Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change To List and Trade Shares of the COtwo Advisors Physical European Carbon Allowance Trust Under NYSE Arca Rule 8.201-E (Commodity-Based Trust Shares), 38110-38115 [2023-12414]
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–97653; File No. SR–
NYSEARCA–2023–37]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change To List and Trade Shares
of the COtwo Advisors Physical
European Carbon Allowance Trust
Under NYSE Arca Rule 8.201–E
(Commodity-Based Trust Shares)
June 6, 2023.
Pursuant to section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on May 23,
2023, NYSE Arca, Inc. (‘‘NYSE Arca’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade shares of the COtwo Advisors
Physical European Carbon Allowance
Trust under NYSE Arca Rule 8.201–E
(Commodity-Based Trust Shares). The
proposed rule change is available on the
Exchange’s website at www.nyse.com, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
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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
self-regulatory organization 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 those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
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1. Purpose
The Exchange proposes to list and
trade shares (‘‘Shares’’) of the COtwo
Advisors Physical European Carbon
Allowance Trust (the ‘‘Trust’’), under
NYSE Arca Rule 8.201–E, which
governs the listing and trading of
Commodity-Based Trust Shares.4 Under
NYSE Arca Rule 8.201–E, the Exchange
may propose to list and/or trade
Commodity-Based Trust Shares
pursuant to unlisted trading privileges.
The Trust was formed as a Delaware
statutory trust on January 12, 2023.5 The
Trust has no fixed termination date. The
Trust will not be registered as an
investment company under the
Investment Company Act of 1940, as
amended,6 and is not required to
register under such act. The Trust is not
a commodity pool for purposes of the
Commodity Exchange Act, as amended.7
The sponsor of the Trust is COtwo
Advisors LLC, a Delaware limited
liability company (‘‘Sponsor’’). State
Street Bank and Trust Company serves
as the Trust’s administrator (the
‘‘Administrator’’) to perform various
administrative, accounting and
recordkeeping functions on behalf of the
Trust. Wilmington Trust serves as
trustee of the Trust (the ‘‘Trustee’’).
State Street Bank and Trust Company
serves as the Trust’s transfer agent (the
‘‘Transfer Agent’’) and as custodian of
the Trust’s cash, if any (‘‘Cash
Custodian’’).8
The Exchange represents that the
Shares will satisfy the requirements of
NYSE Arca Rule 8.201–E and thereby
will qualify for listing on the Exchange.
Operation of the Trust 9
The investment objective of the Trust
will be for the Shares to reflect the
4 Commodity-Based Trust Shares are securities
issued by a trust that represent investors’ discrete
identifiable and undivided beneficial ownership
interest in the commodities deposited into the trust.
5 On May 12, 2023, the Trust filed with the
Commission a registration statement on Form S–1
(File No. 333–271910) (the ‘‘Registration
Statement’’) under the Securities Act of 1933 (15
U.S.C. 77a) (the ‘‘Securities Act’’). The description
of the operation of the Trust herein is based, in part,
on the Registration Statement. The Registration
Statement in not yet effective and the Shares will
not trade on the Exchange until such time that the
Registration Statement is effective.
6 15 U.S.C. 80a–1.
7 17 U.S.C. 1.
8 The Cash Custodian is responsible for holding
the Trust’s cash as well as receiving and dispensing
cash on behalf of the Trust in connection with the
payment of Trust expenses.
9 The description of the operation of the Trust,
the Shares, and the carbon credit industry
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performance of the price of EU Carbon
Emission Allowances for stationary
installations (‘‘EUAs’’), less the Trust’s
expenses. The Trust intends to achieve
its objective by investing all of its assets
in EUAs on a non-discretionary basis
(i.e., without regard to whether the
value of EUAs is rising or falling over
any particular period). Shares of the
Trust will represent units of fractional
undivided beneficial interest in and
ownership of the Trust. The Trust’s only
ordinary recurring expense will be the
Sponsor’s annual fee. The Trust will not
hold any assets other than EUAs or,
possibly, cash. The Trust may hold a
very limited amount of cash to pay
Trust expenses. The Trust may also
cause the Sponsor to receive EUAs from
the Trust in such a quantity as may be
necessary to pay the Sponsor’s annual
fee.
The Trust will not invest in futures,
options, or swap contracts on any
futures exchange or in the over-thecounter market. The Trust will not hold
or trade in commodity futures contracts,
‘‘commodity interests,’’ or any other
instruments regulated by the
Commodity Exchange Act. As stated
above, the Trust’s Cash Custodian may
hold cash proceeds from EUA sales to
pay Trust expenses. All EUAs will be
held in the Union Registry (defined
below).
The Trust is not a proxy for investing
in physical carbon credits. Rather, the
Shares are intended to provide a costeffective means of obtaining investment
exposure to the price of EUAs through
the securities markets that is similar to
an investment in futures contracts or
other derivatives.
EUAs and the EUA Industry
Description of EU Emissions Trading
Scheme
According to the Registration
Statement, the European Union
Emissions Trading System (‘‘EU ETS’’)
is a ‘‘cap and trade’’ system that caps
the total volume of greenhouse gas
(‘‘GHG’’) emissions from installations
and aircraft operators responsible for
around 40% of European Union (‘‘EU’’)
GHG emissions.10 The EU ETS is the
largest cap and trade system in the
world and covers more than 11,000
power stations and industrial plants in
31 countries, and flights between
airports of participating countries. The
EU ETS is administered by the EU
contained herein are based, in part, on the
Registration Statement. See note 5, supra.
10 There are two types of EU emissions allowance:
(i) general allowances for stationary installations, or
EUA; and (ii) allowances for the aviation sector
(‘‘EUAA’’). The Trust will hold EUAs only.
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Commission, which issues a predefined
amount of EUAs through auctions or
free allocation. An EUA represents the
right to emit one metric ton of carbon
dioxide equivalent into the atmosphere
by operators of stationary installations
(‘‘Covered Entities’’). By the end of
April each year, all Covered Entities are
required to surrender EUAs equal to the
total volume of actual emissions from
their installation for the last calendar
year. EU ETS operators can buy or sell
EUAs to achieve EU ETS compliance.
In 2012, EU ETS operations were
centralized into a single EU registry
operated by the EU Commission (the
‘‘Union Registry’’), which covers all
countries participating in the EU ETS.
The Union Registry is an online
database that holds accounts for all
entities covered by the EU ETS as well
as for participants (such as the Trust)
not covered under the EU ETS. An
account must be opened in the Union
Registry in order to transact in EUAs
and the Union Registry is at all times
responsible for holding the EUAs. All
EUAs are held in the Union Registry.
Major Holders and Allowance Use Cases
According to the Registration
Statement, while there is limited
publicly available data on individuals or
individual organizations’ holdings in
physical carbon allowances, carbon
allowances are primarily held for three
different use cases:
(a) Complying with the EU ETS:
Companies that need to surrender
allowances under the EU ETS hold
allowances to surrender them annually.
These positions are typically built over
time and ultimately surrendered at time
of compliance. Therefore, the largest
emitters in the EU ETS hold a
significant amount of allowances, which
include entities such as large utilities
with a substantial share of fossil fuel
fired power plants, cement companies,
steel producers, chemical producers, oil
and gas majors and airlines.
(b) Providing financial services for
hedging purposes or speculation, such
as clearing houses for the European
Energy Exchange or the Intercontinental
Exchange, or banks holding allowances
for their clients.
(c) Trading on and speculating around
price moves, using physical emission
allowances. This can take many forms,
including ‘‘yield trades’’, which
includes holding a physical allowance
and selling an EUA future at a premium
to gain the yield in the forward curve;
or outright positions for short term or
long term speculation.
In addition to holding physical
allowances, there is a liquid secondary
futures and options market that is
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primarily used for hedging future
emissions or speculating.
Trading Location
According to the Registration
Statement, the EU ETS is linked to small
emissions trading systems in Europe
(Norway, Switzerland, Iceland and
Liechtenstein), but not to any other
major cap and trade markets. Therefore,
allowances handed out in the EU ETS
are not transferable to any registry
outside of the EU ETS and cannot be
used for compliance in any other cap
and trade market.
There are a number of other trading
systems globally, and like the EU ETS,
no allowances of any of these systems
can be used in any other system:
(a) Western Climate Initiative (WCI):
The State of California and the Canadian
province Quebec created a linked cap
and trade market, that covers >80% of
emissions.
(b) Regional Greenhouse Gas Initiative
(RGGI): a group of US east coast states
created a linked market that covers
power generators only.
(c) The China National ETS:
Technically not a cap and trade scheme
(as the amount of allowances is not
fixed but calculated according to
historic production of units).
(d) South Korea ETS: A
comprehensive market covering the
majority of Korean emissions.
Pricing of Allowances and Trading
Volume
According to the Registration
Statement, there are two primary
avenues for trading EUAs: a primary
market and a secondary market. The
primary market involves participation
in a regularly scheduled auction. The
secondary market involves transactions
between buyers and sellers on regulated
markets via trading in spot, options, and
futures contracts. There are also overthe-counter transactions, but they
comprise a negligible percentage of
transactions.
The EUA markets are generally liquid.
EUA auctions are held on a near-daily
basis throughout the year, other than
between mid-December to mid-January,
when auctions are paused. Prices
achieved in these auctions are
published on various publiclyaccessible websites, including the
European Commission’s primary
website.
The secondary market trading takes
place predominantly on the European
Energy Exchange AG (‘‘EEX’’) and ICE
Endex. As of January 2023, the
secondary market had average daily
trading volume of Ö2 billion, with the
majority of the liquidity in the futures
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market. Prices for secondary market
transactions are published on various
publicly-accessible websites, including
those of EEX and ICE Endex. Both EEX
and ICE Endex are affiliates of Exchange
groups that are members of the
Intermarket Surveillance Group (‘‘ISG’’).
Most liquidity in the secondary
market is achieved by trading futures
contracts. These contracts have
expiration going out as far as 2030. The
most liquid contract is the single day
futures contract on EUAs (the ‘‘Daily
EUA Future’’), which settles each day at
the close of trading. Generally, Daily
EUA Futures trade from approximately
2:00 a.m. Eastern Time (‘‘E.T.’’) to
approximately 12:00 p.m. E.T. The
settlement price is fixed each business
day and is published by the exchange at
approximately 12:15 E.T. Final cash
settlement occurs the first business day
following the expiry day.
In 2021, the secondary spot market for
EUAs (including the Daily EUA Future)
averaged around 2.4 million EUAs daily
and the primary auctions accounted for
almost 2.5 million EUAs being
auctioned several times per week. The
current value (spot price) for a EUA is
greatly influenced by a number of
factors, including regulatory changes,
world events and general level of
economic activity.
Creation and Redemption of Shares
According to the Registration
Statement, the Trust will create and
redeem Shares on a continuous basis in
one or more Creation Units. A Creation
Unit equals a block of 50,000 Shares,
which amount may be revised from
time-to-time. The Trust will issue
Shares in Creation Units to certain
authorized participants (‘‘Authorized
Participants’’) on an ongoing basis. Each
Authorized Participant must be a
registered broker-dealer or other
securities market participant such as a
bank or other financial institution
which is not required to register as a
broker-dealer to engage in securities
transactions, a participant in The
Depository Trust Company (‘‘DTC’’) and
have entered into an agreement with the
Sponsor and the Transfer Agent (the
‘‘Participant Agreement’’).
Creation Units may be created or
redeemed only by Authorized
Participants. The creation and
redemption of Creation Units is only
made in exchange for the delivery to the
Trust or the distribution by the Trust of
the amount of EUAs represented by the
Creation Units being created or
redeemed. The amount of EUAs
required to be delivered to the Trust in
connection with any creation, or paid
out upon redemption, is based on the
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combined net asset value of the number
of Shares included in the Creation Units
being created or redeemed as
determined on the day the order to
create or redeem Creation Units is
properly received and accepted. Orders
must be placed by 11:00 a.m. New York
time. The day on which the
Administrator receives a valid purchase
or redemption order is the order date.
Creation Units may only be issued or
redeemed on a day that the Exchange is
open for regular trading.
An Authorized Participant who places
a purchase order is responsible for
crediting the Trust’s Union Registry
account with the required EUA deposit
by 2:00 p.m. New York time on the
second business day following the order
date. Upon receipt of the EUA deposit
amount in the Trust’s Union Registry
account, the Union Registry will notify
the Sponsor that the EUAs have been
deposited. Upon receipt of confirmation
from the Union Registry that the EUA
deposit amount has been received, the
Administrator will direct DTC to credit
the number of Shares created to the
Authorized Participant’s DTC account.
According to the Registration
Statement, the redemption distribution
due from the Trust will be delivered
once the Administrator notifies the
Sponsor that the Authorized Participant
has delivered the Shares to be redeemed
to the Trust’s DTC account. The
redemption distribution will be
delivered to the Authorized Participant
on the second business day following
the order date. Once the Administrator
notifies the Sponsor that the Shares
have been received in the Trust’s DTC
account, the Sponsor instructs the
Union Registry to transfer the
redemption EUA amount from the
Trust’s Union Registry account to the
Authorized Participant’s Union Registry
account.
The Sponsor is the only entity that
may initiate a withdrawal of EUAs from
the Trust’s Union Registry account, and
the only accounts that may receive
EUAs from the Trust’s Union Registry
account are Authorized Participants’ or
the Sponsor’s Union Registry accounts.
Net Asset Value (‘‘NAV’’)
The Trust’s NAV is calculated by
taking the current market value of its
total assets, less any liabilities of the
Trust, and dividing that total by the
total number of outstanding Shares.
The Administrator will calculate the
NAV of the Trust once each Exchange
trading day. The NAV for a normal
trading day will be released after the
end of the Core Trading Session, which
is typically 4 p.m. New York time. The
NAV for the Trust’s Shares will be
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disseminated by one or more major
market data vendors on at least a 15
second delayed basis as required by
NYSE Arca Rule 8.201–E(e)(2)(v).
Complete real-time data for EUAs and
Daily EUA Futures is available by
subscription through on-line
information services. Quotation and
last-sale information regarding the
Shares will be disseminated through the
facilities of the Consolidated Tape
Association. The IFV will be available
through on-line information services.
The trading prices for EUAs and Daily
EUA Futures will be disseminated by
on-line subscription services or by one
or more major market data vendors
Indicative Fund Value (‘‘IFV’’)
during the NYSE Arca Core Trading
Session of 9:30 a.m. to 4:00 p.m. E.T.
In order to provide updated
information relating to the Trust for use Additionally, the NAV may be
influenced by non-concurrent trading
by investors and market professionals,
hours between the Exchange and the
an updated IFV will be made available
EUA markets. While the Trust’s Shares
through on-line information services
trade on the Exchange from 9:30 a.m. to
throughout the Exchange Core Trading
Session (normally 9:30 a.m. to 4:00 p.m. 4:00 p.m. E.T., the trading hours for
EUA markets do not coincide during all
E.T.) on each trading day. The IFV will
be calculated by using the prior day’s
of this time. EEX provides on its
closing NAV per Share of the Trust as
website, on a daily basis, transaction
a base and updating that value
volumes and transaction prices for the
throughout the trading day to reflect
EUA spot market. ICE Endex provides
changes in the most recently reported
on its website, on a daily basis,
mid-point of the bid-ask spread of the
transaction volumes, transaction prices,
Daily EUA Future. The IFV
daily settlement prices and historical
disseminated during NYSE Arca Core
settlement prices for Daily EUA Futures
Trading Session hours should not be
that were traded outside of block trades
viewed as an actual real time update of
by EUA futures brokers. In addition,
the NAV, because the NAV will be
transaction volumes, transaction prices,
calculated only once at the end of each
daily settlement prices and historical
trading day based upon the relevant end settlement prices for Daily EUA Futures
of day values of the Trust’s investments. traded in block trades by futures brokers
Although the IFV will be disseminated
are available on a daily basis through a
throughout the Core Trading Session,
subscription service to ICE Endex.
the customary trading hours for EUAs
However, ICE Endex provides the daily
are 2 a.m. to 12 p.m. Eastern Time.
settlement price change of the Daily
During the gap in time at the end of each EUA Future on its website.
trading day during which the Shares are
In addition, the Trust’s website
traded on the Exchange, but real-time
(www.cotwoadvisors.com)
will contain
trading prices for EUAs are not
the following information, on a per
available, the IFV will be calculated
Share basis, for the Trust: (a) the prior
based on the end of day price of EUAs
business day’s end of day closing NAV;
immediately preceding the trading
(b) the Official Closing Price 11 or the
session.
midpoint
of the national best bid and
The IFV will be disseminated on a per
the
national
best offer (‘‘NBBO’’) as of
Share basis every 15 seconds during
the time the NAV is calculated (‘‘Bidregular NYSE Arca Core Trading
Ask Price’’); (c) calculation of the
Session.
premium or discount of the Official
Availability of Information
Closing Price against the NAV expressed
as a percentage of such NAV; (d) the
The NAV for the Trust’s Shares will
prospectus; and (e) other applicable
be disseminated daily to all market
quantitative information. The Trust will
participants at the same time. The
also provide website disclosure of its
intraday, closing prices, and settlement
prices for EUAs will be readily available
11 The term ‘‘Official Closing Price’’ is defined in
from the applicable futures exchange
NYSE Arca Rule 1.1(ll) as the reference price to
websites, automated quotation systems,
determine the closing price in a security for
published or other public sources, or
purposes of Rule 7–E Equities Trading, and the
major market data vendors. The IFV per procedures for determining the Official Closing
Price are set forth in that rule.
Share for the Shares will be
disseminated daily to all market
participants at the same time. The
Administrator will use the settlement
price for the Daily EUA Futures
established by ICE Endex to calculate
the NAV. The Administrator also
converts the value of Euro denominated
assets into US Dollar equivalent using
published foreign currency exchange
prices by an independent pricing
vendor. Third parties supplying
quotations or market data may include,
without limitation, dealers in the
relevant markets, end-users of the
relevant product, information vendors,
brokers and other sources of market
information.
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EUA holdings before 9:30 a.m. E.T. on
each trading day.
The Trust’s website will be publicly
available prior to the public offering of
Shares and accessible at no charge. The
website disclosure of the Trust’s daily
holdings will occur at the same time as
the disclosure by the Trust of the daily
holdings to Authorized Participants so
that all market participants are provided
daily holdings information at the same
time. Therefore, the same holdings
information will be provided on the
public website as well as in electronic
files provided to Authorized
Participants. Accordingly, each investor
will have access to the current daily
holdings of the Trust through the Trust’s
website. In addition, information
regarding market price and trading
volume of the Shares will be continually
available on a real-time basis throughout
the day on brokers’ computer screens
and other electronic services.
Information regarding the previous
day’s closing price and trading volume
information for the Shares will be
published daily in the financial section
of newspapers.
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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. Trading in the Shares
on the Exchange will occur in
accordance with NYSE Arca Rule 7.34–
E (Early, Core, and Late Trading
Sessions). The Exchange has
appropriate rules to facilitate
transactions in the Shares during all
trading sessions. As provided in NYSE
Arca Rule 7.6–E, the minimum price
variation (‘‘MPV’’) for quoting and entry
of orders in equity securities traded on
the NYSE Arca Marketplace is $0.01,
with the exception of securities that are
priced less than $1.00, for which the
MPV for order entry is $0.0001.
The Shares will conform to the initial
and continued listing criteria under
NYSE Arca Rule 8.201–E. The trading of
the Shares will be subject to NYSE Arca
Rule 8.201–E(g), which sets forth certain
restrictions on Equity Trading Permit
(‘‘ETP’’) Holders acting as registered
Market Makers in Commodity-Based
Trust Shares to facilitate surveillance.
The Exchange represents that, for initial
and continued listing, the Trust will be
in compliance with Rule 10A–3 12 under
the Act, as provided by NYSE Arca Rule
5.3–E. A minimum of 100,000 Shares
12 With respect to the application of Rule 10A–
3 (17 CFR 240.10A–3) under the Act, the Trust
relies on the exemption contained in Rule 10A–
3(c)(7).
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will be outstanding at the
commencement of trading on the
Exchange.
As a general matter, the Exchange has
regulatory jurisdiction over its ETP
Holders and their associated persons,
which include any person or entity
controlling an ETP Holder. To the extent
the Exchange may be found to lack
jurisdiction over a subsidiary or affiliate
of an ETP Holder that does business
only in commodities or futures
contracts, the Exchange could obtain
information regarding the activities of
such subsidiary or affiliate through
surveillance sharing agreements with
regulatory organizations of which such
subsidiary or affiliate is a member.
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.
Trading on the Exchange in the Shares
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
conditions in the underlying carbon
credit market have caused disruptions
and/or lack of trading, or (2) whether
other unusual conditions or
circumstances detrimental to the
maintenance of a fair and orderly
market are present. In addition, trading
in Shares will be subject to trading halts
caused by extraordinary market
volatility pursuant to the Exchange’s
‘‘circuit breaker’’ rule.13
The Exchange may halt trading during
the day in which an interruption occurs
to the dissemination of the IFV, as
described above. If the interruption to
the dissemination of the IFV persists
past the trading day in which it occurs,
the Exchange will halt trading no later
than the beginning of the trading day
following the interruption. In addition,
if the Exchange becomes aware that the
NAV with respect to the Shares is not
disseminated to all market participants
at the same time, it will halt trading in
the Shares until such time as the NAV
is available to all market participants.
Surveillance
The Exchange represents that trading
in the Shares will be subject to the
existing trading surveillances
administered by the Exchange, as well
as cross-market surveillances
administered by the Financial Industry
Regulatory Authority Inc. (‘‘FINRA’’), on
behalf of the Exchange, which are
designed to detect violations of
13 See
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38113
Exchange rules and applicable federal
securities laws.14 The Exchange
represents that these procedures are
adequate to properly monitor Exchange
trading of the Shares in all trading
sessions and to deter and detect
violations of Exchange rules and federal
securities laws applicable to trading on
the Exchange.
The surveillances referred to above
generally focus on detecting securities
trading outside their normal patterns,
which could be indicative of
manipulative or other violative activity.
When such situations are detected,
surveillance analysis follows and
investigations are opened, where
appropriate, to review the behavior of
all relevant parties for all relevant
trading violations.
The Exchange or FINRA, on behalf of
the Exchange, or both, will
communicate as needed regarding
trading in the Shares with other markets
and other entities that are members of
the ISG, and the Exchange or FINRA, on
behalf of the Exchange, or both, may
obtain trading information regarding
trading in the Shares from such markets
and other entities. In addition, the
Exchange may obtain information
regarding trading in the Shares from
markets and other entities that are
members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement.15
Also, pursuant to NYSE Arca Rule
8.201–E(g), the Exchange is able to
obtain information regarding trading in
the Shares in connection with ETP
Holders’ proprietary or customer trades
which they effect through ETP Holders
on any relevant market.
In addition, the Exchange also has a
general policy prohibiting the
distribution of material, non-public
information by its employees.
All statements and representations
made in this filing regarding (a) the
description of the portfolio or reference
assets, (b) limitations on portfolio
holdings or reference assets, or (c) the
applicability of Exchange listing rules
specified in this rule filing shall
constitute continued listing
requirements for listing the Shares on
the Exchange.
The Trust has represented to the
Exchange that it will advise the
Exchange of any failure by the Trust to
comply with the continued listing
requirements, and, pursuant to its
14 FINRA conducts cross-market surveillances on
behalf of the Exchange pursuant to a regulatory
services agreement. The Exchange is responsible for
FINRA’s performance under this regulatory services
agreement.
15 For a list of the current members of ISG, see
www.isgportal.org.
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ddrumheller on DSK120RN23PROD with NOTICES1
obligations under section 19(g)(1) of the
Act, the Exchange will monitor for
compliance with the continued listing
requirements. If the Trust is not in
compliance with the applicable listing
requirements, the Exchange will
commence delisting procedures under
NYSE Arca Rule 5.5–E(m).
Information Bulletin
Prior to the commencement of
trading, the Exchange will inform its
ETP Holders in an Information Bulletin
of the special characteristics and risks
associated with trading the Shares.
Specifically, the Information Bulletin
will discuss the following: (1) the
procedures for purchases and
redemptions of Shares in Creation Units
(including noting that Shares are not
individually redeemable); (2) NYSE
Arca Rule 9.2–E(a), which imposes a
duty of due diligence on its ETP Holders
to learn the essential facts relating to
every customer prior to trading the
Shares; (3) how information regarding
the IFV is disseminated; (4) the
requirement that ETP Holders deliver a
prospectus to investors purchasing
newly issued Shares prior to or
concurrently with the confirmation of a
transaction; (5) the possibility that
trading spreads and the premium or
discount on the Shares may widen as a
result of reduced liquidity of EUAs
during the Core and Late Trading
Sessions; and (6) trading information.
For example, the Information Bulletin
will advise ETP Holders, prior to the
commencement of trading, of the
prospectus delivery requirements
applicable to the Trust. The Exchange
notes that investors purchasing Shares
directly from the Trust will receive a
prospectus. ETP Holders purchasing
Shares from the Trust for resale to
investors will deliver a prospectus to
such investors.
In addition, the Information Bulletin
will reference that the Trust is subject
to various fees and expenses as will be
described in the Registration Statement.
The Information Bulletin will also
reference the fact that while last sale
information regarding EUAs would be
subject to regulation by EEX and ICE
Endex, the Commission and the CFTC
do not have jurisdiction over the trading
of EUAs as a commodity. The
Information Bulletin will also discuss
any relief, if granted, by the Commission
or the staff from any rules under the
Act.
The Information Bulletin will also
disclose the trading hours of the Shares
and that the NAV for the Shares will be
calculated after 4:00 p.m. E.T. each
trading day. The Information Bulletin
will disclose that information about the
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Shares will be publicly available on the
Trust’s website.
2. Statutory Basis
The basis under the Act for this
proposed rule change is the requirement
under section 6(b)(5) 16 that an exchange
have rules that are designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to remove
impediments to, and perfect the
mechanism of a free and open market
and, in general, to protect investors and
the public interest.
The Exchange believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices in that the Shares will
be listed and traded on the Exchange
pursuant to the initial and continued
listing criteria in NYSE Arca Rule
8.201–E. The Exchange has in place
surveillance procedures that are
adequate to properly monitor trading in
the Shares in all trading sessions and to
deter and detect violations of Exchange
rules and applicable federal securities
laws. The Exchange may obtain
information via ISG from other
exchanges that are members of ISG or
with which the Exchange has entered
into a comprehensive surveillance
sharing agreement.
The proposed rule change is designed
to promote just and equitable principles
of trade and to protect investors and the
public interest in that there is a
considerable amount of information on
EUAs available on public websites and
through professional and subscription
services. In addition, the Trust’s website
will provide pricing information for
EUAs and the Shares. Market prices for
the Shares will be available from a
variety of sources including brokerage
firms, information websites and other
information service providers. The NAV
of the Trust will be published on each
day that the NYSE Arca is open for
regular trading and will be posted on
the Trust’s website. The IFV relating to
the Shares will be widely disseminated
by one or more major market data
vendors at least once every 15 seconds
as required by NYSE Arca Rule 8.201–
E(e)(2)(v). The Trust’s website will also
provide its prospectus and other
relevant quantitative information
regarding the Shares. In addition,
information regarding market price and
trading volume of the Shares will be
continually available on a real-time
basis throughout the day on brokers’
computer screens and other electronic
services. Information regarding the
previous day’s closing price and trading
16 15
PO 00000
U.S.C. 78f(b)(5).
Frm 00100
Fmt 4703
Sfmt 4703
volume information for the Shares will
be published daily in the financial
section of newspapers.
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of an additional type of exchange-traded
product that will enhance competition
among market participants, to the
benefit of investors and the marketplace.
As noted above, the Exchange has in
place surveillance procedures relating to
trading in the Shares and may obtain
information via ISG from other
exchanges that are members of ISG or
with which the Exchange has entered
into a comprehensive surveillance
sharing agreement.
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 purposes of the Act. The
Exchange believes the proposed rule
change will enhance competition by
accommodating Exchange trading of an
additional exchange-traded product
relating to physical carbon credits.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to 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 self-regulatory organization
consents, the Commission will:
(A) by order approve or disapprove
the 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:
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Federal Register / Vol. 88, No. 112 / Monday, June 12, 2023 / Notices
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEARCA–2023–37 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.
ddrumheller on DSK120RN23PROD with NOTICES1
All submissions should refer to File
Number SR–NYSEARCA–2023–37. 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. Do not include
personal identifiable information in
submissions; you should submit only
information that you wish to make
available publicly. We may redact in
part or withhold entirely from
publication submitted material that is
obscene or subject to copyright
protection. All submissions should refer
to File Number SR–NYSEARCA–2023–
37, and should be submitted on or
before July 3, 2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–12414 Filed 6–9–23; 8:45 am]
BILLING CODE 8011–01–P
17 17
17:39 Jun 09, 2023
[Release No. 34–97654; File No. SR–CBOE–
2023–029]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Automated
Price Improvement Auction Rules
June 6, 2023.
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 May 25,
2023, Cboe Exchange, Inc. (the
‘‘Exchange’’ or ‘‘Cboe Options’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Exchange filed the proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to section 19(b)(3)(A)(iii) of the
Act 3 and Rule 19b–4(f)(6) thereunder.4
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
Cboe Exchange, Inc. (the ‘‘Exchange’’
or ‘‘Cboe Options’’) proposes to amend
its automated price improvement
auction rules. The text of the proposed
rule change is provided in Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://www.cboe.com/
AboutCBOE/CBOELegalRegulatory
Home.aspx), 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.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Rule 5.37 (Automated Price
Improvement Mechanism (‘‘AIM’’ or
‘‘AIM Auction’’)) and Rule 5.38
(Complex Automated Improvement
Mechanism (‘‘C–AIM’’ or ‘‘C–AIM
Auction’’)) to modify the stop price
requirements for auto-match orders
submitted to AIM and C–AIM,
respectively.
By way of background, Rules 5.37 and
5.38 contain the requirements
applicable to the execution of orders
using AIM and C–AIM, respectively.
The AIM and C–AIM auctions are
electronic auctions intended to provide
an Agency Order with the opportunity
to receive price improvement (over the
National Best Bid or Offer (‘‘NBBO’’) in
AIM, or the synthetic best bid or offer
(‘‘SBBO’’) on the Exchange in C–AIM.
Upon submitting an Agency Order into
an AIM or C–AIM auction, the initiating
Trading Permit Holder (‘‘Initiating
TPH’’) must also submit a contra-side
second order (‘‘Initiating Order’’) for the
same size as the Agency Order. The
Initiating Order guarantees that the
Agency Order will receive an execution
at no worse than the auction price (i.e.,
acts as a stop). During an AIM or C–AIM
Auction, market participants submit
responses to trade against the Agency
Order. At the end of an auction,
depending on the contra-side interest
available, the contra order may be
allocated a certain percentage of the
Agency Order.5
An Initiating TPH may initiate an
AIM or C–AIM auction provided that
the Agency Order is in a class and of
sufficient size as determined by the
Exchange. Further, there are
requirements regarding the price at
which the Initiating Order must stop the
entire Agency Order, set forth in Rule
5.37(b) for AIM Auctions and Rule
5.38(b) for C–AIM Auctions.
Requirements for the stop price depend
on the order submitted, but in general,
the stop price must be either better than
the then-current NBBO (SBBO) or, in
some cases, at or better than the NBBO
(SBBO).6
Further, under Rules 5.37(b)(5) and
5.38(b)(4), an Initiating TPH, in entering
the contra-side order, must either (1)
specify a single price at which it seeks
to execute the Agency Order against the
Initiating Order, or (2) specify an initial
2 17
CFR 200.30–3(a)(12).
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6 See
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generally Rules 5.37(e) and 5.38(e).
generally Rules 5.37(b) and 5.38(b).
12JNN1
]]>Agencies
[Federal Register Volume 88, Number 112 (Monday, June 12, 2023)]
[Notices]
[Pages 38110-38115]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-12414]
[[Page 38110]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97653; File No. SR-NYSEARCA-2023-37]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change To List and Trade Shares of the COtwo Advisors
Physical European Carbon Allowance Trust Under NYSE Arca Rule 8.201-E
(Commodity-Based Trust Shares)
June 6, 2023.
Pursuant to section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that on May 23, 2023, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the self-regulatory organization. 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\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade shares of the COtwo
Advisors Physical European Carbon Allowance Trust under NYSE Arca Rule
8.201-E (Commodity-Based Trust Shares). The proposed rule change is
available on the Exchange's website at www.nyse.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
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 those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade shares (``Shares'') of the
COtwo Advisors Physical European Carbon Allowance Trust (the
``Trust''), under NYSE Arca Rule 8.201-E, which governs the listing and
trading of Commodity-Based Trust Shares.\4\ Under NYSE Arca Rule 8.201-
E, the Exchange may propose to list and/or trade Commodity-Based Trust
Shares pursuant to unlisted trading privileges.
---------------------------------------------------------------------------
\4\ Commodity-Based Trust Shares are securities issued by a
trust that represent investors' discrete identifiable and undivided
beneficial ownership interest in the commodities deposited into the
trust.
---------------------------------------------------------------------------
The Trust was formed as a Delaware statutory trust on January 12,
2023.\5\ The Trust has no fixed termination date. The Trust will not be
registered as an investment company under the Investment Company Act of
1940, as amended,\6\ and is not required to register under such act.
The Trust is not a commodity pool for purposes of the Commodity
Exchange Act, as amended.\7\
---------------------------------------------------------------------------
\5\ On May 12, 2023, the Trust filed with the Commission a
registration statement on Form S-1 (File No. 333-271910) (the
``Registration Statement'') under the Securities Act of 1933 (15
U.S.C. 77a) (the ``Securities Act''). The description of the
operation of the Trust herein is based, in part, on the Registration
Statement. The Registration Statement in not yet effective and the
Shares will not trade on the Exchange until such time that the
Registration Statement is effective.
\6\ 15 U.S.C. 80a-1.
\7\ 17 U.S.C. 1.
---------------------------------------------------------------------------
The sponsor of the Trust is COtwo Advisors LLC, a Delaware limited
liability company (``Sponsor''). State Street Bank and Trust Company
serves as the Trust's administrator (the ``Administrator'') to perform
various administrative, accounting and recordkeeping functions on
behalf of the Trust. Wilmington Trust serves as trustee of the Trust
(the ``Trustee''). State Street Bank and Trust Company serves as the
Trust's transfer agent (the ``Transfer Agent'') and as custodian of the
Trust's cash, if any (``Cash Custodian'').\8\
---------------------------------------------------------------------------
\8\ The Cash Custodian is responsible for holding the Trust's
cash as well as receiving and dispensing cash on behalf of the Trust
in connection with the payment of Trust expenses.
---------------------------------------------------------------------------
The Exchange represents that the Shares will satisfy the
requirements of NYSE Arca Rule 8.201-E and thereby will qualify for
listing on the Exchange.
Operation of the Trust \9\
---------------------------------------------------------------------------
\9\ The description of the operation of the Trust, the Shares,
and the carbon credit industry contained herein are based, in part,
on the Registration Statement. See note 5, supra.
---------------------------------------------------------------------------
The investment objective of the Trust will be for the Shares to
reflect the performance of the price of EU Carbon Emission Allowances
for stationary installations (``EUAs''), less the Trust's expenses. The
Trust intends to achieve its objective by investing all of its assets
in EUAs on a non-discretionary basis (i.e., without regard to whether
the value of EUAs is rising or falling over any particular period).
Shares of the Trust will represent units of fractional undivided
beneficial interest in and ownership of the Trust. The Trust's only
ordinary recurring expense will be the Sponsor's annual fee. The Trust
will not hold any assets other than EUAs or, possibly, cash. The Trust
may hold a very limited amount of cash to pay Trust expenses. The Trust
may also cause the Sponsor to receive EUAs from the Trust in such a
quantity as may be necessary to pay the Sponsor's annual fee.
The Trust will not invest in futures, options, or swap contracts on
any futures exchange or in the over-the-counter market. The Trust will
not hold or trade in commodity futures contracts, ``commodity
interests,'' or any other instruments regulated by the Commodity
Exchange Act. As stated above, the Trust's Cash Custodian may hold cash
proceeds from EUA sales to pay Trust expenses. All EUAs will be held in
the Union Registry (defined below).
The Trust is not a proxy for investing in physical carbon credits.
Rather, the Shares are intended to provide a cost-effective means of
obtaining investment exposure to the price of EUAs through the
securities markets that is similar to an investment in futures
contracts or other derivatives.
EUAs and the EUA Industry
Description of EU Emissions Trading Scheme
According to the Registration Statement, the European Union
Emissions Trading System (``EU ETS'') is a ``cap and trade'' system
that caps the total volume of greenhouse gas (``GHG'') emissions from
installations and aircraft operators responsible for around 40% of
European Union (``EU'') GHG emissions.\10\ The EU ETS is the largest
cap and trade system in the world and covers more than 11,000 power
stations and industrial plants in 31 countries, and flights between
airports of participating countries. The EU ETS is administered by the
EU
[[Page 38111]]
Commission, which issues a predefined amount of EUAs through auctions
or free allocation. An EUA represents the right to emit one metric ton
of carbon dioxide equivalent into the atmosphere by operators of
stationary installations (``Covered Entities''). By the end of April
each year, all Covered Entities are required to surrender EUAs equal to
the total volume of actual emissions from their installation for the
last calendar year. EU ETS operators can buy or sell EUAs to achieve EU
ETS compliance.
---------------------------------------------------------------------------
\10\ There are two types of EU emissions allowance: (i) general
allowances for stationary installations, or EUA; and (ii) allowances
for the aviation sector (``EUAA''). The Trust will hold EUAs only.
---------------------------------------------------------------------------
In 2012, EU ETS operations were centralized into a single EU
registry operated by the EU Commission (the ``Union Registry''), which
covers all countries participating in the EU ETS. The Union Registry is
an online database that holds accounts for all entities covered by the
EU ETS as well as for participants (such as the Trust) not covered
under the EU ETS. An account must be opened in the Union Registry in
order to transact in EUAs and the Union Registry is at all times
responsible for holding the EUAs. All EUAs are held in the Union
Registry.
Major Holders and Allowance Use Cases
According to the Registration Statement, while there is limited
publicly available data on individuals or individual organizations'
holdings in physical carbon allowances, carbon allowances are primarily
held for three different use cases:
(a) Complying with the EU ETS: Companies that need to surrender
allowances under the EU ETS hold allowances to surrender them annually.
These positions are typically built over time and ultimately
surrendered at time of compliance. Therefore, the largest emitters in
the EU ETS hold a significant amount of allowances, which include
entities such as large utilities with a substantial share of fossil
fuel fired power plants, cement companies, steel producers, chemical
producers, oil and gas majors and airlines.
(b) Providing financial services for hedging purposes or
speculation, such as clearing houses for the European Energy Exchange
or the Intercontinental Exchange, or banks holding allowances for their
clients.
(c) Trading on and speculating around price moves, using physical
emission allowances. This can take many forms, including ``yield
trades'', which includes holding a physical allowance and selling an
EUA future at a premium to gain the yield in the forward curve; or
outright positions for short term or long term speculation.
In addition to holding physical allowances, there is a liquid
secondary futures and options market that is primarily used for hedging
future emissions or speculating.
Trading Location
According to the Registration Statement, the EU ETS is linked to
small emissions trading systems in Europe (Norway, Switzerland, Iceland
and Liechtenstein), but not to any other major cap and trade markets.
Therefore, allowances handed out in the EU ETS are not transferable to
any registry outside of the EU ETS and cannot be used for compliance in
any other cap and trade market.
There are a number of other trading systems globally, and like the
EU ETS, no allowances of any of these systems can be used in any other
system:
(a) Western Climate Initiative (WCI): The State of California and
the Canadian province Quebec created a linked cap and trade market,
that covers >80% of emissions.
(b) Regional Greenhouse Gas Initiative (RGGI): a group of US east
coast states created a linked market that covers power generators only.
(c) The China National ETS: Technically not a cap and trade scheme
(as the amount of allowances is not fixed but calculated according to
historic production of units).
(d) South Korea ETS: A comprehensive market covering the majority
of Korean emissions.
Pricing of Allowances and Trading Volume
According to the Registration Statement, there are two primary
avenues for trading EUAs: a primary market and a secondary market. The
primary market involves participation in a regularly scheduled auction.
The secondary market involves transactions between buyers and sellers
on regulated markets via trading in spot, options, and futures
contracts. There are also over-the-counter transactions, but they
comprise a negligible percentage of transactions.
The EUA markets are generally liquid. EUA auctions are held on a
near-daily basis throughout the year, other than between mid-December
to mid-January, when auctions are paused. Prices achieved in these
auctions are published on various publicly-accessible websites,
including the European Commission's primary website.
The secondary market trading takes place predominantly on the
European Energy Exchange AG (``EEX'') and ICE Endex. As of January
2023, the secondary market had average daily trading volume of [euro]2
billion, with the majority of the liquidity in the futures market.
Prices for secondary market transactions are published on various
publicly-accessible websites, including those of EEX and ICE Endex.
Both EEX and ICE Endex are affiliates of Exchange groups that are
members of the Intermarket Surveillance Group (``ISG'').
Most liquidity in the secondary market is achieved by trading
futures contracts. These contracts have expiration going out as far as
2030. The most liquid contract is the single day futures contract on
EUAs (the ``Daily EUA Future''), which settles each day at the close of
trading. Generally, Daily EUA Futures trade from approximately 2:00
a.m. Eastern Time (``E.T.'') to approximately 12:00 p.m. E.T. The
settlement price is fixed each business day and is published by the
exchange at approximately 12:15 E.T. Final cash settlement occurs the
first business day following the expiry day.
In 2021, the secondary spot market for EUAs (including the Daily
EUA Future) averaged around 2.4 million EUAs daily and the primary
auctions accounted for almost 2.5 million EUAs being auctioned several
times per week. The current value (spot price) for a EUA is greatly
influenced by a number of factors, including regulatory changes, world
events and general level of economic activity.
Creation and Redemption of Shares
According to the Registration Statement, the Trust will create and
redeem Shares on a continuous basis in one or more Creation Units. A
Creation Unit equals a block of 50,000 Shares, which amount may be
revised from time-to-time. The Trust will issue Shares in Creation
Units to certain authorized participants (``Authorized Participants'')
on an ongoing basis. Each Authorized Participant must be a registered
broker-dealer or other securities market participant such as a bank or
other financial institution which is not required to register as a
broker-dealer to engage in securities transactions, a participant in
The Depository Trust Company (``DTC'') and have entered into an
agreement with the Sponsor and the Transfer Agent (the ``Participant
Agreement'').
Creation Units may be created or redeemed only by Authorized
Participants. The creation and redemption of Creation Units is only
made in exchange for the delivery to the Trust or the distribution by
the Trust of the amount of EUAs represented by the Creation Units being
created or redeemed. The amount of EUAs required to be delivered to the
Trust in connection with any creation, or paid out upon redemption, is
based on the
[[Page 38112]]
combined net asset value of the number of Shares included in the
Creation Units being created or redeemed as determined on the day the
order to create or redeem Creation Units is properly received and
accepted. Orders must be placed by 11:00 a.m. New York time. The day on
which the Administrator receives a valid purchase or redemption order
is the order date. Creation Units may only be issued or redeemed on a
day that the Exchange is open for regular trading.
An Authorized Participant who places a purchase order is
responsible for crediting the Trust's Union Registry account with the
required EUA deposit by 2:00 p.m. New York time on the second business
day following the order date. Upon receipt of the EUA deposit amount in
the Trust's Union Registry account, the Union Registry will notify the
Sponsor that the EUAs have been deposited. Upon receipt of confirmation
from the Union Registry that the EUA deposit amount has been received,
the Administrator will direct DTC to credit the number of Shares
created to the Authorized Participant's DTC account.
According to the Registration Statement, the redemption
distribution due from the Trust will be delivered once the
Administrator notifies the Sponsor that the Authorized Participant has
delivered the Shares to be redeemed to the Trust's DTC account. The
redemption distribution will be delivered to the Authorized Participant
on the second business day following the order date. Once the
Administrator notifies the Sponsor that the Shares have been received
in the Trust's DTC account, the Sponsor instructs the Union Registry to
transfer the redemption EUA amount from the Trust's Union Registry
account to the Authorized Participant's Union Registry account.
The Sponsor is the only entity that may initiate a withdrawal of
EUAs from the Trust's Union Registry account, and the only accounts
that may receive EUAs from the Trust's Union Registry account are
Authorized Participants' or the Sponsor's Union Registry accounts.
Net Asset Value (``NAV'')
The Trust's NAV is calculated by taking the current market value of
its total assets, less any liabilities of the Trust, and dividing that
total by the total number of outstanding Shares.
The Administrator will calculate the NAV of the Trust once each
Exchange trading day. The NAV for a normal trading day will be released
after the end of the Core Trading Session, which is typically 4 p.m.
New York time. The NAV for the Trust's Shares will be disseminated
daily to all market participants at the same time. The Administrator
will use the settlement price for the Daily EUA Futures established by
ICE Endex to calculate the NAV. The Administrator also converts the
value of Euro denominated assets into US Dollar equivalent using
published foreign currency exchange prices by an independent pricing
vendor. Third parties supplying quotations or market data may include,
without limitation, dealers in the relevant markets, end-users of the
relevant product, information vendors, brokers and other sources of
market information.
Indicative Fund Value (``IFV'')
In order to provide updated information relating to the Trust for
use by investors and market professionals, an updated IFV will be made
available through on-line information services throughout the Exchange
Core Trading Session (normally 9:30 a.m. to 4:00 p.m. E.T.) on each
trading day. The IFV will be calculated by using the prior day's
closing NAV per Share of the Trust as a base and updating that value
throughout the trading day to reflect changes in the most recently
reported mid-point of the bid-ask spread of the Daily EUA Future. The
IFV disseminated during NYSE Arca Core Trading Session hours should not
be viewed as an actual real time update of the NAV, because the NAV
will be calculated only once at the end of each trading day based upon
the relevant end of day values of the Trust's investments. Although the
IFV will be disseminated throughout the Core Trading Session, the
customary trading hours for EUAs are 2 a.m. to 12 p.m. Eastern Time.
During the gap in time at the end of each trading day during which the
Shares are traded on the Exchange, but real-time trading prices for
EUAs are not available, the IFV will be calculated based on the end of
day price of EUAs immediately preceding the trading session.
The IFV will be disseminated on a per Share basis every 15 seconds
during regular NYSE Arca Core Trading Session.
Availability of Information
The NAV for the Trust's Shares will be disseminated daily to all
market participants at the same time. The intraday, closing prices, and
settlement prices for EUAs will be readily available from the
applicable futures exchange websites, automated quotation systems,
published or other public sources, or major market data vendors. The
IFV per Share for the Shares will be disseminated by one or more major
market data vendors on at least a 15 second delayed basis as required
by NYSE Arca Rule 8.201-E(e)(2)(v).
Complete real-time data for EUAs and Daily EUA Futures is available
by subscription through on-line information services. Quotation and
last-sale information regarding the Shares will be disseminated through
the facilities of the Consolidated Tape Association. The IFV will be
available through on-line information services. The trading prices for
EUAs and Daily EUA Futures will be disseminated by on-line subscription
services or by one or more major market data vendors during the NYSE
Arca Core Trading Session of 9:30 a.m. to 4:00 p.m. E.T. Additionally,
the NAV may be influenced by non-concurrent trading hours between the
Exchange and the EUA markets. While the Trust's Shares trade on the
Exchange from 9:30 a.m. to 4:00 p.m. E.T., the trading hours for EUA
markets do not coincide during all of this time. EEX provides on its
website, on a daily basis, transaction volumes and transaction prices
for the EUA spot market. ICE Endex provides on its website, on a daily
basis, transaction volumes, transaction prices, daily settlement prices
and historical settlement prices for Daily EUA Futures that were traded
outside of block trades by EUA futures brokers. In addition,
transaction volumes, transaction prices, daily settlement prices and
historical settlement prices for Daily EUA Futures traded in block
trades by futures brokers are available on a daily basis through a
subscription service to ICE Endex. However, ICE Endex provides the
daily settlement price change of the Daily EUA Future on its website.
In addition, the Trust's website (www.cotwoadvisors.com) will
contain the following information, on a per Share basis, for the Trust:
(a) the prior business day's end of day closing NAV; (b) the Official
Closing Price \11\ or the midpoint of the national best bid and the
national best offer (``NBBO'') as of the time the NAV is calculated
(``Bid-Ask Price''); (c) calculation of the premium or discount of the
Official Closing Price against the NAV expressed as a percentage of
such NAV; (d) the prospectus; and (e) other applicable quantitative
information. The Trust will also provide website disclosure of its
[[Page 38113]]
EUA holdings before 9:30 a.m. E.T. on each trading day.
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\11\ The term ``Official Closing Price'' is defined in NYSE Arca
Rule 1.1(ll) as the reference price to determine the closing price
in a security for purposes of Rule 7-E Equities Trading, and the
procedures for determining the Official Closing Price are set forth
in that rule.
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The Trust's website will be publicly available prior to the public
offering of Shares and accessible at no charge. The website disclosure
of the Trust's daily holdings will occur at the same time as the
disclosure by the Trust of the daily holdings to Authorized
Participants so that all market participants are provided daily
holdings information at the same time. Therefore, the same holdings
information will be provided on the public website as well as in
electronic files provided to Authorized Participants. Accordingly, each
investor will have access to the current daily holdings of the Trust
through the Trust's website. In addition, information regarding market
price and trading volume of the Shares will be continually available on
a real-time basis throughout the day on brokers' computer screens and
other electronic services. Information regarding the previous day's
closing price and trading volume information for the Shares will be
published daily in the financial section of newspapers.
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. Trading in the Shares
on the Exchange will occur in accordance with NYSE Arca Rule 7.34-E
(Early, Core, and Late Trading Sessions). The Exchange has appropriate
rules to facilitate transactions in the Shares during all trading
sessions. As provided in NYSE Arca Rule 7.6-E, the minimum price
variation (``MPV'') for quoting and entry of orders in equity
securities traded on the NYSE Arca Marketplace is $0.01, with the
exception of securities that are priced less than $1.00, for which the
MPV for order entry is $0.0001.
The Shares will conform to the initial and continued listing
criteria under NYSE Arca Rule 8.201-E. The trading of the Shares will
be subject to NYSE Arca Rule 8.201-E(g), which sets forth certain
restrictions on Equity Trading Permit (``ETP'') Holders acting as
registered Market Makers in Commodity-Based Trust Shares to facilitate
surveillance. The Exchange represents that, for initial and continued
listing, the Trust will be in compliance with Rule 10A-3 \12\ under the
Act, as provided by NYSE Arca Rule 5.3-E. A minimum of 100,000 Shares
will be outstanding at the commencement of trading on the Exchange.
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\12\ With respect to the application of Rule 10A-3 (17 CFR
240.10A-3) under the Act, the Trust relies on the exemption
contained in Rule 10A-3(c)(7).
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As a general matter, the Exchange has regulatory jurisdiction over
its ETP Holders and their associated persons, which include any person
or entity controlling an ETP Holder. To the extent the Exchange may be
found to lack jurisdiction over a subsidiary or affiliate of an ETP
Holder that does business only in commodities or futures contracts, the
Exchange could obtain information regarding the activities of such
subsidiary or affiliate through surveillance sharing agreements with
regulatory organizations of which such subsidiary or affiliate is a
member.
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. Trading on the Exchange in the Shares 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 conditions in the underlying carbon
credit market have caused disruptions and/or lack of trading, or (2)
whether other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present. In addition,
trading in Shares will be subject to trading halts caused by
extraordinary market volatility pursuant to the Exchange's ``circuit
breaker'' rule.\13\
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\13\ See NYSE Arca Rule 7.12-E.
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The Exchange may halt trading during the day in which an
interruption occurs to the dissemination of the IFV, as described
above. If the interruption to the dissemination of the IFV persists
past the trading day in which it occurs, the Exchange will halt trading
no later than the beginning of the trading day following the
interruption. In addition, if the Exchange becomes aware that the NAV
with respect to the Shares is not disseminated to all market
participants at the same time, it will halt trading in the Shares until
such time as the NAV is available to all market participants.
Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances administered by the Exchange, as
well as cross-market surveillances administered by the Financial
Industry Regulatory Authority Inc. (``FINRA''), on behalf of the
Exchange, which are designed to detect violations of Exchange rules and
applicable federal securities laws.\14\ The Exchange represents that
these procedures are adequate to properly monitor Exchange trading of
the Shares in all trading sessions and to deter and detect violations
of Exchange rules and federal securities laws applicable to trading on
the Exchange.
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\14\ FINRA conducts cross-market surveillances on behalf of the
Exchange pursuant to a regulatory services agreement. The Exchange
is responsible for FINRA's performance under this regulatory
services agreement.
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The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares with other
markets and other entities that are members of the ISG, and the
Exchange or FINRA, on behalf of the Exchange, or both, may obtain
trading information regarding trading in the Shares from such markets
and other entities. In addition, the Exchange may obtain information
regarding trading in the Shares from markets and other entities that
are members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.\15\
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\15\ For a list of the current members of ISG, see
www.isgportal.org.
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Also, pursuant to NYSE Arca Rule 8.201-E(g), the Exchange is able
to obtain information regarding trading in the Shares in connection
with ETP Holders' proprietary or customer trades which they effect
through ETP Holders on any relevant market.
In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
All statements and representations made in this filing regarding
(a) the description of the portfolio or reference assets, (b)
limitations on portfolio holdings or reference assets, or (c) the
applicability of Exchange listing rules specified in this rule filing
shall constitute continued listing requirements for listing the Shares
on the Exchange.
The Trust has represented to the Exchange that it will advise the
Exchange of any failure by the Trust to comply with the continued
listing requirements, and, pursuant to its
[[Page 38114]]
obligations under section 19(g)(1) of the Act, the Exchange will
monitor for compliance with the continued listing requirements. If the
Trust is not in compliance with the applicable listing requirements,
the Exchange will commence delisting procedures under NYSE Arca Rule
5.5-E(m).
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its
ETP Holders in an Information Bulletin of the special characteristics
and risks associated with trading the Shares. Specifically, the
Information Bulletin will discuss the following: (1) the procedures for
purchases and redemptions of Shares in Creation Units (including noting
that Shares are not individually redeemable); (2) NYSE Arca Rule 9.2-
E(a), which imposes a duty of due diligence on its ETP Holders to learn
the essential facts relating to every customer prior to trading the
Shares; (3) how information regarding the IFV is disseminated; (4) the
requirement that ETP Holders deliver a prospectus to investors
purchasing newly issued Shares prior to or concurrently with the
confirmation of a transaction; (5) the possibility that trading spreads
and the premium or discount on the Shares may widen as a result of
reduced liquidity of EUAs during the Core and Late Trading Sessions;
and (6) trading information. For example, the Information Bulletin will
advise ETP Holders, prior to the commencement of trading, of the
prospectus delivery requirements applicable to the Trust. The Exchange
notes that investors purchasing Shares directly from the Trust will
receive a prospectus. ETP Holders purchasing Shares from the Trust for
resale to investors will deliver a prospectus to such investors.
In addition, the Information Bulletin will reference that the Trust
is subject to various fees and expenses as will be described in the
Registration Statement. The Information Bulletin will also reference
the fact that while last sale information regarding EUAs would be
subject to regulation by EEX and ICE Endex, the Commission and the CFTC
do not have jurisdiction over the trading of EUAs as a commodity. The
Information Bulletin will also discuss any relief, if granted, by the
Commission or the staff from any rules under the Act.
The Information Bulletin will also disclose the trading hours of
the Shares and that the NAV for the Shares will be calculated after
4:00 p.m. E.T. each trading day. The Information Bulletin will disclose
that information about the Shares will be publicly available on the
Trust's website.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under section 6(b)(5) \16\ that an exchange have rules that
are designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
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\16\ 15 U.S.C. 78f(b)(5).
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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 and traded on the Exchange pursuant to the
initial and continued listing criteria in NYSE Arca Rule 8.201-E. The
Exchange has in place surveillance procedures that are adequate to
properly monitor trading in the Shares in all trading sessions and to
deter and detect violations of Exchange rules and applicable federal
securities laws. The Exchange may obtain information via ISG from other
exchanges that are members of ISG or with which the Exchange has
entered into a comprehensive surveillance sharing agreement.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that there is a considerable amount of information on EUAs available on
public websites and through professional and subscription services. In
addition, the Trust's website will provide pricing information for EUAs
and the Shares. Market prices for the Shares will be available from a
variety of sources including brokerage firms, information websites and
other information service providers. The NAV of the Trust will be
published on each day that the NYSE Arca is open for regular trading
and will be posted on the Trust's website. The IFV relating to the
Shares will be widely disseminated by one or more major market data
vendors at least once every 15 seconds as required by NYSE Arca Rule
8.201-E(e)(2)(v). The Trust's website will also provide its prospectus
and other relevant quantitative information regarding the Shares. In
addition, information regarding market price and trading volume of the
Shares will be continually available on a real-time basis throughout
the day on brokers' computer screens and other electronic services.
Information regarding the previous day's closing price and trading
volume information for the Shares will be published daily in the
financial section of newspapers.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of exchange-traded product that will enhance
competition among market participants, to the benefit of investors and
the marketplace. As noted above, the Exchange has in place surveillance
procedures relating to trading in the Shares and may obtain information
via ISG from other exchanges that are members of ISG or with which the
Exchange has entered into a comprehensive surveillance sharing
agreement.
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 purposes of the Act. The Exchange believes the
proposed rule change will enhance competition by accommodating Exchange
trading of an additional exchange-traded product relating to physical
carbon credits.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to 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 self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove the 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:
[[Page 38115]]
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSEARCA-2023-37 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEARCA-2023-37. 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. Do not include
personal identifiable information in submissions; you should submit
only information that you wish to make available publicly. We may
redact in part or withhold entirely from publication submitted material
that is obscene or subject to copyright protection. All submissions
should refer to File Number SR-NYSEARCA-2023-37, and should be
submitted on or before July 3, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-12414 Filed 6-9-23; 8:45 am]
BILLING CODE 8011-01-P
