin ETP, including the Registration
Statement, typically amounting to a few sentences
of narrative description and a handful of risk
factors. In other words, investors seeking bitcoin
exposure through publicly traded companies are
gaining only partial exposure to bitcoin and are not
fully benefitting from the risk disclosures and
associated investor protections that come from the
securities registration process.
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other countries, including Canada 46 and
Brazil, are able to use more traditional
exchange listed and traded products
(including exchange-traded funds
holding physical bitcoin) to gain
exposure to bitcoin, disadvantaging U.S.
investors and leaving them with more
risky means of getting bitcoin
exposure.47 Additionally, investors in
other countries and regions, specifically
Canada and Europe, generally pay lower
fees than U.S. retail investors that invest
in OTC Bitcoin Funds due to the fee
pressure that results from increased
competition among available bitcoin
investment options. Without an
approved and regulated spot bitcoin
ETP in the U.S. as a viable alternative,
U.S. investors could seek to purchase
shares of non-U.S. bitcoin vehicles in
order to get access to bitcoin exposure.
Given the separate regulatory regime
and the potential difficulties associated
with any international litigation, such
an arrangement would create more risk
exposure for U.S. investors than they
would otherwise have with a U.S.
exchange listed ETP. Further to this
point, the lack of a U.S.-listed spot
bitcoin ETP is not preventing U.S. funds
from gaining exposure to bitcoin—
several U.S. exchange-traded funds are
using Canadian bitcoin ETPs to gain
exposure to spot bitcoin. In addition to
the benefits to U.S. investors articulated
throughout this proposal, approving this
proposal (and others like it) would
provide U.S. exchange-traded funds
with a U.S.-listed and regulated product
to provide such access rather than
relying on either flawed products or
products listed and primarily regulated
in other countries.
Bitcoin Futures ETFs
The Exchange and Sponsor applaud
the Commission for allowing the recent
launch of several ETFs registered under
the Investment Company Act of 1940, as
amended (the ‘‘1940 Act’’), that provide
exposure to bitcoin through CME
Bitcoin Futures (‘‘Bitcoin Futures
ETFs’’). Allowing such products to list
46 The Exchange notes that the Purpose Bitcoin
ETF, a retail physical bitcoin ETP launched in
Canada, reportedly reached $1.2 billion in assets
under management as of October 15, 2021
(‘‘AUM’’), demonstrating the demand for a North
American market listed bitcoin exchange-traded
product (‘‘ETP’’). The Purpose Bitcoin ETF also
offers a class of units that is U.S. dollar
denominated, which could appeal to U.S. investors.
47 The Exchange notes that securities regulators in
a number of other countries have either approved
or otherwise allowed the listing and trading of
bitcoin ETPs. Specifically, these funds include the
Purpose Bitcoin ETF, Bitcoin ETF, VanEck Vectors
Bitcoin ETN, WisdomTree Bitcoin ETP, Bitcoin
Tracker One, BTCetc bitcoin ETP, Amun Bitcoin
ETP, Amun Bitcoin Suisse ETP, 21Shares Short
Bitcoin ETP, CoinShares Physical Bitcoin ETP.
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and trade is a productive first step in
providing transparent, exchange-listed
tools for expressing a view on bitcoin
for U.S. investors and traders. However,
as has been reported by numerous
outlets, the structure of such products
provides negative outcomes for buy and
hold investors as compared to an ETP
that would hold actual bitcoin instead
of derivatives contracts (‘‘Spot Bitcoin
ETPs’’).48 Specifically, the cost of rolling
CME Bitcoin Futures contracts (which
has reached as high as 17% annually 49
excluding a fund’s management fees and
borrowing costs, if any) will cause the
Bitcoin Futures ETFs to lag the
performance of bitcoin itself and, at over
a billion dollars in assets under
management, would cost U.S. investors
hundreds of millions of dollars on an
annual basis. Such rolling costs would
not be required for Spot Bitcoin ETPs
that hold bitcoin. Further, Bitcoin
Futures ETFs have grown so rapidly that
they face potentially running into CME
position limits, which would force a
Bitcoin Futures ETF to invest in nonfutures assets for bitcoin exposure and
cause potential investor confusion and
lack of certainty about what such
Bitcoin Futures ETFs are actually
holding to try to get exposure to bitcoin,
not to mention completely changing the
risk profile associated with such an
ETF. While Bitcoin Futures ETFs
represent a useful trading tool, they are
clearly a sub-optimal structure for U.S.
investors that are looking for long-term
exposure to bitcoin that will, based on
the calculations above, unnecessarily
cost U.S. investors millions of dollars
every year and the Exchange believes
that any proposal to list and trade a Spot
Bitcoin ETP should be reviewed by the
Commission with this important
investor protection context in mind.
As discussed further below, the
Commission’s primary test in
determining whether to approve or
disapprove a series of Commodity-Based
Trust Shares, a product type which
includes Spot Bitcoin ETPs, is whether
the listing exchange has in place a
comprehensive surveillance sharing
agreement with a regulated market of
significant size in the underlying asset.
Previous disapproval orders have made
clear that a regulated market of
48 See e.g., ‘‘Bitcoin ETF’s Success Could Come at
Fundholders’ Expense,’’ Wall Street Journal
(October 24, 2021), available at: https://
www.wsj.com/articles/bitcoin-etfs-success-couldcome-at-fundholders-expense-11635080580;
‘‘Physical Bitcoin ETF Prospects Accelerate,’’
ETF.com (October 25, 2021), available at: https://
www.etf.com/sections/blog/physical-bitcoin-etfprospects-shine?nopaging=1&__cf_chl_jschl_tk__
=pmd_JsK.fjXz9eAQW9zol0qpzhXDrrlpIVdoCloL
XbLjl44-1635476946-0-gqNtZGzNApCjcnBszQql.
49 Id.
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significant size is generally a futures
and/or options market rather than the
spot commodity markets, which are
often unregulated.50 Leaving aside the
analysis of that standard for now,51
Cboe believes it would be inconsistent
to allow the listing and trading of
Bitcoin Futures ETFs that hold
primarily CME Bitcoin Futures while
simultaneously disapproving Spot
Bitcoin ETPs on the basis that the CME
Bitcoin Futures market is not a
regulated market of significant size. If
the CME Bitcoin Futures market were
not, in the opinion of the Commission,
a regulated market of significant size,
permitting Bitcoin Futures ETFs that
trade on such market would seem to be
inconsistent with the requirement under
the Act of being designed to ‘‘prevent
fraudulent and manipulative acts and
practices.’’ 52 This is particularly true for
the Trust, which will use the CF Bitcoin
US Settlement Price (the ‘‘Reference
Rate’’) as its price source to calculate its
daily net asset value (‘‘NAV’’), with
inputs from the same bitcoin trading
platforms (‘‘Constituent Platform’’) and
materially the same methodology as is
used to price CME Bitcoin Futures.53
Hence, to qualify as part of the bitcoin
pricing input for the Trust, as well as
CME Bitcoin Futures, a Constituent
Platform must:
Have policies to ensure fair and
transparent market conditions at all
times and has processes in place to
identify and impede illegal, unfair or
50 See Winklevoss Order at 37593, specifically
footnote 202, which includes the language from
numerous approval orders for which the underlying
futures markets formed the basis for approving
series of ETPs that hold physical metals, including
gold, silver, palladium, platinum, and precious
metals more broadly; and 37600, specifically where
the Commission provides that ‘‘when the spot
market is unregulated—the requirement of
preventing fraudulent and manipulative acts may
possibly be satisfied by showing that the ETP listing
market has entered into a surveillance-sharing
agreement with a regulated market of significant
size in derivatives related to the underlying asset.’’
As noted above, the Exchange believes that these
citations are particularly helpful in making clear
that the spot market for a spot commodity ETP need
not be ‘‘regulated’’ in order for a spot commodity
ETP to be approved by the Commission, and in fact
that it’s been the common historical practice of the
Commission to rely on such derivatives markets as
the regulated market of significant size because
such spot commodities markets are largely
unregulated.
51 As further outlined below, both the Exchange
and the Sponsor believe that the CME Bitcoin
Futures market represents a regulated market of
significant size and that this proposal and others
like it should be approved on this basis.
52 15 U.S.C. 78f(b)(5). For additional detail, see
Winklevoss Order at 37600.
53 For a further description of the Reference Rate
methodology and relevance to the requirements of
Section 6(b)(5) of the Act, please see the comment
letter from CF Benchmarks at https://www.sec.gov/
comments/sr-cboebzx-2021-024/srcboebzx20210248771282-237582.pdf.
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manipulative trading practices, comply
with applicable law and regulation,
including, but not limited to capital
markets regulations, money
transmission regulations, client money
custody regulations, know-your-client
(KYC) regulations and anti-money
laundering (AML) regulations.
Hence, not only are the Constituent
Exchanges’ pricing inputs and
methodology (except for the calculation
time) the same with respect to the Trust
and CME Bitcoin Futures, but the
Sponsor has represented that the Trust
will qualify as an investment company
under Accounting Standards Update
2013–08, which is the same accounting
standards for Bitcoin Futures ETFs
under the 1940 Act. As such, the
Sponsor will ensure that the Trust’s
financial statements will be audited at
least annually by an independent
registered public accounting firm and as
part of such audit, the auditor will be
expected to perform procedures similar
to those used for ETFs registered under
the 1940 Act, including:
(i) Applying the accounting and
reporting guidance for investment
companies; and
(ii) testing and evaluating processes
for determining bitcoin valuation and
evaluate the reasonableness and
consistency of assumptions, models,
and calculations used, as well as the
completeness, accuracy, and relevance
of underlying data used.
In addition, the Sponsor will facilitate
the Trust’s compliance with the
financial record keeping and reporting
requirements under the Sarbanes-Oxley
Act of 2002.
Additional 1940 Act Considerations 54
In addition to the foregoing, the
Sponsor has taken 1940 Act
considerations into account in
structuring the Trust’s operations in
seeking ‘‘to protect investors and the
public interest.’’
First, the Trust will use U.S. Bank as
the Custodian, which qualifies as a
‘‘custodian’’ under the 1940 Act and
serves as the custodian for a significant
number of ETFs registered under the
1940 Act. Similar to an engagement for
an ETF registered under the 1940 Act,
the Sponsor has represented that U.S.
Bank is expected to agree to exercise
reasonable care, prudence, and
diligence such as a person having
54 We note that the largest OTC Bitcoin Funds
holding spot Bitcoin today are not 1940 Act Funds
and in any event do not provide the type of
transparency and other protections described
herein.
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responsibility for the safekeeping of
property of the Trust would exercise.55
Second, the Sponsor has represented
that the Trust will be subject to the
transparency requirements of Rule 6c–
11 under the 1940 Act, which is
commonly referred to as the ‘‘ETF
Rule.’’ In particular, the Trust will
disclose prominently on the Trust’s
website on a daily basis, which shall be
publicly accessible and free of charge:
(i) The Trust’s portfolio holdings (i.e.,
bitcoin);
(ii) NAV per share, market price, and
premium or discount, each as of the end
of the prior business day;
(iii) a table showing the number of
days the Trust’s shares traded at a
premium or discount during the most
recently completed calendar year and
calendar quarters since that year (or the
life of the Trust, if shorter);
(iv) a line graph showing the Trust’s
premiums or discounts for the most
recently completed calendar year and
the most recently completely calendar
quarters since that year (or the life of the
Trust, if shorter);
(v) the Trust’s median bid-ask spread,
expressed as a percentage rounded to
the nearest hundredth, in the manner
computed under Rule 6c–11(c)(1)(v);
and
(vi) if the Trust’s premium or discount
is greater than 2% for more than seven
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55 To the extent the Commission may view
differential treatment of Bitcoin Futures ETFs and
Spot Bitcoin ETPs as warranted based on the
Commission’s concerns about the custody of
physical Bitcoin that a Spot Bitcoin ETP would
hold (compared to cash-settled futures contracts),
the Sponsor believes this concern is mitigated by
such custodial arrangements, whether directly
through the Custodian or through a subcustodial
relationship overseen by the Custodian.
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consecutive trading days, a statement
that the Trust’s premium or discount, as
applicable, was greater than 2% and a
discussion of the factors that are
reasonably believed to have materially
contributed to the premium or discount.
In addition, the Sponsor has
represented: (i) That it will adopt
procedures to ensure there are no
transactions with affiliated persons that
would be prohibited by the Section 17
of 1940 Act and the applicable rules and
regulations thereunder; (ii) that the
Trust will maintain a fidelity bond for
the benefit of the Trust in the maximum
amount required per Rule 17g–1 of the
1940 Act; and (iii) the Sponsor or
applicable service provider of the Trust
will maintain the books and records of
the Trust in satisfaction of the
requirements of Section 31 of the 1940
Act.
Part of the analysis of the regulated
market of significant size test is whether
an underlying market is sufficiently
large to support an ETP is whether
trading in the ETP is likely to be the
predominant influence on prices in the
market of significant size.56 According
to publicly available data, the largest
Bitcoin Futures ETF represents 3,803
contracts 57 of the total 9,625 contracts
of open interest in December CME
Bitcoin Futures 58 as of 12/2/21 (roughly
40% of open interest). This seems to
directly contradict the previously
articulated standards by the
56 See
Winklevoss Order at 37594.
Fund Holdings Information available at
https://www.proshares.com/funds/bito.html.
58 See Volume and Open Interest data available at
https://www.cmegroup.com/markets/
cryptocurrencies/bitcoin/bitcoin.volume.html.
57 See
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Commission in the disapproval orders
issued for Spot Bitcoin ETPs related to
whether the trading in the ETP would
be the predominant influence on prices
in that market.59 As further discussed
below, research indicates that the CME
Bitcoin Futures market is a regulated
market of significant size with a
predominant influence on prices in
USD-based trading in bitcoin futures
and spot markets globally.
Based on the foregoing, the Exchange
and Sponsor believe that any objective
review of the proposals to list Spot
Bitcoin ETPs compared to the already
listed and traded Bitcoin Futures ETFs
would lead to the conclusion that Spot
Bitcoin ETPs should be available to U.S.
investors and, as such, this proposal and
other comparable proposals to list and
trade Spot Bitcoin ETPs should be
approved by the Commission. Stated
simply, U.S. investors stand to lose
hundreds of millions of dollars from
holding Bitcoin Futures ETFs, losses
which could be prevented by the
Commission approving Spot Bitcoin
ETPs. This is particularly evident as
demonstrated by the chart on the next
page, which shows the dramatic
underperformance of Bitcoin Futures as
compared to the WisdomTree Bitcoin
exchange traded product (‘‘WisdomTree
Europe Bitcoin Fund’’) (BTCW) in
Europe that holds spot bitcoin (not
Bitcoin Futures) and is listed and traded
on the Swiss Stock Exchange (‘‘SIX’’).
BTCW also uses the Reference Rate
(London Time) as its price source.
BILLING CODE 8011–01–P
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Additionally, any concerns related to
preventing fraudulent and manipulative
acts and practices related to Spot
Bitcoin ETPs would apply equally to the
spot markets underlying the futures
contracts held by a Bitcoin Futures ETF.
The Sponsor has structured the Trust’s
operations to operate as if certain 1940
Act provisions apply, providing
transparency and investor protections
such that a distinction between Bitcoin
Futures ETFs and Spot Bitcoin ETPs is
unwarranted. To be clear, both the
Exchange and Sponsor believe that the
CME Bitcoin Futures market is a
regulated market of significant size and
that such manipulation concerns are
mitigated, as described extensively
below. After allowing the listing and
trading of Bitcoin Futures ETFs that
hold primarily CME Bitcoin Futures,
however, the only consistent outcome
would be approving Spot Bitcoin ETPs
on the basis that the CME Bitcoin
Futures market is a regulated market of
significant size. Including in the
analysis the significant and preventable
losses to U.S. investors that comes with
Bitcoin Futures ETFs, disapproving
Spot Bitcoin ETPs seems even more
arbitrary and capricious. Given the
current landscape, approving this
proposal (and others like it) and
allowing Spot Bitcoin ETPs to be listed
and traded alongside Bitcoin Futures
ETFs would establish a consistent
regulatory approach, provide U.S.
investors with choice in product
structures for bitcoin exposure, and
offer flexibility in the means of gaining
exposure to bitcoin through transparent,
regulated, U.S. exchange-listed vehicles.
Bitcoin Futures
CME began offering trading in CME
Bitcoin Futures in December 2017. Each
contract represents five bitcoin and is
based on the CME CF Bitcoin Reference
Rate.60 The contracts trade and settle
like other cash-settled commodity
futures contracts. Nearly every
measurable metric related to CME
Bitcoin Futures has trended consistently
up since launch and/or accelerated
upward in the past year. For example,
there was approximately $12 billion in
trading in Bitcoin Futures in August
2021 compared to $3.9 billion, $4.5b
billion, and $9b billion in total trading
in August 2017, August 2018, and
August 2019, respectively. Bitcoin
Futures traded over $500m and
represented $1.5 billion in open interest
compared to $115 million in December
2019. This general upward trend in
trading volume and open interest is
captured in the following chart. (Source:
CME, Bloomberg 8/31/21)
60 According to CME, the CME CF Bitcoin
Reference Rate aggregates the trade flow of major
bitcoin spot exchanges during a specific calculation
window into a once-a-day reference rate of the U.S.
dollar price of bitcoin. Calculation rules are geared
toward maximum transparency and real-time
replicability in underlying spot markets, including
Bitstamp, Coinbase, Gemini, itBit, and Kraken. For
additional information, refer to https://
www.cmegroup.com/trading/cryptocurrencyindices/cf-bitcoin-reference-rate.html?redirect=/
trading/cf-bitcoin-reference-rate.html.
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Similarly, the number of large open
interest holders 61 has continued to
increase even as the price of bitcoin has
risen, as have the number of unique
accounts trading Bitcoin Futures.
61 A large open interest holder in Bitcoin Futures
is an entity that holds at least 25 contracts, which
is the equivalent of 125 bitcoin. At a price of
approximately $46,996 per bitcoin on 8/31/21, more
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than 80 firms had outstanding positions of greater
than $5.8 million in Bitcoin Futures.
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The Sponsor further believes that
academic research corroborates this
overall trend and supports the thesis
that bitcoin futures, and more
particularly CME Bitcoin Futures given
the recent significant growth in that
market, is a predominant influence in
bitcoin price formation.62
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Section 6(b)(5) and the Applicable
Standards
The Commission has approved
numerous series of Trust Issued
Receipts,63 including Commodity-Based
Trust Shares,64 to be listed on U.S.
national securities exchanges. In order
for any proposed rule change from an
exchange to be approved, the
Commission must determine that,
62 See Amendment No. 1 to SR–CboeBZX–2021–
051, filed December 9, 2021 (proposal to list and
trade shares of the ARK 21Shares Bitcoin ETF) (the
‘‘ARK 21Shares Proposal’’); Securities Exchange Act
Release No. 91994 (May 25, 2021), 86 FR 29321
(June 1, 2021) (proposal to list and trade shares of
the Wise Origin Bitcoin Trust) (the ‘‘Wise Origin
Bitcoin Trust Filing’’); Staff Memorandum re:
Meeting with Representatives of Fidelity Digital
Assets, et al. on September 8th, 2021 regarding the
Wise Origin Bitcoin Trust Filing (the ‘‘Wise Origin
Bitcoin Trust Presentation’’); and Hu, Y., Hou, Y.
and Oxley, L. (2019). ‘‘What role do futures markets
play in Bitcoin pricing? Causality, cointegration and
price discovery from a time-varying perspective’’
(available at: https://www.ncbi.nlm.nih.gov/pmc/
articles/PMC7481826/). This academic research
paper concludes that ‘‘There exist no episodes
where the Bitcoin spot markets dominates the price
discovery processes with regard to Bitcoin futures.
This points to a conclusion that the price formation
originates solely in the Bitcoin futures market. We
can, therefore, conclude that the Bitcoin futures
markets dominate the dynamic price discovery
process based upon time-varying information share
measures. Overall, price discovery seems to occur
in the Bitcoin futures markets rather than the
underlying spot market based upon a time-varying
perspective.’’
63 See Exchange Rule 14.11(f).
64 Commodity-Based Trust Shares, as described in
Exchange Rule 14.11(e)(4), are a type of Trust
Issued Receipt.
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among other things, the proposal is
consistent with the requirements of
Section 6(b)(5) of the Act, specifically
including: (i) The requirement that a
national securities exchange’s rules are
designed to prevent fraudulent and
manipulative acts and practices; 65 and
(ii) the requirement that an exchange
proposal be designed, in general, to
protect investors and the public interest.
The Exchange believes that this
proposal is consistent with the
requirements of Section 6(b)(5) of the
Act and that this filing sufficiently
demonstrates that the CME Bitcoin
Futures market represents a regulated
market of significant size and that, on
65 As the Exchange has stated in a number of
other public documents, it continues to believe that
bitcoin is resistant to price manipulation and that
‘‘other means to prevent fraudulent and
manipulative acts and practices’’ exist to justify
dispensing with the requisite surveillance sharing
agreement. The geographically diverse and
continuous nature of bitcoin trading render it
difficult and prohibitively costly to manipulate the
price of bitcoin. The fragmentation across bitcoin
platforms, the relatively slow speed of transactions,
and the capital necessary to maintain a significant
presence on each trading platform make
manipulation of bitcoin prices through continuous
trading activity challenging. To the extent that there
are bitcoin exchanges engaged in or allowing wash
trading or other activity intended to manipulate the
price of bitcoin on other markets, such pricing does
not normally impact prices on other exchange
because participants will generally ignore markets
with quotes that they deem non-executable.
Moreover, the linkage between the bitcoin markets
and the presence of arbitrageurs in those markets
means that the manipulation of the price of bitcoin
price on any single venue would require
manipulation of the global bitcoin price in order to
be effective. Arbitrageurs must have funds
distributed across multiple trading platforms in
order to take advantage of temporary price
dislocations, thereby making it unlikely that there
will be strong concentration of funds on any
particular bitcoin exchange or OTC platform. As a
result, the potential for manipulation on a trading
platform would require overcoming the liquidity
supply of such arbitrageurs who are effectively
eliminating any cross-market pricing differences.
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the whole, the manipulation concerns
previously articulated by the
Commission are sufficiently addressed
to warrant approval. Specifically, the
Exchange believes that the significant
increase in trading volume in CME
Bitcoin Futures and the growing body of
evidence that the CME Bitcoin Futures
market represents a regulated market of
significant size as such a market has
previously been described by the
Commission, the growth of liquidity at
the inside in the spot market for bitcoin,
and certain features of the Shares and
the Reference Rate (as defined below)
mitigate potential manipulation
concerns to the point that it is
consistent with the requirements of
Section 6(b)(5) of the Act and therefore
provides a basis for the Commission to
approve this proposal.
(i) Designed To Prevent Fraudulent and
Manipulative Acts and Practices
In order to meet this standard in a
proposal to list and trade a series of
Commodity-Based Trust Shares, the
Commission requires that an exchange
demonstrate that there is a
comprehensive surveillance-sharing
agreement in place 66 with a regulated
66 As previously articulated by the Commission,
‘‘The standard requires such surveillance-sharing
agreements since ‘‘they provide a necessary
deterrent to manipulation because they facilitate the
availability of information needed to fully
investigate a manipulation if it were to occur.’’ The
Commission has emphasized that it is essential for
an exchange listing a derivative securities product
to enter into a surveillance-sharing agreement with
markets trading underlying securities for the listing
exchange to have the ability to obtain information
necessary to detect, investigate, and deter fraud and
market manipulation, as well as violations of
exchange rules and applicable federal securities
laws and rules. The hallmarks of a surveillancesharing agreement are that the agreement provides
for the sharing of information about market trading
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market of significant size.67 Both the
Exchange and CME are members of
ISG.68 The only remaining issue to be
addressed is whether the CME Bitcoin
Futures market constitutes a market of
significant size, which both the
Exchange and the Sponsor believe that
it does. The terms ‘‘significant market’’
and ‘‘market of significant size’’ include
a market (or group of markets) as to
which: (a) There is a reasonable
likelihood that a person attempting to
manipulate the ETP would also have to
trade on that market to manipulate the
ETP, so that a surveillance-sharing
agreement would assist the listing
exchange in detecting and deterring
misconduct; and (b) it is unlikely that
trading in the ETP would be the
predominant influence on prices in that
market.69
The Commission has also recognized
that the ‘‘regulated market of significant
size’’ standard is not the only means for
satisfying Section 6(b)(5) of the Act,
specifically providing that a listing
exchange could demonstrate that ‘‘other
means to prevent fraudulent and
manipulative acts and practices’’ are
sufficient to justify dispensing with the
requisite surveillance-sharing
agreement.70
activity, clearing activity, and customer identity;
that the parties to the agreement have reasonable
ability to obtain access to and produce requested
information; and that no existing rules, laws, or
practices would impede one party to the agreement
from obtaining this information from, or producing
it to, the other party.’’ The Commission has
historically held that joint membership in the
Intermarket Surveillance Group (‘‘ISG’’) constitutes
such a surveillance sharing agreement. See Wilshire
Phoenix Disapproval.
67 As described above, the precedent makes clear
that the spot market for a series of CommodityBased Trust Shares need not be ‘‘regulated’’ in order
to be consistent with the requirement under the Act
that the exchange proposal be designed to ‘‘prevent
fraudulent and manipulative acts and practices,’’
and in fact that it’s been the common historical
practice of the Commission to rely on such
derivatives markets as the regulated market of
significant size because such spot commodities
markets are largely unregulated. Specifically, the
precedent includes language from numerous
approval orders for which the underlying futures
markets formed the basis for approving series of
ETPs that hold commodities including physical
metals, including gold, silver, palladium, platinum,
and precious metals more broadly. The Commission
also provides that ‘‘when the spot market is
unregulated—the requirement of preventing
fraudulent and manipulative acts may possibly be
satisfied by showing that the ETP listing market has
entered into a surveillance-sharing agreement with
a regulated market of significant size in derivatives
related to the underlying asset.’’ The precedent
indicates that common historical practice of the
Commission is to rely on such derivatives markets
as the regulated market of significant size because
such spot commodities markets are largely
unregulated. See supra note 10.
68 For a list of the current members and affiliate
members of ISG, see www.isgportal.com.
69 See Wilshire Phoenix Disapproval.
70 See Winklevoss Order at 37580. The
Commission has also specifically noted that it ‘‘is
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(a) Manipulation of the ETP
The significant growth in CME
Bitcoin Futures across each of trading
volumes, open interest, large open
interest holders, and total market
participants over the last two years are
reflective of that market’s growing
influence on the spot price.71 Where
CME Bitcoin Futures act as a
predominant influence on the price in
the spot market, such that a potential
manipulator of the bitcoin spot market
(beyond just the constituents of the
Reference Rate 72) would have to
participate in the CME Bitcoin Futures
market, it follows that a potential
manipulator of the Shares would
similarly have to transact in the CME
Bitcoin Futures market because the
Reference Rate is based on spot prices.
Further, the Trust only allows for inkind creation and redemption, which, as
further described below, reduces the
potential for manipulation of the Shares
through manipulation of the Reference
Rate or any of its individual
constituents, again emphasizing that a
potential manipulator of the Shares
would have to manipulate the entirety
of the bitcoin spot market, of which the
CME Bitcoin Futures market appears to
be a predominant influence. As such,
the Exchange believes that part (a) of the
significant market test outlined above is
satisfied and that common membership
in ISG between the Exchange and CME
would assist the listing exchange in
detecting and deterring misconduct in
the Shares.
(b) Predominant Influence on Prices in
Spot and Bitcoin Futures
The Exchange and Sponsor also
believe that trading in the Shares would
not be the predominant force on prices
in the CME Bitcoin Futures market (or
spot market) for a number of reasons,
including the significant volume in the
CME Bitcoin Futures market, the size of
bitcoin’s market cap, and the significant
liquidity available in the spot market.
Moreover, the Shares should trade close
to NAV given that market participants
not applying a ‘‘cannot be manipulated’’ standard;
instead, the Commission is examining whether the
proposal meets the requirements of the Exchange
Act and, pursuant to its Rules of Practice, places the
burden on the listing exchange to demonstrate the
validity of its contentions and to establish that the
requirements of the Exchange Act have been met.
Id. at 37582.
71 See ARK 21Shares Proposal and the Wise
Origin Bitcoin Trust Presentation for additional
analysis on this point.
72 As further described below, the Reference Rate
for the Fund is based on materially the same
methodology (except calculation time) as the
Administrator’s BRR, which is the rate on which
bitcoin futures contracts are cash-settled in U.S.
dollars at the CME.
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would arbitrage any significant price
deviations between the price of the
Shares and prices in the spot market.73
In addition to the CME Bitcoin Futures
market data points cited above, the spot
market for bitcoin is also very liquid.
According to data from CoinRoutes from
February 2021, the cost to buy or sell $5
million worth of bitcoin averages
roughly 10 basis points with a market
impact of 30 basis points.74 For a $10
million market order, the cost to buy or
sell is roughly 20 basis points with a
market impact of 50 basis points. Stated
another way, a market participant could
enter a market buy or sell order for $10
million of bitcoin and only move the
market 0.5%. More strategic purchases
or sales (such as using limit orders and
executing through OTC bitcoin trade
desks) would likely have less obvious
impact on the market—which is
consistent with MicroStrategy, Tesla,
and Square being able to collectively
purchase billions of dollars in bitcoin.
As such, the combination of CME
Bitcoin Futures acting as a predominant
influence on price discovery, the overall
size of the bitcoin market, and the
ability for market participants,
including authorized participants
creating and redeeming in-kind with the
Trust, to buy or sell large amounts of
bitcoin without significant market
impact will help prevent the Shares
from becoming the predominant force
on pricing in either the bitcoin spot or
CME Bitcoin Futures markets, satisfying
part (b) of the test outlined above.
(c) Other Means To Prevent Fraudulent
and Manipulative Acts and Practices
As noted above, the Commission also
permits a listing exchange to
demonstrate that ‘‘other means to
prevent fraudulent and manipulative
acts and practices’’ are sufficient to
justify dispensing with the requisite
surveillance-sharing agreement. The
Exchange and Sponsor believe that such
conditions are present. Specifically, the
significant liquidity in the spot market
and the impact of market orders on the
overall price of bitcoin mean that
attempting to move the price of bitcoin
is costly and has grown more expensive
over the past year. In January 2020, for
example, the cost to buy or sell $5
million worth of bitcoin averaged
roughly 30 basis points (compared to 10
73 See supra footnote 44 for an example of an ETP
trading close to NAV, which is just one example of
bitcoin ETPs trading in other global markets today
that trade close to NAV.
74 These statistics are based on samples of bitcoin
liquidity in USD (excluding stablecoins or Euro
liquidity) based on executable quotes on Coinbase
Pro, Gemini, Bitstamp, Kraken, LMAX Exchange,
BinanceUS, and OKCoin during February 2021.
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basis points in 2/2021) with a market
impact of 50 basis points (compared to
30 basis points in 2/2021).75 For a $10
million market order, the cost to buy or
sell was roughly 50 basis points
(compared to 20 basis points in 2/2021)
with a market impact of 80 basis points
(compared to 50 basis points in 2/2021).
As the liquidity in the bitcoin spot
market increases, it follows that the
impact of $5 million and $10 million
orders will continue to decrease the
overall impact in spot price.
(ii) Designed To Protect Investors and
the Public Interest
The Exchange believes that the
proposal is designed to protect investors
and the public interest. Over the past
1.5 years, U.S. investor exposure to
bitcoin through OTC Bitcoin Funds has
grown into the tens of billions of dollars
and more than a billion dollars of
exposure through Bitcoin Futures ETFs.
With that growth, so too has grown the
quantifiable investor protection issues
to U.S. investors through roll costs for
Bitcoin Futures ETFs and premium/
discount volatility and management fees
for OTC Bitcoin Funds. The Exchange
believes that the concerns related to the
prevention of fraudulent and
manipulative acts and practices have
been sufficiently addressed to be
consistent with the Act. As such, the
Exchange believes that approving this
proposal (and comparable proposals)
provides the Commission with the
opportunity to allow U.S. investors with
access to bitcoin in a regulated and
transparent exchange-traded vehicle
that would act to limit risk to U.S.
investors by: (i) Reducing premium and
discount volatility; (ii) reducing
management fees through meaningful
competition; (iii) reducing risks and
costs associated with investing in
Bitcoin Futures ETFs and operating
companies that are imperfect proxies for
bitcoin exposure; and (iv) providing an
alternative for investors to selfcustodying spot bitcoin.
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WisdomTree Bitcoin Trust
Delaware Trust Company is the
trustee (‘‘Trustee’’). U.S. Bancorp Fund
Services, LLC dba U.S. Bank Global
Fund Services will be the administrator
(‘‘Administrator’’) and transfer agent
(‘‘Transfer Agent’’), with U.S. Bank,
N.A. serving as Custodian. Foreside
Fund Services LLC will be the
marketing agent (‘‘Marketing Agent’’) in
75 These statistics are based on samples of bitcoin
liquidity in USD (excluding stablecoins or Euro
liquidity) based on executable quotes on Coinbase
Pro, Gemini, Bitstamp, Kraken, LMAX Exchange,
BinanceUS, and OKCoin during February 2021.
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connection with the creation and
redemption of ‘‘Baskets’’ of Shares.
According to the Registration
Statement, each Share will represent a
fractional undivided beneficial interest
in and ownership of the Trust. The
Trust’s assets will consist of bitcoin
held by the Custodian on behalf of the
Trust. The Trust generally does not
intend to hold cash or cash equivalents.
However, there may be situations where
the Trust will unexpectedly hold cash
on a temporary basis.
According to the Registration
Statement, the Trust is neither an
investment company registered under
the Investment Company Act of 1940, as
amended,76 nor a commodity pool for
purposes of the Commodity Exchange
Act (‘‘CEA’’), and neither the Trust nor
the Sponsor is subject to regulation as
a commodity pool operator or a
commodity trading adviser in
connection with the Shares.
When the Trust sells or redeems its
Shares, it will do so in ‘‘in-kind’’
transactions in blocks of 50,000 Shares
(a ‘‘Creation Basket’’) at the Trust’s
NAV. Authorized participants will
deliver, or facilitate the delivery of,
bitcoin to the Trust’s account with the
Custodian in exchange for Shares when
they purchase Shares, and the Trust,
through the Custodian, will deliver
bitcoin to such authorized participants
when they redeem Shares with the
Trust. Authorized participants may then
offer Shares to the public at prices that
depend on various factors, including the
supply and demand for Shares, the
value of the Trust’s assets, and market
conditions at the time of a transaction.
Shareholders who buy or sell Shares
during the day from their broker may do
so at a premium or discount relative to
the NAV of the Shares of the Trust.
Investment Objective
According to the Registration
Statement and as further described
below, the investment objective of the
Trust is to gain exposure to the price of
bitcoin, less expenses and liabilities of
the Trust’s operation. In seeking to
achieve its investment objective, the
Trust will hold bitcoin and value its
Shares daily based on the value of
bitcoin as reflected by the CF Bitcoin US
Settlement Price (the ‘‘Reference Rate’’),
which is an independently calculated
value based on an aggregation of
executed trade flow of major bitcoin
spot exchanges. The Trust will process
all creations and redemptions in-kind in
transactions with authorized
76 15 U.S.C. 80a–1. However, as previously stated,
the Trust has undertaken to comply with certain
provisions of the Investment Company Act of 1940.
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8329
participants. The Trust is not actively
managed.
The Reference Rate
As described in the Registration
Statement, the Fund will use the
Reference Rate to calculate the Trust’s
NAV. The Reference Rate is not
affiliated with the Sponsor and was
created and is administered by CF
Benchmarks Ltd. (the ‘‘Benchmark
Administrator’’), an independent entity,
to facilitate financial products based on
bitcoin. The Reference Rate is designed
based on the IOSCO Principals for
Financial Benchmarks and serves as a
once-a-day benchmark rate of the U.S.
dollar price of bitcoin (USD/BTC),
calculated as of 4 p.m. Eastern time. The
Reference Rate is based on materially
the same methodology (except
calculation time) 77 as the Benchmark
Administrator’s CME CF Bitcoin
Reference Rate (‘‘BRR’’), which was first
introduced on November 14, 2016 and
is the rate on which bitcoin futures
contracts are cash-settled in U.S. dollars
at the CME. The Reference Rate
aggregates the trade flow of several
bitcoin exchanges, during an
observation window between 3:00 p.m.
and 4:00 p.m. Eastern time into the U.S.
dollar price of one bitcoin at 4:00 p.m.
Eastern time. The current constituent
bitcoin exchanges of the Reference Rate
are Bitstamp, Coinbase, Gemini, itBit
and Kraken (the ‘‘Constituent Bitcoin
Exchanges’’).
The Reference Rate is calculated
based on the ‘‘Relevant Transactions’’ 78
of all of its Constituent Bitcoin
Exchanges, as follows:
• All Relevant Transactions are added
to a joint list, recording the time of
execution, trade price and size for each
transaction.
• The list is partitioned by timestamp
into 12 equally-sized time intervals of 5
(five) minute length.
• For each partition separately, the
volume-weighted median trade price is
calculated from the trade prices and
sizes of all Relevant Transactions, i.e.,
across all Constituent Bitcoin
Exchanges. A volume-weighted median
differs from a standard median in that
a weighting factor, in this case trade
size, is factored into the calculation.
77 The Reference Rate is calculated as of 4 p.m.
Eastern Time, whereas the BRR is calculated as of
4 p.m. London Time.
78 A ‘‘Relevant Transaction’’ is any
cryptocurrency versus U.S. dollar spot trade that
occurs during the observation window between
3:00 p.m. and 4:00 p.m. Eastern time on a
Constituent Bitcoin Exchange in the BTC/USD pair
that is reported and disseminated by a Constituent
Bitcoin Exchange through its publicly available API
and observed by the Benchmark Administrator, CF
Benchmarks Ltd.
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• The Reference Rate is then
determined by the arithmetic mean of
the volume-weighted medians of all
partitions.
By employing the foregoing steps, the
Reference Rate thereby seeks to ensure
that transactions in bitcoin conducted at
outlying prices do not have an undue
effect on the value of a specific
partition, large trades or clusters of
trades transacted over a short period of
time will not have an undue influence
on the index level, and the effect of
large trades at prices that deviate from
the prevailing price are mitigated from
having an undue influence on the
benchmark level. In addition, the
Sponsor notes that an oversight function
is implemented by the Benchmark
Administrator in seeking to ensure that
the Reference Rate is administered
through codified policies for Reference
Rate integrity.
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Availability of Information
In addition to the price transparency
of the Reference Rate, the Trust will
provide information regarding the
Trust’s bitcoin holdings as well as
additional data regarding the Trust. The
Trust will provide an Intraday
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 Regular Trading Hours (9:30
a.m. to 4:00 p.m. E.T.). The IIV will be
calculated by using the prior day’s
closing NAV per Share as a base and
updating that value during Regular
Trading Hours to reflect changes in the
value of the Trust’s bitcoin holdings
during the trading day.
The IIV disseminated during Regular
Trading Hours should not be viewed as
an actual real-time update of the NAV,
which will be calculated only once at
the end of each trading day. The IIV will
be widely disseminated on a per Share
basis every 15 seconds during the
Exchange’s Regular Trading Hours by
one or more major market data vendors.
In addition, the IIV will be available
through on-line information services.
As noted above, the website for the
Trust, which will be publicly accessible
at no charge, will contain information
consistent with the disclosure
requirements of Rule 6c–11 under the
1940 Act. The price of bitcoin will be
made available by one or more major
market data vendors, updated at least
every 15 seconds during Regular
Trading Hours. Information about the
Reference Rate, including key elements
of how the Reference Rate is calculated,
will be publicly available at https://
www.cfbenchmarks.com.
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The NAV for the Trust will be
calculated by the Administrator once a
day and will be disseminated daily to
all market participants at the same time.
Quotation and last-sale information
regarding the Shares will be
disseminated through the facilities of
the Consolidated Tape Association
(‘‘CTA’’).
Quotation and last sale information
for bitcoin is widely disseminated
through a variety of major market data
vendors, including Bloomberg and
Reuters, as well as the Reference Rate.
Information relating to trading,
including price and volume
information, in bitcoin is available from
major market data vendors and from the
exchanges on which bitcoin are traded.
Depth of book information is also
available from bitcoin exchanges. The
normal trading hours for bitcoin
exchanges are 24 hours per day, 365
days per year.
Net Asset Value
NAV means the total assets of the
Trust including, but not limited to, all
bitcoin cash or other assets, less total
liabilities of the Trust, each determined
on the basis of generally accepted
accounting principles. In determining
the Trust’s NAV, the administrator
values the bitcoin held by the Trust
based on the price set by the Reference
Rate as of 4:00 p.m. Eastern Time. The
administrator will determine the NAV
of the Trust on each day that the
Exchange is open for regular trading.
The NAV for a normal trading day will
be released after 4:00 p.m. Eastern Time.
However, NAVs are not officially struck
until later in the day (often by 5:30 p.m.
Eastern Time and almost always by 8:00
p.m. Eastern Time). The pause between
4:00 p.m. Eastern Time and 5:30 p.m.
Eastern Time (or later) provides an
opportunity for the Trust, Benchmark
Administrator or administrator to
detect, flag, investigate, and correct
unusual pricing should it occur. The
Sponsor anticipates that the Reference
Rate will be reflective of a reasonable
valuation of the average spot price of
bitcoin. However, in the event the
Reference Rate was not available or
determined by the Sponsor to not be
reliable, the Sponsor would ‘‘fair value’’
the Trust’s bitcoin holdings. The
Sponsor does not anticipate that the
need to ‘‘fair value’’ bitcoin will be a
common occurrence. The Sponsor will
publish the NAV and NAV per Share at
www.wisdomtree.com as soon as
practicable after their determination and
availability.
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Creation and Redemption of Shares
According to the Registration
Statement, on any business day, an
authorized participant may place an
order to create one or more baskets.
Purchase orders must be placed by 4:00
p.m. Eastern Time, or the close of
regular trading on the Exchange,
whichever is earlier. The day on which
an order is received is considered the
purchase order date. The total deposit of
bitcoin required is an amount of bitcoin
that is in the same proportion to the
total assets of the Trust, net of accrued
expenses and other liabilities, on the
date the order to purchase is properly
received, as the number of Shares to be
created under the purchase order is in
proportion to the total number of Shares
outstanding on the date the order is
received. Prior to market open each day,
the Sponsor will publish the amount of
bitcoin that will be required in exchange
for each creation order. The
Administrator determines the required
deposit for a given day by dividing the
number of bitcoin held by the Trust as
of the opening of business on that
business day, adjusted for the amount of
bitcoin constituting estimated accrued
but unpaid fees and expenses of the
Trust as of the opening of business on
that business day, by the quotient of the
number of Shares outstanding at the
opening of business divided by the
aggregation of shares (i.e., 50,000)
associated with a creation unit. The
procedures by which an authorized
participant can redeem one or more
Creation Baskets mirror the procedures
for the creation of Creation Baskets.
Rule 14.11(e)(4)—Commodity-Based
Trust Shares
The Shares will be subject to BZX
Rule 14.11(e)(4), which sets forth the
initial and continued listing criteria
applicable to Commodity-Based Trust
Shares. The Exchange will obtain a
representation that the Trust’s NAV will
be calculated daily and that these values
and information about the assets of the
Trust will be made available to all
market participants at the same time.
The Exchange notes that, as defined in
Rule 14.11(e)(4)(C)(i), the Shares will be:
(a) Issued by a trust that holds a
specified commodity 79 deposited with
the trust; (b) issued by such trust in a
specified aggregate minimum number in
return for a deposit of a quantity of the
underlying commodity; and (c) when
79 For purposes of Rule 14.11(e)(4), the term
commodity takes on the definition of the term as
provided in the Commodity Exchange Act. As noted
above, the CFTC has opined that bitcoin is a
commodity as defined in Section 1a(9) of the
Commodity Exchange Act. See Coinflip.
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aggregated in the same specified
minimum number, may be redeemed at
a holder’s request by such trust which
will deliver to the redeeming holder the
quantity of the underlying commodity.
Upon termination of the Trust, the
Shares will be removed from listing.
The Trustee, Delaware Trust Company,
is a trust company having substantial
capital and surplus and the experience
and facilities for handling corporate
trust business, as required under Rule
14.11(e)(4)(E)(iv)(a) and that no change
will be made to the trustee without prior
notice to and approval of the Exchange.
The Exchange also notes that, pursuant
to Rule 14.11(e)(4)(F), neither the
Exchange nor any agent of the Exchange
shall have any liability for damages,
claims, losses or expenses caused by
any errors, omissions or delays in
calculating or disseminating any
underlying commodity value, the
current value of the underlying
commodity required to be deposited to
the Trust in connection with issuance of
Commodity-Based Trust Shares;
resulting from any negligent act or
omission by the Exchange, or any agent
of the Exchange, or any act, condition or
cause beyond the reasonable control of
the Exchange, its agent, including, but
not limited to, an act of God; fire; flood;
extraordinary weather conditions; war;
insurrection; riot; strike; accident;
action of government; communications
or power failure; equipment or software
malfunction; or any error, omission or
delay in the reports of transactions in an
underlying commodity. Finally, as
required in Rule 14.11(e)(4)(G), the
Exchange notes that any registered
market maker (‘‘Market Maker’’) in the
Shares must file with the Exchange in
a manner prescribed by the Exchange
and keep current a list identifying all
accounts for trading in an underlying
commodity, related commodity futures
or options on commodity futures, or any
other related commodity derivatives,
which the registered Market Maker may
have or over which it may exercise
investment discretion. No registered
Market Maker shall trade in an
underlying commodity, related
commodity futures or options on
commodity futures, or any other related
commodity derivatives, in an account in
which a registered Market Maker,
directly or indirectly, controls trading
activities, or has a direct interest in the
profits or losses thereof, which has not
been reported to the Exchange as
required by this Rule. In addition to the
existing obligations under Exchange
rules regarding the production of books
and records (see, e.g., Rule 4.2), the
registered Market Maker in Commodity-
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Based Trust Shares shall make available
to the Exchange such books, records or
other information pertaining to
transactions by such entity or registered
or non-registered employee affiliated
with such entity for its or their own
accounts for trading the underlying
physical commodity, related commodity
futures or options on commodity
futures, or any other related commodity
derivatives, as may be requested by the
Exchange.
Trading Halts
With respect to trading halts, the
Exchange may consider all relevant
factors in exercising its discretion to
halt or suspend trading in the Shares.
The Exchange will halt trading in the
Shares under the conditions specified in
BZX Rule 11.18. Trading may be halted
because of market conditions or for
reasons that, in the view of the
Exchange, make trading in the Shares
inadvisable. These may include: (1) The
extent to which trading is not occurring
in the bitcoin underlying the Shares; or
(2) whether other unusual conditions or
circumstances detrimental to the
maintenance of a fair and orderly
market are present. Trading in the
Shares also will be subject to Rule
14.11(e)(4)(E)(ii), which sets forth
circumstances under which trading in
the Shares may be halted.
Trading Rules
The Exchange deems the Shares to be
equity securities, thus rendering trading
in the Shares subject to the Exchange’s
existing rules governing the trading of
equity securities. BZX will allow trading
in the Shares during all trading sessions
on the Exchange. The Exchange has
appropriate rules to facilitate
transactions in the Shares during all
trading sessions. As provided in BZX
Rule 11.11(a) the minimum price
variation for quoting and entry of orders
in securities traded on the Exchange is
$0.01 where the price is greater than
$1.00 per share or $0.0001 where the
price is less than $1.00 per share.
Surveillance
The Exchange believes that its
surveillance procedures are adequate to
properly monitor the trading of the
Shares on the Exchange during all
trading sessions and to deter and detect
violations of Exchange rules and the
applicable federal securities laws.
Trading of the Shares through the
Exchange will be subject to the
Exchange’s surveillance procedures for
derivative products, including
Commodity-Based Trust Shares. The
issuer has represented to the Exchange
that it will advise the Exchange of any
PO 00000
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8331
failure by the Trust or the Shares to
comply with the continued listing
requirements, and, pursuant to its
obligations under Section 19(g)(1) of the
Exchange Act, the Exchange will surveil
for compliance with the continued
listing requirements. If the Trust or the
Shares are not in compliance with the
applicable listing requirements, the
Exchange will commence delisting
procedures under Exchange Rule 14.12.
The Exchange may obtain information
regarding trading in the Shares and CME
Bitcoin Futures via ISG, from other
exchanges who are members or affiliates
of the ISG, or with which the Exchange
has entered into a comprehensive
surveillance sharing agreement.80
Information Circular
Prior to the commencement of
trading, the Exchange will inform its
members in an Information Circular of
the special characteristics and risks
associated with trading the Shares.
Specifically, the Information Circular
will discuss the following: (i) The
procedures for the creation and
redemption of Baskets (and that the
Shares are not individually redeemable);
(ii) BZX Rule 3.7, which imposes
suitability obligations on Exchange
members with respect to recommending
transactions in the Shares to customers;
(iii) how information regarding the IIV
and the Trust’s NAV are disseminated;
(iv) the risks involved in trading the
Shares outside of Regular Trading
Hours 81 when an updated IIV will not
be calculated or publicly disseminated;
(v) the requirement that members
deliver a prospectus to investors
purchasing newly issued Shares prior to
or concurrently with the confirmation of
a transaction; and (vi) trading
information.
In addition, the Information Circular
will advise members, prior to the
commencement of trading, of the
prospectus delivery requirements
applicable to the Shares. Members
purchasing the Shares for resale to
investors will deliver a prospectus to
such investors. The Information Circular
will also discuss any exemptive, noaction and interpretive relief granted by
the Commission from any rules under
the Act.
2. Statutory Basis
The Exchange believes that the
proposal is consistent with Section 6(b)
of the Act 82 in general and Section
80 For a list of the current members and affiliate
members of ISG, see www.isgportal.com.
81 Regular Trading Hours is the time between 9:30
a.m. and 4:00 p.m. Eastern Time.
82 15 U.S.C. 78f.
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6(b)(5) of the Act 83 in particular in that
it is designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system and, in
general, to protect investors and the
public interest.
The Commission has approved
numerous series of Trust Issued
Receipts,84 including Commodity-Based
Trust Shares,85 to be listed on U.S.
national securities exchanges. In order
for any proposed rule change from an
exchange to be approved, the
Commission must determine that,
among other things, the proposal is
consistent with the requirements of
Section 6(b)(5) of the Act, specifically
including: (i) The requirement that a
national securities exchange’s rules are
designed to prevent fraudulent and
manipulative acts and practices; 86 and
(ii) the requirement that an exchange
proposal be designed, in general, to
protect investors and the public interest.
The Exchange believes that the
proposal is, in particular, designed to
protect investors and the public interest.
Over the past 1.5 years, U.S. investor
83 15
U.S.C. 78f(b)(5).
Exchange Rule 14.11(f).
85 Commodity-Based Trust Shares, as described in
Exchange Rule 14.11(e)(4), are a type of Trust
Issued Receipt.
86 As the Exchange has stated in a number of
other public documents, it continues to believe that
bitcoin is resistant to price manipulation and that
‘‘other means to prevent fraudulent and
manipulative acts and practices’’ exist to justify
dispensing with the requisite surveillance sharing
agreement. The geographically diverse and
continuous nature of bitcoin trading render it
difficult and prohibitively costly to manipulate the
price of bitcoin. The fragmentation across bitcoin
platforms, the relatively slow speed of transactions,
and the capital necessary to maintain a significant
presence on each trading platform make
manipulation of bitcoin prices through continuous
trading activity challenging. To the extent that there
are bitcoin exchanges engaged in or allowing wash
trading or other activity intended to manipulate the
price of bitcoin on other markets, such pricing does
not normally impact prices on other exchanges
because participants will generally ignore markets
with quotes that they deem non-executable.
Moreover, the linkage between the bitcoin markets
and the presence of arbitrageurs in those markets
means that the manipulation of the price of bitcoin
price on any single venue would require
manipulation of the global bitcoin price in order to
be effective. Arbitrageurs must have funds
distributed across multiple trading platforms in
order to take advantage of temporary price
dislocations, thereby making it unlikely that there
will be strong concentration of funds on any
particular bitcoin exchange or OTC platform. As a
result, the potential for manipulation on a trading
platform would require overcoming the liquidity
supply of such arbitrageurs who are effectively
eliminating any cross-market pricing differences.
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84 See
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exposure to bitcoin through OTC
Bitcoin Funds has grown into the tens
of billions of dollars. With that growth,
so too has grown the potential risk to
U.S. investors. Premium and discount
volatility, high fees, insufficient
disclosures, and technical hurdles are
putting U.S. investor money at risk on
a daily basis that could potentially be
eliminated through access to a bitcoin
ETP. The Exchange understands the
Commission’s previous focus on
potential manipulation of a bitcoin ETP
in prior disapproval orders, but now
believes that such concerns have been
sufficiently mitigated and that the
growing and quantifiable investor
protection concerns should be a central
consideration as the Commission
reviews this proposal. As such, the
Exchange believes that this proposal
acts to limit the risk to U.S. investors
that are increasingly seeking exposure to
bitcoin by providing direct, 1-for-1
exposure to bitcoin in a regulated,
transparent, exchange-traded vehicle,
specifically by: (i) Reducing premium
volatility; (ii) reducing management fees
through meaningful competition; (iii)
reducing risks associated with investing
in operating companies that are
imperfect proxies for bitcoin exposure;
and (iv) providing an alternative to
custodying spot bitcoin.
The Exchange also believes that this
proposal is consistent with the
requirements of Section 6(b)(5) of the
Act and that it has sufficiently
demonstrated that, on the whole, the
manipulation concerns previously
articulated by the Commission are
sufficiently addressed to warrant
approval. Specifically, the Exchange
believes that the significant increase in
trading volume in Bitcoin Futures, the
growth of liquidity at the inside in the
spot market for bitcoin, and certain
features of the Shares and the Reference
Rate mitigate potential manipulation
concerns to the point that it is
consistent with the requirements of
Section 6(b)(5) of the Act and therefore
provides a basis for the Commission to
approve this proposal.
(i) Designed To Prevent Fraudulent and
Manipulative Acts and Practices
In order to meet this standard in a
proposal to list and trade a series of
Commodity-Based Trust Shares, the
Commission requires that an exchange
demonstrate that there is a
comprehensive surveillance-sharing
agreement in place 87 with a regulated
87 As previously articulated by the Commission,
‘‘The standard requires such surveillance-sharing
agreements since ‘‘they provide a necessary
deterrent to manipulation because they facilitate the
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market of significant size. Both the
Exchange and CME are members of
ISG.88 The only remaining issue to be
addressed is whether the CME Bitcoin
Futures market constitutes a market of
significant size, which both the
Exchange and the Sponsor believe that
it does. The terms ‘‘significant market’’
and ‘‘market of significant size’’ include
a market (or group of markets) as to
which: (a) There is a reasonable
likelihood that a person attempting to
manipulate the ETP would also have to
trade on that market to manipulate the
ETP, so that a surveillance-sharing
agreement would assist the listing
exchange in detecting and deterring
misconduct; and (b) it is unlikely that
trading in the ETP would be the
predominant influence on prices in that
market.89
The Commission has also recognized
that the ‘‘regulated market of significant
size’’ standard is not the only means for
satisfying Section 6(b)(5) of the act,
specifically providing that a listing
exchange could demonstrate that ‘‘other
means to prevent fraudulent and
manipulative acts and practices’’ are
sufficient to justify dispensing with the
requisite surveillance-sharing
agreement.90
(a) Manipulation of the ETP
The significant growth in CME
Bitcoin Futures across each of trading
volumes, open interest, large open
interest holders, and total market
participants since the Wilshire Phoenix
availability of information needed to fully
investigate a manipulation if it were to occur.’’ The
Commission has emphasized that it is essential for
an exchange listing a derivative securities product
to enter into a surveillance-sharing agreement with
markets trading underlying securities for the listing
exchange to have the ability to obtain information
necessary to detect, investigate, and deter fraud and
market manipulation, as well as violations of
exchange rules and applicable federal securities
laws and rules. The hallmarks of a surveillancesharing agreement are that the agreement provides
for the sharing of information about market trading
activity, clearing activity, and customer identity;
that the parties to the agreement have reasonable
ability to obtain access to and produce requested
information; and that no existing rules, laws, or
practices would impede one party to the agreement
from obtaining this information from, or producing
it to, the other party.’’ The Commission has
historically held that joint membership in ISG
constitutes such a surveillance sharing agreement.
See Wilshire Phoenix Disapproval.
88 For a list of the current members and affiliate
members of ISG, see www.isgportal.com.
89 See Wilshire Phoenix Disapproval.
90 See Winklevoss Order at 37580. The
Commission has also specifically noted that it ‘‘is
not applying a ‘cannot be manipulated’ standard;
instead, the Commission is examining whether the
proposal meets the requirements of the Exchange
Act and, pursuant to its Rules of Practice, places the
burden on the listing exchange to demonstrate the
validity of its contentions and to establish that the
requirements of the Exchange Act have been met.’’
Id. at 37582.
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Disapproval was issued are reflective of
that market’s growing influence on the
spot price, which according to the
academic research cited above, was
already leading the spot price in 2018
and 2019. Where Bitcoin Futures act as
a predominant influence on the price in
the spot market such that a potential
manipulator of the bitcoin spot market
(beyond just the constituents of the
Reference Rate 91) would have to
participate in the Bitcoin Futures
market, it follows that a potential
manipulator of the Shares would
similarly have to transact in the Bitcoin
Futures market because the Reference
Rate is based on spot prices. Further, the
Trust only allows for in-kind creation
and redemption, which, as further
described below, reduces the potential
for manipulation of the Shares through
manipulation of the Reference Rate or
any of its individual constituents, again
emphasizing that a potential
manipulator of the Shares would have
to manipulate the entirety of the bitcoin
spot market, which is led by the CME
Bitcoin Futures market. As such, the
Exchange believes that part (a) of the
significant market test outlined above is
satisfied and that common membership
in ISG between the Exchange and CME
would assist the listing exchange in
detecting and deterring misconduct in
the Shares.
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(b) Predominant Influence on Prices in
Spot and Bitcoin Futures
The Exchange and Sponsor also
believe that trading in the Shares would
not be the predominant force on prices
in the CME Bitcoin Futures market (or
spot market) for a number of reasons,
including the significant volume in the
CME Bitcoin Futures market, the size of
bitcoin’s market cap, and the significant
liquidity available in the spot market.
Moreover, the Shares should trade close
to NAV given that market participants
would arbitrage any significant price
deviations between the price of the
Shares and prices in the spot market. In
addition to the CME Bitcoin Futures
market data points cited above, the spot
market for bitcoin is also very liquid.
According to data from CoinRoutes from
February 2021, the cost to buy or sell $5
million worth of bitcoin averages
roughly 10 basis points with a market
impact of 30 basis points.92 For a $10
million market order, the cost to buy or
91 As noted above, the Constituent Bitcoin
Exchanges are Bitstamp, Coinbase, Gemini, itBit
and Kraken.
92 These statistics are based on samples of bitcoin
liquidity in USD (excluding stablecoins or Euro
liquidity) based on executable quotes on Coinbase
Pro, Gemini, Bitstamp, Kraken, LMAX Exchange,
BinanceUS, and OKCoin during February 2021.
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sell is roughly 20 basis points with a
market impact of 50 basis points. Stated
another way, a market participant could
enter a market buy or sell order for $10
million of bitcoin and only move the
market 0.5%. More strategic purchases
or sales (such as using limit orders and
executing through OTC bitcoin trade
desks) would likely have less obvious
impact on the market—which is
consistent with MicroStrategy, Tesla,
and Square being able to collectively
purchase billions of dollars in bitcoin.
As such, the combination of CME
Bitcoin Futures leading price discovery,
the overall size of the bitcoin market,
and the ability for market participants,
including authorized participants
creating and redeeming in-kind with the
Trust, to buy or sell large amounts of
bitcoin without significant market
impact will help prevent the Shares
from becoming the predominant force
on pricing in either the bitcoin spot or
CME Bitcoin Futures markets, satisfying
part (b) of the test outlined above.
(c) Other Means To Prevent Fraudulent
and Manipulative Acts and Practices
As noted above, the Commission also
permits a listing exchange to
demonstrate that ‘‘other means to
prevent fraudulent and manipulative
acts and practices’’ are sufficient to
justify dispensing with the requisite
surveillance-sharing agreement. The
Exchange believes that such conditions
are present. Specifically, the significant
liquidity in the spot market and the
impact of market orders on the overall
price of bitcoin mean that attempting to
move the price of bitcoin is costly and
has grown more expensive over the past
year. In January 2020, for example, the
cost to buy or sell $5 million worth of
bitcoin averaged roughly 30 basis points
(compared to 10 basis points in 2/2021)
with a market impact of 50 basis points
(compared to 30 basis points in 2/
2021).93 For a $10 million market order,
the cost to buy or sell was roughly 50
basis points (compared to 20 basis
points in 2/2021) with a market impact
of 80 basis points (compared to 50 basis
points in 2/2021). As the liquidity in the
bitcoin spot market increases, it follows
that the impact of $5 million and $10
million orders will continue to decrease
the overall impact in spot price.
Additionally, offering only in-kind
creation and redemption will provide
unique protections against potential
attempts to manipulate the Shares.
While the Sponsor believes that the
93 These statistics are based on samples of bitcoin
liquidity in USD (excluding stablecoins or Euro
liquidity) based on executable quotes on Coinbase
Pro, Gemini, Bitstamp, Kraken, LMAX Exchange,
BinanceUS, and OKCoin during February 2021.
PO 00000
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Fmt 4703
Sfmt 4703
8333
independently maintained and
administered Reference Rate which it
uses to value the Trust’s bitcoin is itself
resistant to manipulation based on the
methodology further described below,
the fact that creations and redemptions
are only available in-kind makes the
manipulability of the Reference Rate
significantly less important.
Specifically, because the Trust will not
accept cash to buy bitcoin in order to
create new shares or, barring a forced
redemption of the Trust or under other
extraordinary circumstances, be forced
to sell bitcoin to pay cash for redeemed
shares, the price that the Sponsor uses
to value the Trust’s bitcoin is not
particularly important.94 When
authorized participants are creating
with the Trust, they need to deliver a
certain number of bitcoin per share
(regardless of the valuation used) and
when they’re redeeming, they can
similarly expect to receive a certain
number of bitcoin per share. As such,
even if the price used to value the
Trust’s bitcoin is manipulated (which
the Sponsor believes that its
methodology is resistant to), the ratio of
bitcoin per Share does not change and
the Trust will either accept (for
creations) or distribute (for
redemptions) the same number of
bitcoin regardless of the value. This not
only mitigates the risk associated with
potential manipulation, but also
discourages and disincentivizes
manipulation of the Reference Rate
because there is little financial incentive
to do so.
Commodity-Based Trust Shares
The Exchange believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices in that the Shares will
be listed on the Exchange pursuant to
the initial and continued listing criteria
in Exchange Rule 14.11(e)(4). The
Exchange believes that its surveillance
procedures are adequate to properly
monitor the trading of the Shares on the
Exchange during all trading sessions
and to deter and detect violations of
Exchange rules and the applicable
federal securities laws. Trading of the
Shares through the Exchange will be
subject to the Exchange’s surveillance
procedures for derivative products,
including Commodity-Based Trust
Shares. The issuer has represented to
the Exchange that it will advise the
Exchange of any failure by the Trust or
the Shares to comply with the
94 While the Reference Rate will not be
particularly important for the creation and
redemption process, it will be used for calculating
fees.
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jspears on DSK121TN23PROD with NOTICES1
continued listing requirements, and,
pursuant to its obligations under
Section 19(g)(1) of the Exchange Act, the
Exchange will surveil for compliance
with the continued listing requirements.
If the Trust or the Shares are not in
compliance with the applicable listing
requirements, the Exchange will
commence delisting procedures under
Exchange Rule 14.12. The Exchange
may obtain information regarding
trading in the Shares and listed bitcoin
derivatives via the ISG, from other
exchanges who are members or affiliates
of the ISG, or with which the Exchange
has entered into a comprehensive
surveillance sharing agreement.
Availability of Information
The Exchange also believes that the
proposal promotes market transparency
in that a large amount of information is
currently available about bitcoin and
will be available regarding the Trust and
the Shares. In addition to the price
transparency of the Reference Rate, the
Trust will provide information
regarding the Trust’s bitcoin holdings as
well as additional data regarding the
Trust. The Trust will provide an IIV per
Share updated every 15 seconds, as
calculated by the Exchange or a thirdparty financial data provider during the
Exchange’s Regular Trading Hours (9:30
a.m. to 4:00 p.m. E.T.). The IIV will be
calculated by using the prior day’s
closing NAV per Share as a base and
updating that value during Regular
Trading Hours to reflect changes in the
value of the Trust’s bitcoin holdings
during the trading day.
The IIV disseminated during Regular
Trading Hours should not be viewed as
an actual real-time update of the NAV,
which will be calculated only once at
the end of each trading day. The IIV will
be widely disseminated on a per Share
basis every 15 seconds during the
Exchange’s Regular Trading Hours by
one or more major market data vendors.
In addition, the IIV will be available
through on-line information services.
The website for the Trust, which will
be publicly accessible at no charge, will
contain the following information: (a)
The prior business day’s NAV and the
reported closing price; (b) the BZX
Official Closing Price in relation to the
NAV as of the time the NAV is
calculated and a calculation of the
premium or discount of such price
against such NAV; (c) data in chart form
displaying the frequency distribution of
discounts and premiums of the Official
Closing Price against the NAV, within
appropriate ranges for each of the four
previous calendar quarters (or for the
life of the Trust, if shorter); (d) the
prospectus; and (e) other applicable
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17:54 Feb 11, 2022
Jkt 256001
quantitative information, including the
information noted with respect to Rule
6c–11 under the 1940 Act. The Trust
will also disseminate the Trust’s
holdings on a daily basis on the Trust’s
website. The price of bitcoin will be
made available by one or more major
market data vendors, updated at least
every 15 seconds during Regular
Trading Hours. Information about the
Reference Rate, including key elements
of how the Reference Rate is calculated,
will be publicly available at https://
www.cfbenchmarks.com.
The NAV for the Trust will be
calculated by the Administrator once a
day and will be disseminated daily to
all market participants at the same time.
Quotation and last-sale information
regarding the Shares will be
disseminated through the facilities of
the CTA.
Quotation and last sale information
for bitcoin is widely disseminated
through a variety of major market data
vendors, including Bloomberg and
Reuters, as well as the Reference Rate.
Information relating to trading,
including price and volume
information, in bitcoin is available from
major market data vendors and from the
exchanges on which bitcoin are traded.
Depth of book information is also
available from bitcoin exchanges. The
normal trading hours for bitcoin
exchanges are 24 hours per day, 365
days per year.
For the above reasons, the Exchange
believes that the proposed rule change
is consistent with the requirements of
Section 6(b)(5) of the Act.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purpose of the Act. The Exchange
notes that the proposed rule change,
rather will facilitate the listing and
trading of an additional exchange-traded
product that will enhance competition
among both market participants and
listing venues, to the benefit of investors
and the marketplace.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has neither solicited
nor received written comments on the
proposed rule change.
PO 00000
Frm 00108
Fmt 4703
Sfmt 4703
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the Exchange consents, the Commission
will:
A. By order approve or disapprove
such proposed rule change, or
B. institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CboeBZX–2022–006 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–CboeBZX–2022–006. 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
E:\FR\FM\14FEN1.SGM
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Federal Register / Vol. 87, No. 30 / Monday, February 14, 2022 / Notices
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CboeBZX–2022–006 and
should be submitted on or before March
7, 2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.95
J. Matthew DeLesDernier,
Assistant Secretary.
by the Act of October 19, 1965 (79 Stat.
985; 22 U.S.C. 2459), E.O. 12047 of
March 27, 1978, the Foreign Affairs
Reform and Restructuring Act of 1998
(112 Stat. 2681, et seq.; 22 U.S.C. 6501
note, et seq.), Delegation of Authority
No. 234 of October 1, 1999, Delegation
of Authority No. 236–3 of August 28,
2000, and Delegation of Authority No.
523 of December 22, 2021.
Stacy E. White,
Deputy Assistant Secretary for Professional
and Cultural Exchanges, Bureau of
Educational and Cultural Affairs, Department
of State.
[FR Doc. 2022–03052 Filed 2–11–22; 8:45 am]
BILLING CODE 4710–05–P
[FR Doc. 2022–03019 Filed 2–11–22; 8:45 am]
BILLING CODE 8011–01–P
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
DEPARTMENT OF STATE
[Docket No. FAA–2022–0187]
[Public Notice: 11652]
Agency Information Collection
Activities: Requests for Comments;
Clearance of Renewed Approval of
Information Collection: General
Operating and Flight Rules FAR 91 and
FAR 107
Notice of Determinations; Additional
Culturally Significant Object Being
Imported for Exhibition—
Determinations: ‘‘The Language of
Beauty in African Art’’ Exhibition
On December 16, 2021, notice
was published on page 71313 of the
Federal Register (volume 86, number
238) of determinations pertaining to
certain objects to be included in an
exhibition entitled ‘‘The Language of
Beauty in African Art.’’ Notice is hereby
given of the following determinations: I
hereby determine that a certain
additional object being imported from
abroad pursuant to an agreement with
its foreign owner or custodian for
temporary display in the aforesaid
exhibition at the Art Institute of
Chicago, in Chicago, Illinois; and at
possible additional exhibitions or
venues yet to be determined, are of
cultural significance, and, further, that
its temporary exhibition or display
within the United States as
aforementioned is in the national
interest. I have ordered that Public
Notice of these determinations be
published in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Chi
D. Tran, Program Administrator, Office
of the Legal Adviser, U.S. Department of
State (telephone: 202–632–6471; email:
section2459@state.gov). The mailing
address is U.S. Department of State, L/
PD, 2200 C Street NW (SA–5), Suite
5H03, Washington, DC 20522–0505.
SUPPLEMENTARY INFORMATION: The
foregoing determinations were made
pursuant to the authority vested in me
jspears on DSK121TN23PROD with NOTICES1
SUMMARY:
95 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
17:54 Feb 11, 2022
Jkt 256001
Federal Aviation
Administration (FAA), DOT.
ACTION: Notice and request for
comments.
AGENCY:
In accordance with the
Paperwork Reduction Act of 1995, FAA
invites public comments about our
intention to request the Office of
Management and Budget (OMB)
approval to renew an information
collection. The collection involves the
submission of an application to obtain
a Letter of Deviation Authority to permit
flight instruction for compensation or
hire aboard experimental category
aircraft under 14 CFR 91.319. The
information to be collected will be used
to determine whether such flight
instruction can be conducted safely.
DATES: Written comments should be
submitted by April 15, 2022.
ADDRESSES: Please send written
comments:
By Electronic Docket:
www.regulations.gov (Enter docket
number into search field).
By mail: Dwayne C. Morris, 800
Independence Ave. SW, Washington,
DC 20591.
By email: chris.morris@faa.gov.
FOR FURTHER INFORMATION CONTACT:
Jabari Raphael by email at:
Jabari.Raphael@faa.gov; phone: 202–
267–1088.
SUPPLEMENTARY INFORMATION:
SUMMARY:
PO 00000
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8335
Public Comments Invited: You are
asked to comment on any aspect of this
information collection, including (a)
whether the proposed collection of
information is necessary for FAA’s
performance; (b) the accuracy of the
estimated burden; (c) ways for FAA to
enhance the quality, utility and clarity
of the information collection; and (d)
ways that the burden could be
minimized without reducing the quality
of the collected information. The agency
will summarize and/or include your
comments in the request for OMB’s
clearance of this information collection.
OMB Control Number: 2120–0005.
Title: General Operating and Flight
Rules FAR 91 and FAR 107.
Form Numbers: N/A.
Type of Review: Renewal.
Background: In 2004, the FAA
published a final rule requiring
operators of experimental aircraft to
apply for a Letter of Deviation Authority
(LODA) to conduct operations for
compensation or hire under 14 CFR
19.319. See 69 FR 44771 (July 27, 2004).
When publishing the 2004 final rule, the
FAA inadvertently omitted its
submission to the OMB detailing the
information collection burden under the
Paperwork Reduction Act (PRA). See 69
FR at 44858 (explaining estimated PRA
burden and OMB compliance
requirements). As a result of this
omission, the existing OMB collection
does not account for the PRA burden of
LODAs issued to operators under
§ 91.319.
In the 2004 final rule, the FAA also
required that, beginning January 31,
2010, all experimental light sport
aircraft (ELSA) operators would
similarly need to apply for a LODA to
conduct operations for compensation or
hire. 69 FR at 44853 (explaining LODA
requirements for ELSA operators). This
additional LODA requirement—
published in the 2004 final rule with an
effective date in 2010—was also
inadvertently not accounted for in the
OMB’s information collection. As a
result of these inadvertent omissions to
OMB, the FAA submits this Notice for
Public Comment to ensure compliance
with the PRA.
Importantly, the FAA has already
requested and received public comment
on the anticipated PRA burden for
obtaining a LODA for experimental and
ELSA aircraft operators. See 69 FR at
44858 (adjudicating comments from
public regarding PRA burden). Thus, the
FAA notes that it considered comments
from interested members of the public
when finalizing the LODA requirements
under § 91.319. In other words, the FAA
submits this Notice merely to ensure
technical compliance with the OMB’s
E:\FR\FM\14FEN1.SGM
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]]>Agencies
[Federal Register Volume 87, Number 30 (Monday, February 14, 2022)]
[Notices]
[Pages 8318-8335]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-03019]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94184; File No. SR-CboeBZX-2022-006]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To List and Trade Shares of the
WisdomTree Bitcoin Trust Under BZX Rule 14.11(e)(4), Commodity-Based
Trust Shares
February 8, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on January 25, 2022, Cboe BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission (the
``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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes rule change to list and trade shares of the
WisdomTree Bitcoin Trust (the ``Trust''),\3\ under BZX Rule
14.11(e)(4), Commodity-Based Trust Shares. The shares of the Trust are
referred to herein as the ``Shares.''
---------------------------------------------------------------------------
\3\ The Trust was formed as a Delaware statutory trust on March
8, 2021 and is operated as a grantor trust for U.S. federal tax
purposes. The Trust has no fixed termination date.
---------------------------------------------------------------------------
The text of the proposed rule change is available on the Exchange's
website (https://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade the Shares under BZX Rule
14.11(e)(4),\4\ which governs the listing and trading of Commodity-
Based Trust Shares on the Exchange.5 6 WisdomTree
[[Page 8319]]
Digital Commodity Services, LLC is the sponsor of the Trust (the
``Sponsor''). The Shares will be registered with the Commission by
means of the Trust's registration statement on Form S-1 (the
``Registration Statement'').\7\ As further discussed below, the
Commission has historically approved or disapproved exchange filings to
list and trade series of Trust Issued Receipts, including spot-based
Commodity-Based Trust Shares, on the basis of whether the listing
exchange has in place a comprehensive surveillance sharing agreement
with a regulated market of significant size related to the underlying
commodity.\8\ A survey of previously approved series of Commodity-Based
Trust Shares and Currency Trust Shares makes clear that the spot
markets for commodities and currencies held in such ETPs are generally
unregulated. In fact, the Commission specifically noted in the
Winklevoss Order that the first gold ETP approval order, which was also
the first commodity-trust ETP, ``was based on an assumption that the
currency market and the spot gold market were largely unregulated.''
\9\ This makes clear that the applicable standard is not whether the
underlying commodity market itself is regulated. Further to this point,
prior orders have also emphasized that in every prior approval order
for Commodity-Based Trust Shares there was a regulated derivatives
market of significant size, generally a Commodity Futures Trading
Commission (the ``CFTC'') regulated futures market.\10\ Despite the
lack of regulation of the underlying spot commodity and currency
markets, the Commission approved series of Currency and Commodity-Based
Trust Shares, including those that held gold, silver,
[[Page 8320]]
platinum, palladium, copper, and other commodities and currencies,
because it determined that the futures markets for these commodities
and currencies represented regulated markets of significant size and
that the listing exchange had a surveillance sharing agreement in place
with that market.\11\
---------------------------------------------------------------------------
\4\ The Commission approved BZX Rule 14.11(e)(4) in Securities
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148
(September 6, 2011) (SR-BATS-2011-018).
\5\ All statements and representations made in this filing
regarding (a) the description of the portfolio, (b) limitations on
portfolio holdings or reference assets, or (c) the applicability of
Exchange rules and surveillance procedures shall constitute
continued listing requirements for listing the Shares on the
Exchange.
The Exchange notes that a different proposal to list and trade
shares of the WisdomTree Bitcoin Trust was disapproved by the
Commission on December 1, 2021. See Exchange Act Release No. 93700
(December 1, 2021), 86 FR 69322 (December 7, 2021). The Sponsor has
subsequently submitted an amended Registration Statement that
includes a number of additional voluntary disclosures and
shareholder protections that the Sponsor intends to undertake. This
proposal is also significantly different than the previously
disapproved proposal in that it includes additional information
related to such voluntary disclosures and protections, additional
information related to Bitcoin Futures ETFs, as defined below, and
additional statistical and statutory analysis that seeks to respond
to the concerns of the Commission.
\7\ The Trust has filed an amended registration statement on
Form S-1 under the Securities Act of 1933, dated December 8, 2021
(File No. 333-254134) (``Registration Statement''). The description
of the Trust and the Shares contained herein are based on the
Registration Statement. The Registration Statement for the Trust is
not yet effective and the Shares will not trade on the Exchange
until such time that the Registration Statement is effective.
\8\ See Securities Exchange Act Release No. 83723 (July 26,
2018), 83 FR 37579 (August 1, 2018). This proposal was subsequently
disapproved by the Commission. See Securities Exchange Act Release
No. 83723 (July 26, 2018), 83 FR 37579 (August 1, 2018) (the
``Winklevoss Order'').
\9\ See Winklevoss Order at 37592 and Exchange Act Release No.
50603 (Oct. 28, 2004), 69 FR 64614 (Nov. 5, 2004) (SR-NYSE-2004-22)
(order approving the listing and trading of streetTRACKS Gold
Shares) (the ``First Gold Approval Order'').
\10\ See Winklevoss Order at 37592. See also the First Gold
Approval Order at 64618-19; iShares COMEX Gold Trust, Exchange Act
Release No. 51058 (Jan. 19, 2005), 70 FR 3749, 3751, 3754-55 (Jan.
26, 2005) (SR-Amex-2004-38); iShares Silver Trust, Exchange Act
Release No. 53521 (Mar. 20, 2006), 71 FR 14967, 14968, 14973-74
(Mar. 24, 2006) (SR-Amex-2005-072); ETFS Gold Trust, Exchange Act
Release No. 59895 (May 8, 2009), 74 FR 22993, 22994-95, 22998, 23000
(May 15, 2009) (SR-NYSEArca-2009-40); ETFS Silver Trust, Exchange
Act Release No. 59781 (Apr. 17, 2009), 74 FR 18771, 18772, 18775-77
(Apr. 24, 2009) (SR-NYSEArca-2009-28); ETFS Palladium Trust,
Exchange Act Release No. 61220 (Dec. 22, 2009), 74 FR 68895, 68896
(Dec. 29, 2009) (SR-NYSEArca-2009-94) (notice of proposed rule
change included NYSE Arca's representation that ``[t]he most
significant palladium futures exchanges are the NYMEX and the Tokyo
Commodity Exchange,'' that ``NYMEX is the largest exchange in the
world for trading precious metals futures and options,'' and that
NYSE Arca ``may obtain trading information via the Intermarket
Surveillance Group,'' of which NYMEX is a member, Exchange Act
Release No. 60971 (Nov. 9, 2009), 74 FR 59283, 59285-86, 59291 (Nov.
17, 2009)); ETFS Platinum Trust, Exchange Act Release No. 61219
(Dec. 22, 2009), 74 FR 68886, 68887-88 (Dec. 29, 2009) (SR-NYSEArca-
2009-95) (notice of proposed rule change included NYSE Arca's
representation that ``[t]he most significant platinum futures
exchanges are the NYMEX and the Tokyo Commodity Exchange,'' that
``NYMEX is the largest exchange in the world for trading precious
metals futures and options,'' and that NYSE Arca ``may obtain
trading information via the Intermarket Surveillance Group,'' of
which NYMEX is a member, Exchange Act Release No. 60970 (Nov. 9,
2009), 74 FR 59319, 59321, 59327 (Nov. 17, 2009)); Sprott Physical
Gold Trust, Exchange Act Release No. 61496 (Feb. 4, 2010), 75 FR
6758, 6760 (Feb. 10, 2010) (SR-NYSEArca-2009-113) (notice of
proposed rule change included NYSE Arca's representation that the
COMEX is one of the ``major world gold markets,'' that NYSE Arca
``may obtain trading information via the Intermarket Surveillance
Group,'' and that NYMEX, of which COMEX is a division, is a member
of the Intermarket Surveillance Group, Exchange Act Release No.
61236 (Dec. 23, 2009), 75 FR 170, 171, 174 (Jan. 4, 2010)); Sprott
Physical Silver Trust, Exchange Act Release No. 63043 (Oct. 5,
2010), 75 FR 62615, 62616, 62619, 62621 (Oct. 12, 2010) (SR-
NYSEArca-2010-84); ETFS Precious Metals Basket Trust, Exchange Act
Release No. 62692 (Aug. 11, 2010), 75 FR 50789, 50790 (Aug. 17,
2010) (SR-NYSEArca-2010-56) (notice of proposed rule change included
NYSE Arca's representation that ``the most significant gold, silver,
platinum and palladium futures exchanges are the COMEX and the
TOCOM'' and that NYSE Arca ``may obtain trading information via the
Intermarket Surveillance Group,'' of which COMEX is a member,
Exchange Act Release No. 62402 (Jun. 29, 2010), 75 FR 39292, 39295,
39298 (July 8, 2010)); ETFS White Metals Basket Trust, Exchange Act
Release No. 62875 (Sept. 9, 2010), 75 FR 56156, 56158 (Sept. 15,
2010) (SR-NYSEArca-2010-71) (notice of proposed rule change included
NYSE Arca's representation that ``the most significant silver,
platinum and palladium futures exchanges are the COMEX and the
TOCOM'' and that NYSE Arca ``may obtain trading information via the
Intermarket Surveillance Group,'' of which COMEX is a member,
Exchange Act Release No. 62620 (July 30, 2010), 75 FR 47655, 47657,
47660 (Aug. 6, 2010)); ETFS Asian Gold Trust, Exchange Act Release
No. 63464 (Dec. 8, 2010), 75 FR 77926, 77928 (Dec. 14, 2010) (SR-
NYSEArca-2010-95) (notice of proposed rule change included NYSE
Arca's representation that ``the most significant gold futures
exchanges are the COMEX and the Tokyo Commodity Exchange,'' that
``COMEX is the largest exchange in the world for trading precious
metals futures and options,'' and that NYSE Arca ``may obtain
trading information via the Intermarket Surveillance Group,'' of
which COMEX is a member, Exchange Act Release No. 63267 (Nov. 8,
2010), 75 FR 69494, 69496, 69500-01 (Nov. 12, 2010)); Sprott
Physical Platinum and Palladium Trust, Exchange Act Release No.
68430 (Dec. 13, 2012), 77 FR 75239, 75240-41 (Dec. 19, 2012) (SR-
NYSEArca-2012-111) (notice of proposed rule change included NYSE
Arca's representation that ``[f]utures on platinum and palladium are
traded on two major exchanges: The New York Mercantile Exchange ...
and Tokyo Commodities Exchange'' and that NYSE Arca ``may obtain
trading information via the Intermarket Surveillance Group,'' of
which COMEX is a member, Exchange Act Release No. 68101 (Oct. 24,
2012), 77 FR 65732, 65733, 65739 (Oct. 30, 2012)); APMEX Physical--1
oz. Gold Redeemable Trust, Exchange Act Release No. 66930 (May 7,
2012), 77 FR 27817, 27818 (May 11, 2012) (SR-NYSEArca-2012-18)
(notice of proposed rule change included NYSE Arca's representation
that NYSE Arca ``may obtain trading information via the Intermarket
Surveillance Group,'' of which COMEX is a member, and that gold
futures are traded on COMEX and the Tokyo Commodity Exchange, with a
cross-reference to the proposed rule change to list and trade shares
of the ETFS Gold Trust, in which NYSE Arca represented that COMEX is
one of the ``major world gold markets,'' Exchange Act Release No.
66627 (Mar. 20, 2012), 77 FR 17539, 17542-43, 17547 (Mar. 26,
2012)); JPM XF Physical Copper Trust, Exchange Act Release No. 68440
(Dec. 14, 2012), 77 FR 75468, 75469-70, 75472, 75485-86 (Dec. 20,
2012) (SR-NYSEArca-2012-28); iShares Copper Trust, Exchange Act
Release No. 68973 (Feb. 22, 2013), 78 FR 13726, 13727, 13729-30,
13739-40 (Feb. 28, 2013) (SR-NYSEArca-2012-66); First Trust Gold
Trust, Exchange Act Release No. 70195 (Aug. 14, 2013), 78 FR 51239,
51240 (Aug. 20, 2013) (SR-NYSEArca-2013-61) (notice of proposed rule
change included NYSE Arca's representation that FINRA, on behalf of
the exchange, may obtain trading information regarding gold futures
and options on gold futures from members of the Intermarket
Surveillance Group, including COMEX, or from markets ``with which
[NYSE Arca] has in place a comprehensive surveillance sharing
agreement,'' and that gold futures are traded on COMEX and the Tokyo
Commodity Exchange, with a cross-reference to the proposed rule
change to list and trade shares of the ETFS Gold Trust, in which
NYSE Arca represented that COMEX is one of the ``major world gold
markets,'' Exchange Act Release No. 69847 (June 25, 2013), 78 FR
39399, 39400, 39405 (July 1, 2013)); Merk Gold Trust, Exchange Act
Release No. 71378 (Jan. 23, 2014), 79 FR 4786, 4786-87 (Jan. 29,
2014) (SR-NYSEArca-2013-137) (notice of proposed rule change
included NYSE Arca's representation that ``COMEX is the largest gold
futures and options exchange'' and that NYSE Arca ``may obtain
trading information via the Intermarket Surveillance Group,''
including with respect to transactions occurring on COMEX pursuant
to CME and NYMEX's membership, or from exchanges ``with which [NYSE
Arca] has in place a comprehensive surveillance sharing agreement,''
Exchange Act Release No. 71038 (Dec. 11, 2013), 78 FR 76367, 76369,
76374 (Dec. 17, 2013)); Long Dollar Gold Trust, Exchange Act Release
No. 79518 (Dec. 9, 2016), 81 FR 90876, 90881, 90886, 90888 (Dec. 15,
2016) (SR-NYSEArca-2016-84).
\11\ Id.
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The Exchange acknowledges that largely unregulated currency and
spot commodity markets do not provide the same protections as the
markets that are subject to the Commission's oversight. However, the
Commission has consistently looked to surveillance sharing agreements
with an underlying futures market to determine whether ETPs holding
currency or commodities were consistent with the Act, as established
above. As such, the Commission's regulated market of significant size
test does not require that the spot bitcoin market be regulated to
approve this proposal. To the contrary, precedent makes clear that any
requirement that the spot bitcoin market be a ``regulated market''
prior to approval would be incongruous with all prior spot commodity
and currency approval orders. With this in mind, the CME Bitcoin
Futures market is the proper market for the Commission to consider in
determining whether this proposal is consistent with the Act. The
Exchange has a comprehensive surveillance sharing agreement in place
with CME, which operates a bitcoin futures market that, as established
by the included analysis below, represents a regulated market of
significant size related to the underlying commodity (bitcoin) to be
held by the Trust. Therefore, both the Exchange and the Sponsor believe
that the CME Bitcoin Futures market satisfies the standard that the
Commission has applied to all previously approved series of Commodity-
Based Trust Shares and that this proposal should be approved.
Background
Bitcoin is a digital asset based on the decentralized, open source
protocol of the peer-to-peer computer network launched in 2009 that
governs the creation, movement, and ownership of bitcoin and hosts the
public ledger, or ``blockchain,'' on which all bitcoin transactions are
recorded (the ``Bitcoin Network'' or ``Bitcoin''). The decentralized
nature of the Bitcoin Network allows parties to transact directly with
one another based on cryptographic proof instead of relying on a
trusted third party. The protocol also lays out the rate of issuance of
new bitcoin within the Bitcoin Network, a rate that is reduced by half
approximately every four years with an eventual hard cap of 21 million.
It's generally understood that the combination of these two features--a
systemic hard cap of 21 million bitcoin and the ability to transact
trustlessly with anyone connected to the Bitcoin Network--gives bitcoin
its value.\12\
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\12\ For additional information about bitcoin and the Bitcoin
Network, see https://bitcoin.org/en/getting-started; https://www.wisdomtree.com/strategies/crypto; https://www.fidelitydigitalassets.com/articles/addressing-bitcoin-criticisms; and https://www.vaneck.com/education/investment-ideas/investing-in-bitcoin-and-digital-assets/.
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The first rule filing proposing to list an exchange-traded product
to provide exposure to bitcoin in the U.S. was submitted by the
Exchange on June 30, 2016.\13\ At that time, blockchain technology, and
digital assets that utilized it, were relatively new to the broader
public. The market cap of all bitcoin in existence at that time was
approximately $10 billion. No registered offering of digital asset
securities or shares in an investment vehicle with exposure to bitcoin
or any other cryptocurrency had yet been conducted, and the regulated
infrastructure for conducting a digital asset securities offering had
not begun to develop.\14\ Similarly, regulated U.S. bitcoin futures
contracts did not exist. The CFTC had determined that bitcoin is a
commodity,\15\ but had not engaged in significant enforcement actions
in the space. The New York Department of Financial Services (``NYDFS'')
adopted its final BitLicense regulatory framework in 2015, but had only
approved four entities to engage in activities relating to virtual
currencies (whether through granting a BitLicense or a limited-purpose
trust charter) as of June 30, 2016.\16\ While the first over-the-
counter bitcoin fund launched in 2013, public trading was limited and
the fund had only $60 million in assets.\17\ There were very few, if
any, traditional financial institutions engaged in the space, whether
through investment or providing services to digital asset companies. In
January 2018, the Staff of the Commission noted in a letter to the
Investment Company Institute and SIFMA that it was not aware, at that
time, of a single custodian providing fund custodial services for
digital assets.\18\
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\13\ See Winklevoss Order.
\14\ Digital assets that are securities under U.S. law are
referred to throughout this proposal as ``digital asset
securities.'' All other digital assets, including bitcoin, are
referred to interchangeably as ``cryptocurrencies'' or ``virtual
currencies.'' The term ``digital assets'' refers to all digital
assets, including both digital asset securities and
cryptocurrencies, together.
\15\ See ``In the Matter of Coinflip, Inc.'' (``Coinflip'')
(CFTC Docket 15-29 (September 17, 2015)) (order instituting
proceedings pursuant to Sections 6(c) and 6(d) of the CEA, making
findings and imposing remedial sanctions), in which the CFTC stated:
``Section 1a(9) of the CEA defines `commodity' to include,
among other things, `all services, rights, and interests in which
contracts for future delivery are presently or in the future dealt
in.' 7 U.S.C. 1a(9). The definition of a `commodity' is broad. See,
e.g., Board of Trade of City of Chicago v. SEC, 677 F. 2d 1137, 1142
(7th Cir. 1982). Bitcoin and other virtual currencies are
encompassed in the definition and properly defined as commodities.''
\16\ A list of virtual currency businesses that are entities
regulated by the NYDFS is available on the NYDFS website. See
https://www.dfs.ny.gov/apps_and_licensing/virtual_currency_businesses/regulated_entities.
\17\ Data as of March 31, 2016 according to publicly available
filings. See Bitcoin Investment Trust Form S-1, dated May 27, 2016,
available: https://www.sec.gov/Archives/edgar/data/1588489/000095012316017801/filename1.htm.
\18\ See letter from Dalia Blass, Director, Division of
Investment Management, U.S. Securities and Exchange Commission to
Paul Schott Stevens, President & CEO, Investment Company Institute
and Timothy W. Cameron, Asset Management Group--Head, Securities
Industry and Financial Markets Association (January 18, 2018),
available at https://www.sec.gov/divisions/investment/noaction/2018/cryptocurrency-011818.htm.
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Fast forward to the fourth quarter of 2021 and the digital assets
financial ecosystem, including bitcoin, has progressed significantly.
The development of a regulated market for digital asset securities has
significantly evolved, with market participants having conducted
registered public offerings of both digital asset securities \19\ and
shares in investment vehicles holding bitcoin futures.\20\
Additionally, licensed and regulated service providers have emerged to
provide fund custodial services for digital assets, among other
services. For example, in May 2021, the Staff of the Commission
released a statement permitting open-end mutual funds to invest in
cash-settled bitcoin futures; in December 2020, the Commission adopted
a conditional no-action position permitting certain special purpose
broker-dealers to custody digital asset securities under Rule 15c3-3
under the Exchange Act (the ``Custody Statement''); \21\ in September
2020, the Staff of the Commission released a no-
[[Page 8321]]
action letter permitting certain broker-dealers to operate a non-
custodial Alternative Trading System (``ATS'') for digital asset
securities, subject to specified conditions; \22\ and in October 2019,
the Staff of the Commission granted temporary relief from the clearing
agency registration requirement to an entity seeking to establish a
securities clearance and settlement system based on distributed ledger
technology,\23\ and multiple transfer agents who provide services for
digital asset securities registered with the Commission.\24\
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\19\ See Prospectus supplement filed pursuant to Rule 424(b)(1)
for INX Tokens (Registration No. 333-233363), available at: https://www.sec.gov/Archives/edgar/data/1725882/000121390020023202/ea125858-424b1_inxlimited.htm.
\20\ See Prospectus filed by Stone Ridge Trust VI on behalf of
NYDIG Bitcoin Strategy Fund Registration, available at: https://www.sec.gov/Archives/edgar/data/1764894/000119312519309942/d693146d497.htm.
\21\ See Securities Exchange Act Release No. 90788, 86 FR 11627
(February 26, 2021) (File Number S7-25-20) (Custody of Digital Asset
Securities by Special Purpose Broker-Dealers).
\22\ See letter from Elizabeth Baird, Deputy Director, Division
of Trading and Markets, U.S. Securities and Exchange Commission to
Kris Dailey, Vice President, Risk Oversight & Operational
Regulation, Financial Industry Regulatory Authority (September 25,
2020), available at: https://www.sec.gov/divisions/marketreg/mr-noaction/2020/finra-ats-role-in-settlement-of-digital-asset-security-trades-09252020.pdf.
\23\ See letter from Jeffrey S. Mooney, Associate Director,
Division of Trading and Markets, U.S. Securities and Exchange
Commission to Charles G. Cascarilla & Daniel M. Burstein, Paxos
Trust Company, LLC (October 28, 2019), available at: https://www.sec.gov/divisions/marketreg/mr-noaction/2019/paxos-trust-company-102819-17a.pdf.
\24\ See, e.g., Form TA-1/A filed by Securrency Transfers, Inc.
(CIK: 0001846640) on August 13, 2021, available at https://www.sec.gov/Archives/edgar/data/0001846640/000184664021000006/xslFTA1X01/primary_doc.xml; and Form TA-1/A filed by Tokensoft
Transfer Agent LLC (CIK: 0001794142) on January 8, 2021, available
at: https://www.sec.gov/Archives/edgar/data/1794142/000179414219000001/xslFTA1X01/primary_doc.xml.
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Outside the Commission's purview, the regulatory landscape has
changed significantly since 2016, and cryptocurrency markets have grown
and evolved as well. The market for bitcoin is approximately 100 times
larger, with a market cap of over $1 trillion.\25\ According to the CME
Bitcoin Futures Report, from October 25, 2021 through November 19,
2021, CFTC regulated bitcoin futures represented approximately $2.9
billion in notional trading volume on Chicago Mercantile Exchange
(``CME'') (``CME Bitcoin Futures'') on a daily basis and notional
volume was never below $1.2 billion per day.\26\ Open interest was over
$4 billion for the entirety of the period and at one point reached $5.5
billion. The CFTC has exercised its regulatory jurisdiction in bringing
a number of enforcement actions related to bitcoin and against trading
platforms that offer cryptocurrency trading.\27\ The U.S. Office of the
Comptroller of the Currency (the ``OCC'') has made clear that
federally-chartered banks are able to provide custody services for
cryptocurrencies and other digital assets \28\ and major U.S. banks
that currently serve as asset custodians for investment companies
registered under the Investment Company Act of 1940, as amended (``1940
Act''), are now serving, or have expressed an intention of serving, as
bitcoin custodians.\29\ One such bank, U.S. Bank, N.A., will be serving
as the custodian of the Trust (the ``Custodian''). The OCC has also
recently granted conditional approval of two charter conversions by
state-chartered trust companies to national banks, both of which
provide cryptocurrency custody services.\30\ NYDFS has granted no fewer
than twenty-five BitLicenses, including to established public payment
companies like PayPal Holdings, Inc. and Square, Inc., and limited
purpose trust charters to entities providing cryptocurrency custody
services. The U.S. Treasury Financial Crimes Enforcement Network
(``FinCEN'') has released extensive guidance regarding the
applicability of the Bank Secrecy Act (``BSA'') and implementing
regulations to virtual currency businesses,\31\ and has proposed rules
imposing requirements on entities subject to the BSA that are specific
to the technological context of virtual currencies.\32\ In addition,
the Treasury's Office of Foreign Assets Control (``OFAC'') has brought
enforcement actions over apparent violations of the sanctions laws in
connection with the provision of wallet management services for digital
assets.\33\
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\25\ As of December 1, 2021, the total market cap of all bitcoin
in circulation was approximately $1.08 trillion.
\26\ Data sourced from the CME Bitcoin Futures Report: 19 Nov,
2021, available at: https://www.cmegroup.com/ftp/bitcoinfutures/Bitcoin_Futures_Liquidity_Report.pdf.
\27\ The CFTC's annual report for Fiscal Year 2020 (which ended
on September 30, 2020) noted that the CFTC ``continued to
aggressively prosecute misconduct involving digital assets that fit
within the CEA's definition of ``commodity'' and ``brought a record
setting seven cases involving digital assets.'' See CFTC FY2020
Division of Enforcement Annual Report, available at: https://www.cftc.gov/media/5321/DOE_FY2020_AnnualReport_120120/download.
Additionally, the CFTC filed on October 1, 2020, a civil enforcement
action against the owner/operators of the BitMEX trading platform,
which was one of the largest bitcoin derivative exchanges. See CFTC
Release No. 8270-20 (October 1, 2020) available at: https://www.cftc.gov/PressRoom/PressReleases/8270-20.
\28\ See OCC News Release 2021-2 (January 4, 2021) available at:
https://www.occ.gov/news-issuances/news-releases/2021/nr-occ-2021-2.html.
\29\ See U.S. Bank Announces New Cryptocurrenty Custodian
Services for Institutional Investment Managers (October 5, 2021)
available at: https://ir.usbank.com/news-releases/news-release-details/us-bank-announces-new-cryptocurrency-custody-services.
\30\ See OCC News Release 2021-6 (January 13, 2021) available
at: https://www.occ.gov/news-issuances/news-releases/2021/nr-occ-2021-6.html and OCC News Release 2021-19 (February 5, 2021)
available at: https://www.occ.gov/news-issuances/news-releases/2021/nr-occ-2021-19.html.
\31\ See FinCEN Guidance FIN-2019-G001 (May 9, 2019)
(Application of FinCEN's Regulations to Certain Business Models
Involving Convertible Virtual Currencies) available at: https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20Guidance%20CVC%20FINAL%20508.pdf.
\32\ See U.S. Department of the Treasury Press Release: ``The
Financial Crimes Enforcement Network Proposes Rule Aimed at Closing
Anti-Money Laundering Regulatory Gaps for Certain Convertible
Virtual Currency and Digital Asset Transactions'' (December 18,
2020), available at: https://home.treasury.gov/news/press-releases/sm1216.
\33\ See U.S. Department of the Treasury Enforcement Release:
``OFAC Enters Into $98,830 Settlement with BitGo, Inc. for Apparent
Violations of Multiple Sanctions Programs Related to Digital
Currency Transactions'' (December 30, 2020) available at: https://home.treasury.gov/system/files/126/20201230_bitgo.pdf.
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In addition to the regulatory developments laid out above, more
traditional financial market participants have embraced and continue to
embrace cryptocurrency: Large insurance companies,\34\ asset
managers,\35\ university endowments,\36\ pension funds,\37\ and even
historically bitcoin skeptical fund managers \38\ are allocating to
bitcoin. The largest over-the-counter bitcoin fund previously filed a
Form 10 registration statement, which the Staff of the Commission
reviewed and which took effect automatically, and is now a
[[Page 8322]]
reporting company.\39\ Established companies like Tesla, Inc.,\40\
MicroStrategy Incorporated,\41\ and Square, Inc.,\42\ among others,
have recently announced substantial investments in bitcoin in amounts
as large as 43,200 BTC,\43\ worth around $2.5 billion (Tesla) valued at
a BTCUSD price of $60,000 and 121,043 BTC worth $7.2 billion
(MicroStrategy). The foregoing examples demonstrate that bitcoin has
gained mainstream usage and recognition.
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\34\ On December 10, 2020, Massachusetts Mutual Life Insurance
Company (MassMutual) announced that it had purchased $100 million in
bitcoin for its general investment account. See MassMutual Press
Release ``Institutional Bitcoin provider NYDIG announces minority
stake purchase by MassMutual'' (December 10, 2020) available at:
https://www.massmutual.com/about-us/news-and-press-releases/press-releases/2020/12/institutional-bitcoin-provider-nydig-announces-minority-stake-purchase-by-massmutual.
\35\ See e.g., ``BlackRock's Rick Rieder says the world's
largest asset manager has `started to dabble' in bitcoin'' (February
17, 2021) available at: https://www.cnbc.com/2021/02/17/blackrock-has-started-to-dabble-in-bitcoin-says-rick-rieder.html and
``Guggenheim's Scott Minerd Says Bitcoin Should Be Worth $400,000''
(December 16, 2020) available at: https://www.bloomberg.com/news/articles/2020-12-16/guggenheim-s-scott-minerd-says-bitcoin-should-be-worth-400-000.
\36\ See e.g., ``Harvard and Yale Endowments Among Those
Reportedly Buying Crypto'' (January 25, 2021) available at: https://www.bloomberg.com/news/articles/2021-01-26/harvard-and-yale-endowments-among-those-reportedly-buying-crypto.
\37\ See e.g., ``Virginia Police Department Reveals Why its
Pension Fund is Betting on Bitcoin'' (February 14, 2019) available
at: https://finance.yahoo.com/news/virginia-police-department-reveals-why-194558505.html.
\38\ See e.g., ``Bridgewater: Our Thoughts on Bitcoin'' (January
28, 2021) available at: https://www.bridgewater.com/research-and-insights/our-thoughts-on-bitcoin and ``Paul Tudor Jones says he
likes bitcoin even more now, rally still in the `first inning' ''
(October 22, 2020) available at: https://www.cnbc.com/2020/10/22/-paul-tudor-jones-says-he-likes-bitcoin-even-more-now-rally-still-in-the-first-inning.html.
\39\ See Letter from Division of Corporation Finance, Office of
Real Estate & Construction to Barry E. Silbert, Chief Executive
Officer, Grayscale Bitcoin Trust (January 31, 2020) https://www.sec.gov/Archives/edgar/data/1588489/000000000020000953/filename1.pdf.
\40\ See Form 10-K submitted by Tesla, Inc. for the fiscal year
ended December 31, 2020 at 23: https://www.sec.gov/ix?doc=/Archives/edgar/data/1318605/000156459021004599/tsla-10k_20201231.htm.
\41\ See Form 10-Q submitted by MicroStrategy Incorporated for
the quarterly period ended September 30, 2020 at 8: https://www.sec.gov/ix?doc=/Archives/edgar/data/1050446/000156459020047995/mstr-10q_20200930.htm.
\42\ See Form 10-Q submitted by Square, Inc. for the quarterly
period ended September 30, 2020 at 51: https://www.sec.gov/ix?doc=/Archives/edgar/data/1512673/000151267320000012/sq-20200930.htm.
\43\ Amount obtained from https://bitcointreasuries.net as of
December 3, 2021.
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Despite these developments, access for U.S. retail investors to
gain exposure to bitcoin via a transparent and U.S. regulated, U.S.
exchange-traded vehicle remains limited. Instead current options
include: (i) Paying a potentially high premium (and high management
fees) to buy over-the-counter bitcoin funds (``OTC Bitcoin Funds''), to
the advantage of more sophisticated investors that are able to create
shares at net asset value (``NAV'') directly with the issuing trust;
\44\ (ii) facing the technical risk, complexity and generally high fees
associated with buying spot bitcoin; (iii) purchasing shares of
operating companies that they believe will provide proxy exposure to
bitcoin with limited disclosure about the associated risks; \45\ or
(iv) through the purchase of CME Bitcoin Futures ETFs, which represent
a sub-optimal structure for long-term investors that will cost them
collectively tens of millions of dollars every year, as further
discussed below. Meanwhile, investors in many other countries,
including Canada \46\ and Brazil, are able to use more traditional
exchange listed and traded products (including exchange-traded funds
holding physical bitcoin) to gain exposure to bitcoin, disadvantaging
U.S. investors and leaving them with more risky means of getting
bitcoin exposure.\47\ Additionally, investors in other countries and
regions, specifically Canada and Europe, generally pay lower fees than
U.S. retail investors that invest in OTC Bitcoin Funds due to the fee
pressure that results from increased competition among available
bitcoin investment options. Without an approved and regulated spot
bitcoin ETP in the U.S. as a viable alternative, U.S. investors could
seek to purchase shares of non-U.S. bitcoin vehicles in order to get
access to bitcoin exposure. Given the separate regulatory regime and
the potential difficulties associated with any international
litigation, such an arrangement would create more risk exposure for
U.S. investors than they would otherwise have with a U.S. exchange
listed ETP. Further to this point, the lack of a U.S.-listed spot
bitcoin ETP is not preventing U.S. funds from gaining exposure to
bitcoin--several U.S. exchange-traded funds are using Canadian bitcoin
ETPs to gain exposure to spot bitcoin. In addition to the benefits to
U.S. investors articulated throughout this proposal, approving this
proposal (and others like it) would provide U.S. exchange-traded funds
with a U.S.-listed and regulated product to provide such access rather
than relying on either flawed products or products listed and primarily
regulated in other countries.
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\44\ The largest OTC Bitcoin Fund has grown its AUM from
approximately $2.6 billion on February 26, 2020, the date on which
the Commission issued the disapproval order for the United States
Bitcoin and Treasury Investment Trust, to $37.1 billion on December
1, 2021, according to Grayscale's website. See Securities Exchange
Act Release No. 88284 (February 26, 2020), 85 FR 12595 (March 3,
2020) (SR-NYSEArca-2019-39) (the ``Wilshire Phoenix Disapproval'').
While the price of one bitcoin has increased approximately 690% in
the intervening period, the total AUM has increased by approximately
1540%, indicating that the increase in AUM was created beyond just
price appreciation in bitcoin. The premium and discount for OTC
Bitcoin Funds is known to move rapidly. For example, over the period
of 12/21/20 to 1/21/20, the premium for the largest OTC Bitcoin Fund
went from 40.18% to 2.79%. While the price of bitcoin appreciated
significantly during this period and NAV per share increased by
41.25%, the price per share increased by only 3.58%. This means that
investors are buying shares of a fund that experiences significant
volatility in its premium and discount outside of the fluctuations
in price of the underlying asset. Even operating within the normal
premium and discount range, it's possible for an investor to buy
shares of an OTC Bitcoin Fund only to have those shares quickly lose
10% or more in dollar value excluding any movement of the price of
bitcoin. That is to say--the price of bitcoin could have stayed
exactly the same from market close on one day to market open the
next, yet the value of the shares held by the investor decreased
only because of the fluctuation of the premium. As more investment
vehicles, including mutual funds and ETFs, seek to gain exposure to
bitcoin, the easiest option for a buy and hold strategy for such
vehicles is often an OTC Bitcoin Fund, meaning that even investors
that do not directly buy OTC Bitcoin Funds can be disadvantaged by
extreme premiums (or discounts) and premium volatility. Trading at a
premium (or a discount) is not unique to OTC Bitcoin Funds and is
not in itself problematic, but the Commission has recognized the
risks that are posed by a persistent premium or discount and
accordingly mandated website disclosure for ETFs under Rule 6c-11.
That mandate was in the context of a persistent 2% premium or
discount, whereas OTC Bitcoin Funds have had persistent premiums or
discounts at least 10 times that percentage.
\45\ Recently a number of operating companies engaged in
unrelated businesses--such as Tesla (a car manufacturer) and
MicroStrategy (an enterprise software company)--have announced
investments as large as $5.3 billion in bitcoin. Without access to
bitcoin exchange-traded products, retail investors seeking
investment exposure to bitcoin may end up purchasing shares in these
companies in order to gain the exposure to bitcoin that they seek.
In fact, mainstream financial news networks have written a number of
articles providing investors with guidance for obtaining bitcoin
exposure through publicly traded companies (such as MicroStrategy,
Tesla, and bitcoin mining companies, among others) instead of
dealing with the complications associated with buying spot bitcoin
in the absence of a bitcoin ETP. See e.g., ``7 public companies with
exposure to bitcoin'' (February 8, 2021) available at: https://finance.yahoo.com/news/7-public-companies-with-exposure-to-bitcoin-154201525.html; and ``Want to get in the crypto trade without
holding bitcoin yourself? Here are some investing ideas'' (February
19, 2021) available at: https://www.cnbc.com/2021/02/19/ways-to-invest-in-bitcoin-without-holding-the-cryptocurrency-yourself-.html.
Such operating companies, however, are imperfect bitcoin proxies and
provide investors with partial bitcoin exposure paired with a host
of additional risks associated with whichever operating company they
decide to purchase. Additionally, the disclosures provided by such
operating companies with respect to risks relating to their bitcoin
holdings are generally substantially smaller than the registration
statement of a bitcoin ETP, including the Registration Statement,
typically amounting to a few sentences of narrative description and
a handful of risk factors. In other words, investors seeking bitcoin
exposure through publicly traded companies are gaining only partial
exposure to bitcoin and are not fully benefitting from the risk
disclosures and associated investor protections that come from the
securities registration process.
\46\ The Exchange notes that the Purpose Bitcoin ETF, a retail
physical bitcoin ETP launched in Canada, reportedly reached $1.2
billion in assets under management as of October 15, 2021 (``AUM''),
demonstrating the demand for a North American market listed bitcoin
exchange-traded product (``ETP''). The Purpose Bitcoin ETF also
offers a class of units that is U.S. dollar denominated, which could
appeal to U.S. investors.
\47\ The Exchange notes that securities regulators in a number
of other countries have either approved or otherwise allowed the
listing and trading of bitcoin ETPs. Specifically, these funds
include the Purpose Bitcoin ETF, Bitcoin ETF, VanEck Vectors Bitcoin
ETN, WisdomTree Bitcoin ETP, Bitcoin Tracker One, BTCetc bitcoin
ETP, Amun Bitcoin ETP, Amun Bitcoin Suisse ETP, 21Shares Short
Bitcoin ETP, CoinShares Physical Bitcoin ETP.
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Bitcoin Futures ETFs
The Exchange and Sponsor applaud the Commission for allowing the
recent launch of several ETFs registered under the Investment Company
Act of 1940, as amended (the ``1940 Act''), that provide exposure to
bitcoin through CME Bitcoin Futures (``Bitcoin Futures ETFs'').
Allowing such products to list
[[Page 8323]]
and trade is a productive first step in providing transparent,
exchange-listed tools for expressing a view on bitcoin for U.S.
investors and traders. However, as has been reported by numerous
outlets, the structure of such products provides negative outcomes for
buy and hold investors as compared to an ETP that would hold actual
bitcoin instead of derivatives contracts (``Spot Bitcoin ETPs'').\48\
Specifically, the cost of rolling CME Bitcoin Futures contracts (which
has reached as high as 17% annually \49\ excluding a fund's management
fees and borrowing costs, if any) will cause the Bitcoin Futures ETFs
to lag the performance of bitcoin itself and, at over a billion dollars
in assets under management, would cost U.S. investors hundreds of
millions of dollars on an annual basis. Such rolling costs would not be
required for Spot Bitcoin ETPs that hold bitcoin. Further, Bitcoin
Futures ETFs have grown so rapidly that they face potentially running
into CME position limits, which would force a Bitcoin Futures ETF to
invest in non-futures assets for bitcoin exposure and cause potential
investor confusion and lack of certainty about what such Bitcoin
Futures ETFs are actually holding to try to get exposure to bitcoin,
not to mention completely changing the risk profile associated with
such an ETF. While Bitcoin Futures ETFs represent a useful trading
tool, they are clearly a sub-optimal structure for U.S. investors that
are looking for long-term exposure to bitcoin that will, based on the
calculations above, unnecessarily cost U.S. investors millions of
dollars every year and the Exchange believes that any proposal to list
and trade a Spot Bitcoin ETP should be reviewed by the Commission with
this important investor protection context in mind.
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\48\ See e.g., ``Bitcoin ETF's Success Could Come at
Fundholders' Expense,'' Wall Street Journal (October 24, 2021),
available at: https://www.wsj.com/articles/bitcoin-etfs-success-could-come-at-fundholders-expense-11635080580; ``Physical Bitcoin
ETF Prospects Accelerate,'' ETF.com (October 25, 2021), available
at: https://www.etf.com/sections/blog/physical-bitcoin-etf-prospects-shine?nopaging=1&__cf_chl_jschl_tk__=pmd_JsK.fjXz9eAQW9zol0qpzhXDrrlpIVdoCloLXbLjl44-1635476946-0-gqNtZGzNApCjcnBszQql.
\49\ Id.
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As discussed further below, the Commission's primary test in
determining whether to approve or disapprove a series of Commodity-
Based Trust Shares, a product type which includes Spot Bitcoin ETPs, is
whether the listing exchange has in place a comprehensive surveillance
sharing agreement with a regulated market of significant size in the
underlying asset. Previous disapproval orders have made clear that a
regulated market of significant size is generally a futures and/or
options market rather than the spot commodity markets, which are often
unregulated.\50\ Leaving aside the analysis of that standard for
now,\51\ Cboe believes it would be inconsistent to allow the listing
and trading of Bitcoin Futures ETFs that hold primarily CME Bitcoin
Futures while simultaneously disapproving Spot Bitcoin ETPs on the
basis that the CME Bitcoin Futures market is not a regulated market of
significant size. If the CME Bitcoin Futures market were not, in the
opinion of the Commission, a regulated market of significant size,
permitting Bitcoin Futures ETFs that trade on such market would seem to
be inconsistent with the requirement under the Act of being designed to
``prevent fraudulent and manipulative acts and practices.'' \52\ This
is particularly true for the Trust, which will use the CF Bitcoin US
Settlement Price (the ``Reference Rate'') as its price source to
calculate its daily net asset value (``NAV''), with inputs from the
same bitcoin trading platforms (``Constituent Platform'') and
materially the same methodology as is used to price CME Bitcoin
Futures.\53\ Hence, to qualify as part of the bitcoin pricing input for
the Trust, as well as CME Bitcoin Futures, a Constituent Platform must:
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\50\ See Winklevoss Order at 37593, specifically footnote 202,
which includes the language from numerous approval orders for which
the underlying futures markets formed the basis for approving series
of ETPs that hold physical metals, including gold, silver,
palladium, platinum, and precious metals more broadly; and 37600,
specifically where the Commission provides that ``when the spot
market is unregulated--the requirement of preventing fraudulent and
manipulative acts may possibly be satisfied by showing that the ETP
listing market has entered into a surveillance-sharing agreement
with a regulated market of significant size in derivatives related
to the underlying asset.'' As noted above, the Exchange believes
that these citations are particularly helpful in making clear that
the spot market for a spot commodity ETP need not be ``regulated''
in order for a spot commodity ETP to be approved by the Commission,
and in fact that it's been the common historical practice of the
Commission to rely on such derivatives markets as the regulated
market of significant size because such spot commodities markets are
largely unregulated.
\51\ As further outlined below, both the Exchange and the
Sponsor believe that the CME Bitcoin Futures market represents a
regulated market of significant size and that this proposal and
others like it should be approved on this basis.
\52\ 15 U.S.C. 78f(b)(5). For additional detail, see Winklevoss
Order at 37600.
\53\ For a further description of the Reference Rate methodology
and relevance to the requirements of Section 6(b)(5) of the Act,
please see the comment letter from CF Benchmarks at https://www.sec.gov/comments/sr-cboebzx-2021-024/srcboebzx2021024-8771282-237582.pdf.
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Have policies to ensure fair and transparent market conditions at
all times and has processes in place to identify and impede illegal,
unfair or manipulative trading practices, comply with applicable law
and regulation, including, but not limited to capital markets
regulations, money transmission regulations, client money custody
regulations, know-your-client (KYC) regulations and anti-money
laundering (AML) regulations.
Hence, not only are the Constituent Exchanges' pricing inputs and
methodology (except for the calculation time) the same with respect to
the Trust and CME Bitcoin Futures, but the Sponsor has represented that
the Trust will qualify as an investment company under Accounting
Standards Update 2013-08, which is the same accounting standards for
Bitcoin Futures ETFs under the 1940 Act. As such, the Sponsor will
ensure that the Trust's financial statements will be audited at least
annually by an independent registered public accounting firm and as
part of such audit, the auditor will be expected to perform procedures
similar to those used for ETFs registered under the 1940 Act,
including:
(i) Applying the accounting and reporting guidance for investment
companies; and
(ii) testing and evaluating processes for determining bitcoin
valuation and evaluate the reasonableness and consistency of
assumptions, models, and calculations used, as well as the
completeness, accuracy, and relevance of underlying data used.
In addition, the Sponsor will facilitate the Trust's compliance
with the financial record keeping and reporting requirements under the
Sarbanes-Oxley Act of 2002.
Additional 1940 Act Considerations \54\
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\54\ We note that the largest OTC Bitcoin Funds holding spot
Bitcoin today are not 1940 Act Funds and in any event do not provide
the type of transparency and other protections described herein.
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In addition to the foregoing, the Sponsor has taken 1940 Act
considerations into account in structuring the Trust's operations in
seeking ``to protect investors and the public interest.''
First, the Trust will use U.S. Bank as the Custodian, which
qualifies as a ``custodian'' under the 1940 Act and serves as the
custodian for a significant number of ETFs registered under the 1940
Act. Similar to an engagement for an ETF registered under the 1940 Act,
the Sponsor has represented that U.S. Bank is expected to agree to
exercise reasonable care, prudence, and diligence such as a person
having
[[Page 8324]]
responsibility for the safekeeping of property of the Trust would
exercise.\55\
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\55\ To the extent the Commission may view differential
treatment of Bitcoin Futures ETFs and Spot Bitcoin ETPs as warranted
based on the Commission's concerns about the custody of physical
Bitcoin that a Spot Bitcoin ETP would hold (compared to cash-settled
futures contracts), the Sponsor believes this concern is mitigated
by such custodial arrangements, whether directly through the
Custodian or through a subcustodial relationship overseen by the
Custodian.
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Second, the Sponsor has represented that the Trust will be subject
to the transparency requirements of Rule 6c-11 under the 1940 Act,
which is commonly referred to as the ``ETF Rule.'' In particular, the
Trust will disclose prominently on the Trust's website on a daily
basis, which shall be publicly accessible and free of charge:
(i) The Trust's portfolio holdings (i.e., bitcoin);
(ii) NAV per share, market price, and premium or discount, each as
of the end of the prior business day;
(iii) a table showing the number of days the Trust's shares traded
at a premium or discount during the most recently completed calendar
year and calendar quarters since that year (or the life of the Trust,
if shorter);
(iv) a line graph showing the Trust's premiums or discounts for the
most recently completed calendar year and the most recently completely
calendar quarters since that year (or the life of the Trust, if
shorter);
(v) the Trust's median bid-ask spread, expressed as a percentage
rounded to the nearest hundredth, in the manner computed under Rule 6c-
11(c)(1)(v); and
(vi) if the Trust's premium or discount is greater than 2% for more
than seven consecutive trading days, a statement that the Trust's
premium or discount, as applicable, was greater than 2% and a
discussion of the factors that are reasonably believed to have
materially contributed to the premium or discount.
In addition, the Sponsor has represented: (i) That it will adopt
procedures to ensure there are no transactions with affiliated persons
that would be prohibited by the Section 17 of 1940 Act and the
applicable rules and regulations thereunder; (ii) that the Trust will
maintain a fidelity bond for the benefit of the Trust in the maximum
amount required per Rule 17g-1 of the 1940 Act; and (iii) the Sponsor
or applicable service provider of the Trust will maintain the books and
records of the Trust in satisfaction of the requirements of Section 31
of the 1940 Act.
Part of the analysis of the regulated market of significant size
test is whether an underlying market is sufficiently large to support
an ETP is whether trading in the ETP is likely to be the predominant
influence on prices in the market of significant size.\56\ According to
publicly available data, the largest Bitcoin Futures ETF represents
3,803 contracts \57\ of the total 9,625 contracts of open interest in
December CME Bitcoin Futures \58\ as of 12/2/21 (roughly 40% of open
interest). This seems to directly contradict the previously articulated
standards by the Commission in the disapproval orders issued for Spot
Bitcoin ETPs related to whether the trading in the ETP would be the
predominant influence on prices in that market.\59\ As further
discussed below, research indicates that the CME Bitcoin Futures market
is a regulated market of significant size with a predominant influence
on prices in USD-based trading in bitcoin futures and spot markets
globally.
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\56\ See Winklevoss Order at 37594.
\57\ See Fund Holdings Information available at https://www.proshares.com/funds/bito.html.
\58\ See Volume and Open Interest data available at https://www.cmegroup.com/markets/cryptocurrencies/bitcoin/bitcoin.volume.html.
\59\ See Winklevoss Order at 37594-37595.
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Based on the foregoing, the Exchange and Sponsor believe that any
objective review of the proposals to list Spot Bitcoin ETPs compared to
the already listed and traded Bitcoin Futures ETFs would lead to the
conclusion that Spot Bitcoin ETPs should be available to U.S. investors
and, as such, this proposal and other comparable proposals to list and
trade Spot Bitcoin ETPs should be approved by the Commission. Stated
simply, U.S. investors stand to lose hundreds of millions of dollars
from holding Bitcoin Futures ETFs, losses which could be prevented by
the Commission approving Spot Bitcoin ETPs. This is particularly
evident as demonstrated by the chart on the next page, which shows the
dramatic underperformance of Bitcoin Futures as compared to the
WisdomTree Bitcoin exchange traded product (``WisdomTree Europe Bitcoin
Fund'') (BTCW) in Europe that holds spot bitcoin (not Bitcoin Futures)
and is listed and traded on the Swiss Stock Exchange (``SIX''). BTCW
also uses the Reference Rate (London Time) as its price source.
BILLING CODE 8011-01-P
[[Page 8325]]
[GRAPHIC] [TIFF OMITTED] TN14FE22.007
Additionally, any concerns related to preventing fraudulent and
manipulative acts and practices related to Spot Bitcoin ETPs would
apply equally to the spot markets underlying the futures contracts held
by a Bitcoin Futures ETF. The Sponsor has structured the Trust's
operations to operate as if certain 1940 Act provisions apply,
providing transparency and investor protections such that a distinction
between Bitcoin Futures ETFs and Spot Bitcoin ETPs is unwarranted. To
be clear, both the Exchange and Sponsor believe that the CME Bitcoin
Futures market is a regulated market of significant size and that such
manipulation concerns are mitigated, as described extensively below.
After allowing the listing and trading of Bitcoin Futures ETFs that
hold primarily CME Bitcoin Futures, however, the only consistent
outcome would be approving Spot Bitcoin ETPs on the basis that the CME
Bitcoin Futures market is a regulated market of significant size.
Including in the analysis the significant and preventable losses to
U.S. investors that comes with Bitcoin Futures ETFs, disapproving Spot
Bitcoin ETPs seems even more arbitrary and capricious. Given the
current landscape, approving this proposal (and others like it) and
allowing Spot Bitcoin ETPs to be listed and traded alongside Bitcoin
Futures ETFs would establish a consistent regulatory approach, provide
U.S. investors with choice in product structures for bitcoin exposure,
and offer flexibility in the means of gaining exposure to bitcoin
through transparent, regulated, U.S. exchange-listed vehicles.
Bitcoin Futures
CME began offering trading in CME Bitcoin Futures in December 2017.
Each contract represents five bitcoin and is based on the CME CF
Bitcoin Reference Rate.\60\ The contracts trade and settle like other
cash-settled commodity futures contracts. Nearly every measurable
metric related to CME Bitcoin Futures has trended consistently up since
launch and/or accelerated upward in the past year. For example, there
was approximately $12 billion in trading in Bitcoin Futures in August
2021 compared to $3.9 billion, $4.5b billion, and $9b billion in total
trading in August 2017, August 2018, and August 2019, respectively.
Bitcoin Futures traded over $500m and represented $1.5 billion in open
interest compared to $115 million in December 2019. This general upward
trend in trading volume and open interest is captured in the following
chart. (Source: CME, Bloomberg 8/31/21)
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\60\ According to CME, the CME CF Bitcoin Reference Rate
aggregates the trade flow of major bitcoin spot exchanges during a
specific calculation window into a once-a-day reference rate of the
U.S. dollar price of bitcoin. Calculation rules are geared toward
maximum transparency and real-time replicability in underlying spot
markets, including Bitstamp, Coinbase, Gemini, itBit, and Kraken.
For additional information, refer to https://www.cmegroup.com/trading/cryptocurrency-indices/cf-bitcoin-reference-rate.html?redirect=/trading/cf-bitcoin-reference-rate.html.
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[[Page 8326]]
[GRAPHIC] [TIFF OMITTED] TN14FE22.008
Similarly, the number of large open interest holders \61\ has
continued to increase even as the price of bitcoin has risen, as have
the number of unique accounts trading Bitcoin Futures.
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\61\ A large open interest holder in Bitcoin Futures is an
entity that holds at least 25 contracts, which is the equivalent of
125 bitcoin. At a price of approximately $46,996 per bitcoin on 8/
31/21, more than 80 firms had outstanding positions of greater than
$5.8 million in Bitcoin Futures.
[GRAPHIC] [TIFF OMITTED] TN14FE22.009
[[Page 8327]]
[GRAPHIC] [TIFF OMITTED] TN14FE22.010
BILLING CODE 8011-01-C
The Sponsor further believes that academic research corroborates
this overall trend and supports the thesis that bitcoin futures, and
more particularly CME Bitcoin Futures given the recent significant
growth in that market, is a predominant influence in bitcoin price
formation.\62\
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\62\ See Amendment No. 1 to SR-CboeBZX-2021-051, filed December
9, 2021 (proposal to list and trade shares of the ARK 21Shares
Bitcoin ETF) (the ``ARK 21Shares Proposal''); Securities Exchange
Act Release No. 91994 (May 25, 2021), 86 FR 29321 (June 1, 2021)
(proposal to list and trade shares of the Wise Origin Bitcoin Trust)
(the ``Wise Origin Bitcoin Trust Filing''); Staff Memorandum re:
Meeting with Representatives of Fidelity Digital Assets, et al. on
September 8th, 2021 regarding the Wise Origin Bitcoin Trust Filing
(the ``Wise Origin Bitcoin Trust Presentation''); and Hu, Y., Hou,
Y. and Oxley, L. (2019). ``What role do futures markets play in
Bitcoin pricing? Causality, cointegration and price discovery from a
time-varying perspective'' (available at: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7481826/). This academic
research paper concludes that ``There exist no episodes where the
Bitcoin spot markets dominates the price discovery processes with
regard to Bitcoin futures. This points to a conclusion that the
price formation originates solely in the Bitcoin futures market. We
can, therefore, conclude that the Bitcoin futures markets dominate
the dynamic price discovery process based upon time-varying
information share measures. Overall, price discovery seems to occur
in the Bitcoin futures markets rather than the underlying spot
market based upon a time-varying perspective.''
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Section 6(b)(5) and the Applicable Standards
The Commission has approved numerous series of Trust Issued
Receipts,\63\ including Commodity-Based Trust Shares,\64\ to be listed
on U.S. national securities exchanges. In order for any proposed rule
change from an exchange to be approved, the Commission must determine
that, among other things, the proposal is consistent with the
requirements of Section 6(b)(5) of the Act, specifically including: (i)
The requirement that a national securities exchange's rules are
designed to prevent fraudulent and manipulative acts and practices;
\65\ and (ii) the requirement that an exchange proposal be designed, in
general, to protect investors and the public interest. The Exchange
believes that this proposal is consistent with the requirements of
Section 6(b)(5) of the Act and that this filing sufficiently
demonstrates that the CME Bitcoin Futures market represents a regulated
market of significant size and that, on the whole, the manipulation
concerns previously articulated by the Commission are sufficiently
addressed to warrant approval. Specifically, the Exchange believes that
the significant increase in trading volume in CME Bitcoin Futures and
the growing body of evidence that the CME Bitcoin Futures market
represents a regulated market of significant size as such a market has
previously been described by the Commission, the growth of liquidity at
the inside in the spot market for bitcoin, and certain features of the
Shares and the Reference Rate (as defined below) mitigate potential
manipulation concerns to the point that it is consistent with the
requirements of Section 6(b)(5) of the Act and therefore provides a
basis for the Commission to approve this proposal.
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\63\ See Exchange Rule 14.11(f).
\64\ Commodity-Based Trust Shares, as described in Exchange Rule
14.11(e)(4), are a type of Trust Issued Receipt.
\65\ As the Exchange has stated in a number of other public
documents, it continues to believe that bitcoin is resistant to
price manipulation and that ``other means to prevent fraudulent and
manipulative acts and practices'' exist to justify dispensing with
the requisite surveillance sharing agreement. The geographically
diverse and continuous nature of bitcoin trading render it difficult
and prohibitively costly to manipulate the price of bitcoin. The
fragmentation across bitcoin platforms, the relatively slow speed of
transactions, and the capital necessary to maintain a significant
presence on each trading platform make manipulation of bitcoin
prices through continuous trading activity challenging. To the
extent that there are bitcoin exchanges engaged in or allowing wash
trading or other activity intended to manipulate the price of
bitcoin on other markets, such pricing does not normally impact
prices on other exchange because participants will generally ignore
markets with quotes that they deem non-executable. Moreover, the
linkage between the bitcoin markets and the presence of arbitrageurs
in those markets means that the manipulation of the price of bitcoin
price on any single venue would require manipulation of the global
bitcoin price in order to be effective. Arbitrageurs must have funds
distributed across multiple trading platforms in order to take
advantage of temporary price dislocations, thereby making it
unlikely that there will be strong concentration of funds on any
particular bitcoin exchange or OTC platform. As a result, the
potential for manipulation on a trading platform would require
overcoming the liquidity supply of such arbitrageurs who are
effectively eliminating any cross-market pricing differences.
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(i) Designed To Prevent Fraudulent and Manipulative Acts and Practices
In order to meet this standard in a proposal to list and trade a
series of Commodity-Based Trust Shares, the Commission requires that an
exchange demonstrate that there is a comprehensive surveillance-sharing
agreement in place \66\ with a regulated
[[Page 8328]]
market of significant size.\67\ Both the Exchange and CME are members
of ISG.\68\ The only remaining issue to be addressed is whether the CME
Bitcoin Futures market constitutes a market of significant size, which
both the Exchange and the Sponsor believe that it does. The terms
``significant market'' and ``market of significant size'' include a
market (or group of markets) as to which: (a) There is a reasonable
likelihood that a person attempting to manipulate the ETP would also
have to trade on that market to manipulate the ETP, so that a
surveillance-sharing agreement would assist the listing exchange in
detecting and deterring misconduct; and (b) it is unlikely that trading
in the ETP would be the predominant influence on prices in that
market.\69\
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\66\ As previously articulated by the Commission, ``The standard
requires such surveillance-sharing agreements since ``they provide a
necessary deterrent to manipulation because they facilitate the
availability of information needed to fully investigate a
manipulation if it were to occur.'' The Commission has emphasized
that it is essential for an exchange listing a derivative securities
product to enter into a surveillance-sharing agreement with markets
trading underlying securities for the listing exchange to have the
ability to obtain information necessary to detect, investigate, and
deter fraud and market manipulation, as well as violations of
exchange rules and applicable federal securities laws and rules. The
hallmarks of a surveillance-sharing agreement are that the agreement
provides for the sharing of information about market trading
activity, clearing activity, and customer identity; that the parties
to the agreement have reasonable ability to obtain access to and
produce requested information; and that no existing rules, laws, or
practices would impede one party to the agreement from obtaining
this information from, or producing it to, the other party.'' The
Commission has historically held that joint membership in the
Intermarket Surveillance Group (``ISG'') constitutes such a
surveillance sharing agreement. See Wilshire Phoenix Disapproval.
\67\ As described above, the precedent makes clear that the spot
market for a series of Commodity-Based Trust Shares need not be
``regulated'' in order to be consistent with the requirement under
the Act that the exchange proposal be designed to ``prevent
fraudulent and manipulative acts and practices,'' and in fact that
it's been the common historical practice of the Commission to rely
on such derivatives markets as the regulated market of significant
size because such spot commodities markets are largely unregulated.
Specifically, the precedent includes language from numerous approval
orders for which the underlying futures markets formed the basis for
approving series of ETPs that hold commodities including physical
metals, including gold, silver, palladium, platinum, and precious
metals more broadly. The Commission also provides that ``when the
spot market is unregulated--the requirement of preventing fraudulent
and manipulative acts may possibly be satisfied by showing that the
ETP listing market has entered into a surveillance-sharing agreement
with a regulated market of significant size in derivatives related
to the underlying asset.'' The precedent indicates that common
historical practice of the Commission is to rely on such derivatives
markets as the regulated market of significant size because such
spot commodities markets are largely unregulated. See supra note 10.
\68\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com.
\69\ See Wilshire Phoenix Disapproval.
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The Commission has also recognized that the ``regulated market of
significant size'' standard is not the only means for satisfying
Section 6(b)(5) of the Act, specifically providing that a listing
exchange could demonstrate that ``other means to prevent fraudulent and
manipulative acts and practices'' are sufficient to justify dispensing
with the requisite surveillance-sharing agreement.\70\
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\70\ See Winklevoss Order at 37580. The Commission has also
specifically noted that it ``is not applying a ``cannot be
manipulated'' standard; instead, the Commission is examining whether
the proposal meets the requirements of the Exchange Act and,
pursuant to its Rules of Practice, places the burden on the listing
exchange to demonstrate the validity of its contentions and to
establish that the requirements of the Exchange Act have been met.
Id. at 37582.
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(a) Manipulation of the ETP
The significant growth in CME Bitcoin Futures across each of
trading volumes, open interest, large open interest holders, and total
market participants over the last two years are reflective of that
market's growing influence on the spot price.\71\ Where CME Bitcoin
Futures act as a predominant influence on the price in the spot market,
such that a potential manipulator of the bitcoin spot market (beyond
just the constituents of the Reference Rate \72\) would have to
participate in the CME Bitcoin Futures market, it follows that a
potential manipulator of the Shares would similarly have to transact in
the CME Bitcoin Futures market because the Reference Rate is based on
spot prices. Further, the Trust only allows for in-kind creation and
redemption, which, as further described below, reduces the potential
for manipulation of the Shares through manipulation of the Reference
Rate or any of its individual constituents, again emphasizing that a
potential manipulator of the Shares would have to manipulate the
entirety of the bitcoin spot market, of which the CME Bitcoin Futures
market appears to be a predominant influence. As such, the Exchange
believes that part (a) of the significant market test outlined above is
satisfied and that common membership in ISG between the Exchange and
CME would assist the listing exchange in detecting and deterring
misconduct in the Shares.
---------------------------------------------------------------------------
\71\ See ARK 21Shares Proposal and the Wise Origin Bitcoin Trust
Presentation for additional analysis on this point.
\72\ As further described below, the Reference Rate for the Fund
is based on materially the same methodology (except calculation
time) as the Administrator's BRR, which is the rate on which bitcoin
futures contracts are cash-settled in U.S. dollars at the CME.
---------------------------------------------------------------------------
(b) Predominant Influence on Prices in Spot and Bitcoin Futures
The Exchange and Sponsor also believe that trading in the Shares
would not be the predominant force on prices in the CME Bitcoin Futures
market (or spot market) for a number of reasons, including the
significant volume in the CME Bitcoin Futures market, the size of
bitcoin's market cap, and the significant liquidity available in the
spot market. Moreover, the Shares should trade close to NAV given that
market participants would arbitrage any significant price deviations
between the price of the Shares and prices in the spot market.\73\ In
addition to the CME Bitcoin Futures market data points cited above, the
spot market for bitcoin is also very liquid. According to data from
CoinRoutes from February 2021, the cost to buy or sell $5 million worth
of bitcoin averages roughly 10 basis points with a market impact of 30
basis points.\74\ For a $10 million market order, the cost to buy or
sell is roughly 20 basis points with a market impact of 50 basis
points. Stated another way, a market participant could enter a market
buy or sell order for $10 million of bitcoin and only move the market
0.5%. More strategic purchases or sales (such as using limit orders and
executing through OTC bitcoin trade desks) would likely have less
obvious impact on the market--which is consistent with MicroStrategy,
Tesla, and Square being able to collectively purchase billions of
dollars in bitcoin. As such, the combination of CME Bitcoin Futures
acting as a predominant influence on price discovery, the overall size
of the bitcoin market, and the ability for market participants,
including authorized participants creating and redeeming in-kind with
the Trust, to buy or sell large amounts of bitcoin without significant
market impact will help prevent the Shares from becoming the
predominant force on pricing in either the bitcoin spot or CME Bitcoin
Futures markets, satisfying part (b) of the test outlined above.
---------------------------------------------------------------------------
\73\ See supra footnote 44 for an example of an ETP trading
close to NAV, which is just one example of bitcoin ETPs trading in
other global markets today that trade close to NAV.
\74\ These statistics are based on samples of bitcoin liquidity
in USD (excluding stablecoins or Euro liquidity) based on executable
quotes on Coinbase Pro, Gemini, Bitstamp, Kraken, LMAX Exchange,
BinanceUS, and OKCoin during February 2021.
---------------------------------------------------------------------------
(c) Other Means To Prevent Fraudulent and Manipulative Acts and
Practices
As noted above, the Commission also permits a listing exchange to
demonstrate that ``other means to prevent fraudulent and manipulative
acts and practices'' are sufficient to justify dispensing with the
requisite surveillance-sharing agreement. The Exchange and Sponsor
believe that such conditions are present. Specifically, the significant
liquidity in the spot market and the impact of market orders on the
overall price of bitcoin mean that attempting to move the price of
bitcoin is costly and has grown more expensive over the past year. In
January 2020, for example, the cost to buy or sell $5 million worth of
bitcoin averaged roughly 30 basis points (compared to 10
[[Page 8329]]
basis points in 2/2021) with a market impact of 50 basis points
(compared to 30 basis points in 2/2021).\75\ For a $10 million market
order, the cost to buy or sell was roughly 50 basis points (compared to
20 basis points in 2/2021) with a market impact of 80 basis points
(compared to 50 basis points in 2/2021). As the liquidity in the
bitcoin spot market increases, it follows that the impact of $5 million
and $10 million orders will continue to decrease the overall impact in
spot price.
---------------------------------------------------------------------------
\75\ These statistics are based on samples of bitcoin liquidity
in USD (excluding stablecoins or Euro liquidity) based on executable
quotes on Coinbase Pro, Gemini, Bitstamp, Kraken, LMAX Exchange,
BinanceUS, and OKCoin during February 2021.
---------------------------------------------------------------------------
(ii) Designed To Protect Investors and the Public Interest
The Exchange believes that the proposal is designed to protect
investors and the public interest. Over the past 1.5 years, U.S.
investor exposure to bitcoin through OTC Bitcoin Funds has grown into
the tens of billions of dollars and more than a billion dollars of
exposure through Bitcoin Futures ETFs. With that growth, so too has
grown the quantifiable investor protection issues to U.S. investors
through roll costs for Bitcoin Futures ETFs and premium/discount
volatility and management fees for OTC Bitcoin Funds. The Exchange
believes that the concerns related to the prevention of fraudulent and
manipulative acts and practices have been sufficiently addressed to be
consistent with the Act. As such, the Exchange believes that approving
this proposal (and comparable proposals) provides the Commission with
the opportunity to allow U.S. investors with access to bitcoin in a
regulated and transparent exchange-traded vehicle that would act to
limit risk to U.S. investors by: (i) Reducing premium and discount
volatility; (ii) reducing management fees through meaningful
competition; (iii) reducing risks and costs associated with investing
in Bitcoin Futures ETFs and operating companies that are imperfect
proxies for bitcoin exposure; and (iv) providing an alternative for
investors to self-custodying spot bitcoin.
WisdomTree Bitcoin Trust
Delaware Trust Company is the trustee (``Trustee''). U.S. Bancorp
Fund Services, LLC dba U.S. Bank Global Fund Services will be the
administrator (``Administrator'') and transfer agent (``Transfer
Agent''), with U.S. Bank, N.A. serving as Custodian. Foreside Fund
Services LLC will be the marketing agent (``Marketing Agent'') in
connection with the creation and redemption of ``Baskets'' of Shares.
According to the Registration Statement, each Share will represent
a fractional undivided beneficial interest in and ownership of the
Trust. The Trust's assets will consist of bitcoin held by the Custodian
on behalf of the Trust. The Trust generally does not intend to hold
cash or cash equivalents. However, there may be situations where the
Trust will unexpectedly hold cash on a temporary basis.
According to the Registration Statement, the Trust is neither an
investment company registered under the Investment Company Act of 1940,
as amended,\76\ nor a commodity pool for purposes of the Commodity
Exchange Act (``CEA''), and neither the Trust nor the Sponsor is
subject to regulation as a commodity pool operator or a commodity
trading adviser in connection with the Shares.
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\76\ 15 U.S.C. 80a-1. However, as previously stated, the Trust
has undertaken to comply with certain provisions of the Investment
Company Act of 1940.
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When the Trust sells or redeems its Shares, it will do so in ``in-
kind'' transactions in blocks of 50,000 Shares (a ``Creation Basket'')
at the Trust's NAV. Authorized participants will deliver, or facilitate
the delivery of, bitcoin to the Trust's account with the Custodian in
exchange for Shares when they purchase Shares, and the Trust, through
the Custodian, will deliver bitcoin to such authorized participants
when they redeem Shares with the Trust. Authorized participants may
then offer Shares to the public at prices that depend on various
factors, including the supply and demand for Shares, the value of the
Trust's assets, and market conditions at the time of a transaction.
Shareholders who buy or sell Shares during the day from their broker
may do so at a premium or discount relative to the NAV of the Shares of
the Trust.
Investment Objective
According to the Registration Statement and as further described
below, the investment objective of the Trust is to gain exposure to the
price of bitcoin, less expenses and liabilities of the Trust's
operation. In seeking to achieve its investment objective, the Trust
will hold bitcoin and value its Shares daily based on the value of
bitcoin as reflected by the CF Bitcoin US Settlement Price (the
``Reference Rate''), which is an independently calculated value based
on an aggregation of executed trade flow of major bitcoin spot
exchanges. The Trust will process all creations and redemptions in-kind
in transactions with authorized participants. The Trust is not actively
managed.
The Reference Rate
As described in the Registration Statement, the Fund will use the
Reference Rate to calculate the Trust's NAV. The Reference Rate is not
affiliated with the Sponsor and was created and is administered by CF
Benchmarks Ltd. (the ``Benchmark Administrator''), an independent
entity, to facilitate financial products based on bitcoin. The
Reference Rate is designed based on the IOSCO Principals for Financial
Benchmarks and serves as a once-a-day benchmark rate of the U.S. dollar
price of bitcoin (USD/BTC), calculated as of 4 p.m. Eastern time. The
Reference Rate is based on materially the same methodology (except
calculation time) \77\ as the Benchmark Administrator's CME CF Bitcoin
Reference Rate (``BRR''), which was first introduced on November 14,
2016 and is the rate on which bitcoin futures contracts are cash-
settled in U.S. dollars at the CME. The Reference Rate aggregates the
trade flow of several bitcoin exchanges, during an observation window
between 3:00 p.m. and 4:00 p.m. Eastern time into the U.S. dollar price
of one bitcoin at 4:00 p.m. Eastern time. The current constituent
bitcoin exchanges of the Reference Rate are Bitstamp, Coinbase, Gemini,
itBit and Kraken (the ``Constituent Bitcoin Exchanges'').
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\77\ The Reference Rate is calculated as of 4 p.m. Eastern Time,
whereas the BRR is calculated as of 4 p.m. London Time.
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The Reference Rate is calculated based on the ``Relevant
Transactions'' \78\ of all of its Constituent Bitcoin Exchanges, as
follows:
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\78\ A ``Relevant Transaction'' is any cryptocurrency versus
U.S. dollar spot trade that occurs during the observation window
between 3:00 p.m. and 4:00 p.m. Eastern time on a Constituent
Bitcoin Exchange in the BTC/USD pair that is reported and
disseminated by a Constituent Bitcoin Exchange through its publicly
available API and observed by the Benchmark Administrator, CF
Benchmarks Ltd.
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All Relevant Transactions are added to a joint list,
recording the time of execution, trade price and size for each
transaction.
The list is partitioned by timestamp into 12 equally-sized
time intervals of 5 (five) minute length.
For each partition separately, the volume-weighted median
trade price is calculated from the trade prices and sizes of all
Relevant Transactions, i.e., across all Constituent Bitcoin Exchanges.
A volume-weighted median differs from a standard median in that a
weighting factor, in this case trade size, is factored into the
calculation.
[[Page 8330]]
The Reference Rate is then determined by the arithmetic
mean of the volume-weighted medians of all partitions.
By employing the foregoing steps, the Reference Rate thereby seeks
to ensure that transactions in bitcoin conducted at outlying prices do
not have an undue effect on the value of a specific partition, large
trades or clusters of trades transacted over a short period of time
will not have an undue influence on the index level, and the effect of
large trades at prices that deviate from the prevailing price are
mitigated from having an undue influence on the benchmark level. In
addition, the Sponsor notes that an oversight function is implemented
by the Benchmark Administrator in seeking to ensure that the Reference
Rate is administered through codified policies for Reference Rate
integrity.
Availability of Information
In addition to the price transparency of the Reference Rate, the
Trust will provide information regarding the Trust's bitcoin holdings
as well as additional data regarding the Trust. The Trust will provide
an Intraday 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 Regular Trading Hours (9:30 a.m. to 4:00
p.m. E.T.). The IIV will be calculated by using the prior day's closing
NAV per Share as a base and updating that value during Regular Trading
Hours to reflect changes in the value of the Trust's bitcoin holdings
during the trading day.
The IIV disseminated during Regular Trading Hours should not be
viewed as an actual real-time update of the NAV, which will be
calculated only once at the end of each trading day. The IIV will be
widely disseminated on a per Share basis every 15 seconds during the
Exchange's Regular Trading Hours by one or more major market data
vendors. In addition, the IIV will be available through on-line
information services.
As noted above, the website for the Trust, which will be publicly
accessible at no charge, will contain information consistent with the
disclosure requirements of Rule 6c-11 under the 1940 Act. The price of
bitcoin will be made available by one or more major market data
vendors, updated at least every 15 seconds during Regular Trading
Hours. Information about the Reference Rate, including key elements of
how the Reference Rate is calculated, will be publicly available at
https://www.cfbenchmarks.com.
The NAV for the Trust will be calculated by the Administrator once
a day and will be disseminated daily to all market participants at the
same time. Quotation and last-sale information regarding the Shares
will be disseminated through the facilities of the Consolidated Tape
Association (``CTA'').
Quotation and last sale information for bitcoin is widely
disseminated through a variety of major market data vendors, including
Bloomberg and Reuters, as well as the Reference Rate. Information
relating to trading, including price and volume information, in bitcoin
is available from major market data vendors and from the exchanges on
which bitcoin are traded. Depth of book information is also available
from bitcoin exchanges. The normal trading hours for bitcoin exchanges
are 24 hours per day, 365 days per year.
Net Asset Value
NAV means the total assets of the Trust including, but not limited
to, all bitcoin cash or other assets, less total liabilities of the
Trust, each determined on the basis of generally accepted accounting
principles. In determining the Trust's NAV, the administrator values
the bitcoin held by the Trust based on the price set by the Reference
Rate as of 4:00 p.m. Eastern Time. The administrator will determine the
NAV of the Trust on each day that the Exchange is open for regular
trading. The NAV for a normal trading day will be released after 4:00
p.m. Eastern Time. However, NAVs are not officially struck until later
in the day (often by 5:30 p.m. Eastern Time and almost always by 8:00
p.m. Eastern Time). The pause between 4:00 p.m. Eastern Time and 5:30
p.m. Eastern Time (or later) provides an opportunity for the Trust,
Benchmark Administrator or administrator to detect, flag, investigate,
and correct unusual pricing should it occur. The Sponsor anticipates
that the Reference Rate will be reflective of a reasonable valuation of
the average spot price of bitcoin. However, in the event the Reference
Rate was not available or determined by the Sponsor to not be reliable,
the Sponsor would ``fair value'' the Trust's bitcoin holdings. The
Sponsor does not anticipate that the need to ``fair value'' bitcoin
will be a common occurrence. The Sponsor will publish the NAV and NAV
per Share at www.wisdomtree.com as soon as practicable after their
determination and availability.
Creation and Redemption of Shares
According to the Registration Statement, on any business day, an
authorized participant may place an order to create one or more
baskets. Purchase orders must be placed by 4:00 p.m. Eastern Time, or
the close of regular trading on the Exchange, whichever is earlier. The
day on which an order is received is considered the purchase order
date. The total deposit of bitcoin required is an amount of bitcoin
that is in the same proportion to the total assets of the Trust, net of
accrued expenses and other liabilities, on the date the order to
purchase is properly received, as the number of Shares to be created
under the purchase order is in proportion to the total number of Shares
outstanding on the date the order is received. Prior to market open
each day, the Sponsor will publish the amount of bitcoin that will be
required in exchange for each creation order. The Administrator
determines the required deposit for a given day by dividing the number
of bitcoin held by the Trust as of the opening of business on that
business day, adjusted for the amount of bitcoin constituting estimated
accrued but unpaid fees and expenses of the Trust as of the opening of
business on that business day, by the quotient of the number of Shares
outstanding at the opening of business divided by the aggregation of
shares (i.e., 50,000) associated with a creation unit. The procedures
by which an authorized participant can redeem one or more Creation
Baskets mirror the procedures for the creation of Creation Baskets.
Rule 14.11(e)(4)--Commodity-Based Trust Shares
The Shares will be subject to BZX Rule 14.11(e)(4), which sets
forth the initial and continued listing criteria applicable to
Commodity-Based Trust Shares. The Exchange will obtain a representation
that the Trust's NAV will be calculated daily and that these values and
information about the assets of the Trust will be made available to all
market participants at the same time. The Exchange notes that, as
defined in Rule 14.11(e)(4)(C)(i), the Shares will be: (a) Issued by a
trust that holds a specified commodity \79\ deposited with the trust;
(b) issued by such trust in a specified aggregate minimum number in
return for a deposit of a quantity of the underlying commodity; and (c)
when
[[Page 8331]]
aggregated in the same specified minimum number, may be redeemed at a
holder's request by such trust which will deliver to the redeeming
holder the quantity of the underlying commodity.
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\79\ For purposes of Rule 14.11(e)(4), the term commodity takes
on the definition of the term as provided in the Commodity Exchange
Act. As noted above, the CFTC has opined that bitcoin is a commodity
as defined in Section 1a(9) of the Commodity Exchange Act. See
Coinflip.
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Upon termination of the Trust, the Shares will be removed from
listing. The Trustee, Delaware Trust Company, is a trust company having
substantial capital and surplus and the experience and facilities for
handling corporate trust business, as required under Rule
14.11(e)(4)(E)(iv)(a) and that no change will be made to the trustee
without prior notice to and approval of the Exchange. The Exchange also
notes that, pursuant to Rule 14.11(e)(4)(F), neither the Exchange nor
any agent of the Exchange shall have any liability for damages, claims,
losses or expenses caused by any errors, omissions or delays in
calculating or disseminating any underlying commodity value, the
current value of the underlying commodity required to be deposited to
the Trust in connection with issuance of Commodity-Based Trust Shares;
resulting from any negligent act or omission by the Exchange, or any
agent of the Exchange, or any act, condition or cause beyond the
reasonable control of the Exchange, its agent, including, but not
limited to, an act of God; fire; flood; extraordinary weather
conditions; war; insurrection; riot; strike; accident; action of
government; communications or power failure; equipment or software
malfunction; or any error, omission or delay in the reports of
transactions in an underlying commodity. Finally, as required in Rule
14.11(e)(4)(G), the Exchange notes that any registered market maker
(``Market Maker'') in the Shares must file with the Exchange in a
manner prescribed by the Exchange and keep current a list identifying
all accounts for trading in an underlying commodity, related commodity
futures or options on commodity futures, or any other related commodity
derivatives, which the registered Market Maker may have or over which
it may exercise investment discretion. No registered Market Maker shall
trade in an underlying commodity, related commodity futures or options
on commodity futures, or any other related commodity derivatives, in an
account in which a registered Market Maker, directly or indirectly,
controls trading activities, or has a direct interest in the profits or
losses thereof, which has not been reported to the Exchange as required
by this Rule. In addition to the existing obligations under Exchange
rules regarding the production of books and records (see, e.g., Rule
4.2), the registered Market Maker in Commodity-Based Trust Shares shall
make available to the Exchange such books, records or other information
pertaining to transactions by such entity or registered or non-
registered employee affiliated with such entity for its or their own
accounts for trading the underlying physical commodity, related
commodity futures or options on commodity futures, or any other related
commodity derivatives, as may be requested by the Exchange.
Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares. The Exchange will halt trading in the Shares
under the conditions specified in BZX Rule 11.18. Trading may be halted
because of market conditions or for reasons that, in the view of the
Exchange, make trading in the Shares inadvisable. These may include:
(1) The extent to which trading is not occurring in the bitcoin
underlying the Shares; or (2) whether other unusual conditions or
circumstances detrimental to the maintenance of a fair and orderly
market are present. Trading in the Shares also will be subject to Rule
14.11(e)(4)(E)(ii), which sets forth circumstances under which trading
in the Shares may be halted.
Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. BZX will allow
trading in the Shares during all trading sessions on the Exchange. The
Exchange has appropriate rules to facilitate transactions in the Shares
during all trading sessions. As provided in BZX Rule 11.11(a) the
minimum price variation for quoting and entry of orders in securities
traded on the Exchange is $0.01 where the price is greater than $1.00
per share or $0.0001 where the price is less than $1.00 per share.
Surveillance
The Exchange believes that its surveillance procedures are adequate
to properly monitor the trading of the Shares on the Exchange during
all trading sessions and to deter and detect violations of Exchange
rules and the applicable federal securities laws. Trading of the Shares
through the Exchange will be subject to the Exchange's surveillance
procedures for derivative products, including Commodity-Based Trust
Shares. The issuer has represented to the Exchange that it will advise
the Exchange of any failure by the Trust or the Shares to comply with
the continued listing requirements, and, pursuant to its obligations
under Section 19(g)(1) of the Exchange Act, the Exchange will surveil
for compliance with the continued listing requirements. If the Trust or
the Shares are not in compliance with the applicable listing
requirements, the Exchange will commence delisting procedures under
Exchange Rule 14.12. The Exchange may obtain information regarding
trading in the Shares and CME Bitcoin Futures via ISG, from other
exchanges who are members or affiliates of the ISG, or with which the
Exchange has entered into a comprehensive surveillance sharing
agreement.\80\
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\80\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com.
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Information Circular
Prior to the commencement of trading, the Exchange will inform its
members in an Information Circular of the special characteristics and
risks associated with trading the Shares. Specifically, the Information
Circular will discuss the following: (i) The procedures for the
creation and redemption of Baskets (and that the Shares are not
individually redeemable); (ii) BZX Rule 3.7, which imposes suitability
obligations on Exchange members with respect to recommending
transactions in the Shares to customers; (iii) how information
regarding the IIV and the Trust's NAV are disseminated; (iv) the risks
involved in trading the Shares outside of Regular Trading Hours \81\
when an updated IIV will not be calculated or publicly disseminated;
(v) the requirement that members deliver a prospectus to investors
purchasing newly issued Shares prior to or concurrently with the
confirmation of a transaction; and (vi) trading information.
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\81\ Regular Trading Hours is the time between 9:30 a.m. and
4:00 p.m. Eastern Time.
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In addition, the Information Circular will advise members, prior to
the commencement of trading, of the prospectus delivery requirements
applicable to the Shares. Members purchasing the Shares for resale to
investors will deliver a prospectus to such investors. The Information
Circular will also discuss any exemptive, no-action and interpretive
relief granted by the Commission from any rules under the Act.
2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act \82\ in general and Section
[[Page 8332]]
6(b)(5) of the Act \83\ in particular in that it is designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in facilitating transactions in securities, to
remove impediments to and perfect the mechanism of a free and open
market and a national market system and, in general, to protect
investors and the public interest.
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\82\ 15 U.S.C. 78f.
\83\ 15 U.S.C. 78f(b)(5).
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The Commission has approved numerous series of Trust Issued
Receipts,\84\ including Commodity-Based Trust Shares,\85\ to be listed
on U.S. national securities exchanges. In order for any proposed rule
change from an exchange to be approved, the Commission must determine
that, among other things, the proposal is consistent with the
requirements of Section 6(b)(5) of the Act, specifically including: (i)
The requirement that a national securities exchange's rules are
designed to prevent fraudulent and manipulative acts and practices;
\86\ and (ii) the requirement that an exchange proposal be designed, in
general, to protect investors and the public interest.
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\84\ See Exchange Rule 14.11(f).
\85\ Commodity-Based Trust Shares, as described in Exchange Rule
14.11(e)(4), are a type of Trust Issued Receipt.
\86\ As the Exchange has stated in a number of other public
documents, it continues to believe that bitcoin is resistant to
price manipulation and that ``other means to prevent fraudulent and
manipulative acts and practices'' exist to justify dispensing with
the requisite surveillance sharing agreement. The geographically
diverse and continuous nature of bitcoin trading render it difficult
and prohibitively costly to manipulate the price of bitcoin. The
fragmentation across bitcoin platforms, the relatively slow speed of
transactions, and the capital necessary to maintain a significant
presence on each trading platform make manipulation of bitcoin
prices through continuous trading activity challenging. To the
extent that there are bitcoin exchanges engaged in or allowing wash
trading or other activity intended to manipulate the price of
bitcoin on other markets, such pricing does not normally impact
prices on other exchanges because participants will generally ignore
markets with quotes that they deem non-executable. Moreover, the
linkage between the bitcoin markets and the presence of arbitrageurs
in those markets means that the manipulation of the price of bitcoin
price on any single venue would require manipulation of the global
bitcoin price in order to be effective. Arbitrageurs must have funds
distributed across multiple trading platforms in order to take
advantage of temporary price dislocations, thereby making it
unlikely that there will be strong concentration of funds on any
particular bitcoin exchange or OTC platform. As a result, the
potential for manipulation on a trading platform would require
overcoming the liquidity supply of such arbitrageurs who are
effectively eliminating any cross-market pricing differences.
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The Exchange believes that the proposal is, in particular, designed
to protect investors and the public interest. Over the past 1.5 years,
U.S. investor exposure to bitcoin through OTC Bitcoin Funds has grown
into the tens of billions of dollars. With that growth, so too has
grown the potential risk to U.S. investors. Premium and discount
volatility, high fees, insufficient disclosures, and technical hurdles
are putting U.S. investor money at risk on a daily basis that could
potentially be eliminated through access to a bitcoin ETP. The Exchange
understands the Commission's previous focus on potential manipulation
of a bitcoin ETP in prior disapproval orders, but now believes that
such concerns have been sufficiently mitigated and that the growing and
quantifiable investor protection concerns should be a central
consideration as the Commission reviews this proposal. As such, the
Exchange believes that this proposal acts to limit the risk to U.S.
investors that are increasingly seeking exposure to bitcoin by
providing direct, 1-for-1 exposure to bitcoin in a regulated,
transparent, exchange-traded vehicle, specifically by: (i) Reducing
premium volatility; (ii) reducing management fees through meaningful
competition; (iii) reducing risks associated with investing in
operating companies that are imperfect proxies for bitcoin exposure;
and (iv) providing an alternative to custodying spot bitcoin.
The Exchange also believes that this proposal is consistent with
the requirements of Section 6(b)(5) of the Act and that it has
sufficiently demonstrated that, on the whole, the manipulation concerns
previously articulated by the Commission are sufficiently addressed to
warrant approval. Specifically, the Exchange believes that the
significant increase in trading volume in Bitcoin Futures, the growth
of liquidity at the inside in the spot market for bitcoin, and certain
features of the Shares and the Reference Rate mitigate potential
manipulation concerns to the point that it is consistent with the
requirements of Section 6(b)(5) of the Act and therefore provides a
basis for the Commission to approve this proposal.
(i) Designed To Prevent Fraudulent and Manipulative Acts and Practices
In order to meet this standard in a proposal to list and trade a
series of Commodity-Based Trust Shares, the Commission requires that an
exchange demonstrate that there is a comprehensive surveillance-sharing
agreement in place \87\ with a regulated market of significant size.
Both the Exchange and CME are members of ISG.\88\ The only remaining
issue to be addressed is whether the CME Bitcoin Futures market
constitutes a market of significant size, which both the Exchange and
the Sponsor believe that it does. The terms ``significant market'' and
``market of significant size'' include a market (or group of markets)
as to which: (a) There is a reasonable likelihood that a person
attempting to manipulate the ETP would also have to trade on that
market to manipulate the ETP, so that a surveillance-sharing agreement
would assist the listing exchange in detecting and deterring
misconduct; and (b) it is unlikely that trading in the ETP would be the
predominant influence on prices in that market.\89\
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\87\ As previously articulated by the Commission, ``The standard
requires such surveillance-sharing agreements since ``they provide a
necessary deterrent to manipulation because they facilitate the
availability of information needed to fully investigate a
manipulation if it were to occur.'' The Commission has emphasized
that it is essential for an exchange listing a derivative securities
product to enter into a surveillance-sharing agreement with markets
trading underlying securities for the listing exchange to have the
ability to obtain information necessary to detect, investigate, and
deter fraud and market manipulation, as well as violations of
exchange rules and applicable federal securities laws and rules. The
hallmarks of a surveillance-sharing agreement are that the agreement
provides for the sharing of information about market trading
activity, clearing activity, and customer identity; that the parties
to the agreement have reasonable ability to obtain access to and
produce requested information; and that no existing rules, laws, or
practices would impede one party to the agreement from obtaining
this information from, or producing it to, the other party.'' The
Commission has historically held that joint membership in ISG
constitutes such a surveillance sharing agreement. See Wilshire
Phoenix Disapproval.
\88\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com.
\89\ See Wilshire Phoenix Disapproval.
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The Commission has also recognized that the ``regulated market of
significant size'' standard is not the only means for satisfying
Section 6(b)(5) of the act, specifically providing that a listing
exchange could demonstrate that ``other means to prevent fraudulent and
manipulative acts and practices'' are sufficient to justify dispensing
with the requisite surveillance-sharing agreement.\90\
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\90\ See Winklevoss Order at 37580. The Commission has also
specifically noted that it ``is not applying a `cannot be
manipulated' standard; instead, the Commission is examining whether
the proposal meets the requirements of the Exchange Act and,
pursuant to its Rules of Practice, places the burden on the listing
exchange to demonstrate the validity of its contentions and to
establish that the requirements of the Exchange Act have been met.''
Id. at 37582.
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(a) Manipulation of the ETP
The significant growth in CME Bitcoin Futures across each of
trading volumes, open interest, large open interest holders, and total
market participants since the Wilshire Phoenix
[[Page 8333]]
Disapproval was issued are reflective of that market's growing
influence on the spot price, which according to the academic research
cited above, was already leading the spot price in 2018 and 2019. Where
Bitcoin Futures act as a predominant influence on the price in the spot
market such that a potential manipulator of the bitcoin spot market
(beyond just the constituents of the Reference Rate \91\) would have to
participate in the Bitcoin Futures market, it follows that a potential
manipulator of the Shares would similarly have to transact in the
Bitcoin Futures market because the Reference Rate is based on spot
prices. Further, the Trust only allows for in-kind creation and
redemption, which, as further described below, reduces the potential
for manipulation of the Shares through manipulation of the Reference
Rate or any of its individual constituents, again emphasizing that a
potential manipulator of the Shares would have to manipulate the
entirety of the bitcoin spot market, which is led by the CME Bitcoin
Futures market. As such, the Exchange believes that part (a) of the
significant market test outlined above is satisfied and that common
membership in ISG between the Exchange and CME would assist the listing
exchange in detecting and deterring misconduct in the Shares.
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\91\ As noted above, the Constituent Bitcoin Exchanges are
Bitstamp, Coinbase, Gemini, itBit and Kraken.
---------------------------------------------------------------------------
(b) Predominant Influence on Prices in Spot and Bitcoin Futures
The Exchange and Sponsor also believe that trading in the Shares
would not be the predominant force on prices in the CME Bitcoin Futures
market (or spot market) for a number of reasons, including the
significant volume in the CME Bitcoin Futures market, the size of
bitcoin's market cap, and the significant liquidity available in the
spot market. Moreover, the Shares should trade close to NAV given that
market participants would arbitrage any significant price deviations
between the price of the Shares and prices in the spot market. In
addition to the CME Bitcoin Futures market data points cited above, the
spot market for bitcoin is also very liquid. According to data from
CoinRoutes from February 2021, the cost to buy or sell $5 million worth
of bitcoin averages roughly 10 basis points with a market impact of 30
basis points.\92\ For a $10 million market order, the cost to buy or
sell is roughly 20 basis points with a market impact of 50 basis
points. Stated another way, a market participant could enter a market
buy or sell order for $10 million of bitcoin and only move the market
0.5%. More strategic purchases or sales (such as using limit orders and
executing through OTC bitcoin trade desks) would likely have less
obvious impact on the market--which is consistent with MicroStrategy,
Tesla, and Square being able to collectively purchase billions of
dollars in bitcoin. As such, the combination of CME Bitcoin Futures
leading price discovery, the overall size of the bitcoin market, and
the ability for market participants, including authorized participants
creating and redeeming in-kind with the Trust, to buy or sell large
amounts of bitcoin without significant market impact will help prevent
the Shares from becoming the predominant force on pricing in either the
bitcoin spot or CME Bitcoin Futures markets, satisfying part (b) of the
test outlined above.
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\92\ These statistics are based on samples of bitcoin liquidity
in USD (excluding stablecoins or Euro liquidity) based on executable
quotes on Coinbase Pro, Gemini, Bitstamp, Kraken, LMAX Exchange,
BinanceUS, and OKCoin during February 2021.
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(c) Other Means To Prevent Fraudulent and Manipulative Acts and
Practices
As noted above, the Commission also permits a listing exchange to
demonstrate that ``other means to prevent fraudulent and manipulative
acts and practices'' are sufficient to justify dispensing with the
requisite surveillance-sharing agreement. The Exchange believes that
such conditions are present. Specifically, the significant liquidity in
the spot market and the impact of market orders on the overall price of
bitcoin mean that attempting to move the price of bitcoin is costly and
has grown more expensive over the past year. In January 2020, for
example, the cost to buy or sell $5 million worth of bitcoin averaged
roughly 30 basis points (compared to 10 basis points in 2/2021) with a
market impact of 50 basis points (compared to 30 basis points in 2/
2021).\93\ For a $10 million market order, the cost to buy or sell was
roughly 50 basis points (compared to 20 basis points in 2/2021) with a
market impact of 80 basis points (compared to 50 basis points in 2/
2021). As the liquidity in the bitcoin spot market increases, it
follows that the impact of $5 million and $10 million orders will
continue to decrease the overall impact in spot price.
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\93\ These statistics are based on samples of bitcoin liquidity
in USD (excluding stablecoins or Euro liquidity) based on executable
quotes on Coinbase Pro, Gemini, Bitstamp, Kraken, LMAX Exchange,
BinanceUS, and OKCoin during February 2021.
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Additionally, offering only in-kind creation and redemption will
provide unique protections against potential attempts to manipulate the
Shares. While the Sponsor believes that the independently maintained
and administered Reference Rate which it uses to value the Trust's
bitcoin is itself resistant to manipulation based on the methodology
further described below, the fact that creations and redemptions are
only available in-kind makes the manipulability of the Reference Rate
significantly less important. Specifically, because the Trust will not
accept cash to buy bitcoin in order to create new shares or, barring a
forced redemption of the Trust or under other extraordinary
circumstances, be forced to sell bitcoin to pay cash for redeemed
shares, the price that the Sponsor uses to value the Trust's bitcoin is
not particularly important.\94\ When authorized participants are
creating with the Trust, they need to deliver a certain number of
bitcoin per share (regardless of the valuation used) and when they're
redeeming, they can similarly expect to receive a certain number of
bitcoin per share. As such, even if the price used to value the Trust's
bitcoin is manipulated (which the Sponsor believes that its methodology
is resistant to), the ratio of bitcoin per Share does not change and
the Trust will either accept (for creations) or distribute (for
redemptions) the same number of bitcoin regardless of the value. This
not only mitigates the risk associated with potential manipulation, but
also discourages and disincentivizes manipulation of the Reference Rate
because there is little financial incentive to do so.
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\94\ While the Reference Rate will not be particularly important
for the creation and redemption process, it will be used for
calculating fees.
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Commodity-Based Trust Shares
The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed on the Exchange pursuant to the initial and
continued listing criteria in Exchange Rule 14.11(e)(4). The Exchange
believes that its surveillance procedures are adequate to properly
monitor the trading of the Shares on the Exchange during all trading
sessions and to deter and detect violations of Exchange rules and the
applicable federal securities laws. Trading of the Shares through the
Exchange will be subject to the Exchange's surveillance procedures for
derivative products, including Commodity-Based Trust Shares. The issuer
has represented to the Exchange that it will advise the Exchange of any
failure by the Trust or the Shares to comply with the
[[Page 8334]]
continued listing requirements, and, pursuant to its obligations under
Section 19(g)(1) of the Exchange Act, the Exchange will surveil for
compliance with the continued listing requirements. If the Trust or the
Shares are not in compliance with the applicable listing requirements,
the Exchange will commence delisting procedures under Exchange Rule
14.12. The Exchange may obtain information regarding trading in the
Shares and listed bitcoin derivatives via the ISG, from other exchanges
who are members or affiliates of the ISG, or with which the Exchange
has entered into a comprehensive surveillance sharing agreement.
Availability of Information
The Exchange also believes that the proposal promotes market
transparency in that a large amount of information is currently
available about bitcoin and will be available regarding the Trust and
the Shares. In addition to the price transparency of the Reference
Rate, the Trust will provide information regarding the Trust's bitcoin
holdings as well as additional data regarding the Trust. The Trust will
provide an IIV per Share updated every 15 seconds, as calculated by the
Exchange or a third-party financial data provider during the Exchange's
Regular Trading Hours (9:30 a.m. to 4:00 p.m. E.T.). The IIV will be
calculated by using the prior day's closing NAV per Share as a base and
updating that value during Regular Trading Hours to reflect changes in
the value of the Trust's bitcoin holdings during the trading day.
The IIV disseminated during Regular Trading Hours should not be
viewed as an actual real-time update of the NAV, which will be
calculated only once at the end of each trading day. The IIV will be
widely disseminated on a per Share basis every 15 seconds during the
Exchange's Regular Trading Hours by one or more major market data
vendors. In addition, the IIV will be available through on-line
information services.
The website for the Trust, which will be publicly accessible at no
charge, will contain the following information: (a) The prior business
day's NAV and the reported closing price; (b) the BZX Official Closing
Price in relation to the NAV as of the time the NAV is calculated and a
calculation of the premium or discount of such price against such NAV;
(c) data in chart form displaying the frequency distribution of
discounts and premiums of the Official Closing Price against the NAV,
within appropriate ranges for each of the four previous calendar
quarters (or for the life of the Trust, if shorter); (d) the
prospectus; and (e) other applicable quantitative information,
including the information noted with respect to Rule 6c-11 under the
1940 Act. The Trust will also disseminate the Trust's holdings on a
daily basis on the Trust's website. The price of bitcoin will be made
available by one or more major market data vendors, updated at least
every 15 seconds during Regular Trading Hours. Information about the
Reference Rate, including key elements of how the Reference Rate is
calculated, will be publicly available at https://www.cfbenchmarks.com.
The NAV for the Trust will be calculated by the Administrator once
a day and will be disseminated daily to all market participants at the
same time. Quotation and last-sale information regarding the Shares
will be disseminated through the facilities of the CTA.
Quotation and last sale information for bitcoin is widely
disseminated through a variety of major market data vendors, including
Bloomberg and Reuters, as well as the Reference Rate. Information
relating to trading, including price and volume information, in bitcoin
is available from major market data vendors and from the exchanges on
which bitcoin are traded. Depth of book information is also available
from bitcoin exchanges. The normal trading hours for bitcoin exchanges
are 24 hours per day, 365 days per year.
For the above reasons, the Exchange believes that the proposed rule
change is consistent with the requirements of Section 6(b)(5) of the
Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. The Exchange notes that the
proposed rule change, rather will facilitate the listing and trading of
an additional exchange-traded product that will enhance competition
among both market participants and listing venues, to the benefit of
investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
A. By order approve or disapprove such proposed rule change, or
B. institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CboeBZX-2022-006 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-CboeBZX-2022-006. 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
[[Page 8335]]
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-CboeBZX-2022-006 and should
be submitted on or before March 7, 2022.
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\95\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\95\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-03019 Filed 2-11-22; 8:45 am]
BILLING CODE 8011-01-P
