Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To List and Trade Shares of the Hashdex Nasdaq Ethereum ETF Under Nasdaq Rule 5711(i) (Trust Units), 88687-88689 [2023-28196]
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Federal Register / Vol. 88, No. 245 / Friday, December 22, 2023 / Notices
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
CboeBZX–2023–070 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
ddrumheller on DSK120RN23PROD with NOTICES1
All submissions should refer to file
number SR–CboeBZX–2023–070. 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–2023–070 and should be
submitted on or before January 12, 2024.
Rebuttal comments should be submitted
by January 26, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.31
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–28193 Filed 12–21–23; 8:45 am]
BILLING CODE 8011–01–P
31 17
CFR 200.30–3(a)(57).
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99200; File No. SR–
NASDAQ–2023–035]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Order
Instituting Proceedings To Determine
Whether To Approve or Disapprove a
Proposed Rule Change To List and
Trade Shares of the Hashdex Nasdaq
Ethereum ETF Under Nasdaq Rule
5711(i) (Trust Units)
December 18, 2023.
On September 20, 2023, The Nasdaq
Stock Market LLC (‘‘Nasdaq’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
list and trade shares (‘‘Shares’’) of the
Hashdex Nasdaq Ethereum ETF
(‘‘Fund’’) under Nasdaq Rule 5711(i)
(Trust Units). The proposed rule change
was published for comment in the
Federal Register on October 3, 2023.3
On November 15, 2023, pursuant to
Section 19(b)(2) of the Act,4 the
Commission designated a longer period
within which to approve the proposed
rule change, disapprove the proposed
rule change, or institute proceedings to
determine whether to disapprove the
proposed rule change.5 This order
institutes proceedings under Section
19(b)(2)(B) of the Act 6 to determine
whether to approve or disapprove the
proposed rule change.
I. Summary of the Proposal
As described in more detail in the
Notice,7 the Exchange proposes to list
and trade the Shares of the Fund, a
series of the Tidal Commodities Trust I
(‘‘Trust’’), under Nasdaq Rule 5711(i),
which governs the listing and trading of
Trust Units on the Exchange.
The investment objective of the Fund
is to have the daily changes in the net
asset value (‘‘NAV’’) of the Shares
reflect the daily changes in the price of
the Nasdaq Ether Reference Price
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 98563
(Sept. 27, 2023), 88 FR 68214 (‘‘Notice’’). The
Commission has received no comments on the
proposal.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 98948,
88 FR 81156 (Nov. 21, 2023). The Commission
designated January 1, 2024, as the date by which
the Commission shall approve or disapprove, or
institute proceedings to determine whether to
disapprove, the proposed rule change.
6 15 U.S.C. 78s(b)(2)(B).
7 See Notice, supra note 3.
2 17
PO 00000
Frm 00129
Fmt 4703
Sfmt 4703
88687
(NQETH) (‘‘Benchmark’’), less expenses
from the Fund’s operations.8 The
Benchmark is designed to track the
price performance of ether.9 Under
normal market conditions, the Fund
will invest in ether, ether futures
contracts listed on the Chicago
Mercantile Exchange, Inc. (‘‘CME’’),10
and in cash and cash equivalents.11 The
Fund will use the CME’s Exchange for
Physical (‘‘EFP’’) transactions to acquire
and dispose of spot ether.12 The Fund
will be subject to investment restrictions
on spot ether which cap the Fund’s
exposure to the ether spot market to a
specified proportion of the Fund’s NAV
and restrict the Fund’s notional
exposure to ether to a set proportion.13
The sub-administrator of the Fund will
calculate the NAV of the Fund once
each trading day, as of the earlier of the
close of the Nasdaq or 4:00 p.m. New
York time.14 To determine the value of
Ether Futures Contracts, the Fund’s subadministrator will use the Ether Futures
Contract settlement price on the
exchange on which the contract is
traded, except that the fair value of
Ether Futures Contracts may be used
when Ether Futures Contracts close at
their price fluctuation limit for the day.
The value of spot ether held by the
Fund would be determined by the
Sponsor and by Hashdex Asset
Management Ltd. (‘‘Digital Asset
Adviser’’) in good faith based on a
methodology that is entirely derived
from the settlement prices of Ether
Futures Contracts on the CME and that
considers all available facts and all
available information on the valuation
8 See Notice, 88 FR at 68215. The Fund is
managed and controlled by Toroso Investments LLC
(‘‘Sponsor’’). See id. at 68214.
9 See id.
10 According to the Exchange, the CME currently
offers two ether futures contracts: one contract
representing 50 ether (‘‘ETH Contracts’’) and
another contract representing 0.10 ether (‘‘MET
Contracts,’’ and collectively, ‘‘Ether Futures
Contracts’’). See id. at 68214.
11 See id. at 68214. The Fund will hold a mix of
Ether Futures Contracts, spot ether, and cash and
cash equivalents, subject to certain investment
restrictions. See id. at 68219.
12 See id. at 68219. According to the Exchange,
EFP transactions are a type of private agreement
between two parties to trade a futures position for
the underlying asset. In an EFP transaction, two
parties exchange equivalent but offsetting positions
in an Ether Futures Contract and the underlying
physical ether. In the context of the Fund, these
transactions will be used to purchase and sell spot
ether by delivering or receiving the equivalent
futures position. See id. at 68229.
13 See id. at 68227–28.
14 See id. at 68231. The Fund’s NAV will include
any unrealized profit or loss on open ether futures
contacts and any other credit or debit accruing to
the Fund but unpaid or not received by the Fund.
See id.
E:\FR\FM\22DEN1.SGM
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88688
Federal Register / Vol. 88, No. 245 / Friday, December 22, 2023 / Notices
date.15 When the Fund sells or redeems
its Shares, it will do so in cash
transactions with authorized
participants in blocks of 10,000
Shares.16
ddrumheller on DSK120RN23PROD with NOTICES1
II. Proceedings To Determine Whether
To Approve or Disapprove SR–
NASDAQ–2023–035 and Grounds for
Disapproval Under Consideration
The Commission is instituting
proceedings pursuant to Section
19(b)(2)(B) of the Act 17 to determine
whether the proposed rule change
should be approved or disapproved.
Institution of proceedings is appropriate
at this time in view of the legal and
policy issues raised by the proposed
rule change, as discussed below.
Institution of proceedings does not
indicate that the Commission has
reached any conclusions with respect to
any of the issues involved. Rather, as
described below, the Commission seeks
and encourages interested persons to
provide comments on the proposed rule
change.
Pursuant to Section 19(b)(2)(B) of the
Act,18 the Commission is providing
notice of the grounds for disapproval
under consideration. The Commission is
instituting proceedings to allow for
additional analysis of the proposed rule
change’s consistency with Section
6(b)(5) of the Act, which requires,
among other things, that the rules of a
national securities exchange be
‘‘designed to prevent fraudulent and
manipulative acts and practices’’ and
‘‘to protect investors and the public
interest.’’ 19
The Commission asks that
commenters address the sufficiency of
the Exchange’s statements in support of
the proposal, which are set forth in the
Notice, in addition to any other
comments they may wish to submit
about the proposed rule change. In
15 See id. at 68222, 68231–32. According to the
Exchange, this ‘‘futures-based spot price’’
methodology involves a calculation that is sensitive
to both the length of time (‘‘tenor’’) until each Ether
Futures Contract is due for settlement and the final
settlement price for each contract. The calculation
takes into account each contract’s tenor and the
tenor squared. This approach is designed to give
more importance to contracts that are due for
settlement in the near term. The calculation
produces a set of weighting factors, with each factor
indicating the contribution of the corresponding
Ether Futures Contract to the estimated current spot
price of ether. The estimated spot price is the
component of the result corresponding to a tenor of
zero days. The Sponsor and Digital Asset Advisor
do not use data from ether trading platforms or
directly from spot ether trading activity in
determining the value of spot ether held by the
Fund. See id. at 68222–23.
16 See id. at 68232–33.
17 15 U.S.C. 78s(b)(2)(B).
18 Id.
19 15 U.S.C. 78f(b)(5).
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particular, the Commission seeks
comment on the following questions
and asks commenters to submit data
where appropriate to support their
views:
1. Given the nature of the underlying
assets held by the Fund, has the
Exchange properly filed its proposal to
list and trade the Shares under Nasdaq
Rule 5711(i) (Trust Units)? 20
2. The Exchange raises similar
arguments to support the listing and
trading of the Shares as those made in
proposals to list and trade spot bitcoin
exchange-traded products (‘‘Bitcoin
ETPs’’). Do commenters agree that
arguments to support the listing of
Bitcoin ETPs apply equally to the
Shares? Are there particular features
related to ether and its ecosystem,
including its proof of stake consensus
mechanism and concentration of control
or influence by a few individuals or
entities, that raise unique concerns
about ether’s susceptibility to fraud and
manipulation?
3. What are commenters’ views on
whether the proposed Fund and Shares
would be susceptible to manipulation?
What are commenters’ views generally
on whether the Exchange’s proposal is
designed to prevent fraudulent and
manipulative acts and practices? What
are commenters’ views generally with
respect to the liquidity and transparency
of the ether markets and the ether
markets’ susceptibility to manipulation?
4. Based on data and analysis
provided by the Exchange,21 what are
commenters views on whether the CME,
on which CME ether futures trade and
through which the Fund intends to
engage in EFP transactions to purchase
or sell spot ether, represents a regulated
market of significant size related to spot
ether? 22 What are commenters’ views
on whether there is a reasonable
likelihood that a person attempting to
manipulate the Shares would also have
to trade on the CME to manipulate the
Shares? 23 Do commenters agree with
the Exchange that trading in the Shares
would not be the predominant influence
on prices in the CME ether futures
market? 24
5. The Exchange states that the Fund
intends to adopt ‘‘an innovative
20 Nasdaq Rule 5711(i)(3)(B) defines the term
‘‘Trust Units’’ as a security that is issued by a trust
or other similar entity that is constituted as a
commodity pool that holds investments comprising
or otherwise based on any combination of futures
contracts, options on futures contracts, forward
contracts, swap contracts, commodities and/or
securities.
21 See Notice, 88 FR at 68218, 68220–21, 68226–
27.
22 See id. at 68219.
23 See id. at 68219–20.
24 See id. at 68220–21.
PO 00000
Frm 00130
Fmt 4703
Sfmt 4703
approach to mitigate the risks of fraud
and manipulation that are unique to the
Fund’’ by ‘‘structur[ing] the operation of
the Fund such that the regulated market
of significant size in relation to the
Fund is the [CME] because it is the same
market on which the Fund trades its
non-cash assets.’’ 25 The Exchange
further states that the Fund has features
that underscore its significant
interrelationship with the CME,
including that the Fund (i) utilizes
futures-based pricing for spot ether such
that the NAV calculation for the spot
ether holdings of the Fund will be
derived from the CME ether futures
curve; (ii) is subject to investment
restrictions on spot ether; (iii) will use
CME EFP transactions to acquire and
dispose of spot ether ‘‘instead of
transactions on unregulated spot
exchanges’’; and (iv) will utilize only
cash creations and redemptions.26
Based on the structure and operation of
the Fund and the Fund’s investments as
described in the filing, what are
commenters’ views on whether the CME
represents a regulated market of
significant size related to spot ether? 27
6. The Fund will only use CME EFP
transactions to acquire and dispose of
spot ether.28 The Exchange states that
‘‘trading activity in EFP transactions is
sporadic’’ but that, ‘‘[n]onetheless, the
Sponsor believes that a large number of
liquidity providers are ready to execute
this type of transaction and can provide
enough liquidity to support the [Fund’s]
demand.’’ 29 Do commenters agree? Why
or why not?
7. The value of spot ether held by the
Fund would be determined using a
futures-based spot price methodology
that is derived from the settlement
prices of ether futures contracts on the
CME.30 The Exchange presents data 31
that it states ‘‘strongly suggests that
[futures-based spot pricing] is a suitable
choice for the NAV calculation.’’ 32 The
Exchange states that futures-based spot
pricing ‘‘could create some level of
uncertainty due to the potential
divergences between the [futures-based
spot price] and the spot prices observed
in unregulated markets’’ but that
authorized participants ‘‘will always be
in a position to hedge their exposure
using exclusively the [CME ether futures
market], which will make them more
likely to provide liquidity to the Fund
25 See
id. at 68219.
id.
27 See id.
28 See, e.g., id. at 68229–30.
29 See id. at 68230.
30 See id. at 68231.
31 See id. at 68222–25.
32 See id. at 68225.
26 See
E:\FR\FM\22DEN1.SGM
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Federal Register / Vol. 88, No. 245 / Friday, December 22, 2023 / Notices
thus making its market price converge to
its NAV.’’ 33 Do commenters agree with
the Exchange? Why or why not?
8. Some sponsors of proposed ether
exchange-traded products have made
statements regarding the correlation
between ether spot markets and the
CME ether futures market.34 What are
commenters’ views on the correlation
between the ether spot market and the
CME ether futures market? What are
commenters’ views on the extent to
which a surveillance-sharing agreement
with the CME would assist in detecting
and deterring fraud and manipulation
that impacts an exchange-traded
product (‘‘ETP’’) that also holds spot
ether, and on whether correlation
analysis provides any evidence to this
effect? What are commenters’ views on
the Sponsor’s own statistical analysis of
the relationship between prices in
certain unregulated ether markets and
prices of CME ether futures contracts? 35
What are commenters’ views generally
on whether an ETP that holds only CME
ether futures and an ETP that also holds
spot ether are similar products?
III. Procedure: Request for Written
Comments
The Commission requests that
interested persons provide written
submissions of their views, data, and
arguments with respect to the issues
identified above, as well as any other
concerns they may have with the
proposal. In particular, the Commission
invites the written views of interested
persons concerning whether the
proposal is consistent with Section
6(b)(5) or any other provision of the Act,
and the rules and regulations
thereunder. Although there do not
appear to be any issues relevant to
approval or disapproval that would be
facilitated by an oral presentation of
views, data, and arguments, the
Commission will consider, pursuant to
Rule 19b–4, any request for an
opportunity to make an oral
presentation.36
33 See
id.
e.g., Notice of Filing of a Proposed Rule
Change to List and Trade Shares of the VanEck
Ethereum ETF under BZX Rule 14.11(e)(4),
Commodity-Based Trust Shares, Securities
Exchange Act Release No. 98457 (Sept. 20, 2023),
88 FR 66076 (Sept. 26, 2023), 66081 (stating that
‘‘The Sponsor’s research indicates daily correlation
between the spot ETH and the CME ETH Futures
is 0.998 from the period of 9/1/22 through 9/1/
23.’’).
35 See Notice, 88 FR at 68226–27.
36 Section 19(b)(2) of the Act, as amended by the
Securities Acts Amendments of 1975, Public Law
94–29 (June 4, 1975), grants the Commission
flexibility to determine what type of proceeding—
either oral or notice and opportunity for written
comments—is appropriate for consideration of a
particular proposal by a self-regulatory
ddrumheller on DSK120RN23PROD with NOTICES1
34 See,
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18:10 Dec 21, 2023
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Interested persons are invited to
submit written data, views, and
arguments regarding whether the
proposed rule change should be
approved or disapproved by January 12,
2024. Any person who wishes to file a
rebuttal to any other person’s
submission must file that rebuttal by
January 26, 2024.
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–
NASDAQ–2023–035 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to file
number SR–NASDAQ–2023–035. 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–NASDAQ–2023–035 and should be
organization. See Securities Acts Amendments of
1975, Senate Comm. on Banking, Housing & Urban
Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30
(1975).
PO 00000
Frm 00131
Fmt 4703
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88689
submitted on or before January 12, 2024.
Rebuttal comments should be submitted
by January 26, 2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.37
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–28196 Filed 12–21–23; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–99203; File No. SR–
PEARL–2023–71]
Self-Regulatory Organizations; MIAX
PEARL, LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Exchange
Rule 2615(d) To Eliminate the
Contingent Open
December 18, 2023.
Pursuant to the provisions of 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 December 14, 2023, MIAX PEARL,
LLC (‘‘MIAX Pearl’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) a
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Exchange Rule 2615(d) regarding the
Contingent Open performed on the
Exchange’s equity trading platform
(referred to herein as ‘‘MIAX Pearl
Equities’’).
The text of the proposed rule change
is available on the Exchange’s website at
https://www.miaxglobal.com/markets/
us-equities/pearl-equities/rule-filings, at
MIAX Pearl’s principal office, 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
37 17
CFR 200.30–3(a)(57).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
E:\FR\FM\22DEN1.SGM
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]]>Agencies
[Federal Register Volume 88, Number 245 (Friday, December 22, 2023)]
[Notices]
[Pages 88687-88689]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-28196]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99200; File No. SR-NASDAQ-2023-035]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
Proposed Rule Change To List and Trade Shares of the Hashdex Nasdaq
Ethereum ETF Under Nasdaq Rule 5711(i) (Trust Units)
December 18, 2023.
On September 20, 2023, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to list and trade shares (``Shares'') of the
Hashdex Nasdaq Ethereum ETF (``Fund'') under Nasdaq Rule 5711(i) (Trust
Units). The proposed rule change was published for comment in the
Federal Register on October 3, 2023.\3\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 98563 (Sept. 27,
2023), 88 FR 68214 (``Notice''). The Commission has received no
comments on the proposal.
---------------------------------------------------------------------------
On November 15, 2023, pursuant to Section 19(b)(2) of the Act,\4\
the Commission designated a longer period within which to approve the
proposed rule change, disapprove the proposed rule change, or institute
proceedings to determine whether to disapprove the proposed rule
change.\5\ This order institutes proceedings under Section 19(b)(2)(B)
of the Act \6\ to determine whether to approve or disapprove the
proposed rule change.
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 98948, 88 FR 81156
(Nov. 21, 2023). The Commission designated January 1, 2024, as the
date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to disapprove, the
proposed rule change.
\6\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
I. Summary of the Proposal
As described in more detail in the Notice,\7\ the Exchange proposes
to list and trade the Shares of the Fund, a series of the Tidal
Commodities Trust I (``Trust''), under Nasdaq Rule 5711(i), which
governs the listing and trading of Trust Units on the Exchange.
---------------------------------------------------------------------------
\7\ See Notice, supra note 3.
---------------------------------------------------------------------------
The investment objective of the Fund is to have the daily changes
in the net asset value (``NAV'') of the Shares reflect the daily
changes in the price of the Nasdaq Ether Reference Price (NQETH)
(``Benchmark''), less expenses from the Fund's operations.\8\ The
Benchmark is designed to track the price performance of ether.\9\ Under
normal market conditions, the Fund will invest in ether, ether futures
contracts listed on the Chicago Mercantile Exchange, Inc.
(``CME''),\10\ and in cash and cash equivalents.\11\ The Fund will use
the CME's Exchange for Physical (``EFP'') transactions to acquire and
dispose of spot ether.\12\ The Fund will be subject to investment
restrictions on spot ether which cap the Fund's exposure to the ether
spot market to a specified proportion of the Fund's NAV and restrict
the Fund's notional exposure to ether to a set proportion.\13\ The sub-
administrator of the Fund will calculate the NAV of the Fund once each
trading day, as of the earlier of the close of the Nasdaq or 4:00 p.m.
New York time.\14\ To determine the value of Ether Futures Contracts,
the Fund's sub-administrator will use the Ether Futures Contract
settlement price on the exchange on which the contract is traded,
except that the fair value of Ether Futures Contracts may be used when
Ether Futures Contracts close at their price fluctuation limit for the
day. The value of spot ether held by the Fund would be determined by
the Sponsor and by Hashdex Asset Management Ltd. (``Digital Asset
Adviser'') in good faith based on a methodology that is entirely
derived from the settlement prices of Ether Futures Contracts on the
CME and that considers all available facts and all available
information on the valuation
[[Page 88688]]
date.\15\ When the Fund sells or redeems its Shares, it will do so in
cash transactions with authorized participants in blocks of 10,000
Shares.\16\
---------------------------------------------------------------------------
\8\ See Notice, 88 FR at 68215. The Fund is managed and
controlled by Toroso Investments LLC (``Sponsor''). See id. at
68214.
\9\ See id.
\10\ According to the Exchange, the CME currently offers two
ether futures contracts: one contract representing 50 ether (``ETH
Contracts'') and another contract representing 0.10 ether (``MET
Contracts,'' and collectively, ``Ether Futures Contracts''). See id.
at 68214.
\11\ See id. at 68214. The Fund will hold a mix of Ether Futures
Contracts, spot ether, and cash and cash equivalents, subject to
certain investment restrictions. See id. at 68219.
\12\ See id. at 68219. According to the Exchange, EFP
transactions are a type of private agreement between two parties to
trade a futures position for the underlying asset. In an EFP
transaction, two parties exchange equivalent but offsetting
positions in an Ether Futures Contract and the underlying physical
ether. In the context of the Fund, these transactions will be used
to purchase and sell spot ether by delivering or receiving the
equivalent futures position. See id. at 68229.
\13\ See id. at 68227-28.
\14\ See id. at 68231. The Fund's NAV will include any
unrealized profit or loss on open ether futures contacts and any
other credit or debit accruing to the Fund but unpaid or not
received by the Fund. See id.
\15\ See id. at 68222, 68231-32. According to the Exchange, this
``futures-based spot price'' methodology involves a calculation that
is sensitive to both the length of time (``tenor'') until each Ether
Futures Contract is due for settlement and the final settlement
price for each contract. The calculation takes into account each
contract's tenor and the tenor squared. This approach is designed to
give more importance to contracts that are due for settlement in the
near term. The calculation produces a set of weighting factors, with
each factor indicating the contribution of the corresponding Ether
Futures Contract to the estimated current spot price of ether. The
estimated spot price is the component of the result corresponding to
a tenor of zero days. The Sponsor and Digital Asset Advisor do not
use data from ether trading platforms or directly from spot ether
trading activity in determining the value of spot ether held by the
Fund. See id. at 68222-23.
\16\ See id. at 68232-33.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-
NASDAQ-2023-035 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \17\ to determine whether the proposed rule
change should be approved or disapproved. Institution of proceedings is
appropriate at this time in view of the legal and policy issues raised
by the proposed rule change, as discussed below. Institution of
proceedings does not indicate that the Commission has reached any
conclusions with respect to any of the issues involved. Rather, as
described below, the Commission seeks and encourages interested persons
to provide comments on the proposed rule change.
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\17\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\18\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of the proposed rule change's consistency with Section 6(b)(5)
of the Act, which requires, among other things, that the rules of a
national securities exchange be ``designed to prevent fraudulent and
manipulative acts and practices'' and ``to protect investors and the
public interest.'' \19\
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\18\ Id.
\19\ 15 U.S.C. 78f(b)(5).
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The Commission asks that commenters address the sufficiency of the
Exchange's statements in support of the proposal, which are set forth
in the Notice, in addition to any other comments they may wish to
submit about the proposed rule change. In particular, the Commission
seeks comment on the following questions and asks commenters to submit
data where appropriate to support their views:
1. Given the nature of the underlying assets held by the Fund, has
the Exchange properly filed its proposal to list and trade the Shares
under Nasdaq Rule 5711(i) (Trust Units)? \20\
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\20\ Nasdaq Rule 5711(i)(3)(B) defines the term ``Trust Units''
as a security that is issued by a trust or other similar entity that
is constituted as a commodity pool that holds investments comprising
or otherwise based on any combination of futures contracts, options
on futures contracts, forward contracts, swap contracts, commodities
and/or securities.
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2. The Exchange raises similar arguments to support the listing and
trading of the Shares as those made in proposals to list and trade spot
bitcoin exchange-traded products (``Bitcoin ETPs''). Do commenters
agree that arguments to support the listing of Bitcoin ETPs apply
equally to the Shares? Are there particular features related to ether
and its ecosystem, including its proof of stake consensus mechanism and
concentration of control or influence by a few individuals or entities,
that raise unique concerns about ether's susceptibility to fraud and
manipulation?
3. What are commenters' views on whether the proposed Fund and
Shares would be susceptible to manipulation? What are commenters' views
generally on whether the Exchange's proposal is designed to prevent
fraudulent and manipulative acts and practices? What are commenters'
views generally with respect to the liquidity and transparency of the
ether markets and the ether markets' susceptibility to manipulation?
4. Based on data and analysis provided by the Exchange,\21\ what
are commenters views on whether the CME, on which CME ether futures
trade and through which the Fund intends to engage in EFP transactions
to purchase or sell spot ether, represents a regulated market of
significant size related to spot ether? \22\ What are commenters' views
on whether there is a reasonable likelihood that a person attempting to
manipulate the Shares would also have to trade on the CME to manipulate
the Shares? \23\ Do commenters agree with the Exchange that trading in
the Shares would not be the predominant influence on prices in the CME
ether futures market? \24\
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\21\ See Notice, 88 FR at 68218, 68220-21, 68226-27.
\22\ See id. at 68219.
\23\ See id. at 68219-20.
\24\ See id. at 68220-21.
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5. The Exchange states that the Fund intends to adopt ``an
innovative approach to mitigate the risks of fraud and manipulation
that are unique to the Fund'' by ``structur[ing] the operation of the
Fund such that the regulated market of significant size in relation to
the Fund is the [CME] because it is the same market on which the Fund
trades its non-cash assets.'' \25\ The Exchange further states that the
Fund has features that underscore its significant interrelationship
with the CME, including that the Fund (i) utilizes futures-based
pricing for spot ether such that the NAV calculation for the spot ether
holdings of the Fund will be derived from the CME ether futures curve;
(ii) is subject to investment restrictions on spot ether; (iii) will
use CME EFP transactions to acquire and dispose of spot ether ``instead
of transactions on unregulated spot exchanges''; and (iv) will utilize
only cash creations and redemptions.\26\ Based on the structure and
operation of the Fund and the Fund's investments as described in the
filing, what are commenters' views on whether the CME represents a
regulated market of significant size related to spot ether? \27\
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\25\ See id. at 68219.
\26\ See id.
\27\ See id.
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6. The Fund will only use CME EFP transactions to acquire and
dispose of spot ether.\28\ The Exchange states that ``trading activity
in EFP transactions is sporadic'' but that, ``[n]onetheless, the
Sponsor believes that a large number of liquidity providers are ready
to execute this type of transaction and can provide enough liquidity to
support the [Fund's] demand.'' \29\ Do commenters agree? Why or why
not?
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\28\ See, e.g., id. at 68229-30.
\29\ See id. at 68230.
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7. The value of spot ether held by the Fund would be determined
using a futures-based spot price methodology that is derived from the
settlement prices of ether futures contracts on the CME.\30\ The
Exchange presents data \31\ that it states ``strongly suggests that
[futures-based spot pricing] is a suitable choice for the NAV
calculation.'' \32\ The Exchange states that futures-based spot pricing
``could create some level of uncertainty due to the potential
divergences between the [futures-based spot price] and the spot prices
observed in unregulated markets'' but that authorized participants
``will always be in a position to hedge their exposure using
exclusively the [CME ether futures market], which will make them more
likely to provide liquidity to the Fund
[[Page 88689]]
thus making its market price converge to its NAV.'' \33\ Do commenters
agree with the Exchange? Why or why not?
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\30\ See id. at 68231.
\31\ See id. at 68222-25.
\32\ See id. at 68225.
\33\ See id.
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8. Some sponsors of proposed ether exchange-traded products have
made statements regarding the correlation between ether spot markets
and the CME ether futures market.\34\ What are commenters' views on the
correlation between the ether spot market and the CME ether futures
market? What are commenters' views on the extent to which a
surveillance-sharing agreement with the CME would assist in detecting
and deterring fraud and manipulation that impacts an exchange-traded
product (``ETP'') that also holds spot ether, and on whether
correlation analysis provides any evidence to this effect? What are
commenters' views on the Sponsor's own statistical analysis of the
relationship between prices in certain unregulated ether markets and
prices of CME ether futures contracts? \35\ What are commenters' views
generally on whether an ETP that holds only CME ether futures and an
ETP that also holds spot ether are similar products?
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\34\ See, e.g., Notice of Filing of a Proposed Rule Change to
List and Trade Shares of the VanEck Ethereum ETF under BZX Rule
14.11(e)(4), Commodity-Based Trust Shares, Securities Exchange Act
Release No. 98457 (Sept. 20, 2023), 88 FR 66076 (Sept. 26, 2023),
66081 (stating that ``The Sponsor's research indicates daily
correlation between the spot ETH and the CME ETH Futures is 0.998
from the period of 9/1/22 through 9/1/23.'').
\35\ See Notice, 88 FR at 68226-27.
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III. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposal is
consistent with Section 6(b)(5) or any other provision of the Act, and
the rules and regulations thereunder. Although there do not appear to
be any issues relevant to approval or disapproval that would be
facilitated by an oral presentation of views, data, and arguments, the
Commission will consider, pursuant to Rule 19b-4, any request for an
opportunity to make an oral presentation.\36\
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\36\ Section 19(b)(2) of the Act, as amended by the Securities
Acts Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Acts Amendments of 1975, Senate Comm.
on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change should be approved
or disapproved by January 12, 2024. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
January 26, 2024.
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-NASDAQ-2023-035 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-NASDAQ-2023-035. 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-NASDAQ-2023-035 and should
be submitted on or before January 12, 2024. Rebuttal comments should be
submitted by January 26, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\37\
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\37\ 17 CFR 200.30-3(a)(57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-28196 Filed 12-21-23; 8:45 am]
BILLING CODE 8011-01-P
