Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change, As Modified by Amendment No. 1, To List and Trade Shares of the VanEck Bitcoin Trust Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares, 46320-46336 [2023-15271]
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Federal Register / Vol. 88, No. 137 / Wednesday, July 19, 2023 / Notices
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–CBOE–2023–033. 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
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal offices 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–CBOE–2023–033, and
should be submitted on or before
August 9, 2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023–15270 Filed 7–18–23; 8:45 am]
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BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–97903; File No. SR–
CboeBZX–2023–040]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing of
a Proposed Rule Change, As Modified
by Amendment No. 1, To List and
Trade Shares of the VanEck Bitcoin
Trust Under BZX Rule 14.11(e)(4),
Commodity-Based Trust Shares
July 13, 2023.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on June 30,
2023, Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
to list and trade shares of the VanEck
Bitcoin Trust under BZX Rule
14.11(e)(4), Commodity-Based Trust
Shares. On July 11, 2023, the Exchange
filed Amendment No. 1 to the proposed
rule change, which amended and
replaced the proposed rule change in its
entirety. The proposed rule change, as
modified by Amendment No. 1, is
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,
as modified by Amendment No. 1, from
interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe BZX Exchange, Inc. (‘‘BZX’’ or
the ‘‘Exchange’’) is filing with the
Securities and Exchange Commission
(‘‘Commission’’ or ‘‘SEC’’) a proposed
rule change to list and trade shares of
the VanEck Bitcoin Trust (the ‘‘Trust’’),3
under BZX Rule 14.11(e)(4),
Commodity-Based Trust Shares.
The text of the proposed rule change
is also 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.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 The Trust was formed as a Delaware statutory
trust on December 17, 2020 and is operated as a
grantor trust for U.S. federal tax purposes. The
Trust has no fixed termination date.
2 17
20 17
CFR 200.30–3(a)(12).
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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
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
This Amendment No. 1 to SR–
CboeBZX–2023–040 amends and
replaces in its entirety the proposal as
originally submitted on June 30, 2023.
The Exchange submits this Amendment
No. 1 in order to clarify certain points
and add additional details to the
proposal.
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 VanEck
Digital Assets, LLC is the sponsor of the
Trust (‘‘Sponsor’’).6 The Shares will be
registered with the Commission by
means of the Trust’s registration
statement on Form S–1 (the
‘‘Registration Statement’’).7 A third4 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.
6 The Exchange notes that two other proposals to
list and trade shares of the Trust were previously
disapproved pursuant to delegated authority, one of
which is currently pending Commission Review
pursuant to Rule 431 of the Commission’s Rules of
Practice, 17 CFR 201.431. See Securities Exchange
Act Release Nos. 93559 (November 12, 2021) (SR–
CboeBZX–2021–019), 86 FR 64539 (November 18,
2021); 95978 (October 4, 2022) 87 FR 61418
(October 11, 2022) (SR–CboeBZX–2022–035). See
also Letter from Assistant Secretary J. Matthew
DeLesDernier to Kyle Murray, Assistant General
Counsel, Cboe Global Markets, dated November 12,
2021.
7 See Amendment No. 2 to Registration Statement
on Form S–1, dated June 22, 2022, submitted to the
Commission by the Sponsor on behalf of the Trust
(333–251808). The descriptions of the Trust, the
Shares, and the Benchmark contained herein are
based, in part, on information in the Registration
Statement. The Registration Statement is not yet
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Federal Register / Vol. 88, No. 137 / Wednesday, July 19, 2023 / Notices
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party regulated custodian will be
responsible for custody of the Trust’s
bitcoin (the ‘‘Custodian’’). 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 to
be held.8 Prior orders from the
Commission have pointed out that in
every prior approval order for
Commodity-Based Trust Shares, there
has been a derivatives market that
represents the regulated market of
significant size, generally a Commodity
Futures Trading Commission (the
‘‘CFTC’’) regulated futures market.9
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 streetTRACKS Gold Shares, Exchange Act
Release No. 50603 (Oct. 28, 2004), 69 FR 64614,
64618–19 (Nov. 5, 2004) (SR–NYSE–2004–22) (the
‘‘First Gold Approval Order’’); 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
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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
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46321
Further to this point, the Commission’s
prior orders have noted that the spot
commodities and currency markets for
which it has previously approved spot
ETPs are generally unregulated and that
the Commission relied on the
underlying futures market as the
regulated market of significant size that
formed the basis for approving the series
of Currency and Commodity-Based
Trust Shares, including gold, silver,
platinum, palladium, copper, and other
commodities and currencies. The
Commission specifically noted in the
Winklevoss Order that the First Gold
Approval Order ‘‘was based on an
assumption that the currency market
and the spot gold market were largely
unregulated.’’ 10
As such, the regulated market of
significant size test does not require that
the spot bitcoin market be regulated in
order for the Commission to approve
this proposal, and precedent makes
clear that an underlying market for a
spot commodity or currency being a
regulated market would actually be an
exception to the norm. These largely
unregulated currency and commodity
markets do not provide the same
protections as the markets that are
subject to the Commission’s oversight,
but the Commission has consistently
looked to surveillance sharing
agreements with the underlying futures
market in order to determine whether
such products were consistent with the
Act. With this in mind, the CME Bitcoin
Futures market is the proper market to
consider in determining whether there
is a related regulated market of
significant size.
Further to this point, the Exchange
notes that the Commission has approved
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).
10 See Winklevoss Order at 37592.
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ddrumheller on DSK120RN23PROD with NOTICES1
proposals related to the listing and
trading of funds that would primarily
hold CME Bitcoin Futures that are
registered under the Securities Act of
1933.11 In the Teucrium Approval, the
Commission found the CME Bitcoin
Futures market to be a regulated market
of significant size as it relates to CME
Bitcoin Futures, an odd tautological
truth that is also inconsistent with prior
disapproval orders for ETPs that would
hold actual bitcoin instead of
derivatives contracts (‘‘Spot Bitcoin
ETPs’’) that use the exact same pricing
methodology as the CME Bitcoin
Futures. As further discussed below,
both the Exchange and the Sponsor
believe that this proposal and the
included analysis are sufficient to
establish that the CME Bitcoin Futures
market represents a regulated market of
significant size as it relates both to the
CME Bitcoin Futures market and to the
spot bitcoin market and that this
proposal should be approved.
Finally, as discussed in greater detail
below, by using professional custodians
and other service providers, the Trust
provides investors interested in
exposure to bitcoin with important
protections that are not always available
to investors that invest directly in
bitcoin, including protection against
insolvency, cyber attacks, and other
risks. If U.S. investors had access to
vehicles such as the Trust for their
bitcoin investments, instead of directing
their bitcoin investments into loosely
regulated offshore vehicles (such as the
offshore regulated centralized exchanges
that have since faced bankruptcy
proceedings or other insolvencies), then
countless investors might have
protected their principal investments in
bitcoin and thus benefited.
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
11 See Exchange Act Release No. 94620 (April 6,
2022), 87 FR 21676 (April 12, 2022) (the ‘‘Teucrium
Approval’’) and 94853 (May 5, 2022) (collectively,
with the Teucrium Approval, the ‘‘Bitcoin Futures
Approvals’’).
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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. 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,
2016.12 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.13
Similarly, regulated U.S. bitcoin futures
contracts did not exist. The CFTC had
determined that bitcoin is a
commodity,14 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, 2016.15 While the first over-thecounter bitcoin fund launched in 2013,
public trading was limited and the fund
had only $60 million in assets.16 There
Winklevoss Order.
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.
14 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.’’
15 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.
16 Data as of March 31, 2016 according to publicly
available filings. See Bitcoin Investment Trust Form
S–1, dated May 27, 2016, available: https://
PO 00000
12 See
13 Digital
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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.17 Fast forward to today 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 18 and shares
in investment vehicles holding bitcoin
futures.19 Additionally, licensed and
regulated service providers have
emerged to provide fund custodial
services for digital assets, among other
services. For example, in February 2023,
the Commission proposed to amend
Rule 206(4)–2 under the Advisers Act of
1940 (the ‘‘custody rule’’) to expand the
scope beyond client funds and
securities to include all crypto assets,
among other assets; 20 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 noaction 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-action letter
permitting certain broker-dealers to
operate a non-custodial Alternative
www.sec.gov/Archives/edgar/data/1588489/
000095012316017801/filename1.htm.
17 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.
18 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/1725882/000121390
020023202/ea125858-424b1_inxlimited.htm.
19 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/1764894/0001193125
19309942/d693146d497.htm.
20 See Investment Advisers Act Release No. 6240
88 FR 14672 (March 9, 2023) (Safeguarding
Advisory Client Assets).
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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Trading System (‘‘ATS’’) for digital asset
securities, subject to specified
conditions; 22 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,
having at one point reached a market
cap of over $1 trillion.25 According to
the CME Bitcoin Futures Report, from
May 15, 2023 through June 9, 2023,
CFTC regulated bitcoin futures
represented between $561 million and
$2.9 billion in notional trading volume
on Chicago Mercantile Exchange
(‘‘CME’’) (‘‘Bitcoin Futures’’) on a daily
basis.26 Open interest was over $33.8
billion for the entirety of the period. 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 As of April
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 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: June 16, 2023, available at: https://
www.cmegroup.com/markets/cryptocurrencies/
bitcoin/bitcoin.volume.htm.
27 The CFTC’s annual report for Fiscal Year 2022
(which ended on September 30, 2022) noted that
the CFTC completed the fiscal year with 18
enforcement filings related to digital assets. ‘‘Digital
asset actions included manipulation, a $1.7 billion
fraudulent scheme, and a decentralized
autonomous organization (DAO) failing to register
as a SEF or FCM or to seek DCM designation.’’ See
CFTC FY 2022 Agency Financial Report, available
at: https://www.cftc.gov/media/7941/2022afr/
download. Additionally, the CFTC filed on March
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25, 2023 the NYDFS has granted no
fewer than thirty-four BitLicenses,28
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
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.29
In addition to the regulatory
developments laid out above, more
traditional financial market participants
become more active in cryptocurrency:
large insurance companies, asset
managers, university endowments,
pension funds, and even historically
bitcoin skeptical fund managers have
allocated to bitcoin. As noted in the
Financial Stability Oversight Council
(‘‘FSOC’’) Report on Digital Asset
Financial Stability Risks and
Regulation, ‘‘[i]ndustry surveys suggest
that the scale of these investments grew
quickly during the boom in crypto-asset
markets through late 2021. In June 2022,
PwC estimated that the number of
crypto-specialist hedge funds was more
than 300 globally, with $4.1 billion in
assets under management. In addition,
in a survey PwC found that 38 percent
of surveyed traditional hedge funds
were currently investing in ‘digital
assets,’ compared to 21 percent the year
prior.’’ 30 The largest over-the-counter
bitcoin fund previously filed a Form 10
registration statement, which the Staff of
the Commission reviewed and which
27, 2023, a civil enforcement action against the
owner/operators of the Binance centralized digital
asset trading platform, which is one of the largest
bitcoin derivative exchanges. See CFTC Release No.
8680–23 (March 27, 2023), available at: https://
www.cftc.gov/PressRoom/PressReleases/8680-23.
28 See https://www.dfs.ny.gov/virtual_currency_
businesses.
29 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. See also U.S. Department
of the Treasury Enforcement Release: ‘‘Treasury
Announces Two Enforcement Actions for over
$24M and $29M Against Virtual Currency
Exchange, Bittrex, Inc.’’ (October 11, 2022)
available at: https://home.treasury.gov/news/pressreleases/jy1006. See also U.S. Department of
Treasure Enforcement Release ‘‘OFAC Settles with
Virtual Currency Exchange Kraken for $362,158.70
Related to Apparent Violations of the Iranian
Transactions and Sanctions Regulations’’
(November 28, 2022) available at: https://
home.treasury.gov/system/files/126/20221128_
kraken.pdf.
30 See the FSOC ‘‘Report on Digital Asset
Financial Stability Risks and Regulation 2022’’
(October 3, 2022) (at footnote 26) at https://
home.treasury.gov/system/files/261/FSOC-DigitalAssets-Report-2022.pdf.
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took effect automatically, and is now a
reporting company.31 Established
companies like Tesla, Inc.,
MicroStrategy Incorporated, and Square,
Inc., among others, have announced
substantial investments in bitcoin in
amounts as large as $1.5 billion (Tesla)
and $1 billion (MicroStrategy).32 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) facing the counter-party risk,
legal uncertainty, technical risk, and
complexity associated with accessing
spot bitcoin; (ii) over-the-counter
bitcoin funds (‘‘OTC Bitcoin Funds’’)
with high management fees and
potentially volatile premiums and
discounts; 33 (iii) purchasing shares of
operating companies that they believe
will provide proxy exposure to bitcoin
with limited disclosure about the
associated risks; 34 or (iv) purchasing
31 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.
32 See https://www.microstrategy.com/en/
investor-relations/press/microstrategy-acquiresadditional-19452-bitcoins-for-1-026-billion_02-242021.
33 The premium and discount for OTC Bitcoin
Funds is known to move rapidly. For example, over
the period of 12/21/20 to 1/21/21, 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.
34 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
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Bitcoin Futures ETFs, as defined below,
which represent a sub-optimal structure
for long-term investors that will cost
them significant amounts of money
every year compared to Spot Bitcoin
ETPs, as further discussed below.
Meanwhile, investors in many other
countries, including Canada 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. Similarly, investors
in Switzerland and across Europe have
access to Exchange Traded Products
which trade on regulated exchanges and
provide exposure to a broad array of
spot crypto assets. U.S. investors, by
contrast, are left with fewer and more
risky means of getting bitcoin exposure,
as described above.35
To this point, the lack of a Spot
Bitcoin ETP exposes U.S. investor assets
to significant risk because investors that
would otherwise seek cryptoasset
exposure through a Spot Bitcoin ETP are
forced to find alternative exposure
through generally riskier means. For
instance, many U.S. investors that held
their digital assets in accounts at FTX,36
Celsius Network LLC,37 BlockFi Inc.38
and Voyager Digital Holdings, Inc.39
have become unsecured creditors in the
insolvencies of those entities. If a Spot
Bitcoin ETP was available, it is likely
that at least a portion of the billions of
dollars tied up in those proceedings
would still reside in the brokerage
accounts of U.S. investors, having
instead been invested in a transparent,
regulated, and well-understood
structure—a Spot Bitcoin ETP. To this
point, approval of a Spot Bitcoin ETP
would represent a major win for the
protection of U.S. investors in the
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.
35 The Exchange notes that the list of countries
above is not exhaustive and that securities
regulators in a number of additional countries have
either approved or otherwise allowed the listing
and trading of Spot Bitcoin ETPs.
36 See FTX Trading Ltd., et al., Case No. 22–
11068.
37 See Celsius Network LLC, et al., Case No. 22–
10964.
38 See BlockFi Inc., Case No. 22–19361.
39 See Voyager Digital Holdings, Inc., et al., Case
No. 22–10943.
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cryptoasset space. As further described
below, the Trust, like all other series of
Commodity-Based Trust Shares, is
designed to protect investors against the
risk of losses through fraud and
insolvency that arise by holding digital
assets, including bitcoin, on centralized
platforms.
Additionally, investors in other
countries, specifically Canada, 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. 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 and
mutual 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 launch
of ETFs registered under the Investment
Company Act of 1940, as amended (the
‘‘1940 Act’’) and the Bitcoin Futures
Approvals that provide exposure to
bitcoin primarily through CME Bitcoin
Futures (‘‘Bitcoin Futures ETFs’’).
Allowing such products to list and trade
is a productive first step in providing
U.S. investors and traders with
transparent, exchange-listed tools for
expressing a view on bitcoin. The
Bitcoin Futures Approvals, however,
have created a logical inconsistency in
the application of the standard the
Commission applies when considering
bitcoin ETP proposals.
As discussed further below, the
standard applicable to 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 market
that constitutes a regulated market of
significant size is generally a futures
and/or options market based on the
underlying reference asset rather than
the spot commodity markets, which are
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often unregulated.40 Leaving aside the
analysis of that standard until later in
this proposal,41 the Exchange believes
that the following rationale the
Commission applied to a Bitcoin
Futures ETF should result in the
Commission approving this and other
Spot Bitcoin ETP proposals:
The CME ‘‘comprehensively surveils
futures market conditions and price
movements on a real-time and ongoing basis
in order to detect and prevent price
distortions, including price distortions
caused by manipulative efforts.’’ Thus the
CME’s surveillance can reasonably be relied
upon to capture the effects on the CME
bitcoin futures market caused by a person
attempting to manipulate the proposed
futures ETP by manipulating the price of
CME bitcoin futures contracts, whether that
attempt is made by directly trading on the
CME bitcoin futures market or indirectly by
trading outside of the CME bitcoin futures
market. As such, when the CME shares its
surveillance information with Arca, the
information would assist in detecting and
deterring fraudulent or manipulative
misconduct related to the non-cash assets
held by the proposed ETP.42
CME Bitcoin Futures pricing is based
on pricing from spot bitcoin markets.
The statement from the Teucrium
Approval that ‘‘CME’s surveillance can
reasonably be relied upon to capture the
effects on the CME bitcoin futures
market caused by a person attempting to
manipulate the proposed futures ETP by
manipulating the price of CME bitcoin
futures contracts. . .indirectly by
trading outside of the CME bitcoin
futures market,’’ makes clear that the
Commission believes that CME’s
surveillance can capture the effects of
trading on the relevant spot markets on
the pricing of CME Bitcoin Futures. This
40 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.
41 As further outlined below, both the Exchange
and the Sponsor believe that the Bitcoin Futures
market represents a regulated market of significant
size and that this proposal and others like it should
be approved on this basis.
42 SeeTeucrium Approval at 21679.
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was further acknowledged in the
‘‘Grayscale lawsuit’’ 43 when Judge Rao
stated ‘‘. . .the Commission in the
Teucrium order recognizes that the
futures prices are influenced by the spot
prices, and the Commission concludes
in approving futures ETPs that any
fraud on the spot market can be
adequately addressed by the fact that
the futures market is a regulated
one. . .’’ The Exchange agrees with the
Commission on this point and notes that
the pricing mechanism applicable to the
Shares is similar to that of the CME
Bitcoin Futures. As further discussed
below, this view is also consistent with
the Advisor’s research.
Further to this point, a Bitcoin
Futures ETF is potentially more
susceptible to potential manipulation
than a Spot Bitcoin ETP that offers only
in-kind creation and redemption
because settlement of CME Bitcoin
Futures (and thus the value of the
underlying holdings of a Bitcoin Futures
ETF) occurs at a single price derived
from spot bitcoin pricing, while shares
of a Spot Bitcoin ETP would represent
interest in bitcoin directly and
authorized participants for a Spot
Bitcoin ETP (as proposed herein) would
be able to source bitcoin from any
exchange and create or redeem with the
applicable trust regardless of the price
of the underlying index. It is not
logically possible to conclude that the
CME Bitcoin Futures market represents
a significant market for a futures-based
product, but also conclude that the CME
Bitcoin Futures market does not
represent a significant market for a spotbased product.
In addition to potentially being more
susceptible to manipulation than a Spot
Bitcoin ETP, the structure of Bitcoin
Futures ETFs provides negative
outcomes for buy and hold investors as
compared to a Spot Bitcoin ETP.44
Specifically, the cost of rolling CME
Bitcoin Futures contracts 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
significant amounts of money on an
annual basis compared to Spot Bitcoin
43 Grayscale Investments, LLC v. Securities and
Exchange Commission, et al., Case No. 22–1142.
44 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.fjXz9eAQW9zol0qpzhXDrrlpIV
doCloLXbLjl44-1635476946-0-gqNtZGzNAp
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ETPs. Such rolling costs would not be
required for Spot Bitcoin ETPs that hold
bitcoin. Further, Bitcoin Futures ETFs
could potentially hit 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 significant amounts of
money every year compared to Spot
Bitcoin ETPs 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.
Based on the foregoing, the Exchange
and Sponsor believe that any objective
review of the proposals to list Spot
Bitcoin ETPs compared to the Bitcoin
Futures ETFs and the Bitcoin Futures
Approvals 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 will continue to lose
significant amounts of money from
holding Bitcoin Futures ETFs as
compared to Spot Bitcoin ETPs, losses
which could be prevented by the
Commission approving Spot Bitcoin
ETPs. 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. 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 and approving 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.
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
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Sfmt 4703
46325
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.
Spot and Proxy Exposure to Bitcoin
Exposure to bitcoin through an ETP
also presents certain advantages for
retail investors compared to buying spot
bitcoin directly. The most notable
advantage from the Sponsor’s
perspective is the elimination of the
need for an individual retail investor to
either manage their own private keys or
to hold bitcoin through a
cryptocurrency exchange that lacks
sufficient protections. Typically, retail
exchanges hold most, if not all, retail
investors’ bitcoin in ‘‘hot’’ (internetconnected) storage and do not make any
commitments to indemnify retail
investors or to observe any particular
cybersecurity standard. Meanwhile, a
retail investor holding spot bitcoin
directly in a self-hosted wallet may
suffer from inexperience in private key
management (e.g., insufficient password
protection, lost key, etc.), which could
cause them to lose some or all of their
bitcoin holdings. Thus, with respect to
custody of the Trust’s bitcoin assets, the
Trust presents advantages from an
investment protection standpoint for
retail investors compared to owning
spot bitcoin directly.
Finally, as described in the
Background section above, a number of
operating companies largely engaged in
unrelated businesses—such as Tesla (a
car manufacturer) and MicroStrategy (an
enterprise software company)—have
announced significant investments 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.45 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
45 In August 2017, the Commission’s Office of
Investor Education and Advocacy warned investors
about situations where companies were publicly
announcing events relating to digital coins or
tokens in an effort to affect the price of the
company’s publicly traded common stock. See
https://www.sec.gov/oiea/investor-alerts-andbulletins/ia_icorelatedclaims.
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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.
ETP.46 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 the
aforementioned 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.47 In other words, investors
Bitcoin Futures
CME began offering trading in Bitcoin
Futures in 2017. Each contract
represents five bitcoin and is based on
the CME CF Bitcoin Reference Rate.48
The contracts trade and settle like other
cash-settled commodity futures
contracts. Nearly every measurable
metric related to Bitcoin Futures has
generally trended up since launch,
although certain notional volume
calculations have decreased roughly in
line with the decrease in the price of
bitcoin. For example, there were
290,011 Bitcoin Futures contracts traded
in May 2023 (approximately $29.5
billion) compared to 101,253 ($11.3
billion), 188,515 ($8 billion), 172,365
($51.7 billion), and 236,470 ($38.7
billion) contracts traded in May 2019,
May 2020, May 2021, and May 2022
respectively.49
The number of large open interest
holders 50 and unique accounts trading
Bitcoin Futures have both increased,
even in the face of heightened Bitcoin
price volatility.
The Sponsor further believes that
publicly available research, including
research done as part of rule filings
proposing to list and trade shares of
Spot Bitcoin ETPs, corroborates the
overall trend outlined above and
supports the thesis that the Bitcoin
Futures pricing leads the spot market
and, thus, a person attempting to
manipulate the Shares would also have
to trade on that market to manipulate
the ETP. Specifically, the Sponsor
believes that such research indicates
that bitcoin futures lead the bitcoin spot
market in price formation.51
46 See e.g., ‘‘7 public companies with exposure to
bitcoin’’ (February 8, 2021) available at: https://
finance.yahoo.com/news/7-public-companies-withexposure-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-holdingthe-cryptocurrency-yourself-.html.
47 See, e.g., Tesla 10–K for the year ended
December 31, 2020, which mentions bitcoin just
nine times: https://www.sec.gov/ix?doc=/Archives/
edgar/data/1318605/000156459021004599/tsla10k_20201231.htm.
48 The CME CF Bitcoin Reference Rate is based on
a publicly available calculation methodology based
on pricing sourced from several crypto exchanges
and trading platforms, including Bitstamp,
Coinbase, Gemini, itBit, Kraken, and LMAX Digital.
49 Source: CME, 5/31/23
50 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 $28,180 per bitcoin on 6/20/2023,
more than 102 firms had outstanding positions of
greater than $3.5 million in Bitcoin Futures.
51 See Exchange Act Releases No. 94080 (January
27, 2022), 87 FR 5527 (April 12, 2022) (specifically
‘‘Amendment No. 1 to the Proposed Rule Change
To List and Trade Shares of the Wise Origin Bitcoin
Trust Under BZX Rule 14.11(3)(4), CommodityBased Trust Shares’’); 94982 (May 25, 2022), 87 FR
33250 (June 1, 2022); 94844 (May 4, 2022), 87 FR
28043 (May 10, 2022); and 93445 (October 28,
2021), 86 FR 60695 (November 3, 2021). See also
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,52 including Commodity-Based
Trust Shares,53 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
52 See
Exchange Rule 14.11(f).
Trust Shares, as described in
Exchange Rule 14.11(e)(4), are a type of Trust
Issued Receipt.
53 Commodity-Based
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; 54 and
54 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
46327
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
Continued
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(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 mitigated to
the point that they are outweighed by
quantifiable investor protection issues
that would be resolved by approving
this proposal.
ddrumheller on DSK120RN23PROD with NOTICES1
(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 55 with a regulated
market of significant size. Both the
Exchange and CME are members of
ISG.56 The only remaining issue to be
addressed is whether the 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
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.
55 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
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
Securities Exchange Act Release No. 88284
(February 26, 2020), 85 FR 12595 (March 3, 2020)
(SR–NYSEArca–2019–39) (the ‘‘Wilshire Phoenix
Disapproval’’).
56 For a list of the current members and affiliate
members of ISG, see www.isgportal.com.
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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.57
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.58
(a) Manipulation of the ETP
According to the Sponsor’s research
presented above, the Bitcoin Futures
market is the leading market for bitcoin
price formation. Where Bitcoin Futures
lead the price in the spot market such
that a potential manipulator of the
bitcoin spot market (beyond just the
constituents of the Index 59) 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 Index 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 Index 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 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
Wilshire Phoenix Disapproval.
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.
59 As further described below, the ‘‘Index’’ for the
Fund is the S&P Bitcoin Index. The current
exchange composition of the Index is Binance,
Bitfinex, Bitflyer, Bittrex, Bitstamp, Coinbase Pro,
Gemini, HitBTC, Huobi, Kraken, KuCoin, and
Poloniex.
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57 See
58 See
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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 Bitcoin Futures market or spot
market for a number of reasons,
including the significant volume in the
Bitcoin Futures market, the size of
bitcoin’s market cap, and the significant
liquidity available in the spot market. In
addition to the Bitcoin Futures market
data points cited above, the spot market
for bitcoin is also very liquid.
(c) Other Means to Prevent Fraudulent
and Manipulative Acts and Practices
Surveillance Sharing Agreement
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.
The Exchange is proposing to take
additional steps to those described
above to supplement its ability to obtain
information that would be helpful in
detecting, investigating, and deterring
fraud and market manipulation in the
Commodity-Based Trust Shares. On
June 21, 2023, the Exchange reached an
agreement on terms with Coinbase, Inc.
(‘‘Coinbase’’), an operator of a United
States-based spot trading platform for
Bitcoin that represents a substantial
portion of US-based and USD
denominated Bitcoin trading,60 to enter
into a surveillance-sharing agreement
(‘‘Spot BTC SSA’’) and executed an
associated term sheet. Based on this
agreement on terms, the Exchange and
Coinbase will finalize and execute a
definitive agreement that the parties
expect to be executed prior to allowing
trading of the Commodity-Based Trust
Shares.
The Spot BTC SSA is expected to be
a bilateral surveillance-sharing
agreement between the Exchange and
Coinbase that is intended to supplement
the Exchange’s market surveillance
program. The Spot BTC SSA is expected
to have the hallmarks of a surveillancesharing agreement between two
members of the ISG, which would give
the Exchange supplemental access to
data regarding spot Bitcoin trades on
Coinbase where the Exchange
60 According to a Kaiko Research report dated
June 26, 2023, Coinbase represented roughly 50%
of exchange trading volume in USD–BTC trading on
a daily basis during May 2023.
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determines it is necessary as part of its
surveillance program for the
Commodity-Based Trust Shares.61 This
means that the Exchange expects to
receive market data for orders and
trades from Coinbase, which it will
utilize in surveillance of the trading of
Commodity-Based Trust Shares. In
addition, the Exchange can request
further information from Coinbase
related to spot bitcoin trading activity
on the Coinbase exchange platform, if
the Exchange determines that such
information would be necessary to
detect and investigate potential
manipulation in the trading of the
Commodity-Based Trust Shares.62
In-Kind Creation and Redemption
ddrumheller on DSK120RN23PROD with NOTICES1
Further, and consistent with prior
points above, offering only in-kind
creation and redemption will also
provide unique protections against
potential attempts to manipulate the
price of the Shares. While the Sponsor
believes that the Benchmark 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 Benchmark
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.63 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
61 For additional information regarding ISG and
the hallmarks of surveillance-sharing between ISG
members, see https://isgportal.org/overview.
62 The Exchange also notes that it already has in
place ISG-like surveillance sharing agreement with
Cboe Digital Exchange, LLC and Cboe Clear Digital,
LLC.
63 While the Benchmark will not be particularly
important for the creation and redemption process,
it will be used for calculating fees.
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potential manipulation, but also
discourages and disincentivizes
manipulation of the Benchmark because
there is little financial incentive to do
so.
(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
several years, U.S. investor exposure to
bitcoin through OTC Bitcoin Funds has
grown into the tens of billions of
dollars, including 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. As noted above, many U.S.
investors that held digital assets in
accounts at FTX, Celsius Network LLC,
BlockFi Inc, and Voyager Digital
Holdings Inc, have become unsecured
creditors in the insolvencies of those
entities and, consequently, have
suffered monetary losses. Moreover,
most of those U.S. investors do not have
access to any of their assets at this time
due to such bankruptcy proceedings or
other insolvencies. 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 and, to the
extent that the Commission disagrees
with that assertion, such concerns are
now outweighed by investor protection
concerns. 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 to custodying
spot bitcoin.
VanEck Bitcoin Trust
Delaware Trust Company is the
trustee (‘‘Trustee’’). The State Street
Bank and Trust Company will be the
administrator (‘‘Administrator’’) and
transfer agent (‘‘Transfer Agent’’). Van
Eck Securities Corporation will be the
marketing agent (‘‘Marketing Agent’’) in
connection with the creation and
redemption of ‘‘Baskets’’ of Shares. Van
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46329
Eck Securities Corporation (‘‘VanEck’’)
provides assistance in the marketing of
the Shares. The Custodian will be
responsible for custody of the Trust’s
bitcoin.
According to the Registration
Statement, each Share will represent a
fractional undivided beneficial interest
in the Trust’s net assets. 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,64 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 for the Shares to reflect the
performance of the MarketVectorTM
Bitcoin Benchmark Rate (f/k/a MVIS®
CryptoCompare Bitcoin Benchmark
Rate) less the expenses of the Trust’s
operations. In seeking to achieve its
investment objective, the Trust will
hold bitcoin and will value its Shares
daily based on the reported
MarketVectorTM Bitcoin Benchmark
Rate and process all creations and
redemptions in-kind in transactions
64 15
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with authorized participants. The Trust
is not actively managed.
ddrumheller on DSK120RN23PROD with NOTICES1
The Benchmark
As described in the Registration
Statement, the Fund will use the
Benchmark to calculate the Trust’s
NAV. The Benchmark is designed to be
a robust price for bitcoin in USD and
there is no component other than
bitcoin in the index. The underlying
exchanges are sourced from the industry
leading CryptoCompare Exchange
Benchmark review report.
CryptoCompare Exchange Benchmark
was established in 2019 as a tool
designed to bring clarity to the digital
asset exchange sector by providing a
framework for assessing risk and in turn
bringing transparency and
accountability to a complex and rapidly
evolving market.65 The current
exchange composition of the Benchmark
is Bitstamp, Coinbase, Bitfinex, LMAX
and Kraken.
In calculating the MarketVectorTM
Bitcoin Benchmark Rate, the
methodology captures trade prices and
sizes from exchanges and examines
twenty three-minute periods leading up
to 4:00 p.m. EST. It then calculates an
equal-weighted average of the volumeweighted median price of these twenty
three-minute periods, removing the
highest and lowest contributed prices.
Using twenty consecutive three-minute
segments over a sixty-minute period
means malicious actors would need to
sustain efforts to manipulate the market
over an extended period of time, or
would need to replicate efforts multiple
times across exchanges, potentially
triggering review. This extended period
also supports authorized participant
activity by capturing volume over a
longer time period, rather than forcing
authorized participants to mark an
individual close or auction. The use of
65 The CryptoCompare Exchange Benchmark
methodology utilizes a combination of qualitative
and quantitative metrics to analyze a
comprehensive data set across eight categories of
evaluation legal/regulation, KYC/transaction risk,
data provision, security, team/exchange, asset
quality/diversity, market quality and negative
events. The CryptoCompare Exchange Benchmark
review report assigns a grade to each exchange
which helps identify what it believes to be the
lowest risk exchanges in the industry. Based on the
CryptoCompare Exchange Benchmark,
MarketVector Indexes initially selects the top five
exchanges by rank for inclusion in the
MarketVectorTM Bitcoin Benchmark Rate. If an
eligible exchange is downgraded by two or more
notches in a semi-annual review and is no longer
in the top five by rank, it is replaced by the highest
ranked non-component exchange. Adjustments to
exchange coverage are announced four business
days prior to the first business day of each of March
and September at 23:00 CET. The MarketVectorTM
Bitcoin Benchmark Rate is rebalanced at 16:00:00
GMT/BST on the last business day of each of
February and August.
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a median price reduces the ability of
outlier prices to impact the NAV, as it
systematically excludes those prices
from the NAV calculation. The use of a
volume-weighted median (as opposed to
a traditional median) serves as an
additional protection against attempts to
manipulate the NAV by executing a
large number of low-dollar trades,
because, any manipulation attempt
would have to involve a majority of
global spot bitcoin volume in a threeminute window to have any influence
on the NAV. As discussed in the
Registration Statement, removing the
highest and lowest prices further
protects against attempts to manipulate
the NAV, requiring bad actors to act on
multiple exchanges at once to have any
ability to influence the price.
Availability of Information
In addition to the price transparency
of the Benchmark, 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.
The website for the Trust, which will
be publicly accessible at no charge, will
contain the following information: (a)
the current NAV per Share daily and the
prior business day’s NAV and the
reported closing price; (b) the BZX
Official Closing Price 66 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
66 As defined in Rule 11.23(a)(3), the term ‘‘BZX
Official Closing Price’’ shall mean the price
disseminated to the consolidated tape as the market
center closing trade.
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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. 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 Benchmark,
including key elements of how the
Benchmark is calculated, will be
publicly available at https://
www.marketvector.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 Benchmark.
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.
The Bitcoin Custodian
The Custodian’s services (i) allow
bitcoin to be deposited from a public
blockchain address to the Trust’s bitcoin
account and (ii) allow bitcoin to be
withdrawn from the bitcoin account to
a public blockchain address as
instructed by the Trust. The Custody
Agreement requires the Custodian to
hold the Trust’s bitcoin in cold storage,
unless required to facilitate withdrawals
as a temporary measure. The Custodian
will use segregated cold storage bitcoin
addresses for the Trust which are
separate from the bitcoin addresses that
the Custodian uses for its other
customers and which are directly
verifiable via the Bitcoin Blockchain.
The Custodian will safeguard the
private keys to the bitcoin associated
with the Trust’s bitcoin account. The
Custodian will at all times record and
identify in its books and records that
such bitcoins constitute the property of
the Trust. The Custodian will not
withdraw the Trust’s bitcoin from the
Trust’s account with the Custodian, or
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loan, hypothecate, pledge or otherwise
encumber the Trust’s bitcoin, without
the Trust’s instruction. If the custody
agreement terminates, the Sponsor may
appoint another custodian and the Trust
may enter into a custodian agreement
with such custodian.
Net Asset Value
NAV means the total assets of the
Trust including, but not limited to, all
bitcoin and cash, if any, less total
liabilities of the Trust, each determined
on the basis of generally accepted
accounting principles. The
Administrator will determine the NAV
of the Trust on each day that the
Exchange is open for regular trading, as
promptly as practical after 4:00 p.m.
EST. The NAV of the Trust is the
aggregate value of the Trust’s assets less
its estimated accrued but unpaid
liabilities (which include accrued
expenses). In determining the Trust’s
NAV, the Administrator values the
bitcoin held by the Trust based on the
price set by the MarketVectorTM Bitcoin
Benchmark Rate as of 4:00 p.m. EST.
The Administrator also determines the
NAV per Share.
ddrumheller on DSK120RN23PROD with NOTICES1
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. Each night, 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 50,000.
The procedures by which an authorized
participant can redeem one or more
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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 67 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
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
67 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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46331
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 CommodityBased 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
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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.
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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
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.68
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
68 For a list of the current members and affiliate
members of ISG, see www.isgportal.com.
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Hours 69 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 70 in general and Section
6(b)(5) of the Act 71 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,72 including Commodity-Based
Trust Shares,73 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; 74 and
69 Regular Trading Hours is the time between 9:30
a.m. and 4:00 p.m. Eastern Time.
70 15 U.S.C. 78f.
71 15 U.S.C. 78f(b)(5).
72 See Exchange Rule 14.11(f).
73 Commodity-Based Trust Shares, as described in
Exchange Rule 14.11(e)(4), are a type of Trust
Issued Receipt.
74 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
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(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 mitigated to
the point that they are outweighed by
quantifiable investor protection issues
that would be resolved by approving
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 75 with a regulated
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 activity does
not normally impact prices on other exchange
because participants will generally ignore markets
with quotes that they deem non-executable. The
reason is that wash trading aims to manipulate the
volume rather than the price of an asset to give the
impression of heightened market activity in hopes
of attracting investors to that asset. Moreover, wash
trades are executed within an exchange rather than
cross exchange since the entity executing the wash
trades would aim to trade against itself, and as
such, this can only happen within an exchange.
Should the wash trades of that entity result in a
deviation of the price on that exchange relative to
others, arbitrageurs would then be able to capitalize
on this mispricing, and bring the manipulated price
back to equilibrium, resulting in a loss to the entity
executing the wash trades. 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.
75 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
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market of significant size. Both the
Exchange and CME are members of
ISG.76 The only remaining issue to be
addressed is whether the 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.77
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.78
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(a) Reasonable Likelihood That a Person
Attempting To Manipulate the ETP
Would Also Have To Trade on That
Market To Manipulate the ETP
Bitcoin Futures represent a growing
influence on pricing in the spot bitcoin
market as has been laid out above and
in other proposals to list and trade Spot
Bitcoin ETPs. Pricing in Bitcoin Futures
is based on pricing from spot bitcoin
markets. As noted above, the statement
from the Teucrium Approval that
‘‘CME’s surveillance can reasonably be
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.
76 For a list of the current members and affiliate
members of ISG, see www.isgportal.com.
77 See Wilshire Phoenix Disapproval.
78 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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relied upon to capture the effects on the
CME bitcoin futures market caused by a
person attempting to manipulate the
proposed futures ETP by manipulating
the price of CME bitcoin futures
contracts . . . indirectly by trading
outside of the CME bitcoin futures
market,’’ makes clear that the
Commission believes that CME’s
surveillance can capture the effects of
trading on the relevant spot markets on
the pricing of Bitcoin Futures. While the
Commission makes clear in the
Teucrium Approval that the analysis
only applies to the Bitcoin Futures
market as it relates to an ETP that
invests in Bitcoin Futures as its only
non-cash or cash equivalent holding, if
CME’s surveillance is sufficient to
mitigate concerns related to trading in
Bitcoin Futures for which the pricing is
based directly on pricing from spot
bitcoin markets, it’s not clear how such
a conclusion could apply only to ETPs
based on Bitcoin Futures and not extend
to Spot Bitcoin ETPs.
Additionally, a Bitcoin Futures ETF is
actually potentially more susceptible to
manipulation than a Spot Bitcoin ETP
where the underlying trust offers only
in-kind creation and redemption.
Specifically, the pricing of Bitcoin
Futures is based on prices from spot
bitcoin markets, while shares of a Spot
Bitcoin ETP would represent an interest
in bitcoin directly and authorized
participants for a Spot Bitcoin ETP
would be able to source bitcoin from
any exchange and create or redeem with
the applicable trust regardless of the
price of the underlying index. Potential
manipulation of a Bitcoin Futures ETF
would require manipulation on the spot
markets on which the pricing for Bitcoin
Futures are based while the in-kind
creation and redemption process and
fungibility of bitcoin means that a
would be manipulator of a Spot Bitcoin
ETP would need to manipulate the price
across all bitcoin markets or risk simply
providing arbitrage opportunities for
authorized participants. Further to this
point, this arbitrage opportunity also
acts to reduce any incentives to
manipulate the price of a Spot Bitcoin
ETP because the underlying trust will
create and redeem shares at set rates of
bitcoin per share without regard to the
price that the ETP is trading at in the
secondary market or the price of the
underlying index. 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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46333
(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 Bitcoin Futures market or spot
market for a number of reasons,
including the in-kind creation and
redemption process, the spot market
arbitrage opportunities that such in-kind
creation and redemption process
creates, the significant volume in the
Bitcoin Futures market, the size of
bitcoin’s market cap, and the significant
liquidity available in the spot market. In
addition to the Bitcoin Futures market
data points cited above, the spot market
for bitcoin is also very liquid. According
to data from Skew, the cost to buy or
sell $5 million worth of bitcoin averages
roughly 48 basis points with a market
impact of $139.08.79 Stated another
way, a market participant could enter a
market buy or sell order for $5 million
of bitcoin and only move the market
0.48%. 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 the inkind creation and redemption process,
the Bitcoin Futures leading price
discovery, the overall size of the bitcoin
market, and the ability for market
participants, including authorized
participants creating and redeeming inkind 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 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.
79 These statistics are based on samples of bitcoin
liquidity in USD (excluding stablecoins or Euro
liquidity) based on executable quotes on Coinbase,
FTX and Kraken during the one year period ending
May 2022.
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Surveillance Sharing Agreement
The Exchange is proposing to take
additional steps to those described
above to supplement its ability to obtain
information that would be helpful in
detecting, investigating, and deterring
fraud and market manipulation in the
Commodity-Based Trust Shares. On
June 21, 2023, the Exchange reached an
agreement on terms with Coinbase, Inc.
(‘‘Coinbase’’), an operator of a United
States-based spot trading platform for
Bitcoin that represents a substantial
portion of US-based and USD
denominated Bitcoin trading,80 to enter
into a surveillance-sharing agreement
(‘‘Spot BTC SSA’’) and executed an
associated term sheet. Based on this
agreement on terms, the Exchange and
Coinbase will finalize and execute a
definitive agreement that the parties
expect to be executed prior to allowing
trading of the Commodity-Based Trust
Shares.
The Spot BTC SSA is expected to be
a bilateral surveillance-sharing
agreement between the Exchange and
Coinbase that is intended to supplement
the Exchange’s market surveillance
program. The Spot BTC SSA is expected
to have the hallmarks of a surveillancesharing agreement between two
members of the ISG, which would give
the Exchange supplemental access to
data regarding spot Bitcoin trades on
Coinbase where the Exchange
determines it is necessary as part of its
surveillance program for the
Commodity-Based Trust Shares.81 This
means that the Exchange expects to
receive market data for orders and
trades from Coinbase, which it will
utilize in surveillance of the trading of
Commodity-Based Trust Shares. In
addition, the Exchange can request
further information from Coinbase
related to spot bitcoin trading activity
on the Coinbase exchange platform, if
the Exchange determines that such
information would be necessary to
detect and investigate potential
manipulation in the trading of the
Commodity-Based Trust Shares.82
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In-Kind Creation and Redemption
Further, and consistent with prior
points above, offering only in-kind
creation and redemption will also
80 According to a Kaiko Research report dated
June 26, 2023, Coinbase represented roughly 50%
of exchange trading volume in USD–BTC trading on
a daily basis during May 2023.
81 For additional information regarding ISG and
the hallmarks of surveillance-sharing between ISG
members, see https://isgportal.org/overview.
82 The Exchange also notes that it already has in
place ISG-like surveillance sharing agreement with
Cboe Digital Exchange, LLC and Cboe Clear Digital,
LLC.
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provide unique protections against
potential attempts to manipulate the
price of the Shares. While the Sponsor
believes that the Benchmark 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 Benchmark
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.83 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 Benchmark because
there is little financial incentive to do
so.
(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
several 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 and, to the
extent that the Commission disagrees
83 While the Benchmark will not be particularly
important for the creation and redemption process,
it will be used for calculating fees.
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with that assertion, also believes that
such concerns are now outweighed by
these investor protection concerns. 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 to custodying
spot bitcoin.
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
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
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transparency of the Benchmark, 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 current NAV per Share daily and 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. 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 Benchmark,
including key elements of how the
Benchmark is calculated, will be
publicly available at https://
www.marketvector.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
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00:36 Jul 19, 2023
Jkt 259001
Reuters, as well as the Benchmark.
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
In sum, the Exchange believes that
this proposal is consistent with the
requirements of Section 6(b)(5) of the
Act, 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 mitigated to
the point that they are outweighed by
investor protection issues that would be
resolved by approving this proposal.
The Exchange believes that the
proposal is, in particular, designed to
protect investors and the public interest.
Premium and discount volatility, high
fees, rolling costs, 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 Spot
Bitcoin ETP. 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) providing
an alternative to Bitcoin Futures ETFs
which will eliminate roll cost; (iv)
reducing risks associated with investing
in operating companies that are
imperfect proxies for bitcoin exposure;
and (v) providing an alternative to
custodying spot bitcoin. The investor
protection issues for U.S. investors has
grown significantly over the last several
years, through roll costs for Bitcoin
Futures ETFs and premium/discount
volatility and management fees for OTC
Bitcoin Funds. As discussed
throughout, this growth investor
protection concerns need to be
reevaluated and rebalanced with the
prevention of fraudulent and
manipulative acts and practices
concerns that previous disapproval
orders have relied upon. Finally, the
Exchange notes that in addition to all of
the arguments herein which it believes
sufficiently establishes the CME Bitcoin
Futures market as a regulated market of
significant size, it is logically
inconsistent to find that the CME
PO 00000
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Fmt 4703
Sfmt 4703
46335
Bitcoin Futures market is a significant
market as it relates to the CME Bitcoin
Futures market, but not a significant
market as it relates to the bitcoin spot
market for the numerous reasons laid
out above.
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 neither solicited nor
received 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, as modified by Amendment No.
1, 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–2023–040 on the subject line.
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Federal Register / Vol. 88, No. 137 / Wednesday, July 19, 2023 / Notices
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–2023–040. 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
a.m. and 3 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-CboeBZX–2023–040 and should be
submitted on or before August 9, 2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.84
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023–15271 Filed 7–18–23; 8:45 am]
ddrumheller on DSK120RN23PROD with NOTICES1
BILLING CODE 8011–01–P
84 17
CFR 200.30–3(a)(12).
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–97891; File No. SR–DTC–
2023–006]
Self-Regulatory Organizations; The
Depository Trust Company; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend the
Clearing Agency Model Risk
Management Framework
July 13, 2023.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on June 30,
2023, The Depository Trust Company
(‘‘DTC’’) 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 clearing
agency. DTC filed the proposed rule
change pursuant to Section 19(b)(3)(A)
of the Act 3 and Rule 19b–4(f)(4)
thereunder.4 The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
The proposed rule change consists of
amends (sic) the Clearing Agency Model
Risk Management Framework
(‘‘Framework’’) of DTC and its affiliates
that are central counterparties, National
Securities Clearing Corporation
(‘‘NSCC’’) and Fixed Income Clearing
Corporation (‘‘FICC,’’ and together with
NSCC, the ‘‘CCPs,’’ and the CCPs
together with DTC, the ‘‘Clearing
Agencies’’).5 The Framework was
adopted by the Clearing Agencies to
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(4).
5 The Framework sets forth the model risk
management practices that the Clearing Agencies
follow to identify, measure, monitor, and manage
the risks associated with the design, development,
implementation, use, and validation of quantitative
models. The Framework is filed as a rule of the
Clearing Agencies. See Securities Exchange Act
Release Nos. 81485 (August 25, 2017), 82 FR 41433
(August 31, 2017) (SR–DTC–2017–008, SR–FICC–
2017–014, SR–NSCC–2017–008) (‘‘2017 Notice’’);
88911 (May 20, 2020), 85 FR 31828 (May 27, 2020)
(SR–DTC–2020–008, SR–FICC–2020–004, SR–
NSCC–2020–008); 92379 (July 13, 2021), 86 FR
38143 (July 19, 2021) (SR–DTC–2021–013); 92381
(July 13, 2021), 86 FR 38163 (July 19, 2021) (SR–
NSCC–2021–008); 92380 (July 13, 2021), 86 FR
38140 (July 19, 2021) (SR–FICC–2021–006); 94273
(February 17, 2022), 87 FR 10395 (February 24,
2022) (SR–DTC–2022–001); 94272 (February 17,
2022), 87 FR 10419 (February 24, 2022) (SR–NSCC–
2022–001); and 94271 (February 17, 2022), 87 FR
10411 (February 24, 2022) (SR–FICC–2022–001)
(collectively, the ‘‘MRMF Filings’’).
PO 00000
1 15
2 17
Frm 00210
Fmt 4703
Sfmt 4703
support their compliance with Rule
17Ad–22(e) (the ‘‘Covered Clearing
Agency Standards’’) under the Act,6
and, in this regard, applies solely to
models 7 utilized by the Clearing
Agencies that are subject to the model
risk management requirements set forth
in Rules 17Ad–22(e)(4), (e)(6), and (e)(7)
under the Act,8 as described in greater
detail below.9
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission, the
clearing agency 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
clearing agency has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
1. Purpose
The proposed rule change of DTC
amends the Clearing Agency Model Risk
Management Framework (‘‘Framework’’)
of DTC and its affiliates that are central
counterparties, National Securities
Clearing Corporation (‘‘NSCC’’) and
Fixed Income Clearing Corporation
6 17 CFR 240.17Ad–22(e). Each of DTC, NSCC
and FICC is a ‘‘covered clearing agency’’ as defined
in Rule 17Ad–22(a)(5) under the Act and must
comply with Rule 17Ad–22(e).
7 Pursuant to Section 3.1 (Model Inventory) of the
Framework, the Clearing Agencies have adopted the
following definition of ‘‘model’’: ‘‘[M]odel’’ refers to
a quantitative method, system, or approach that
applies statistical, economic, financial, or
mathematical theories, techniques, and
assumptions to process input data into quantitative
estimates. A ‘‘model’’ consists of three components:
(i) an information input component, which delivers
assumptions and data to the model; (ii) a processing
component, which transforms inputs into estimates;
and (iii) a reporting component, which translates
the estimates into useful business information. The
definition of model also covers quantitative
approaches whose inputs are partially or wholly
qualitative or based on expert judgment, provided
that the output is quantitative in nature. See 2017
Notice, supra note 9. See also Supervisory
Guidance on Model Risk Management, SR Letter
11–7 Attachment, dated April 4, 2011, issued by the
Board of Governors of the Federal Reserve System
and the Office of the Comptroller of the Currency,
available at https://www.federalreserve.gov/
supervisionreg/srletters/sr1107a1.pdf, page 3.
8 17 CFR 240.17Ad–22(e)(4), (e)(6) and (e)(7).
References to Rule 17Ad–22(e)(6) and compliance
therewith apply to the CCPs only and not to DTC
because DTC is not a central counterparty.
9 Capitalized terms not defined herein are defined
in the Rules, By-Laws and Organization Certificate
of DTC (‘‘Rules’’) available at https://www.dtcc.com/
∼/media/Files/Downloads/legal/rules/dtc_rules.pdf.
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]]>Agencies
[Federal Register Volume 88, Number 137 (Wednesday, July 19, 2023)]
[Notices]
[Pages 46320-46336]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-15271]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97903; File No. SR-CboeBZX-2023-040]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change, As Modified by Amendment No. 1, To
List and Trade Shares of the VanEck Bitcoin Trust Under BZX Rule
14.11(e)(4), Commodity-Based Trust Shares
July 13, 2023.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 30, 2023, Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'')
filed with the Securities and Exchange Commission (``Commission'') a
proposed rule change to list and trade shares of the VanEck Bitcoin
Trust under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares. On July
11, 2023, the Exchange filed Amendment No. 1 to the proposed rule
change, which amended and replaced the proposed rule change in its
entirety. The proposed rule change, as modified by Amendment No. 1, is
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, as modified by Amendment No. 1,
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
Cboe BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (``Commission'' or ``SEC'')
a proposed rule change to list and trade shares of the VanEck Bitcoin
Trust (the ``Trust''),\3\ under BZX Rule 14.11(e)(4), Commodity-Based
Trust Shares.
---------------------------------------------------------------------------
\3\ The Trust was formed as a Delaware statutory trust on
December 17, 2020 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 also 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
This Amendment No. 1 to SR-CboeBZX-2023-040 amends and replaces in
its entirety the proposal as originally submitted on June 30, 2023. The
Exchange submits this Amendment No. 1 in order to clarify certain
points and add additional details to the proposal.
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\ VanEck Digital Assets, LLC is
the sponsor of the Trust (``Sponsor'').\6\ The Shares will be
registered with the Commission by means of the Trust's registration
statement on Form S-1 (the ``Registration Statement'').\7\ A third-
[[Page 46321]]
party regulated custodian will be responsible for custody of the
Trust's bitcoin (the ``Custodian''). 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 to be held.\8\ Prior orders from the Commission have pointed
out that in every prior approval order for Commodity-Based Trust
Shares, there has been a derivatives market that represents the
regulated market of significant size, generally a Commodity Futures
Trading Commission (the ``CFTC'') regulated futures market.\9\ Further
to this point, the Commission's prior orders have noted that the spot
commodities and currency markets for which it has previously approved
spot ETPs are generally unregulated and that the Commission relied on
the underlying futures market as the regulated market of significant
size that formed the basis for approving the series of Currency and
Commodity-Based Trust Shares, including gold, silver, platinum,
palladium, copper, and other commodities and currencies. The Commission
specifically noted in the Winklevoss Order that the First Gold Approval
Order ``was based on an assumption that the currency market and the
spot gold market were largely unregulated.'' \10\
---------------------------------------------------------------------------
\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.
\6\ The Exchange notes that two other proposals to list and
trade shares of the Trust were previously disapproved pursuant to
delegated authority, one of which is currently pending Commission
Review pursuant to Rule 431 of the Commission's Rules of Practice,
17 CFR 201.431. See Securities Exchange Act Release Nos. 93559
(November 12, 2021) (SR-CboeBZX-2021-019), 86 FR 64539 (November 18,
2021); 95978 (October 4, 2022) 87 FR 61418 (October 11, 2022) (SR-
CboeBZX-2022-035). See also Letter from Assistant Secretary J.
Matthew DeLesDernier to Kyle Murray, Assistant General Counsel, Cboe
Global Markets, dated November 12, 2021.
\7\ See Amendment No. 2 to Registration Statement on Form S-1,
dated June 22, 2022, submitted to the Commission by the Sponsor on
behalf of the Trust (333-251808). The descriptions of the Trust, the
Shares, and the Benchmark contained herein are based, in part, on
information in the Registration Statement. The Registration
Statement 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 streetTRACKS Gold Shares, Exchange Act Release No. 50603
(Oct. 28, 2004), 69 FR 64614, 64618-19 (Nov. 5, 2004) (SR-NYSE-2004-
22) (the ``First Gold Approval Order''); 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).
\10\ See Winklevoss Order at 37592.
---------------------------------------------------------------------------
As such, the regulated market of significant size test does not
require that the spot bitcoin market be regulated in order for the
Commission to approve this proposal, and precedent makes clear that an
underlying market for a spot commodity or currency being a regulated
market would actually be an exception to the norm. These largely
unregulated currency and commodity markets do not provide the same
protections as the markets that are subject to the Commission's
oversight, but the Commission has consistently looked to surveillance
sharing agreements with the underlying futures market in order to
determine whether such products were consistent with the Act. With this
in mind, the CME Bitcoin Futures market is the proper market to
consider in determining whether there is a related regulated market of
significant size.
Further to this point, the Exchange notes that the Commission has
approved
[[Page 46322]]
proposals related to the listing and trading of funds that would
primarily hold CME Bitcoin Futures that are registered under the
Securities Act of 1933.\11\ In the Teucrium Approval, the Commission
found the CME Bitcoin Futures market to be a regulated market of
significant size as it relates to CME Bitcoin Futures, an odd
tautological truth that is also inconsistent with prior disapproval
orders for ETPs that would hold actual bitcoin instead of derivatives
contracts (``Spot Bitcoin ETPs'') that use the exact same pricing
methodology as the CME Bitcoin Futures. As further discussed below,
both the Exchange and the Sponsor believe that this proposal and the
included analysis are sufficient to establish that the CME Bitcoin
Futures market represents a regulated market of significant size as it
relates both to the CME Bitcoin Futures market and to the spot bitcoin
market and that this proposal should be approved.
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\11\ See Exchange Act Release No. 94620 (April 6, 2022), 87 FR
21676 (April 12, 2022) (the ``Teucrium Approval'') and 94853 (May 5,
2022) (collectively, with the Teucrium Approval, the ``Bitcoin
Futures Approvals'').
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Finally, as discussed in greater detail below, by using
professional custodians and other service providers, the Trust provides
investors interested in exposure to bitcoin with important protections
that are not always available to investors that invest directly in
bitcoin, including protection against insolvency, cyber attacks, and
other risks. If U.S. investors had access to vehicles such as the Trust
for their bitcoin investments, instead of directing their bitcoin
investments into loosely regulated offshore vehicles (such as the
offshore regulated centralized exchanges that have since faced
bankruptcy proceedings or other insolvencies), then countless investors
might have protected their principal investments in bitcoin and thus
benefited.
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. 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.\12\ 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.\13\ Similarly, regulated U.S. bitcoin futures
contracts did not exist. The CFTC had determined that bitcoin is a
commodity,\14\ 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.\15\ While the first over-the-
counter bitcoin fund launched in 2013, public trading was limited and
the fund had only $60 million in assets.\16\ 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.\17\ Fast forward to today 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 \18\ and
shares in investment vehicles holding bitcoin futures.\19\
Additionally, licensed and regulated service providers have emerged to
provide fund custodial services for digital assets, among other
services. For example, in February 2023, the Commission proposed to
amend Rule 206(4)-2 under the Advisers Act of 1940 (the ``custody
rule'') to expand the scope beyond client funds and securities to
include all crypto assets, among other assets; \20\ 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-
action letter permitting certain broker-dealers to operate a non-
custodial Alternative
[[Page 46323]]
Trading System (``ATS'') for digital asset securities, subject to
specified conditions; \22\ 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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\12\ See Winklevoss Order.
\13\ 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.
\14\ 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.''
\15\ 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.
\16\ 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.
\17\ 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.
\18\ 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.
\19\ 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.
\20\ See Investment Advisers Act Release No. 6240 88 FR 14672
(March 9, 2023) (Safeguarding Advisory Client Assets).
\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 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, having at one point reached a market cap of over $1
trillion.\25\ According to the CME Bitcoin Futures Report, from May 15,
2023 through June 9, 2023, CFTC regulated bitcoin futures represented
between $561 million and $2.9 billion in notional trading volume on
Chicago Mercantile Exchange (``CME'') (``Bitcoin Futures'') on a daily
basis.\26\ Open interest was over $33.8 billion for the entirety of the
period. 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\ As of April 25, 2023
the NYDFS has granted no fewer than thirty-four BitLicenses,\28\
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 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.\29\
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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: June 16,
2023, available at: https://www.cmegroup.com/markets/cryptocurrencies/bitcoin/bitcoin.volume.htm.
\27\ The CFTC's annual report for Fiscal Year 2022 (which ended
on September 30, 2022) noted that the CFTC completed the fiscal year
with 18 enforcement filings related to digital assets. ``Digital
asset actions included manipulation, a $1.7 billion fraudulent
scheme, and a decentralized autonomous organization (DAO) failing to
register as a SEF or FCM or to seek DCM designation.'' See CFTC FY
2022 Agency Financial Report, available at: https://www.cftc.gov/media/7941/2022afr/download. Additionally, the CFTC filed on March
27, 2023, a civil enforcement action against the owner/operators of
the Binance centralized digital asset trading platform, which is one
of the largest bitcoin derivative exchanges. See CFTC Release No.
8680-23 (March 27, 2023), available at: https://www.cftc.gov/PressRoom/PressReleases/8680-23.
\28\ See https://www.dfs.ny.gov/virtual_currency_businesses.
\29\ 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. See also U.S.
Department of the Treasury Enforcement Release: ``Treasury Announces
Two Enforcement Actions for over $24M and $29M Against Virtual
Currency Exchange, Bittrex, Inc.'' (October 11, 2022) available at:
https://home.treasury.gov/news/press-releases/jy1006. See also U.S.
Department of Treasure Enforcement Release ``OFAC Settles with
Virtual Currency Exchange Kraken for $362,158.70 Related to Apparent
Violations of the Iranian Transactions and Sanctions Regulations''
(November 28, 2022) available at: https://home.treasury.gov/system/files/126/20221128_kraken.pdf.
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In addition to the regulatory developments laid out above, more
traditional financial market participants become more active in
cryptocurrency: large insurance companies, asset managers, university
endowments, pension funds, and even historically bitcoin skeptical fund
managers have allocated to bitcoin. As noted in the Financial Stability
Oversight Council (``FSOC'') Report on Digital Asset Financial
Stability Risks and Regulation, ``[i]ndustry surveys suggest that the
scale of these investments grew quickly during the boom in crypto-asset
markets through late 2021. In June 2022, PwC estimated that the number
of crypto-specialist hedge funds was more than 300 globally, with $4.1
billion in assets under management. In addition, in a survey PwC found
that 38 percent of surveyed traditional hedge funds were currently
investing in `digital assets,' compared to 21 percent the year prior.''
\30\ 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 reporting
company.\31\ Established companies like Tesla, Inc., MicroStrategy
Incorporated, and Square, Inc., among others, have announced
substantial investments in bitcoin in amounts as large as $1.5 billion
(Tesla) and $1 billion (MicroStrategy).\32\ The foregoing examples
demonstrate that bitcoin has gained mainstream usage and recognition.
---------------------------------------------------------------------------
\30\ See the FSOC ``Report on Digital Asset Financial Stability
Risks and Regulation 2022'' (October 3, 2022) (at footnote 26) at
https://home.treasury.gov/system/files/261/FSOC-Digital-Assets-Report-2022.pdf.
\31\ 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.
\32\ See https://www.microstrategy.com/en/investor-relations/press/microstrategy-acquires-additional-19452-bitcoins-for-1-026-billion_02-24-2021.
---------------------------------------------------------------------------
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) facing the counter-party risk, legal uncertainty,
technical risk, and complexity associated with accessing spot bitcoin;
(ii) over-the-counter bitcoin funds (``OTC Bitcoin Funds'') with high
management fees and potentially volatile premiums and discounts; \33\
(iii) purchasing shares of operating companies that they believe will
provide proxy exposure to bitcoin with limited disclosure about the
associated risks; \34\ or (iv) purchasing
[[Page 46324]]
Bitcoin Futures ETFs, as defined below, which represent a sub-optimal
structure for long-term investors that will cost them significant
amounts of money every year compared to Spot Bitcoin ETPs, as further
discussed below. Meanwhile, investors in many other countries,
including Canada 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. Similarly, investors in
Switzerland and across Europe have access to Exchange Traded Products
which trade on regulated exchanges and provide exposure to a broad
array of spot crypto assets. U.S. investors, by contrast, are left with
fewer and more risky means of getting bitcoin exposure, as described
above.\35\
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\33\ The premium and discount for OTC Bitcoin Funds is known to
move rapidly. For example, over the period of 12/21/20 to 1/21/21,
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.
\34\ 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.
\35\ The Exchange notes that the list of countries above is not
exhaustive and that securities regulators in a number of additional
countries have either approved or otherwise allowed the listing and
trading of Spot Bitcoin ETPs.
---------------------------------------------------------------------------
To this point, the lack of a Spot Bitcoin ETP exposes U.S. investor
assets to significant risk because investors that would otherwise seek
cryptoasset exposure through a Spot Bitcoin ETP are forced to find
alternative exposure through generally riskier means. For instance,
many U.S. investors that held their digital assets in accounts at
FTX,\36\ Celsius Network LLC,\37\ BlockFi Inc.\38\ and Voyager Digital
Holdings, Inc.\39\ have become unsecured creditors in the insolvencies
of those entities. If a Spot Bitcoin ETP was available, it is likely
that at least a portion of the billions of dollars tied up in those
proceedings would still reside in the brokerage accounts of U.S.
investors, having instead been invested in a transparent, regulated,
and well-understood structure--a Spot Bitcoin ETP. To this point,
approval of a Spot Bitcoin ETP would represent a major win for the
protection of U.S. investors in the cryptoasset space. As further
described below, the Trust, like all other series of Commodity-Based
Trust Shares, is designed to protect investors against the risk of
losses through fraud and insolvency that arise by holding digital
assets, including bitcoin, on centralized platforms.
---------------------------------------------------------------------------
\36\ See FTX Trading Ltd., et al., Case No. 22-11068.
\37\ See Celsius Network LLC, et al., Case No. 22-10964.
\38\ See BlockFi Inc., Case No. 22-19361.
\39\ See Voyager Digital Holdings, Inc., et al., Case No. 22-
10943.
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Additionally, investors in other countries, specifically Canada,
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. 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 and
mutual 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
launch of ETFs registered under the Investment Company Act of 1940, as
amended (the ``1940 Act'') and the Bitcoin Futures Approvals that
provide exposure to bitcoin primarily through CME Bitcoin Futures
(``Bitcoin Futures ETFs''). Allowing such products to list and trade is
a productive first step in providing U.S. investors and traders with
transparent, exchange-listed tools for expressing a view on bitcoin.
The Bitcoin Futures Approvals, however, have created a logical
inconsistency in the application of the standard the Commission applies
when considering bitcoin ETP proposals.
As discussed further below, the standard applicable to 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 market that constitutes a regulated market of significant
size is generally a futures and/or options market based on the
underlying reference asset rather than the spot commodity markets,
which are often unregulated.\40\ Leaving aside the analysis of that
standard until later in this proposal,\41\ the Exchange believes that
the following rationale the Commission applied to a Bitcoin Futures ETF
should result in the Commission approving this and other Spot Bitcoin
ETP proposals:
---------------------------------------------------------------------------
\40\ 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.
\41\ As further outlined below, both the Exchange and the
Sponsor believe that the Bitcoin Futures market represents a
regulated market of significant size and that this proposal and
others like it should be approved on this basis.
The CME ``comprehensively surveils futures market conditions and
price movements on a real-time and ongoing basis in order to detect
and prevent price distortions, including price distortions caused by
manipulative efforts.'' Thus the CME's surveillance can reasonably
be relied upon to capture the effects on the CME bitcoin futures
market caused by a person attempting to manipulate the proposed
futures ETP by manipulating the price of CME bitcoin futures
contracts, whether that attempt is made by directly trading on the
CME bitcoin futures market or indirectly by trading outside of the
CME bitcoin futures market. As such, when the CME shares its
surveillance information with Arca, the information would assist in
detecting and deterring fraudulent or manipulative misconduct
related to the non-cash assets held by the proposed ETP.\42\
---------------------------------------------------------------------------
\42\ SeeTeucrium Approval at 21679.
CME Bitcoin Futures pricing is based on pricing from spot bitcoin
markets. The statement from the Teucrium Approval that ``CME's
surveillance can reasonably be relied upon to capture the effects on
the CME bitcoin futures market caused by a person attempting to
manipulate the proposed futures ETP by manipulating the price of CME
bitcoin futures contracts. . .indirectly by trading outside of the CME
bitcoin futures market,'' makes clear that the Commission believes that
CME's surveillance can capture the effects of trading on the relevant
spot markets on the pricing of CME Bitcoin Futures. This
[[Page 46325]]
was further acknowledged in the ``Grayscale lawsuit'' \43\ when Judge
Rao stated ``. . .the Commission in the Teucrium order recognizes that
the futures prices are influenced by the spot prices, and the
Commission concludes in approving futures ETPs that any fraud on the
spot market can be adequately addressed by the fact that the futures
market is a regulated one. . .'' The Exchange agrees with the
Commission on this point and notes that the pricing mechanism
applicable to the Shares is similar to that of the CME Bitcoin Futures.
As further discussed below, this view is also consistent with the
Advisor's research.
---------------------------------------------------------------------------
\43\ Grayscale Investments, LLC v. Securities and Exchange
Commission, et al., Case No. 22-1142.
---------------------------------------------------------------------------
Further to this point, a Bitcoin Futures ETF is potentially more
susceptible to potential manipulation than a Spot Bitcoin ETP that
offers only in-kind creation and redemption because settlement of CME
Bitcoin Futures (and thus the value of the underlying holdings of a
Bitcoin Futures ETF) occurs at a single price derived from spot bitcoin
pricing, while shares of a Spot Bitcoin ETP would represent interest in
bitcoin directly and authorized participants for a Spot Bitcoin ETP (as
proposed herein) would be able to source bitcoin from any exchange and
create or redeem with the applicable trust regardless of the price of
the underlying index. It is not logically possible to conclude that the
CME Bitcoin Futures market represents a significant market for a
futures-based product, but also conclude that the CME Bitcoin Futures
market does not represent a significant market for a spot-based
product.
In addition to potentially being more susceptible to manipulation
than a Spot Bitcoin ETP, the structure of Bitcoin Futures ETFs provides
negative outcomes for buy and hold investors as compared to a Spot
Bitcoin ETP.\44\ Specifically, the cost of rolling CME Bitcoin Futures
contracts 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 significant amounts of money on
an annual basis compared to Spot Bitcoin ETPs. Such rolling costs would
not be required for Spot Bitcoin ETPs that hold bitcoin. Further,
Bitcoin Futures ETFs could potentially hit 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 significant amounts of money every year compared to Spot
Bitcoin ETPs 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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\44\ 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.
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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 Bitcoin Futures ETFs and the Bitcoin Futures Approvals 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 will continue to lose significant amounts
of money from holding Bitcoin Futures ETFs as compared to Spot Bitcoin
ETPs, losses which could be prevented by the Commission approving Spot
Bitcoin ETPs. 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. 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 and approving 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.
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.
Spot and Proxy Exposure to Bitcoin
Exposure to bitcoin through an ETP also presents certain advantages
for retail investors compared to buying spot bitcoin directly. The most
notable advantage from the Sponsor's perspective is the elimination of
the need for an individual retail investor to either manage their own
private keys or to hold bitcoin through a cryptocurrency exchange that
lacks sufficient protections. Typically, retail exchanges hold most, if
not all, retail investors' bitcoin in ``hot'' (internet-connected)
storage and do not make any commitments to indemnify retail investors
or to observe any particular cybersecurity standard. Meanwhile, a
retail investor holding spot bitcoin directly in a self-hosted wallet
may suffer from inexperience in private key management (e.g.,
insufficient password protection, lost key, etc.), which could cause
them to lose some or all of their bitcoin holdings. Thus, with respect
to custody of the Trust's bitcoin assets, the Trust presents advantages
from an investment protection standpoint for retail investors compared
to owning spot bitcoin directly.
Finally, as described in the Background section above, a number of
operating companies largely engaged in unrelated businesses--such as
Tesla (a car manufacturer) and MicroStrategy (an enterprise software
company)--have announced significant investments 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.\45\
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
[[Page 46326]]
ETP.\46\ 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 the
aforementioned 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.\47\ 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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\45\ In August 2017, the Commission's Office of Investor
Education and Advocacy warned investors about situations where
companies were publicly announcing events relating to digital coins
or tokens in an effort to affect the price of the company's publicly
traded common stock. See https://www.sec.gov/oiea/investor-alerts-and-bulletins/ia_icorelatedclaims.
\46\ 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.
\47\ See, e.g., Tesla 10-K for the year ended December 31, 2020,
which mentions bitcoin just nine times: https://www.sec.gov/ix?doc=/Archives/edgar/data/1318605/000156459021004599/tsla-10k_20201231.htm.
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Bitcoin Futures
CME began offering trading in Bitcoin Futures in 2017. Each
contract represents five bitcoin and is based on the CME CF Bitcoin
Reference Rate.\48\ The contracts trade and settle like other cash-
settled commodity futures contracts. Nearly every measurable metric
related to Bitcoin Futures has generally trended up since launch,
although certain notional volume calculations have decreased roughly in
line with the decrease in the price of bitcoin. For example, there were
290,011 Bitcoin Futures contracts traded in May 2023 (approximately
$29.5 billion) compared to 101,253 ($11.3 billion), 188,515 ($8
billion), 172,365 ($51.7 billion), and 236,470 ($38.7 billion)
contracts traded in May 2019, May 2020, May 2021, and May 2022
respectively.\49\
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\48\ The CME CF Bitcoin Reference Rate is based on a publicly
available calculation methodology based on pricing sourced from
several crypto exchanges and trading platforms, including Bitstamp,
Coinbase, Gemini, itBit, Kraken, and LMAX Digital.
\49\ Source: CME, 5/31/23
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The number of large open interest holders \50\ and unique accounts
trading Bitcoin Futures have both increased, even in the face of
heightened Bitcoin price volatility.
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\50\ 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 $28,180 per bitcoin on 6/
20/2023, more than 102 firms had outstanding positions of greater
than $3.5 million in Bitcoin Futures.
[GRAPHIC] [TIFF OMITTED] TN19JY23.202
The Sponsor further believes that publicly available research,
including research done as part of rule filings proposing to list and
trade shares of Spot Bitcoin ETPs, corroborates the overall trend
outlined above and supports the thesis that the Bitcoin Futures pricing
leads the spot market and, thus, a person attempting to manipulate the
Shares would also have to trade on that market to manipulate the ETP.
Specifically, the Sponsor believes that such research indicates that
bitcoin futures lead the bitcoin spot market in price formation.\51\
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\51\ See Exchange Act Releases No. 94080 (January 27, 2022), 87
FR 5527 (April 12, 2022) (specifically ``Amendment No. 1 to the
Proposed Rule Change To List and Trade Shares of the Wise Origin
Bitcoin Trust Under BZX Rule 14.11(3)(4), Commodity-Based Trust
Shares''); 94982 (May 25, 2022), 87 FR 33250 (June 1, 2022); 94844
(May 4, 2022), 87 FR 28043 (May 10, 2022); and 93445 (October 28,
2021), 86 FR 60695 (November 3, 2021). See also 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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[[Page 46327]]
[GRAPHIC] [TIFF OMITTED] TN19JY23.203
Section 6(b)(5) and the Applicable Standards
The Commission has approved numerous series of Trust Issued
Receipts,\52\ including Commodity-Based Trust Shares,\53\ 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;
\54\ and
[[Page 46328]]
(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 mitigated to
the point that they are outweighed by quantifiable investor protection
issues that would be resolved by approving this proposal.
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\52\ See Exchange Rule 14.11(f).
\53\ Commodity-Based Trust Shares, as described in Exchange Rule
14.11(e)(4), are a type of Trust Issued Receipt.
\54\ 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 \55\ with a regulated market of significant size.
Both the Exchange and CME are members of ISG.\56\ The only remaining
issue to be addressed is whether the 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.\57\
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\55\ 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 Securities Exchange Act Release
No. 88284 (February 26, 2020), 85 FR 12595 (March 3, 2020) (SR-
NYSEArca-2019-39) (the ``Wilshire Phoenix Disapproval'').
\56\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com.
\57\ 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.\58\
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\58\ 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
According to the Sponsor's research presented above, the Bitcoin
Futures market is the leading market for bitcoin price formation. Where
Bitcoin Futures lead the price in the spot market such that a potential
manipulator of the bitcoin spot market (beyond just the constituents of
the Index \59\) 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
Index 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 Index 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
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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\59\ As further described below, the ``Index'' for the Fund is
the S&P Bitcoin Index. The current exchange composition of the Index
is Binance, Bitfinex, Bitflyer, Bittrex, Bitstamp, Coinbase Pro,
Gemini, HitBTC, Huobi, Kraken, KuCoin, and Poloniex.
---------------------------------------------------------------------------
(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 Bitcoin Futures
market or spot market for a number of reasons, including the
significant volume in the Bitcoin Futures market, the size of bitcoin's
market cap, and the significant liquidity available in the spot market.
In addition to the Bitcoin Futures market data points cited above, the
spot market for bitcoin is also very liquid.
(c) Other Means to Prevent Fraudulent and Manipulative Acts and
Practices
Surveillance Sharing Agreement
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. The Exchange is proposing to take
additional steps to those described above to supplement its ability to
obtain information that would be helpful in detecting, investigating,
and deterring fraud and market manipulation in the Commodity-Based
Trust Shares. On June 21, 2023, the Exchange reached an agreement on
terms with Coinbase, Inc. (``Coinbase''), an operator of a United
States-based spot trading platform for Bitcoin that represents a
substantial portion of US-based and USD denominated Bitcoin
trading,\60\ to enter into a surveillance-sharing agreement (``Spot BTC
SSA'') and executed an associated term sheet. Based on this agreement
on terms, the Exchange and Coinbase will finalize and execute a
definitive agreement that the parties expect to be executed prior to
allowing trading of the Commodity-Based Trust Shares.
---------------------------------------------------------------------------
\60\ According to a Kaiko Research report dated June 26, 2023,
Coinbase represented roughly 50% of exchange trading volume in USD-
BTC trading on a daily basis during May 2023.
---------------------------------------------------------------------------
The Spot BTC SSA is expected to be a bilateral surveillance-sharing
agreement between the Exchange and Coinbase that is intended to
supplement the Exchange's market surveillance program. The Spot BTC SSA
is expected to have the hallmarks of a surveillance-sharing agreement
between two members of the ISG, which would give the Exchange
supplemental access to data regarding spot Bitcoin trades on Coinbase
where the Exchange
[[Page 46329]]
determines it is necessary as part of its surveillance program for the
Commodity-Based Trust Shares.\61\ This means that the Exchange expects
to receive market data for orders and trades from Coinbase, which it
will utilize in surveillance of the trading of Commodity-Based Trust
Shares. In addition, the Exchange can request further information from
Coinbase related to spot bitcoin trading activity on the Coinbase
exchange platform, if the Exchange determines that such information
would be necessary to detect and investigate potential manipulation in
the trading of the Commodity-Based Trust Shares.\62\
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\61\ For additional information regarding ISG and the hallmarks
of surveillance-sharing between ISG members, see https://isgportal.org/overview.
\62\ The Exchange also notes that it already has in place ISG-
like surveillance sharing agreement with Cboe Digital Exchange, LLC
and Cboe Clear Digital, LLC.
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In-Kind Creation and Redemption
Further, and consistent with prior points above, offering only in-
kind creation and redemption will also provide unique protections
against potential attempts to manipulate the price of the Shares. While
the Sponsor believes that the Benchmark 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
Benchmark 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.\63\ 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 Benchmark
because there is little financial incentive to do so.
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\63\ While the Benchmark will not be particularly important for
the creation and redemption process, it will be used for calculating
fees.
---------------------------------------------------------------------------
(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 several years, U.S.
investor exposure to bitcoin through OTC Bitcoin Funds has grown into
the tens of billions of dollars, including 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. As noted above, many U.S. investors that held
digital assets in accounts at FTX, Celsius Network LLC, BlockFi Inc,
and Voyager Digital Holdings Inc, have become unsecured creditors in
the insolvencies of those entities and, consequently, have suffered
monetary losses. Moreover, most of those U.S. investors do not have
access to any of their assets at this time due to such bankruptcy
proceedings or other insolvencies. 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 and, to the extent that the Commission disagrees with that
assertion, such concerns are now outweighed by investor protection
concerns. 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 to custodying spot bitcoin.
VanEck Bitcoin Trust
Delaware Trust Company is the trustee (``Trustee''). The State
Street Bank and Trust Company will be the administrator
(``Administrator'') and transfer agent (``Transfer Agent''). Van Eck
Securities Corporation will be the marketing agent (``Marketing
Agent'') in connection with the creation and redemption of ``Baskets''
of Shares. Van Eck Securities Corporation (``VanEck'') provides
assistance in the marketing of the Shares. The Custodian will be
responsible for custody of the Trust's bitcoin.
According to the Registration Statement, each Share will represent
a fractional undivided beneficial interest in the Trust's net assets.
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,\64\ 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.
---------------------------------------------------------------------------
\64\ 15 U.S.C. 80a-1.
---------------------------------------------------------------------------
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 for the Shares to
reflect the performance of the MarketVectorTM Bitcoin
Benchmark Rate (f/k/a MVIS[supreg] CryptoCompare Bitcoin Benchmark
Rate) less the expenses of the Trust's operations. In seeking to
achieve its investment objective, the Trust will hold bitcoin and will
value its Shares daily based on the reported MarketVectorTM
Bitcoin Benchmark Rate and process all creations and redemptions in-
kind in transactions
[[Page 46330]]
with authorized participants. The Trust is not actively managed.
The Benchmark
As described in the Registration Statement, the Fund will use the
Benchmark to calculate the Trust's NAV. The Benchmark is designed to be
a robust price for bitcoin in USD and there is no component other than
bitcoin in the index. The underlying exchanges are sourced from the
industry leading CryptoCompare Exchange Benchmark review report.
CryptoCompare Exchange Benchmark was established in 2019 as a tool
designed to bring clarity to the digital asset exchange sector by
providing a framework for assessing risk and in turn bringing
transparency and accountability to a complex and rapidly evolving
market.\65\ The current exchange composition of the Benchmark is
Bitstamp, Coinbase, Bitfinex, LMAX and Kraken.
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\65\ The CryptoCompare Exchange Benchmark methodology utilizes a
combination of qualitative and quantitative metrics to analyze a
comprehensive data set across eight categories of evaluation legal/
regulation, KYC/transaction risk, data provision, security, team/
exchange, asset quality/diversity, market quality and negative
events. The CryptoCompare Exchange Benchmark review report assigns a
grade to each exchange which helps identify what it believes to be
the lowest risk exchanges in the industry. Based on the
CryptoCompare Exchange Benchmark, MarketVector Indexes initially
selects the top five exchanges by rank for inclusion in the
MarketVectorTM Bitcoin Benchmark Rate. If an eligible
exchange is downgraded by two or more notches in a semi-annual
review and is no longer in the top five by rank, it is replaced by
the highest ranked non-component exchange. Adjustments to exchange
coverage are announced four business days prior to the first
business day of each of March and September at 23:00 CET. The
MarketVectorTM Bitcoin Benchmark Rate is rebalanced at
16:00:00 GMT/BST on the last business day of each of February and
August.
---------------------------------------------------------------------------
In calculating the MarketVectorTM Bitcoin Benchmark
Rate, the methodology captures trade prices and sizes from exchanges
and examines twenty three-minute periods leading up to 4:00 p.m. EST.
It then calculates an equal-weighted average of the volume-weighted
median price of these twenty three-minute periods, removing the highest
and lowest contributed prices. Using twenty consecutive three-minute
segments over a sixty-minute period means malicious actors would need
to sustain efforts to manipulate the market over an extended period of
time, or would need to replicate efforts multiple times across
exchanges, potentially triggering review. This extended period also
supports authorized participant activity by capturing volume over a
longer time period, rather than forcing authorized participants to mark
an individual close or auction. The use of a median price reduces the
ability of outlier prices to impact the NAV, as it systematically
excludes those prices from the NAV calculation. The use of a volume-
weighted median (as opposed to a traditional median) serves as an
additional protection against attempts to manipulate the NAV by
executing a large number of low-dollar trades, because, any
manipulation attempt would have to involve a majority of global spot
bitcoin volume in a three-minute window to have any influence on the
NAV. As discussed in the Registration Statement, removing the highest
and lowest prices further protects against attempts to manipulate the
NAV, requiring bad actors to act on multiple exchanges at once to have
any ability to influence the price.
Availability of Information
In addition to the price transparency of the Benchmark, 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.
The website for the Trust, which will be publicly accessible at no
charge, will contain the following information: (a) the current NAV per
Share daily and the prior business day's NAV and the reported closing
price; (b) the BZX Official Closing Price \66\ 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. 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 Benchmark, including key elements of how the
Benchmark is calculated, will be publicly available at https://www.marketvector.com/.
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\66\ As defined in Rule 11.23(a)(3), the term ``BZX Official
Closing Price'' shall mean the price disseminated to the
consolidated tape as the market center closing trade.
---------------------------------------------------------------------------
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 Benchmark. 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.
The Bitcoin Custodian
The Custodian's services (i) allow bitcoin to be deposited from a
public blockchain address to the Trust's bitcoin account and (ii) allow
bitcoin to be withdrawn from the bitcoin account to a public blockchain
address as instructed by the Trust. The Custody Agreement requires the
Custodian to hold the Trust's bitcoin in cold storage, unless required
to facilitate withdrawals as a temporary measure. The Custodian will
use segregated cold storage bitcoin addresses for the Trust which are
separate from the bitcoin addresses that the Custodian uses for its
other customers and which are directly verifiable via the Bitcoin
Blockchain. The Custodian will safeguard the private keys to the
bitcoin associated with the Trust's bitcoin account. The Custodian will
at all times record and identify in its books and records that such
bitcoins constitute the property of the Trust. The Custodian will not
withdraw the Trust's bitcoin from the Trust's account with the
Custodian, or
[[Page 46331]]
loan, hypothecate, pledge or otherwise encumber the Trust's bitcoin,
without the Trust's instruction. If the custody agreement terminates,
the Sponsor may appoint another custodian and the Trust may enter into
a custodian agreement with such custodian.
Net Asset Value
NAV means the total assets of the Trust including, but not limited
to, all bitcoin and cash, if any, less total liabilities of the Trust,
each determined on the basis of generally accepted accounting
principles. The Administrator will determine the NAV of the Trust on
each day that the Exchange is open for regular trading, as promptly as
practical after 4:00 p.m. EST. The NAV of the Trust is the aggregate
value of the Trust's assets less its estimated accrued but unpaid
liabilities (which include accrued expenses). In determining the
Trust's NAV, the Administrator values the bitcoin held by the Trust
based on the price set by the MarketVectorTM Bitcoin
Benchmark Rate as of 4:00 p.m. EST. The Administrator also determines
the NAV per Share.
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. Each night, 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 50,000. 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 \67\ 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 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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\67\ 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
[[Page 46332]]
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 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.\68\
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\68\ 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 \69\
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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\69\ 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 \70\ in general and Section 6(b)(5) of the Act \71\ 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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\70\ 15 U.S.C. 78f.
\71\ 15 U.S.C. 78f(b)(5).
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The Commission has approved numerous series of Trust Issued
Receipts,\72\ including Commodity-Based Trust Shares,\73\ 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;
\74\ 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
mitigated to the point that they are outweighed by quantifiable
investor protection issues that would be resolved by approving this
proposal.
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\72\ See Exchange Rule 14.11(f).
\73\ Commodity-Based Trust Shares, as described in Exchange Rule
14.11(e)(4), are a type of Trust Issued Receipt.
\74\ 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 activity does not normally impact
prices on other exchange because participants will generally ignore
markets with quotes that they deem non-executable. The reason is
that wash trading aims to manipulate the volume rather than the
price of an asset to give the impression of heightened market
activity in hopes of attracting investors to that asset. Moreover,
wash trades are executed within an exchange rather than cross
exchange since the entity executing the wash trades would aim to
trade against itself, and as such, this can only happen within an
exchange. Should the wash trades of that entity result in a
deviation of the price on that exchange relative to others,
arbitrageurs would then be able to capitalize on this mispricing,
and bring the manipulated price back to equilibrium, resulting in a
loss to the entity executing the wash trades. 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 \75\ with a regulated
[[Page 46333]]
market of significant size. Both the Exchange and CME are members of
ISG.\76\ The only remaining issue to be addressed is whether the
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.\77\
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\75\ 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.
\76\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com.
\77\ 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.\78\
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\78\ 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) Reasonable Likelihood That a Person Attempting To Manipulate the
ETP Would Also Have To Trade on That Market To Manipulate the ETP
Bitcoin Futures represent a growing influence on pricing in the
spot bitcoin market as has been laid out above and in other proposals
to list and trade Spot Bitcoin ETPs. Pricing in Bitcoin Futures is
based on pricing from spot bitcoin markets. As noted above, the
statement from the Teucrium Approval that ``CME's surveillance can
reasonably be relied upon to capture the effects on the CME bitcoin
futures market caused by a person attempting to manipulate the proposed
futures ETP by manipulating the price of CME bitcoin futures contracts
. . . indirectly by trading outside of the CME bitcoin futures
market,'' makes clear that the Commission believes that CME's
surveillance can capture the effects of trading on the relevant spot
markets on the pricing of Bitcoin Futures. While the Commission makes
clear in the Teucrium Approval that the analysis only applies to the
Bitcoin Futures market as it relates to an ETP that invests in Bitcoin
Futures as its only non-cash or cash equivalent holding, if CME's
surveillance is sufficient to mitigate concerns related to trading in
Bitcoin Futures for which the pricing is based directly on pricing from
spot bitcoin markets, it's not clear how such a conclusion could apply
only to ETPs based on Bitcoin Futures and not extend to Spot Bitcoin
ETPs.
Additionally, a Bitcoin Futures ETF is actually potentially more
susceptible to manipulation than a Spot Bitcoin ETP where the
underlying trust offers only in-kind creation and redemption.
Specifically, the pricing of Bitcoin Futures is based on prices from
spot bitcoin markets, while shares of a Spot Bitcoin ETP would
represent an interest in bitcoin directly and authorized participants
for a Spot Bitcoin ETP would be able to source bitcoin from any
exchange and create or redeem with the applicable trust regardless of
the price of the underlying index. Potential manipulation of a Bitcoin
Futures ETF would require manipulation on the spot markets on which the
pricing for Bitcoin Futures are based while the in-kind creation and
redemption process and fungibility of bitcoin means that a would be
manipulator of a Spot Bitcoin ETP would need to manipulate the price
across all bitcoin markets or risk simply providing arbitrage
opportunities for authorized participants. Further to this point, this
arbitrage opportunity also acts to reduce any incentives to manipulate
the price of a Spot Bitcoin ETP because the underlying trust will
create and redeem shares at set rates of bitcoin per share without
regard to the price that the ETP is trading at in the secondary market
or the price of the underlying index. 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 Bitcoin Futures
market or spot market for a number of reasons, including the in-kind
creation and redemption process, the spot market arbitrage
opportunities that such in-kind creation and redemption process
creates, the significant volume in the Bitcoin Futures market, the size
of bitcoin's market cap, and the significant liquidity available in the
spot market. In addition to the Bitcoin Futures market data points
cited above, the spot market for bitcoin is also very liquid. According
to data from Skew, the cost to buy or sell $5 million worth of bitcoin
averages roughly 48 basis points with a market impact of $139.08.\79\
Stated another way, a market participant could enter a market buy or
sell order for $5 million of bitcoin and only move the market 0.48%.
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.
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\79\ These statistics are based on samples of bitcoin liquidity
in USD (excluding stablecoins or Euro liquidity) based on executable
quotes on Coinbase, FTX and Kraken during the one year period ending
May 2022.
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As such, the combination of the in-kind creation and redemption
process, the 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 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.
[[Page 46334]]
Surveillance Sharing Agreement
The Exchange is proposing to take additional steps to those
described above to supplement its ability to obtain information that
would be helpful in detecting, investigating, and deterring fraud and
market manipulation in the Commodity-Based Trust Shares. On June 21,
2023, the Exchange reached an agreement on terms with Coinbase, Inc.
(``Coinbase''), an operator of a United States-based spot trading
platform for Bitcoin that represents a substantial portion of US-based
and USD denominated Bitcoin trading,\80\ to enter into a surveillance-
sharing agreement (``Spot BTC SSA'') and executed an associated term
sheet. Based on this agreement on terms, the Exchange and Coinbase will
finalize and execute a definitive agreement that the parties expect to
be executed prior to allowing trading of the Commodity-Based Trust
Shares.
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\80\ According to a Kaiko Research report dated June 26, 2023,
Coinbase represented roughly 50% of exchange trading volume in USD-
BTC trading on a daily basis during May 2023.
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The Spot BTC SSA is expected to be a bilateral surveillance-sharing
agreement between the Exchange and Coinbase that is intended to
supplement the Exchange's market surveillance program. The Spot BTC SSA
is expected to have the hallmarks of a surveillance-sharing agreement
between two members of the ISG, which would give the Exchange
supplemental access to data regarding spot Bitcoin trades on Coinbase
where the Exchange determines it is necessary as part of its
surveillance program for the Commodity-Based Trust Shares.\81\ This
means that the Exchange expects to receive market data for orders and
trades from Coinbase, which it will utilize in surveillance of the
trading of Commodity-Based Trust Shares. In addition, the Exchange can
request further information from Coinbase related to spot bitcoin
trading activity on the Coinbase exchange platform, if the Exchange
determines that such information would be necessary to detect and
investigate potential manipulation in the trading of the Commodity-
Based Trust Shares.\82\
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\81\ For additional information regarding ISG and the hallmarks
of surveillance-sharing between ISG members, see https://isgportal.org/overview.
\82\ The Exchange also notes that it already has in place ISG-
like surveillance sharing agreement with Cboe Digital Exchange, LLC
and Cboe Clear Digital, LLC.
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In-Kind Creation and Redemption
Further, and consistent with prior points above, offering only in-
kind creation and redemption will also provide unique protections
against potential attempts to manipulate the price of the Shares. While
the Sponsor believes that the Benchmark 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
Benchmark 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.\83\ 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 Benchmark
because there is little financial incentive to do so.
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\83\ While the Benchmark will not be particularly important for
the creation and redemption process, it will be used for calculating
fees.
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(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 several 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 and, to the extent that the Commission
disagrees with that assertion, also believes that such concerns are now
outweighed by these investor protection concerns. 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 to custodying spot bitcoin.
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 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
[[Page 46335]]
transparency of the Benchmark, 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 current NAV per
Share daily and 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. 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 Benchmark, including key elements of how the
Benchmark is calculated, will be publicly available at https://www.marketvector.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 Benchmark. 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
In sum, the Exchange believes that this proposal is consistent with
the requirements of Section 6(b)(5) of the Act, 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 mitigated to the point that they are
outweighed by investor protection issues that would be resolved by
approving this proposal.
The Exchange believes that the proposal is, in particular, designed
to protect investors and the public interest. Premium and discount
volatility, high fees, rolling costs, 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 Spot
Bitcoin ETP. 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) providing an alternative to Bitcoin
Futures ETFs which will eliminate roll cost; (iv) reducing risks
associated with investing in operating companies that are imperfect
proxies for bitcoin exposure; and (v) providing an alternative to
custodying spot bitcoin. The investor protection issues for U.S.
investors has grown significantly over the last several years, through
roll costs for Bitcoin Futures ETFs and premium/discount volatility and
management fees for OTC Bitcoin Funds. As discussed throughout, this
growth investor protection concerns need to be reevaluated and
rebalanced with the prevention of fraudulent and manipulative acts and
practices concerns that previous disapproval orders have relied upon.
Finally, the Exchange notes that in addition to all of the arguments
herein which it believes sufficiently establishes the CME Bitcoin
Futures market as a regulated market of significant size, it is
logically inconsistent to find that the CME Bitcoin Futures market is a
significant market as it relates to the CME Bitcoin Futures market, but
not a significant market as it relates to the bitcoin spot market for
the numerous reasons laid out above.
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 neither solicited nor received 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, as modified by Amendment No. 1, 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-2023-040 on the subject line.
[[Page 46336]]
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-2023-040.
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 a.m. and 3 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-CboeBZX-2023-040 and
should be submitted on or before August 9, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\84\
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\84\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023-15271 Filed 7-18-23; 8:45 am]
BILLING CODE 8011-01-P
