Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Amendment No. 1 to a Proposed Rule Change To List and Trade Shares of the iShares Bitcoin Trust Under Nasdaq Rule 5711(d), 2321-2338 [2024-00508]

Download as PDF Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices Quotation and last-sale information regarding the Shares will be disseminated through the facilities of the CTA. The Trust’s website will also include a form of the prospectus for the Trust that may be downloaded. The website will include the Shares’ ticker and CUSIP information, along with additional quantitative information updated on a daily basis for the Trust. The Trust’s website will include (1) daily trading volume, the prior Business Day’s reported NAV and closing price, and a calculation of the premium and discount of the closing price or midpoint of the Bid/Ask Price against the NAV; and (ii) data in chart format displaying the frequency distribution of discounts and premiums of the daily closing price or Bid/Ask Price against the NAV, within appropriate ranges, for at least each of the four previous calendar quarters. The Trust’s website will be publicly available prior to the public offering of Shares and accessible at no charge. Trading in Shares of the Trust will be halted if the circuit breaker parameters in NYSE Arca Rule 7.12–E have been reached or because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable. The proposed rule change is designed to perfect the mechanism of a free and open market and, in general, to protect investors and the public interest in that it will facilitate the listing and trading of a new type of exchange-traded product based on the price of bitcoin that will enhance competition among market participants, to the benefit of investors and the marketplace. As noted above, the Exchange has in place surveillance procedures that are adequate to properly monitor trading in the Shares in all trading sessions and to deter and detect violations of Exchange rules and applicable federal securities laws. khammond on DSKJM1Z7X2PROD with NOTICES 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 will facilitate the listing and trading of a new type of Commodity-Based Trust Share based on the price of bitcoin that will enhance competition among market participants, to the benefit of investors and the marketplace. VerDate Sep<11>2014 00:38 Jan 12, 2024 Jkt 262001 C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Solicitation of Comments Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include file number SR– NYSEARCA–2023–44 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to file number SR–NYSEARCA–2023–44. 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 Frm 00124 Fmt 4703 Sfmt 4703 submissions should refer to file number SR–NYSEARCA–2023–44 and should be submitted on or before February 2, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.106 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024–00510 Filed 1–11–24; 8:45 am] Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: PO 00000 2321 BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–99295; File No. SR– NASDAQ–2023–016] Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Amendment No. 1 to a Proposed Rule Change To List and Trade Shares of the iShares Bitcoin Trust Under Nasdaq Rule 5711(d) January 8, 2024. On June 29, 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 of the iShares Bitcoin Trust under Nasdaq Rule 5711(d), Commodity-Based Trust Shares. The proposed rule change was published for comment in the Federal Register on July 19, 2023.3 On August 31, 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 On September 28, 2023, the Commission instituted proceedings to determine whether to disapprove the proposed rule change.6 On January 5, 2024, the Exchange filed Amendment No. 1 to the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. Amendment No. 1 amended and replaced the proposed rule change in its entirety. The Commission is 106 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 97905 (July 13, 2023), 88 FR 46342. Comments on the proposed rule change are available at: https:// www.sec.gov/comments/sr-nasdaq-2023-016/ srnasdaq2023016.htm. 4 15 U.S.C. 78s(b)(2). 5 See Securities Exchange Act Release No. 98267, 88 FR 61652 (Sept. 7, 2023). 6 See Securities Exchange Act Release No. 98610, 88 FR 68768 (Oct. 4, 2023). 1 15 E:\FR\FM\12JAN1.SGM 12JAN1 2322 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 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 The Exchange proposes to list and trade shares of the iShares Bitcoin Trust (the ‘‘Trust’’) under Nasdaq Rule 5711(d) (‘‘Commodity-Based Trust Shares’’). The shares of the Trust are referred to herein as the ‘‘Shares.’’ This Amendment No. 1 supersedes the original filing in its entirety. The text of the proposed rule change is available on the Exchange’s website at https://listingcenter.nasdaq.com/ rulebook/nasdaq/rules, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the 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 khammond on DSKJM1Z7X2PROD with NOTICES 1. Purpose The Exchange proposes to list and trade the Shares under Nasdaq Rule 5711(d),7 which governs the listing and trading of Commodity-Based Trust Shares on the Exchange. iShares Delaware Trust Sponsor LLC, a Delaware limited liability company and an indirect subsidiary of BlackRock, Inc. (‘‘BlackRock’’), is the sponsor of the Trust (the ‘‘Sponsor’’). The Shares will be registered with the SEC by means of the Trust’s registration statement on Form S–1 (the ‘‘Registration Statement’’).8 7 The Commission approved Nasdaq Rule 5711 in Securities Exchange Act Release No. 66648 (March 23, 2012), 77 FR 19428 (March 30, 2012) (SR– NASDAQ–2012–013). 8 See Amendment No. 4 to Registration Statement on Form S–1, dated December 22, 2023 filed with the Commission by the Sponsor on behalf of the Trust. The descriptions of the Trust contained herein are based, in part, on information in the Registration Statement. The Registration Statement VerDate Sep<11>2014 00:38 Jan 12, 2024 Jkt 262001 Description of the Trust The Shares will be issued by the Trust, a Delaware statutory trust. The Trust will operate pursuant to a trust agreement (the ‘‘Trust Agreement’’) between the Sponsor, BlackRock Fund Advisors (the ‘‘Trustee’’) as the trustee of the Trust and Wilmington Trust, National Association, as Delaware trustee (the ‘‘Delaware Trustee’’). The Trust issues Shares representing fractional undivided beneficial interests in its net assets. The assets of the Trust will consist only of bitcoin, held by a custodian on behalf of the Trust except under limited circumstances when transferred through the Trust’s prime broker temporarily (described below), and cash. Coinbase Custody Trust Company, LLC (the ‘‘Bitcoin Custodian’’) is the custodian for the Trust’s bitcoin holdings, and maintains a custody account for the Trust (‘‘Custody Account); Coinbase, Inc. (the ‘‘Prime Execution Agent’’), an affiliate of the Bitcoin Custodian, is the prime broker for the Trust and maintains a trading account for the Trust (‘‘Trading Account); and Bank of New York Mellon is the custodian for the Trust’s cash holdings (the ‘‘Cash Custodian’’ and together with the Bitcoin Custodian, the ‘‘Custodians’’) and the administrator of the Trust (the ‘‘Trust Administrator’’). Under the Trust Agreement, the Trustee may delegate all or a portion of its duties to any agent, and has delegated the bulk of the day-to-day responsibilities to the Trust Administrator and certain other administrative and record-keeping functions to its affiliates and other agents. The Trust is not an investment company registered under the Investment Company Act of 1940, as amended (the ‘‘1940 Act’’). The investment objective of the Trust is to reflect generally the performance of the price of bitcoin. The Trust seeks to reflect such performance before payment of the Trust’s expenses and liabilities. The Shares are intended to constitute a simple means of making an investment similar to an investment in bitcoin through the public securities market rather than by acquiring, holding and trading bitcoin directly on a peerto-peer or other basis or via a digital asset platform. The Shares have been designed to remove the obstacles represented by the complexities and operational burdens involved in a direct investment in bitcoin, while at the same time having an intrinsic value that reflects, at any given time, the in not yet effective and the Shares will not trade on the Exchange until such time that the Registration Statement is effective. PO 00000 Frm 00125 Fmt 4703 Sfmt 4703 investment exposure to the bitcoin owned by the Trust at such time, less the Trust’s expenses and liabilities. Although the Shares are not the exact equivalent of a direct investment in bitcoin, they provide investors with an alternative method of achieving investment exposure to bitcoin through the public securities market, which may be more familiar to them. Custody of the Trust’s Bitcoin and Creation and Redemption An investment in the Shares is backed by bitcoin held by the Bitcoin Custodian on behalf of the Trust. All of the Trust’s bitcoin will be held in the Custody Account, other than the Trust’s bitcoin which is temporarily maintained in the Trading Account under limited circumstances, i.e., in connection with creation and redemption Basket 9 activity or sales of bitcoin deducted from the Trust’s holdings in payment of Trust expenses or the Sponsor’s fee (or, in extraordinary circumstances, upon liquidation of the Trust). The Custody Account includes all of the Trust’s bitcoin held at the Bitcoin Custodian, but does not include the Trust’s bitcoin temporarily maintained at the Prime Execution Agent in the Trading Account from time to time. The Bitcoin Custodian will keep all of the private keys associated with the Trust’s bitcoin held in the Custody Account in ‘‘cold storage’’.10 The hardware, software, systems, and procedures of the Bitcoin Custodian may not be available or costeffective for many investors to access directly. The Trust’s bitcoin holdings and cash holdings from time to time may temporarily be maintained in the Trading Account held with the Prime Execution Agent, an affiliate of the Bitcoin Custodian. Coinbase Inc. serves as the Trust’s Prime Execution Agent pursuant to the Trust’s agreement with the Prime Execution Agent (‘‘Prime Execution Agent Agreement’’). In this capacity, the Prime Execution Agent facilitates the buying and selling of bitcoin by the Trust in response to cash creations and redemptions between the Trust and registered broker-dealers that are Depositary Trust Company (‘‘DTC’’) participants that enter into an 9 The Trust issues and redeems Shares only in blocks of 40,000 or integral multiples thereof. A block of 40,000 Shares is called a ‘‘Basket.’’ These transactions take place in exchange for bitcoin. 10 The term ‘‘cold storage’’ refers to a safeguarding method by which the private keys corresponding to the Trust’s bitcoins are generated and stored in an offline manner, subject to layers of procedures designed to enhance security. Private keys are generated by the Bitcoin Custodian in offline computers that are not connected to the internet so that they are more resistant to being hacked. E:\FR\FM\12JAN1.SGM 12JAN1 khammond on DSKJM1Z7X2PROD with NOTICES Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices authorized participant agreement with the Sponsor and the Trustee (‘‘Authorized Participants’’), and the sale of bitcoin to pay the Sponsor’s fee, any other Trust expenses not assumed by the Sponsor, to the extent applicable, and in extraordinary circumstances, in connection with the liquidation of the Trust’s bitcoin. The Authorized Participants will deliver only cash to create shares and will receive only cash when redeeming shares. Further, Authorized Participants will not directly or indirectly purchase, hold, deliver, or receive bitcoin as part of the creation or redemption process or otherwise direct the Trust or a third party with respect to purchasing, holding, delivering, or receiving bitcoin as part of the creation or redemption process. The Trust will create shares by receiving bitcoin from a third party that is not the Authorized Participant and the Trust—not the Authorized Participant—is responsible for selecting the third party to deliver the bitcoin. Further, the third party will not be acting as an agent of the Authorized Participant with respect to the delivery of the bitcoin to the Trust or acting at the direction of the Authorized Participant with respect to the delivery of the bitcoin to the Trust. The Trust will redeem shares by delivering bitcoin to a third party that is not the Authorized Participant and the Trust— not the Authorized Participant—is responsible for selecting the third party to receive the bitcoin. Further, the third party will not be acting as an agent of the Authorized Participant with respect to the receipt of the bitcoin from the Trust or acting at the direction of the Authorized Participant with respect to the receipt of the bitcoin from the Trust. The third party will be unaffiliated with the Trust and the Sponsor. In connection with cash creations and cash redemptions, the Authorized Participants will submit orders to create or redeem Baskets of Shares exclusively in exchange for cash. The Trust will engage in bitcoin transactions to convert cash into bitcoin (in association with creation orders) and bitcoin into cash (in association with redemption orders). The Trust will conduct its bitcoin purchase and sale transactions by, in its sole discretion, choosing to trade directly with designated third parties (each, a ‘‘Bitcoin Trading Counterparty’’), who are not registered broker-dealers pursuant to written agreements between each such Bitcoin Trading Counterparty and the Trust, or choosing to trade through the Prime Execution Agent acting in an agency capacity with third parties through its VerDate Sep<11>2014 00:38 Jan 12, 2024 Jkt 262001 Coinbase Prime service 11 pursuant to the Prime Execution Agent Agreement. Bitcoin Trading Counterparties settle trades with the Trust using their own accounts at the Prime Execution Agent when trading with the Trust. For a creation of a Basket of Shares, the Authorized Participant will be required to submit the creation order by an early order cutoff (‘‘Creation Early Cutoff Time’’). The Creation Early Cutoff Time will initially be 6:00 p.m. ET on the business day prior to trade date. On the date of the Creation Early Cutoff Time for a creation order, the Trust will choose, in its sole discretion, to enter into a transaction with a Bitcoin Trading Counterparty or the Prime Execution Agent to buy bitcoin in exchange for the cash proceeds from such creation order. On settlement date for a creation, the Trust delivers Shares to the Authorized Participant in exchange for cash received from the Authorized Participant. Also, on or around the settlement date, the Bitcoin Trading Counterparty or Prime Execution Agent, as applicable, deposits the required bitcoin pursuant to its trade with the Trust into the Trust’s Trading Account in exchange for cash. In the event the Trust has not been able to successfully execute and complete settlement of a bitcoin transaction by the settlement date of the creation order, the Authorized Participant will be given the option to (1) cancel the creation order, or (2) accept that the Trust will continue to attempt to complete the execution, which will delay the settlement date of the creation order. With respect to a creation order, as between the Trust and the Authorized Participant, the Authorized Participant is responsible for the dollar cost of the difference between the bitcoin price utilized in calculating NAV per Share on trade date and the price at which the Trust acquires the bitcoin to the extent the price realized in buying the bitcoin is higher than the bitcoin price utilized in the NAV. To the extent the price realized in buying the bitcoin is lower than the price utilized in the NAV, the Authorized Participant shall get to keep the dollar impact of any such difference. Because the Trust’s Trading Account may not be funded with cash on trade 11 The Coinbase Prime service is an execution service pursuant to which Coinbase will execute bitcoin orders for the Trust by accessing liquidity from sources such as bitcoin trading platforms, which can include Coinbase’s own platform, and other liquidity providers. Trades can be executed according to an algorithm or on the basis of firm quotes sought by requests-for-quote (‘‘RFQ’’) for a two-way price sent to liquidity providers. Algorithmic trades can be self-directed or executed by Coinbase’s high touch execution desk, Coinbase Execution Services. PO 00000 Frm 00126 Fmt 4703 Sfmt 4703 2323 date for the purchase of bitcoin associated with a cash creation order, the Trust may borrow trade credits (‘‘Trade Credits’’) in the form of cash from Coinbase Credit, Inc. (the ‘‘Trade Credit Lender’’), an affiliate of the Prime Execution Agent, under the trade financing agreement (‘‘Trade Financing Agreement’’) or may require the Authorized Participant to deliver the required cash for the creation order on trade date. The extension of Trade Credits on trade date allows the Trust to purchase bitcoin through the Prime Execution Agent on trade date, with such bitcoin being deposited in the Trust’s Trading Account. On settlement date for a creation order, the Trust delivers Shares to the Authorized Participant in exchange for cash received from the Authorized Participant. To the extent Trade Credits were utilized, the Trust uses the cash to repay the Trade Credits borrowed from the Trade Credit Lender. On settlement date for a creation order, the bitcoin purchased is swept from the Trust’s Trading Account to the Trust’s Custody Account pursuant to a regular end-ofday sweep process. For a redemption of a Basket of Shares, the Authorized Participant will be required to submit a redemption order by an early order cutoff (the ‘‘Redemption Early Cutoff Time’’). The Redemption Early Cutoff Time will initially be 6:00 p.m. ET on the business day prior to trade date. On the date of the Redemption Early Cutoff Time for a redemption order, the Trust may choose, in its sole discretion, to enter into a transaction with a Bitcoin Trading Counterparty or the Prime Execution Agent, to sell bitcoin in exchange for cash. After the Redemption Early Cutoff Time, the Trust instructs the Bitcoin Custodian to prepare to move the associated bitcoin from the Trust’s Custody Account to the Trust’s Trading Account. On settlement date for a redemption order, the Authorized Participant delivers the necessary Shares to the Trust, and on or around settlement date, a Bitcoin Trading Counterparty or Prime Execution Agent, as applicable, delivers the cash associated with the Trust’s sale of bitcoin to the Trust in exchange for the Trust’s bitcoin, and the Trust delivers cash to the Authorized Participant. In the event the Trust has not been able to successfully execute and complete settlement of a bitcoin transaction by the settlement date, the Authorized Participant will be given the option to (1) cancel the redemption order, or (2) accept that the Trust will continue to attempt to complete the execution, E:\FR\FM\12JAN1.SGM 12JAN1 2324 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices khammond on DSKJM1Z7X2PROD with NOTICES which will delay the settlement date. With respect to a redemption order, between the Trust and the Authorized Participant, the Authorized Participant will be responsible for the dollar cost of the difference between the bitcoin price utilized in calculating the NAV per Share on trade date and the price realized in selling the bitcoin to raise the cash needed for the cash redemption order to the extent the price realized in selling the bitcoin is lower than the bitcoin price utilized in the NAV. To the extent the price realized in selling the bitcoin is higher than the price utilized in the NAV, the Authorized Participant will get to keep the dollar impact of any such difference. The Trust may use financing in connection with a redemption order when bitcoin remains in the Trust’s Custody Account at the point of intended execution of a sale of bitcoin. In those circumstances, the Trust may borrow Trade Credits in the form of bitcoin from the Trade Credit Lender, which allows the Trust to sell bitcoin through the Prime Execution Agent on trade date, and the cash proceeds are deposited in the Trust’s Trading Account. On settlement date for a redemption order, the Trust delivers cash to the Authorized Participant in exchange for Shares received from the Authorized Participant. In the event financing was used, the Trust will use the bitcoin moved from the Trust’s Custody Account to the Trading Account to repay the Trade Credits borrowed from the Trade Credit Lender. Net Asset Value The net asset value (‘‘NAV’’) of the Trust is used by the Trust in its day-today operations to measure the net value of the Trust’s assets. The NAV of the Trust will be equal to the total assets of the Trust, which will consist of bitcoin and cash, less total liabilities of the Trust, each determined by the Trustee pursuant to policies established from time to time by the Trustee or its affiliates as described herein. The Sponsor has the exclusive authority to determine the Trust’s NAV, which it has delegated to the Trustee under the Trust Agreement. The Trustee has delegated to the Trust Administrator the responsibility to calculate the NAV and the NAV per Share for the Trust, based on a pricing source selected by the Trustee. In determining the Trust’s NAV per Share, the Trust Administrator will value the bitcoin held by the Trust based on the index price, unless the Sponsor in its sole discretion determines that the index is unreliable. The CME CF Bitcoin Reference Rate— New York Variant for the Bitcoin—U.S. VerDate Sep<11>2014 00:38 Jan 12, 2024 Jkt 262001 Dollar trading pair (the ‘‘CF Benchmarks Index’’) shall constitute the index (the ‘‘Index’’), unless the CF Benchmarks Index is not available or the Sponsor in its sole discretion determines that the CF Benchmarks Index is unreliable and therefore determines not to use the CF Benchmarks Index as the Index. If the CF Benchmarks Index is not available or the Sponsor determines, in its sole discretion, that the CF Benchmarks Index is unreliable, (together a ‘‘Fair Value Event’’) the Trust’s holdings may be fair valued on a temporary basis in accordance with the fair value policies approved by the Trustee. If the CF Benchmarks Index is not used as the Index price, owners of the beneficial interests of Shares (the ‘‘Shareholders’’) will be notified in a prospectus supplement or on the Trust’s website and, if this index change is on a permanent basis, a filing with the SEC under Rule 19b–4 of the Act will be required. A Fair Value Event value determination will be based upon all available factors that the Sponsor or Trustee deems relevant at the time of the determination, and may be based on analytical values determined by the Sponsor or Trustee using third-party valuation models. Fair value policies approved by the Trustee will seek to determine the fair value price that the Trust might reasonably expect to receive from the current sale of that asset or liability in an arm’s-length transaction on the date on which the asset or liability is being valued consistent with ‘‘Relevant Transactions’’.12 In the instance of a Fair Value Event and pursuant the Sponsor’s fair valuation policies and procedures Volume Weighted Average Prices (‘‘VWAP’’) or Volume Weighted Median Prices (‘‘VWMP’’) from another index administrator (‘‘Secondary Index’’) would be utilized. If a Secondary Index is not available or the Sponsor in its sole discretion determines the Secondary Index is unreliable the price set by the Trust’s principal market as of 4:00 p.m. ET, on the valuation date would be utilized. In the event the principal market price is not available or the Sponsor in its sole discretion determines the principal market valuation is unreliable the Sponsor will use its best judgment to determine a good faith estimate of fair value. The Trustee identifies and determines the Trust’s principal market (or in the absence of a principal market, the most advantageous market) for bitcoin consistent with the application of fair value measurement framework in FASB ASC 820–10.13 The principal market is the market where the reporting entity would normally enter into a transaction to sell the asset or transfer the liability. The principal market must be available to and be accessible by the reporting entity. The reporting entity is the Trust. 12 A ‘‘Relevant Transaction’’ is any cryptocurrency versus U.S. dollar spot trade that occurs during the observation window between 3:00 p.m. and 4:00 p.m. ET on a ‘‘Constituent Platform’’ in the BTC/USD pair that is reported and disseminated by a Constituent Platform through its publicly available application programming interface and observed by the ‘‘Index Administrator’’, as such terms are defined below. 13 See FASB (Financial Accounting Standards Board) Accounting standards codification (ASC) 820–10. For financial reporting purposes only, the Trustee has adopted a valuation policy that outlines the methodology for valuing the Trust’s assets. The policy also outlines the methodology for determining the principal market (or in the absence of a principal market, the most advantageous market) in accordance with FASB ASC 820–10. PO 00000 Frm 00127 Fmt 4703 Sfmt 4703 Net Asset Value Calculation and Index On each Business Day (as defined below), as soon as practicable after 4:00 p.m. ET, the Trust Administrator evaluates the bitcoin held by the Trust as reflected by the CF Benchmarks Index and determines NAV per Share. For purposes of making these calculations, a Business Day means any day other than a day when Nasdaq is closed for regular trading (‘‘Business Day’’). The CF Benchmarks Index employed by the Trust is calculated on each Business Day by aggregating the notional value of bitcoin trading activity across major bitcoin spot platforms. The CF Benchmarks Index is designed based on the IOSCO Principles for Financial Benchmarks. The administrator of the CF Benchmarks Index is CF Benchmarks Ltd. (the ‘‘Index Administrator’’). The CF Benchmarks Index serves as a oncea-day benchmark rate of the U.S. dollar price of bitcoin (USD/BTC), calculated as of 4:00 p.m. ET. The CF Benchmarks Index aggregates the trade flow of several bitcoin platforms, during an observation window between 3:00 p.m. and 4:00 p.m. ET into the U.S. dollar price of one bitcoin at 4:00 p.m. ET. Specifically, the CF Benchmarks Index is calculated based on the Relevant Transactions of all of its constituent bitcoin platforms, which are currently Bitstamp, Coinbase, itBit, Kraken, Gemini, and LMAX (the ‘‘Constituent Platforms’’), and which may change from time to time. If the CF Benchmarks Index is not available or the Sponsor determines, in its sole discretion, that the CF Benchmarks Index is unreliable and so should not be used, the Trust’s holdings E:\FR\FM\12JAN1.SGM 12JAN1 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices may be fair valued in accordance with the policy approved by the Trustee. The Trust is intended to provide a way for Shareholders to obtain exposure to bitcoin by investing in the Shares rather than by acquiring, holding and trading bitcoin directly on a peer-to-peer or other basis or via a digital asset platform. An investment in Shares of the Trust is not the same as an investment directly in bitcoin on a peerto-peer or other basis or via a digital asset platform. Intraday Indicative Value In order to provide updated information relating to the Trust for use by Shareholders, the Trust intends to publish an intraday indicative value per Share (‘‘IIV’’) using the CME CF Bitcoin Real Time Index (‘‘BRTI’’). One or more major market data vendors will provide an IIV updated every 15 seconds, as calculated by the Exchange or a thirdparty financial data provider during the Exchange’s regular market session of 9:30 a.m. to 4:00 p.m. ET (the ‘‘Regular Market Session’’). The IIV will be calculated by using the prior day’s closing NAV per Share as a base and updating that value during the Exchange’s Regular Market Session to reflect changes in the value of the Trust’s NAV per Share during the trading day. The IIV is disseminated during the Exchange’s Regular Market Session should not be viewed as an actual real time update of the NAV per Share, 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 Market Session by one or more major market data vendors. In addition, the IIV will be available through online information services. All aspects of the Index Methodology are publicly available at the website of Index Provider, CF Benchmarks (https:// www.cfbenchmarks.com). khammond on DSKJM1Z7X2PROD with NOTICES Creation and Redemption of Shares The Trust issues and redeems Baskets 14 on a continuous basis. Baskets are only issued or redeemed in exchange for an amount of cash 14 Baskets will be offered continuously at NAV per Share for 40,000 Shares. Therefore, a Basket of Shares would be valued at NAV per Share multiplied by the Basket size and the bitcoin required to be delivered in exchange for a creation of a Basket would equal the dollar value of the NAV per Share multiplied by the Basket size for such creations. The Trust may change the number of Shares in a Basket. Only Authorized Participants may purchase or redeem Baskets. Shares will be offered to the public from time to time at varying prices that will reflect the price of bitcoin and the trading price of the Shares on Nasdaq at the time of the offer. VerDate Sep<11>2014 00:38 Jan 12, 2024 Jkt 262001 determined by the Trustee on each day that Nasdaq is open for regular trading. No Shares are issued unless the Cash Custodian has allocated to the Trust’s account the corresponding amount of cash. The amount of cash necessary for the creation of a Basket, or to be received upon redemption of a Basket, will decrease over the life of the Trust, due to the payment or accrual of fees and other expenses or liabilities payable by the Trust. Baskets may be created or redeemed only by Authorized Participants, who pay BlackRock Investments, LLC (‘‘BRIL’’), an affiliate of the Trustee and a wholly owned subsidiary of BlackRock, Inc., that has been retained by the Trust to perform certain order processing, Authorized Participant communications, and related services in connection with the issuance and redemption of Baskets, a transaction fee for each order to create or redeem Baskets. The Sponsor will maintain ownership and control of the bitcoin in a manner consistent with good delivery requirements for spot commodity transactions. Overview of the Bitcoin Industry Bitcoin is a digital asset that is created and transmitted through the operations of the peer-to-peer Bitcoin network, a decentralized network of computers that operates on cryptographic protocols (the ‘‘Bitcoin network’’). No single entity owns or operates the Bitcoin network, the infrastructure of which is collectively maintained by its user base. The Bitcoin network allows people to exchange tokens of value, called bitcoin, which are recorded on a public transaction ledger known as the Bitcoin blockchain (the ‘‘Bitcoin blockchain’’). Bitcoin can be used to pay for goods and services, or it can be converted to fiat currencies, such as the U.S. dollar, at rates determined on bitcoin platforms that enable trading in bitcoin or in individual end-user-to-end-user transactions under a barter system. The Bitcoin network is commonly understood to be decentralized and does not require governmental authorities or financial institution intermediaries to create, transmit or determine the value of bitcoin. Rather, bitcoin is created and allocated by the Bitcoin network protocol through a ‘‘mining’’ process. The value of bitcoin is determined by the supply of and demand for bitcoinon-bitcoin platforms or in private enduser-to-end-user transactions. New bitcoins are created and rewarded to the miners of a block in the Bitcoin blockchain for verifying transactions. The Bitcoin blockchain is a shared database that includes all PO 00000 Frm 00128 Fmt 4703 Sfmt 4703 2325 blocks that have been solved by miners and it is updated to include new blocks as they are solved. Each bitcoin transaction is broadcast to the Bitcoin network and, when included in a block, recorded in the Bitcoin blockchain. As each new block records outstanding bitcoin transactions, and outstanding transactions are settled and validated through such recording, the Bitcoin blockchain represents a complete, transparent and unbroken history of all transactions of the Bitcoin network. History of Bitcoin The Bitcoin network was initially contemplated in a whitepaper that also described bitcoin and the operating software to govern the Bitcoin network. The whitepaper was purportedly authored by Satoshi Nakamoto. However, no individual with that name has been reliably identified as bitcoin’s creator, and the general consensus is that the name is likely a pseudonym for the actual inventor or inventors. The first bitcoins were created in 2009 after Nakamoto released the Bitcoin network source code (the software and protocol that created and launched the Bitcoin network). The Bitcoin network has been under active development since that time by a loose group of software developers who have come to be known as core developers. Overview of Bitcoin Network Operations In order to own, transfer or use bitcoin directly on the Bitcoin network (as opposed to through an intermediary, such as an exchange), a person generally must have internet access to connect to the Bitcoin network. Bitcoin transactions may be made directly between end-users without the need for a third-party intermediary. To prevent the possibility of double-spending bitcoin, a user must notify the Bitcoin network of the transaction by broadcasting the transaction data to its network peers. The Bitcoin network provides confirmation against doublespending by memorializing every transaction in the Bitcoin blockchain, which is publicly accessible and transparent. This memorialization and verification against double-spending is accomplished through the Bitcoin network mining process, which adds ‘‘blocks’’ of data, including recent transaction information, to the Bitcoin blockchain. Overview of Bitcoin Transfers Prior to engaging in bitcoin transactions directly on the Bitcoin network, a user generally must first install on its computer or mobile device E:\FR\FM\12JAN1.SGM 12JAN1 khammond on DSKJM1Z7X2PROD with NOTICES 2326 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices a Bitcoin network software program that will allow the user to generate a private and public key pair associated with a bitcoin address commonly referred to as a ‘‘wallet.’’ The Bitcoin network software program and the bitcoin address also enable the user to connect to the Bitcoin network and transfer bitcoin to, and receive bitcoin from, other users. Each Bitcoin network address, or wallet, is associated with a unique ‘‘public key’’ and ‘‘private key’’ pair. To receive bitcoin, the bitcoin recipient must provide its public key to the party initiating the transfer. This activity is analogous to a recipient for a transaction in U.S. dollars providing a routing address in wire instructions to the payor so that cash may be wired to the recipient’s account. The payor approves the transfer to the address provided by the recipient by ‘‘signing’’ a transaction that consists of the recipient’s public key with the private key of the address from where the payor is transferring the bitcoin. The recipient, however, does not make public or provide to the sender its related private key. Neither the recipient nor the sender reveals their private keys in a transaction because the private key authorizes transfer of the funds in that address to other users. Therefore, if a user loses his or her private key, the user may permanently lose access to the bitcoin contained in the associated address. Likewise, bitcoin is irretrievably lost if the private key associated with them is deleted and no backup has been made. When sending bitcoin, a user’s Bitcoin network software program must validate the transaction with the associated private key. The resulting digitally validated transaction is sent by the user’s Bitcoin network software program to the Bitcoin network to allow transaction confirmation. Some bitcoin transactions are conducted ‘‘off-blockchain’’ and are therefore not recorded in the Bitcoin blockchain. Some ‘‘off-blockchain transactions’’ involve the transfer of control over, or ownership of, a specific digital wallet holding bitcoin or the reallocation of ownership of certain bitcoin in a digital wallet containing assets owned by multiple persons, such as a digital wallet maintained by a digital assets platform. In contrast to onblockchain transactions, which are publicly recorded on the Bitcoin blockchain, information and data regarding off-blockchain transactions are generally not publicly available. Therefore, off-blockchain transactions are not truly bitcoin transactions in that they do not involve the transfer of VerDate Sep<11>2014 00:38 Jan 12, 2024 Jkt 262001 transaction data on the Bitcoin network and do not reflect a movement of bitcoin between addresses recorded in the Bitcoin blockchain. For these reasons, off-blockchain transactions are subject to risks as any such transfer of bitcoin ownership is not protected by the protocol behind the Bitcoin network or recorded in, and validated through, the blockchain mechanism. Summary of a Bitcoin Transaction In a bitcoin transaction directly on the Bitcoin network between two parties (as opposed to through an intermediary, such as a custodian), the following circumstances must initially be in place: (i) the party seeking to send bitcoin must have a Bitcoin network public key, and the Bitcoin network must recognize that public key as having sufficient bitcoin for the transaction; (ii) the receiving party must have a Bitcoin network public key; and (iii) the spending party must have internet access with which to send its spending transaction. The receiving party must provide the spending party with its public key and allow the Bitcoin blockchain to record the sending of bitcoin to that public key. After the provision of a recipient’s Bitcoin network public key, the spending party must enter the address into its Bitcoin network software program along with the number of bitcoin to be sent. The number of bitcoin to be sent will typically be agreed upon between the two parties based on a set number of bitcoin or an agreed upon conversion of the value of fiat currency to bitcoin. Since every computation on the Bitcoin network requires the payment of bitcoin, including verification and memorialization of bitcoin transfers, there is a transaction fee involved with the transfer, which is based on computation complexity and not on the value of the transfer and is paid by the payor with a fractional number of bitcoin. After the entry of the Bitcoin network address, the number of bitcoin to be sent and the transaction fees, if any, to be paid, will be transmitted by the spending party. The transmission of the spending transaction results in the creation of a data packet by the spending party’s Bitcoin network software program, which is transmitted onto the decentralized Bitcoin network, resulting in the distribution of the information among the software programs of users across the Bitcoin network for eventual inclusion in the Bitcoin blockchain. As discussed in greater detail below, Bitcoin network miners record PO 00000 Frm 00129 Fmt 4703 Sfmt 4703 transactions when they solve for and add blocks of information to the Bitcoin blockchain. When a miner solves for a block, it creates that block, which includes data relating to (i) the solution to the block, (ii) a reference to the prior block in the Bitcoin blockchain to which the new block is being added and (iii) transactions that have occurred but have not yet been added to the Bitcoin blockchain. The miner becomes aware of outstanding, unrecorded transactions through the data packet transmission and distribution discussed above. Upon the addition of a block included in the Bitcoin blockchain, the Bitcoin network software program of both the spending party and the receiving party will show confirmation of the transaction on the Bitcoin blockchain and reflect an adjustment to the bitcoin balance in each party’s Bitcoin network public key, completing the bitcoin transaction. Once a transaction is confirmed on the Bitcoin blockchain, it is irreversible. Creation of a New Bitcoin New bitcoins are created through the mining process. The process by which bitcoin is ‘‘mined’’ results in new blocks being added to the Bitcoin blockchain and new bitcoin tokens being issued to the miners. Computers on the Bitcoin network engage in a set of prescribed complex mathematical calculations in order to add a block to the Bitcoin blockchain and thereby confirm bitcoin transactions included in that block’s data. The Bitcoin network is designed in such a way that the reward for adding new blocks to the Bitcoin blockchain decreases over time. In the future, once new bitcoin tokens are no longer awarded for adding a new block, miners will only have transaction fees to incentivize them, and as a result, it is expected that miners will need to be better compensated with higher transaction fees to ensure that there is adequate incentive for them to continue mining. Limits on Bitcoin Supply Under the source code that governs the Bitcoin network, the supply of new bitcoin is mathematically controlled so that the number of bitcoin grows at a limited rate pursuant to a pre-set schedule. The number of bitcoin awarded for solving a new block is automatically halved after every 210,000 blocks are added to the Bitcoin blockchain, approximately every 4 years. Currently, the fixed reward for solving a new block is 6.25 bitcoin per block and this is expected to decrease by half to become 3.125 bitcoin in approximately early 2024. This E:\FR\FM\12JAN1.SGM 12JAN1 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices deliberately controlled rate of bitcoin creation means that the number of bitcoin in existence will increase at a controlled rate until the number of bitcoin in existence reaches the predetermined 21 million bitcoin. However, the 21 million supply cap could be changed in a hard fork. A hard fork could change the source code to the Bitcoin network, including the 21 million bitcoin supply cap. khammond on DSKJM1Z7X2PROD with NOTICES Background 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.15 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 (‘‘CFTC’’) regulated futures market.16 Further to 15 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’’). 16 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 VerDate Sep<11>2014 00:38 Jan 12, 2024 Jkt 262001 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, PO 00000 Frm 00130 Fmt 4703 Sfmt 4703 2327 this point, the Commission’s prior orders have noted that the spot commodities and currency markets for which it has previously approved spot exchange traded products (‘‘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.’’ 17 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 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). 17 See Winklevoss Order at 37592. E:\FR\FM\12JAN1.SGM 12JAN1 2328 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices khammond on DSKJM1Z7X2PROD with NOTICES market in order to determine whether such products were consistent with the Act. With this in mind, the CME bitcoin futures (‘‘Bitcoin Futures’’) market, as described below, 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 recently approved proposals related to the listing and trading of funds that would primarily hold Bitcoin Futures that are registered under the Securities Act of 1933 instead of the 1940 Act.18 In the Teucrium Approval, the Commission found the Bitcoin Futures market to be a regulated market of significant size as it relates to 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 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 Bitcoin Futures market represents a regulated market of significant size as it relates both to the Bitcoin Futures market and to the spot bitcoin market and that this proposal should be approved. Bitcoin Futures ETFs The Exchange and Sponsor applaud the Commission for allowing the launch of exchange-traded funds (‘‘ETFs’’) registered under the 1940 Act and the recent Bitcoin Futures Approvals that provide exposure to bitcoin primarily through 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 18 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’’). VerDate Sep<11>2014 00:38 Jan 12, 2024 Jkt 262001 and/or options market based on the underlying reference asset rather than the spot commodity markets, which are often unregulated.19 Leaving aside the analysis of that standard until later in this proposal,20 the Exchange believes that the below rationale that 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 Bitcoin Futures market caused by a person attempting to manipulate the proposed futures ETP by manipulating the price of Bitcoin Futures contracts, whether that attempt is made by directly trading on the Bitcoin Futures market or indirectly by trading outside of the 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.21 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 Bitcoin Futures market caused by a person attempting to manipulate the proposed futures ETP by manipulating the price of Bitcoin Futures contracts . . . indirectly by trading outside of the Bitcoin Futures market,’’ makes clear that the Commission believes that CME’s surveillance can capture the 19 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. 20 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. 21 See Teucrium Approval at 21679. PO 00000 Frm 00131 Fmt 4703 Sfmt 4703 effects of trading on the relevant spot markets on the pricing of Bitcoin Futures. If CME is able to detect such attempts at manipulation in the complex and interconnected spot bitcoin market, how would such an ability to detect attempted manipulation and the utility in sharing that information with the listing exchange apply only to Bitcoin Futures ETFs and not Spot Bitcoin ETPs? Stated a different way, given that there is significant trading volume on numerous bitcoin platforms that are not part of the CME CF Bitcoin Reference Rate and that arbitrage opportunities across bitcoin platforms means that such trading volume will influence spot bitcoin prices across the market and, despite this, the Commission still believes that CME can detect attempted manipulation of the Bitcoin Futures through ‘‘trading outside of the Bitcoin Futures market,’’ it is clear that such ability would apply equally to both Bitcoin Futures ETFs and Spot Bitcoin ETPs. To take it a step further, such an ability would also seem to be a strong indication that the Bitcoin Futures market represents a regulated market of significant size. To be clear, the Exchange agrees with the Commission on this point (and the implications of their conclusions) and notes that the pricing mechanism applicable to the Shares is similar to the CME CF Bitcoin Reference Rate, as further discussed below. In addition, the structure of Bitcoin Futures ETFs provides negative outcomes for buy and hold investors as compared to a Spot Bitcoin ETP.22 Specifically, the cost of rolling Bitcoin Futures contracts will cause the Bitcoin Futures ETFs to typically 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. 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 22 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. E:\FR\FM\12JAN1.SGM 12JAN1 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 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. While the 1940 Act does offer certain investor protections, those protections do not relate to mitigating potential manipulation of the holdings of an ETF in a way that warrants distinction between Bitcoin Futures ETFs and Spot Bitcoin ETPs and the SEC has granted approval for a Bitcoin Futures ETP that is not regulated by the 1940 Act.23 To be clear, both the Exchange and Sponsor believe that the Bitcoin Futures market is a regulated market of significant size and that such manipulation concerns are mitigated as described throughout this proposal. After issuing the Bitcoin Futures Approvals which conclude the Bitcoin Futures market is a regulated market of significant size as it relates to Bitcoin Futures, the only consistent outcome would be approving Spot Bitcoin ETPs on the basis that the Bitcoin Futures market is also a regulated market of significant size as it relates to the bitcoin spot market. Including in the analysis the significant and preventable losses to U.S. investors that comes with khammond on DSKJM1Z7X2PROD with NOTICES 23 See Teucrium Approval. VerDate Sep<11>2014 00:38 Jan 12, 2024 Jkt 262001 Bitcoin Futures ETFs, disapproving Spot Bitcoin ETPs seems even more arbitrary and capricious. Given the current landscape, approving this proposal (and others like it) and allowing Spot Bitcoin ETPs to be listed and traded alongside Bitcoin Futures ETFs would establish a consistent regulatory approach, provide U.S. investors with choice in product structures for bitcoin exposure, and offer flexibility in the means of gaining exposure to bitcoin through transparent, regulated, U.S. exchange listed vehicles. 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 platform that lacks sufficient protections. Typically, retail platforms 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 point of failure 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 or via a digital asset platform. Finally, some publicly traded companies with mostly 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 PO 00000 Frm 00132 Fmt 4703 Sfmt 4703 2329 exposure to bitcoin that they seek.24 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.25 Such public 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 public 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.26 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. 24 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. 25 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. 26 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. E:\FR\FM\12JAN1.SGM 12JAN1 2330 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices Analysis of Historical Price Index Returns of Spot Bitcoin vs. Common Alternative Exposure Vehicle g 0 ,00 1ii ] ... 400 .It e;;, :300 200 100 0 Janwiry-20 -1:lll(;(>il'.ISpot; Bitcoin Futures khammond on DSKJM1Z7X2PROD with NOTICES CME began offering trading in Bitcoin Futures in 2017. Each contract represents five bitcoin and is based on the CME CF Bitcoin Reference Rate.27 The contracts trade and settle like other cash settled commodity futures 27 The CME CF Bitcoin Reference Rate is based on a publicly available calculation methodology based VerDate Sep<11>2014 00:38 Jan 12, 2024 Jkt 262001 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 143,215 Bitcoin Futures contracts traded in April 2023 (approximately $20.7 billion) compared to 193,182 ($5 billion), 104,713 ($3.9 billion), 118,714 ($42.7 billion), and 111,964 ($23.2 billion) contracts traded in April 2019, April 2020, April 2021, and April 2022, respectively. on pricing sourced from several crypto platforms and trading platforms, including Bitstamp, Coinbase, Gemini, itBit, Kraken, and LMAX Digital. PO 00000 Frm 00133 Fmt 4703 Sfmt 4703 E:\FR\FM\12JAN1.SGM 12JAN1 EN12JA24.008</GPH> Source: Bltcoin Spot sourced from WSJ.com; Blockchaln Equities Index is based on S&P ~Global Cryptocurrency & Blockchaln Equity Index (Total Return) sourced from S&P Dow Jones; Bltcoin Futures Index is based on the S&P CME Bltcoin Futures Index {Total Return} sourced from S&P Dow Jones; OTC Traded BTC Trust Index Is represented by the Grayscale Bltcoin Trust sourced form WSJ.com. Based on weekly data. 2331 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices CME Bitcoin Futures Open Interest {01) 161(' 801{ 141{ 701{ 121{ 601{ ... •i 1J 10K SOK e i Ill .. 'ti # 0 V BK 401{ 6K: 30K 41{ 20K C i 'o # I 2'K Qi(• . 1111101111~11111111 2020 :201s 2019 ~ ::I ,f 10K OK ---- -~-- -- "-- -~~--- 2021 2023 2022 Source: CME, Yahoo Finance 4/30/23. The number of large open interest holders 28 and unique accounts trading Bitcoin Futures have both increased, even in the face of heightened bitcoin price volatility. CME Bitcoin Futures Large Open Interest Holders (LOIH) 120 110 100 .. (II 90 80 <:II "O 0 :::i:: 0 # 70 60 50 40 30 20 10 VerDate Sep<11>2014 00:38 Jan 12, 2024 Jkt 262001 2021 2022 is the equivalent of 125 bitcoin. At a price of approximately $29,268.81 per bitcoin on 4/30/2023, PO 00000 Frm 00134 Fmt 4703 Sfmt 4725 2023 more than 100 firms had outstanding positions of greater than $3.65 million in Bitcoin Futures. E:\FR\FM\12JAN1.SGM 12JAN1 EN12JA24.010</GPH> 28 A large open interest holder in Bitcoin Futures is an entity that holds at least 25 contracts, which 2020 EN12JA24.009</GPH> khammond on DSKJM1Z7X2PROD with NOTICES 2019 2332 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices CME Bitcoin Futures Average Daily Volume (ADV) -- --- ~-~-,-- --------- -- - -- -- ------------ 13K 65K 12K '60K UK SSK 10K "' 0 SOK "' 0 45K ~ 8K 401{; 7K • 6K 35K "' 301{ .!! SK 251{ ! V 0 # 4K 20K " 3K ,111m 11 2018 II I 1111 khammond on DSKJM1Z7X2PROD with NOTICES 29 The Exchange believes 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 platforms 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 platform or Over-the-Counter platform (‘‘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. 00:38 Jan 12, 2024 Jkt 262001 10K 2019 Preventing Fraudulent and Manipulative Practices 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; 29 and (ii) the requirement that an exchange proposal be designed, in general, to protect investors and the public interest. VerDate Sep<11>2014 w \15K 2K 1K ·g.~ 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 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 30 with a regulated 30 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 PO 00000 Frm 00135 Fmt 4703 Sfmt 4703 market of significant size. Both the Exchange and CME are members of ISG.31 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.32 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.33 Securities Exchange Act Release No. 88284 (February 26, 2020), 85 FR 12595 (March 3, 2020) (SR–NYSEArca–2019–39) (the ‘‘Wilshire Phoenix Disapproval’’). 31 For a list of the current members and affiliate members of ISG, see https://www.isgportal.com/. 32 See Wilshire Phoenix Disapproval. 33 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 E:\FR\FM\12JAN1.SGM 12JAN1 EN12JA24.011</GPH> "' ~ ...f . 9K' Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices khammond on DSKJM1Z7X2PROD with NOTICES (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 Bitcoin Futures market caused by a person attempting to manipulate the proposed futures ETP by manipulating the price of Bitcoin Futures contracts . . . indirectly by trading outside of the 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. 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 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 Kaiko, the average daily adjusted volume for spot bitcoin across USD denominated trading pairs from January 1, 2023, to May 31, 2023, was $6.0 billion. According to data from Kaiko, the aggregate 2% bitcoin market requirements of the Exchange Act have been met.’’ Id. at 37582. VerDate Sep<11>2014 00:38 Jan 12, 2024 Jkt 262001 depth on the bid and ask side for USD denominated trading pairs has been on average 6,875 BTC (approximately $167.2 million), for the period between January 1, 2023, and May 31, 2023. 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 Bitcoin Futures price discovery and the overall size of the bitcoin market 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 The Exchange is also 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. As noted in the Surveillance section, the surveillance program includes realtime patterns for price and volume movements and post-trade surveillance patterns (e.g., spoofing, marking the close, pinging, phishing). In addition to the Exchange’s existing surveillance, a new pattern will be added to surveil for significant deviation in the CommodityBased Trust Shares’ price from the underlying asset’s price. The Exchange will use the trade data from an external vendor that consolidates the real-time data from multiple bitcoin platforms. Trading of Shares on the Exchange will be subject to the Exchange’s surveillance program for derivative products, as well as cross-market surveillances administered by Financial Industry Regulatory Authority (‘‘FINRA’’), on behalf of the Exchange pursuant to a regulatory services agreement, which are also designed to detect violations of Exchange rules and applicable federal securities laws. The Exchange is responsible for FINRA’s performance under this regulatory services agreement. The Exchange will require the Trust to represent to the Exchange that it will advise the Exchange of any failure by the Trust to comply with the continued listing requirements, and, pursuant to its obligations under section 19(g)(1) of the Exchange Act, the Exchange will surveil for compliance with the continued listing requirements. If the Trust is not in compliance with the PO 00000 Frm 00136 Fmt 4703 Sfmt 4703 2333 applicable listing requirements, the Exchange will commence delisting procedures under the Nasdaq 5800 Series. In addition, the Exchange also has a general policy prohibiting the distribution of material, non-public information by its employees. The Exchange will communicate as needed regarding trading in the Shares with other markets and other entities that are members of the ISG, and the Exchange may obtain trading information regarding trading in the Shares from such markets and other entities. Availability of Information The website for the Trust, which will be publicly accessible at no charge, will contain the following information: (a) the prior Business Day’s NAV per Share; (b) the prior Business Day’s Nasdaq official closing price; (c) calculation of the premium or discount of such Nasdaq official closing price against such NAV per Share; (d) data in chart form displaying the frequency distribution of discounts and premiums of the Nasdaq official closing price against the NAV per Share, within appropriate ranges for each of the four previous calendar quarters (or for the life of the Trust, if shorter); (e) the prospectus; and (f) other applicable quantitative information. The Trust Administrator will also disseminate the Trust’s holdings on a daily basis on the Trust’s website. The NAV per Share for the Trust will be calculated by the Trust 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 relevant securities information processor. Also, an estimated value that reflects an estimated IIV will be disseminated. For more information on the IIV, including the calculation methodology, see ‘‘Intraday Indicative Value’’ above. The IIV disseminated during the Exchange’s Regular Market Session should not be viewed as an actual real time update of the NAV per Share, 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 Market Session by one or more major market data vendors. In addition, the IIV will be available through online information services. 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 CF Benchmarks. Information relating to trading, E:\FR\FM\12JAN1.SGM 12JAN1 2334 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices khammond on DSKJM1Z7X2PROD with NOTICES including price and volume information, in bitcoin is available from major market data vendors and from the platforms on which bitcoin are traded. Depth of book information is also available from bitcoin platforms. The normal trading hours for bitcoin platforms are 24 hours per day, 365 days per year. Information regarding market price and trading volume of the Shares will be continually available on a real-time basis throughout the day on brokers’ computer screens and other electronic services. Information regarding the previous day’s closing price and trading volume information for the Shares will be published daily in the financial section of newspapers. Initial and Continued Listing The Shares will be subject to Nasdaq Rule 5711(d)(vi), 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 per Share will be calculated daily and will be made available to all market participants at the same time. A minimum of 80,000 Commodity-Based Trust Shares, or the equivalent of two Baskets, will be required to be outstanding at the time of commencement of trading on the Exchange. Upon termination of the Trust, the Shares will be removed from listing. The Delaware Trustee, will be a trust company having substantial capital and surplus and the experience and facilities for handling corporate trust business, as required under Nasdaq Rule 5711(d)(vi)(D) and no change will be made to the Delaware Trustee without prior notice to and approval of the Exchange. As required in Nasdaq Rule 5711(d)(viii), 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 the underlying commodity, related futures or options on futures, or any other related derivatives, which the registered Market Maker may have or over which it may exercise investment discretion. No registered Market Maker in the Shares shall trade in the underlying commodity, related futures or options on futures, or any other related 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 Nasdaq Rule 5711(d). In addition to the VerDate Sep<11>2014 00:38 Jan 12, 2024 Jkt 262001 existing obligations under Exchange rules regarding the production of books and records, the registered Market Maker in the Shares shall make available to the Exchange such books, records or other information pertaining to transactions by such entity or any limited partner, officer or approved person thereof, registered or nonregistered employee affiliated with such entity for its or their own accounts in the underlying commodity, related futures or options on futures, or any other related derivatives, as may be requested by the Exchange. The Exchange is able to obtain information regarding trading in the Shares and the underlying bitcoin, Bitcoin Futures contracts, options on Bitcoin Futures, or any other bitcoin derivative through members acting as registered Market Makers, in connection with their proprietary or customer trades. As a general matter, the Exchange has regulatory jurisdiction over its members, and their associated persons. The Exchange also has regulatory jurisdiction over any person or entity controlling a member, as well as a subsidiary or affiliate of a member that is in the securities business. A subsidiary or affiliate of a member organization that does business only in commodities would not be subject to Exchange jurisdiction, but the Exchange could obtain information regarding the activities of such subsidiary or affiliate through surveillance sharing agreements with regulatory organizations of which such subsidiary or affiliate is a member. Trading Rules The Exchange deems the Shares to be equity securities, thus rendering trading in the Shares subject to the Exchange’s existing rules governing the trading of equity securities. The Exchange will allow trading in the Shares from 4:00 a.m. to 8:00 p.m. ET. The Exchange has appropriate rules to facilitate transactions in the Shares during all trading sessions. The Shares of the Trust will conform to the initial and continued listing criteria set forth in Nasdaq Rule 5711(d). 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 Nasdaq Rules 4120 and 4121, including without limitation the conditions specified in Nasdaq Rule 4120(a)(9) and (10) and the trading pauses under Nasdaq Rules 4120(a)(11) and (12). PO 00000 Frm 00137 Fmt 4703 Sfmt 4703 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. If the IIV or the value of the Index is not being disseminated as required, the Exchange may halt trading during the day in which the interruption to the dissemination of the IIV or the value of the Index occurs. If the interruption to the dissemination of the IIV or the value of the Index persists past the trading day in which it occurred, the Exchange will halt trading no later than the beginning of the trading day following the interruption. In addition, if the Exchange becomes aware that the NAV per Share with respect to the Shares is not disseminated to all market participants at the same time, it will halt trading in the Shares until such time as the NAV per Share is available to all market participants. 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. The surveillance program includes real-time patterns for price and volume movements and post-trade surveillance patterns (e.g., spoofing, marking the close, pinging, phishing). In addition to the Exchange’s existing surveillance, a new pattern will be added to surveil for significant deviation in the CommodityBased Trust Shares’ price from the underlying asset’s price. The Exchange will use the trade data from an external vendor that consolidates the real-time data from multiple bitcoin platforms. Trading of Shares on the Exchange will be subject to the Exchange’s surveillance program for derivative products, as well as cross-market surveillances administered by FINRA, on behalf of the Exchange pursuant to a regulatory services agreement, which are also designed to detect violations of Exchange rules and applicable federal securities laws. The Exchange is responsible for FINRA’s performance under this regulatory services agreement. The Exchange will require the Trust to represent to the Exchange that it will advise the Exchange of any failure by E:\FR\FM\12JAN1.SGM 12JAN1 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices khammond on DSKJM1Z7X2PROD with NOTICES the Trust 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 is not in compliance with the applicable listing requirements, the Exchange will commence delisting procedures under the Nasdaq 5800 Series. In addition, the Exchange also has a general policy prohibiting the distribution of material, non-public information by its employees. The Exchange or FINRA, on behalf of the Exchange, or both, will communicate as needed regarding trading in the Shares with other markets and other entities that are members of the ISG, and the Exchange or FINRA, on behalf of the Exchange, or both, may obtain trading information regarding trading in the Shares from such markets and other entities. The Exchange also 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. Information Circular Prior to the commencement of trading, the Exchange will inform its members in an information circular (‘‘Information Circular’’) of the special characteristics and risks associated with trading the Shares. Specifically, the Information Circular will discuss the following: (1) the procedures for creations and redemptions of Shares in Baskets (and that Shares are not individually redeemable); (2) Section 10 of Nasdaq General Rule 9, which imposes suitability obligations on Nasdaq members with respect to recommending transactions in the Shares to customers; (3) how information regarding the IIV is disseminated; (4) the risks involved in trading the Shares during the pre-market and post-market sessions when an updated IIV will not be calculated or publicly disseminated; (5) the requirement that members deliver a prospectus to investors purchasing newly issued Shares prior to or concurrently with the confirmation of a transaction; and (6) trading information. The Information Circular will also discuss any exemptive, no action and interpretive relief granted by the Commission from any rules under the Act. The Information Circular will also reference the fact that there is no regulated source of last sale information regarding bitcoin, that the Commission VerDate Sep<11>2014 00:38 Jan 12, 2024 Jkt 262001 has no jurisdiction over the trading of bitcoin as a commodity, and that the CFTC has regulatory jurisdiction over the trading of Bitcoin Futures contracts and options on Bitcoin Futures contracts. Additionally, the Information Circular will reference that the Trust is subject to various fees and expenses described in the Registration Statement. The Information Circular will also disclose the trading hours of the Shares. The Information Circular will disclose that information about the Shares will be publicly available on the Trust’s website. 2. Statutory Basis The Exchange believes that the proposal is consistent with section 6(b) of the Act 34 in general and section 6(b)(5) of the Act 35 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,36 including Commodity-Based Trust Shares,37 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; 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 because this filing sufficiently demonstrates that the standard that has previously been articulated by the Commission applicable to CommodityBased Trust Shares has been met as outlined below. 34 15 U.S.C. 78f. U.S.C. 78f(b)(5). 36 See Exchange Rule 5720. 37 Commodity-Based Trust Shares, as described in Exchange Rule 5711(d), are a type of Trust Issued Receipt. 35 15 PO 00000 Frm 00138 Fmt 4703 Sfmt 4703 2335 Designed To Prevent Fraudulent and Manipulative Acts and Practices In order for a proposal to list and trade a series of Commodity-Based Trust Shares to be deemed consistent with the Act, the Commission requires that an exchange demonstrate that there is a comprehensive surveillance-sharing agreement in place with a regulated market of significant size. Both the Exchange and CME are members of ISG.38 As such, the only remaining issue to be addressed is whether the Bitcoin Futures market constitutes a market of significant size, which the Exchange believes 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.39 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.40 (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 Bitcoin Futures market caused by a person attempting to manipulate the 38 For a list of the current members and affiliate members of ISG, see https://www.isgportal.com/. 39 See Wilshire Phoenix Disapproval. 40 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. E:\FR\FM\12JAN1.SGM 12JAN1 2336 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices khammond on DSKJM1Z7X2PROD with NOTICES proposed futures ETP by manipulating the price of Bitcoin Futures contracts . . . indirectly by trading outside of the 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. 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 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 Messari, the average daily adjusted real volume for spot bitcoin from January 1, 2023, to May 12, 2023 was $8.5 billion. According to data from Kaiko, the aggregate 1% bitcoin market depth on the bid and ask side has been on average 5,373 bitcoin (approximately $161 million), for the period between April 26, 2023 and May 12, 2023. 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 Bitcoin Futures price discovery and the overall size of the bitcoin market 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. VerDate Sep<11>2014 00:38 Jan 12, 2024 Jkt 262001 (C) Other Means To Prevent Fraudulent and Manipulative Acts and Practices The Exchange is also 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. As noted in the Surveillance section, the surveillance program includes realtime patterns for price and volume movements and post-trade surveillance patterns (e.g., spoofing, marking the close, pinging, phishing). In addition to the Exchange’s existing surveillance, a new pattern will be added to surveil for significant deviation in the CommodityBased Trust Shares’ price from the underlying asset’s price. The Exchange will use the trade data from an external vendor that consolidates the real-time data from multiple bitcoin platforms. Trading of Shares on the Exchange will be subject to the Exchange’s surveillance program for derivative products, as well as cross-market surveillances administered by FINRA, on behalf of the Exchange pursuant to a regulatory services agreement, which are also designed to detect violations of Exchange rules and applicable federal securities laws. The Exchange is responsible for FINRA’s performance under this regulatory services agreement. The Exchange will require the Trust to represent to the Exchange that it will advise the Exchange of any failure by the Trust to comply with the continued listing requirements, and, pursuant to its obligations under section 19(g)(1) of the Exchange Act, the Exchange will surveil for compliance with the continued listing requirements. If the Trust is not in compliance with the applicable listing requirements, the Exchange will commence delisting procedures under the Nasdaq 5800 Series. In addition, the Exchange also has a general policy prohibiting the distribution of material, non-public information by its employees. The Exchange will communicate as needed regarding trading in the Shares with other markets and other entities that are members of the ISG, and the Exchange may obtain trading information regarding trading in the Shares from such markets and other entities. The Exchange also believes that reviewing this proposal through the lens of the Bitcoin Futures Approvals would also lead the Commission to approving this proposal. Previous disapproval orders have made clear that a market that constitutes a regulated market of PO 00000 Frm 00139 Fmt 4703 Sfmt 4703 significant size is generally a future and/ or options market based on the underlying reference asset rather than the spot commodity markets, which are often unregulated.41 The Exchange believes that the following excerpt from the Teucrium Approval is particular informative: 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 Bitcoin Futures market caused by a person attempting to manipulate the proposed futures ETP by manipulating the price of Bitcoin Futures contracts, whether that attempt is made by directly trading on the CME Bitcoin futures market or indirectly by trading outside of the 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 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 Bitcoin Futures market caused by a person attempting to manipulate the proposed futures ETP by manipulating the price of Bitcoin Futures contracts. . .indirectly by trading outside of the 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. If CME is able to detect 41 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. 42 See Teucrium Approval at 21679. E:\FR\FM\12JAN1.SGM 12JAN1 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices khammond on DSKJM1Z7X2PROD with NOTICES such attempts at manipulation in the complex and interconnected spot bitcoin market, how would such an ability to detect attempted manipulation and the utility in sharing that information with the listing exchange apply only to Bitcoin Futures ETFs and not Spot Bitcoin ETPs? Stated a different way, given that there is significant trading volume on numerous bitcoin platforms that are not part of the CME CF Bitcoin Reference Rate and that arbitrage opportunities across bitcoin platforms means that such trading volume will influence spot bitcoin prices across the market and, despite this, the Commission still believes that CME can detect attempted manipulation of the Bitcoin Futures through ‘‘trading outside of the Bitcoin Futures market,’’ it is clear that such ability would apply equally to both Bitcoin Futures ETFs and Spot Bitcoin ETPs. To take it a step further, such an ability would also seem to be a strong indication that the Bitcoin Futures market represents a regulated market of significant size. To be clear, the Exchange agrees with the Commission on this point (and the implications of their conclusions) and notes that the pricing mechanism applicable to the Shares is similar to the CME CF Bitcoin Reference Rate. 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 Nasdaq Rule 5711(d). 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, as well as crossmarket surveillances administered by FINRA, on behalf of the Exchange pursuant to a regulatory services agreement, which are also designed to detect violations of Exchange rules and applicable federal securities laws, 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. VerDate Sep<11>2014 00:38 Jan 12, 2024 Jkt 262001 If the Trust or the Shares are not in compliance with the applicable listing requirements, the Exchange will commence delisting procedures under the Nasdaq 5800 Series. The Exchange may obtain information regarding trading in the Shares and listed bitcoin derivatives via the ISG, from other exchanges who are members or affiliates of the ISG, or with which the Exchange has entered into a comprehensive surveillance sharing agreement. Availability of Information The Exchange also believes that the proposal promotes market transparency in that a large amount of information is currently available about bitcoin and will be available regarding the Trust and the Shares. In addition to the price transparency of the CF Benchmarks Index, the Trust will provide information regarding the Trust’s bitcoin holdings as well as additional data regarding the Trust. The website for the Trust (https:// www.iShares.com), which will be publicly accessible at no charge, will contain the following information: (a) the prior Business Day’s NAV per Share; (b) the prior Business Day’s Nasdaq official closing price; (c) calculation of the premium or discount of such Nasdaq official closing price against such NAV per Share; (d) data in chart form displaying the frequency distribution of discounts and premiums of the Nasdaq official closing price against the NAV per Share, within appropriate ranges for each of the four previous calendar quarters (or for the life of the Trust, if shorter); (e) the prospectus; and (f) other applicable quantitative information. The Trust Administrator will also disseminate the Trust’s holdings on a daily basis on the Trust’s website. Information about the CF Benchmarks Index, including key elements of how the CF Benchmarks Index is calculated, is publicly available at https://www.cfbenchmarks.com/. The NAV per Share for the Trust will be calculated by the Trust 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 relevant securities information processor. Also, an estimated value that reflects an estimated IIV will be disseminated. For more information on IIV, including the calculation methodology, see ‘‘Intraday Indicative Value x 02EE; above. One or more major market data vendors will provide an IIV per Share updated every 15 seconds, as calculated by the Exchange or a third-party PO 00000 Frm 00140 Fmt 4703 Sfmt 4703 2337 financial data provider during the Exchange’s Regular Market Session (9:30 a.m. to 4:00 p.m. ET). The IIV will be calculated by using the prior day’s closing NAV per Share as a base and updating that value during the Exchange’s Regular Market Session to reflect changes in the value of the Trust’s NAV per Share during the trading day. 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 CF Benchmarks. Information relating to trading, including price and volume information, in bitcoin is available from major market data vendors and from the platforms on which bitcoin are traded. Depth of book information is also available from bitcoin platforms. The normal trading hours for bitcoin platforms 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 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. Finally, the Exchange notes that in addition to all of the arguments herein which it believes sufficiently establishes the Bitcoin Futures market as a regulated market of significant size, it is logically E:\FR\FM\12JAN1.SGM 12JAN1 2338 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices inconsistent to find that the Bitcoin Futures market is a significant market as it relates to the 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 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 No written comments were either solicited or received. III. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: khammond on DSKJM1Z7X2PROD with 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– NASDAQ–2023–016 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–2023–016. 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 VerDate Sep<11>2014 00:38 Jan 12, 2024 Jkt 262001 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–2023–016 and should be submitted on or before February 2, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.43 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2024–00508 Filed 1–11–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–99290; File No. SR– CboeBZX–2023–044] Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of Amendment No. 3 to a Proposed Rule Change To List and Trade Shares of the Fidelity Wise Origin Bitcoin Fund Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares January 8, 2024. On June 30, 2023, Cboe BZX Exchange, Inc. (‘‘BZX’’ 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 Fidelity Wise Origin Bitcoin Fund (f/k/a Wise Origin 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. 43 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00141 Fmt 4703 Sfmt 4703 On July 13, 2023, the Exchange filed Amendment No. 2 to the proposed rule change, which amended and replaced the proposed rule change, as modified by Amendment No. 1, in its entirety. The proposed rule change, as modified by Amendment No. 2, was published for comment in the Federal Register on July 19, 2023.3 On August 31, 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, as modified by Amendment No. 2.5 On September 28 2023, the Commission instituted proceedings to determine whether to disapprove the proposed rule change, as modified by Amendment No. 2.6 On January 5, 2024, the Exchange filed Amendment No. 3 to the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. Amendment No. 3 amended and replaced the proposed rule change, as modified by Amendment No. 2, in its entirety. The Commission is publishing this notice to solicit comments on the proposed rule change, as modified by Amendment No. 3, 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 Fidelity Wise Origin Bitcoin Fund (the ‘‘Trust’’),7 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. 3 See Securities Exchange Act Release No. 97899 (July 13, 2023), 88 FR 46249. Comments on the proposed rule change are available at: https:// www.sec.gov/comments/sr-cboebzx-2023-044/ srcboebzx2023044.htm. 4 15 U.S.C. 78s(b)(2). 5 See Securities Exchange Act Release No. 98263, 88 FR 61642 (Sept. 7, 2023). 6 See Securities Exchange Act Release No. 98639, 88 FR 68888 (Oct. 4, 2023). 7 The Trust was formed as a Delaware statutory trust on March 17, 2021, and is operated as a grantor trust for U.S. federal tax purposes. The Trust has no fixed termination date. E:\FR\FM\12JAN1.SGM 12JAN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 89, Number 9 (Friday, January 12, 2024)]
[Notices]
[Pages 2321-2338]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-00508]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99295; File No. SR-NASDAQ-2023-016]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Amendment No. 1 to a Proposed Rule Change To List
and Trade Shares of the iShares Bitcoin Trust Under Nasdaq Rule 5711(d)

January 8, 2024.
On June 29, 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 of the iShares Bitcoin
Trust under Nasdaq Rule 5711(d), Commodity-Based Trust Shares. The
proposed rule change was published for comment in the Federal Register
on July 19, 2023.\3\ On August 31, 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\ On September 28, 2023, the Commission
instituted proceedings to determine whether to disapprove the proposed
rule change.\6\ On January 5, 2024, the Exchange filed Amendment No. 1
to the proposed rule change as described in Items I and II below, which
Items have been prepared by the Exchange. Amendment No. 1 amended and
replaced the proposed rule change in its entirety. The Commission is

[[Page 2322]]

publishing this notice to solicit comments on the proposed rule change,
as modified by Amendment No. 1, from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 97905 (July 13,
2023), 88 FR 46342. Comments on the proposed rule change are
available at: https://www.sec.gov/comments/sr-nasdaq-2023-016/srnasdaq2023016.htm.
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 98267, 88 FR 61652
(Sept. 7, 2023).
\6\ See Securities Exchange Act Release No. 98610, 88 FR 68768
(Oct. 4, 2023).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

The Exchange proposes to list and trade shares of the iShares
Bitcoin Trust (the ``Trust'') under Nasdaq Rule 5711(d) (``Commodity-
Based Trust Shares''). The shares of the Trust are referred to herein
as the ``Shares.'' This Amendment No. 1 supersedes the original filing
in its entirety.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, at
the principal office of the Exchange, and at the Commission's Public
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
The Exchange proposes to list and trade the Shares under Nasdaq
Rule 5711(d),\7\ which governs the listing and trading of Commodity-
Based Trust Shares on the Exchange. iShares Delaware Trust Sponsor LLC,
a Delaware limited liability company and an indirect subsidiary of
BlackRock, Inc. (``BlackRock''), is the sponsor of the Trust (the
``Sponsor''). The Shares will be registered with the SEC by means of
the Trust's registration statement on Form S-1 (the ``Registration
Statement'').\8\
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\7\ The Commission approved Nasdaq Rule 5711 in Securities
Exchange Act Release No. 66648 (March 23, 2012), 77 FR 19428 (March
30, 2012) (SR-NASDAQ-2012-013).
\8\ See Amendment No. 4 to Registration Statement on Form S-1,
dated December 22, 2023 filed with the Commission by the Sponsor on
behalf of the Trust. The descriptions of the Trust contained herein
are based, in part, on information in the Registration Statement.
The Registration Statement in not yet effective and the Shares will
not trade on the Exchange until such time that the Registration
Statement is effective.
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Description of the Trust
The Shares will be issued by the Trust, a Delaware statutory trust.
The Trust will operate pursuant to a trust agreement (the ``Trust
Agreement'') between the Sponsor, BlackRock Fund Advisors (the
``Trustee'') as the trustee of the Trust and Wilmington Trust, National
Association, as Delaware trustee (the ``Delaware Trustee''). The Trust
issues Shares representing fractional undivided beneficial interests in
its net assets. The assets of the Trust will consist only of bitcoin,
held by a custodian on behalf of the Trust except under limited
circumstances when transferred through the Trust's prime broker
temporarily (described below), and cash. Coinbase Custody Trust
Company, LLC (the ``Bitcoin Custodian'') is the custodian for the
Trust's bitcoin holdings, and maintains a custody account for the Trust
(``Custody Account); Coinbase, Inc. (the ``Prime Execution Agent''), an
affiliate of the Bitcoin Custodian, is the prime broker for the Trust
and maintains a trading account for the Trust (``Trading Account); and
Bank of New York Mellon is the custodian for the Trust's cash holdings
(the ``Cash Custodian'' and together with the Bitcoin Custodian, the
``Custodians'') and the administrator of the Trust (the ``Trust
Administrator''). Under the Trust Agreement, the Trustee may delegate
all or a portion of its duties to any agent, and has delegated the bulk
of the day-to-day responsibilities to the Trust Administrator and
certain other administrative and record-keeping functions to its
affiliates and other agents. The Trust is not an investment company
registered under the Investment Company Act of 1940, as amended (the
``1940 Act'').
The investment objective of the Trust is to reflect generally the
performance of the price of bitcoin. The Trust seeks to reflect such
performance before payment of the Trust's expenses and liabilities. The
Shares are intended to constitute a simple means of making an
investment similar to an investment in bitcoin through the public
securities market rather than by acquiring, holding and trading bitcoin
directly on a peer-to-peer or other basis or via a digital asset
platform. The Shares have been designed to remove the obstacles
represented by the complexities and operational burdens involved in a
direct investment in bitcoin, while at the same time having an
intrinsic value that reflects, at any given time, the investment
exposure to the bitcoin owned by the Trust at such time, less the
Trust's expenses and liabilities. Although the Shares are not the exact
equivalent of a direct investment in bitcoin, they provide investors
with an alternative method of achieving investment exposure to bitcoin
through the public securities market, which may be more familiar to
them.
Custody of the Trust's Bitcoin and Creation and Redemption
An investment in the Shares is backed by bitcoin held by the
Bitcoin Custodian on behalf of the Trust. All of the Trust's bitcoin
will be held in the Custody Account, other than the Trust's bitcoin
which is temporarily maintained in the Trading Account under limited
circumstances, i.e., in connection with creation and redemption Basket
\9\ activity or sales of bitcoin deducted from the Trust's holdings in
payment of Trust expenses or the Sponsor's fee (or, in extraordinary
circumstances, upon liquidation of the Trust). The Custody Account
includes all of the Trust's bitcoin held at the Bitcoin Custodian, but
does not include the Trust's bitcoin temporarily maintained at the
Prime Execution Agent in the Trading Account from time to time. The
Bitcoin Custodian will keep all of the private keys associated with the
Trust's bitcoin held in the Custody Account in ``cold storage''.\10\
The hardware, software, systems, and procedures of the Bitcoin
Custodian may not be available or cost-effective for many investors to
access directly.
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\9\ The Trust issues and redeems Shares only in blocks of 40,000
or integral multiples thereof. A block of 40,000 Shares is called a
``Basket.'' These transactions take place in exchange for bitcoin.
\10\ The term ``cold storage'' refers to a safeguarding method
by which the private keys corresponding to the Trust's bitcoins are
generated and stored in an offline manner, subject to layers of
procedures designed to enhance security. Private keys are generated
by the Bitcoin Custodian in offline computers that are not connected
to the internet so that they are more resistant to being hacked.
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The Trust's bitcoin holdings and cash holdings from time to time
may temporarily be maintained in the Trading Account held with the
Prime Execution Agent, an affiliate of the Bitcoin Custodian. Coinbase
Inc. serves as the Trust's Prime Execution Agent pursuant to the
Trust's agreement with the Prime Execution Agent (``Prime Execution
Agent Agreement''). In this capacity, the Prime Execution Agent
facilitates the buying and selling of bitcoin by the Trust in response
to cash creations and redemptions between the Trust and registered
broker-dealers that are Depositary Trust Company (``DTC'') participants
that enter into an

[[Page 2323]]

authorized participant agreement with the Sponsor and the Trustee
(``Authorized Participants''), and the sale of bitcoin to pay the
Sponsor's fee, any other Trust expenses not assumed by the Sponsor, to
the extent applicable, and in extraordinary circumstances, in
connection with the liquidation of the Trust's bitcoin.
The Authorized Participants will deliver only cash to create shares
and will receive only cash when redeeming shares. Further, Authorized
Participants will not directly or indirectly purchase, hold, deliver,
or receive bitcoin as part of the creation or redemption process or
otherwise direct the Trust or a third party with respect to purchasing,
holding, delivering, or receiving bitcoin as part of the creation or
redemption process.
The Trust will create shares by receiving bitcoin from a third
party that is not the Authorized Participant and the Trust--not the
Authorized Participant--is responsible for selecting the third party to
deliver the bitcoin. Further, the third party will not be acting as an
agent of the Authorized Participant with respect to the delivery of the
bitcoin to the Trust or acting at the direction of the Authorized
Participant with respect to the delivery of the bitcoin to the Trust.
The Trust will redeem shares by delivering bitcoin to a third party
that is not the Authorized Participant and the Trust--not the
Authorized Participant--is responsible for selecting the third party to
receive the bitcoin. Further, the third party will not be acting as an
agent of the Authorized Participant with respect to the receipt of the
bitcoin from the Trust or acting at the direction of the Authorized
Participant with respect to the receipt of the bitcoin from the Trust.
The third party will be unaffiliated with the Trust and the Sponsor.
In connection with cash creations and cash redemptions, the
Authorized Participants will submit orders to create or redeem Baskets
of Shares exclusively in exchange for cash. The Trust will engage in
bitcoin transactions to convert cash into bitcoin (in association with
creation orders) and bitcoin into cash (in association with redemption
orders). The Trust will conduct its bitcoin purchase and sale
transactions by, in its sole discretion, choosing to trade directly
with designated third parties (each, a ``Bitcoin Trading
Counterparty''), who are not registered broker-dealers pursuant to
written agreements between each such Bitcoin Trading Counterparty and
the Trust, or choosing to trade through the Prime Execution Agent
acting in an agency capacity with third parties through its Coinbase
Prime service \11\ pursuant to the Prime Execution Agent Agreement.
Bitcoin Trading Counterparties settle trades with the Trust using their
own accounts at the Prime Execution Agent when trading with the Trust.
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\11\ The Coinbase Prime service is an execution service pursuant
to which Coinbase will execute bitcoin orders for the Trust by
accessing liquidity from sources such as bitcoin trading platforms,
which can include Coinbase's own platform, and other liquidity
providers. Trades can be executed according to an algorithm or on
the basis of firm quotes sought by requests-for-quote (``RFQ'') for
a two-way price sent to liquidity providers. Algorithmic trades can
be self-directed or executed by Coinbase's high touch execution
desk, Coinbase Execution Services.
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For a creation of a Basket of Shares, the Authorized Participant
will be required to submit the creation order by an early order cutoff
(``Creation Early Cutoff Time''). The Creation Early Cutoff Time will
initially be 6:00 p.m. ET on the business day prior to trade date.
On the date of the Creation Early Cutoff Time for a creation order,
the Trust will choose, in its sole discretion, to enter into a
transaction with a Bitcoin Trading Counterparty or the Prime Execution
Agent to buy bitcoin in exchange for the cash proceeds from such
creation order. On settlement date for a creation, the Trust delivers
Shares to the Authorized Participant in exchange for cash received from
the Authorized Participant. Also, on or around the settlement date, the
Bitcoin Trading Counterparty or Prime Execution Agent, as applicable,
deposits the required bitcoin pursuant to its trade with the Trust into
the Trust's Trading Account in exchange for cash. In the event the
Trust has not been able to successfully execute and complete settlement
of a bitcoin transaction by the settlement date of the creation order,
the Authorized Participant will be given the option to (1) cancel the
creation order, or (2) accept that the Trust will continue to attempt
to complete the execution, which will delay the settlement date of the
creation order. With respect to a creation order, as between the Trust
and the Authorized Participant, the Authorized Participant is
responsible for the dollar cost of the difference between the bitcoin
price utilized in calculating NAV per Share on trade date and the price
at which the Trust acquires the bitcoin to the extent the price
realized in buying the bitcoin is higher than the bitcoin price
utilized in the NAV. To the extent the price realized in buying the
bitcoin is lower than the price utilized in the NAV, the Authorized
Participant shall get to keep the dollar impact of any such difference.
Because the Trust's Trading Account may not be funded with cash on
trade date for the purchase of bitcoin associated with a cash creation
order, the Trust may borrow trade credits (``Trade Credits'') in the
form of cash from Coinbase Credit, Inc. (the ``Trade Credit Lender''),
an affiliate of the Prime Execution Agent, under the trade financing
agreement (``Trade Financing Agreement'') or may require the Authorized
Participant to deliver the required cash for the creation order on
trade date. The extension of Trade Credits on trade date allows the
Trust to purchase bitcoin through the Prime Execution Agent on trade
date, with such bitcoin being deposited in the Trust's Trading Account.
On settlement date for a creation order, the Trust delivers Shares to
the Authorized Participant in exchange for cash received from the
Authorized Participant. To the extent Trade Credits were utilized, the
Trust uses the cash to repay the Trade Credits borrowed from the Trade
Credit Lender. On settlement date for a creation order, the bitcoin
purchased is swept from the Trust's Trading Account to the Trust's
Custody Account pursuant to a regular end-of-day sweep process.
For a redemption of a Basket of Shares, the Authorized Participant
will be required to submit a redemption order by an early order cutoff
(the ``Redemption Early Cutoff Time''). The Redemption Early Cutoff
Time will initially be 6:00 p.m. ET on the business day prior to trade
date. On the date of the Redemption Early Cutoff Time for a redemption
order, the Trust may choose, in its sole discretion, to enter into a
transaction with a Bitcoin Trading Counterparty or the Prime Execution
Agent, to sell bitcoin in exchange for cash. After the Redemption Early
Cutoff Time, the Trust instructs the Bitcoin Custodian to prepare to
move the associated bitcoin from the Trust's Custody Account to the
Trust's Trading Account. On settlement date for a redemption order, the
Authorized Participant delivers the necessary Shares to the Trust, and
on or around settlement date, a Bitcoin Trading Counterparty or Prime
Execution Agent, as applicable, delivers the cash associated with the
Trust's sale of bitcoin to the Trust in exchange for the Trust's
bitcoin, and the Trust delivers cash to the Authorized Participant. In
the event the Trust has not been able to successfully execute and
complete settlement of a bitcoin transaction by the settlement date,
the Authorized Participant will be given the option to (1) cancel the
redemption order, or (2) accept that the Trust will continue to attempt
to complete the execution,

[[Page 2324]]

which will delay the settlement date. With respect to a redemption
order, between the Trust and the Authorized Participant, the Authorized
Participant will be responsible for the dollar cost of the difference
between the bitcoin price utilized in calculating the NAV per Share on
trade date and the price realized in selling the bitcoin to raise the
cash needed for the cash redemption order to the extent the price
realized in selling the bitcoin is lower than the bitcoin price
utilized in the NAV. To the extent the price realized in selling the
bitcoin is higher than the price utilized in the NAV, the Authorized
Participant will get to keep the dollar impact of any such difference.
The Trust may use financing in connection with a redemption order
when bitcoin remains in the Trust's Custody Account at the point of
intended execution of a sale of bitcoin. In those circumstances, the
Trust may borrow Trade Credits in the form of bitcoin from the Trade
Credit Lender, which allows the Trust to sell bitcoin through the Prime
Execution Agent on trade date, and the cash proceeds are deposited in
the Trust's Trading Account. On settlement date for a redemption order,
the Trust delivers cash to the Authorized Participant in exchange for
Shares received from the Authorized Participant. In the event financing
was used, the Trust will use the bitcoin moved from the Trust's Custody
Account to the Trading Account to repay the Trade Credits borrowed from
the Trade Credit Lender.
Net Asset Value
The net asset value (``NAV'') of the Trust is used by the Trust in
its day-to-day operations to measure the net value of the Trust's
assets. The NAV of the Trust will be equal to the total assets of the
Trust, which will consist of bitcoin and cash, less total liabilities
of the Trust, each determined by the Trustee pursuant to policies
established from time to time by the Trustee or its affiliates as
described herein. The Sponsor has the exclusive authority to determine
the Trust's NAV, which it has delegated to the Trustee under the Trust
Agreement. The Trustee has delegated to the Trust Administrator the
responsibility to calculate the NAV and the NAV per Share for the
Trust, based on a pricing source selected by the Trustee. In
determining the Trust's NAV per Share, the Trust Administrator will
value the bitcoin held by the Trust based on the index price, unless
the Sponsor in its sole discretion determines that the index is
unreliable. The CME CF Bitcoin Reference Rate--New York Variant for the
Bitcoin--U.S. Dollar trading pair (the ``CF Benchmarks Index'') shall
constitute the index (the ``Index''), unless the CF Benchmarks Index is
not available or the Sponsor in its sole discretion determines that the
CF Benchmarks Index is unreliable and therefore determines not to use
the CF Benchmarks Index as the Index. If the CF Benchmarks Index is not
available or the Sponsor determines, in its sole discretion, that the
CF Benchmarks Index is unreliable, (together a ``Fair Value Event'')
the Trust's holdings may be fair valued on a temporary basis in
accordance with the fair value policies approved by the Trustee. If the
CF Benchmarks Index is not used as the Index price, owners of the
beneficial interests of Shares (the ``Shareholders'') will be notified
in a prospectus supplement or on the Trust's website and, if this index
change is on a permanent basis, a filing with the SEC under Rule 19b-4
of the Act will be required.
A Fair Value Event value determination will be based upon all
available factors that the Sponsor or Trustee deems relevant at the
time of the determination, and may be based on analytical values
determined by the Sponsor or Trustee using third-party valuation
models.
Fair value policies approved by the Trustee will seek to determine
the fair value price that the Trust might reasonably expect to receive
from the current sale of that asset or liability in an arm's-length
transaction on the date on which the asset or liability is being valued
consistent with ``Relevant Transactions''.\12\ In the instance of a
Fair Value Event and pursuant the Sponsor's fair valuation policies and
procedures Volume Weighted Average Prices (``VWAP'') or Volume Weighted
Median Prices (``VWMP'') from another index administrator (``Secondary
Index'') would be utilized. If a Secondary Index is not available or
the Sponsor in its sole discretion determines the Secondary Index is
unreliable the price set by the Trust's principal market as of 4:00
p.m. ET, on the valuation date would be utilized.
---------------------------------------------------------------------------

\12\ A ``Relevant Transaction'' is any cryptocurrency versus
U.S. dollar spot trade that occurs during the observation window
between 3:00 p.m. and 4:00 p.m. ET on a ``Constituent Platform'' in
the BTC/USD pair that is reported and disseminated by a Constituent
Platform through its publicly available application programming
interface and observed by the ``Index Administrator'', as such terms
are defined below.
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In the event the principal market price is not available or the
Sponsor in its sole discretion determines the principal market
valuation is unreliable the Sponsor will use its best judgment to
determine a good faith estimate of fair value. The Trustee identifies
and determines the Trust's principal market (or in the absence of a
principal market, the most advantageous market) for bitcoin consistent
with the application of fair value measurement framework in FASB ASC
820-10.\13\ The principal market is the market where the reporting
entity would normally enter into a transaction to sell the asset or
transfer the liability. The principal market must be available to and
be accessible by the reporting entity. The reporting entity is the
Trust.
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\13\ See FASB (Financial Accounting Standards Board) Accounting
standards codification (ASC) 820-10. For financial reporting
purposes only, the Trustee has adopted a valuation policy that
outlines the methodology for valuing the Trust's assets. The policy
also outlines the methodology for determining the principal market
(or in the absence of a principal market, the most advantageous
market) in accordance with FASB ASC 820-10.
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Net Asset Value Calculation and Index
On each Business Day (as defined below), as soon as practicable
after 4:00 p.m. ET, the Trust Administrator evaluates the bitcoin held
by the Trust as reflected by the CF Benchmarks Index and determines NAV
per Share. For purposes of making these calculations, a Business Day
means any day other than a day when Nasdaq is closed for regular
trading (``Business Day'').
The CF Benchmarks Index employed by the Trust is calculated on each
Business Day by aggregating the notional value of bitcoin trading
activity across major bitcoin spot platforms. The CF Benchmarks Index
is designed based on the IOSCO Principles for Financial Benchmarks. The
administrator of the CF Benchmarks Index is CF Benchmarks Ltd. (the
``Index Administrator''). The CF Benchmarks Index serves as a once-a-
day benchmark rate of the U.S. dollar price of bitcoin (USD/BTC),
calculated as of 4:00 p.m. ET. The CF Benchmarks Index aggregates the
trade flow of several bitcoin platforms, during an observation window
between 3:00 p.m. and 4:00 p.m. ET into the U.S. dollar price of one
bitcoin at 4:00 p.m. ET. Specifically, the CF Benchmarks Index is
calculated based on the Relevant Transactions of all of its constituent
bitcoin platforms, which are currently Bitstamp, Coinbase, itBit,
Kraken, Gemini, and LMAX (the ``Constituent Platforms''), and which may
change from time to time.
If the CF Benchmarks Index is not available or the Sponsor
determines, in its sole discretion, that the CF Benchmarks Index is
unreliable and so should not be used, the Trust's holdings

[[Page 2325]]

may be fair valued in accordance with the policy approved by the
Trustee.
The Trust is intended to provide a way for Shareholders to obtain
exposure to bitcoin by investing in the Shares rather than by
acquiring, holding and trading bitcoin directly on a peer-to-peer or
other basis or via a digital asset platform. An investment in Shares of
the Trust is not the same as an investment directly in bitcoin on a
peer-to-peer or other basis or via a digital asset platform.
Intraday Indicative Value
In order to provide updated information relating to the Trust for
use by Shareholders, the Trust intends to publish an intraday
indicative value per Share (``IIV'') using the CME CF Bitcoin Real Time
Index (``BRTI''). One or more major market data vendors will provide an
IIV updated every 15 seconds, as calculated by the Exchange or a third-
party financial data provider during the Exchange's regular market
session of 9:30 a.m. to 4:00 p.m. ET (the ``Regular Market Session'').
The IIV will be calculated by using the prior day's closing NAV per
Share as a base and updating that value during the Exchange's Regular
Market Session to reflect changes in the value of the Trust's NAV per
Share during the trading day.
The IIV is disseminated during the Exchange's Regular Market
Session should not be viewed as an actual real time update of the NAV
per Share, 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 Market Session by one or
more major market data vendors. In addition, the IIV will be available
through online information services. All aspects of the Index
Methodology are publicly available at the website of Index Provider, CF
Benchmarks (https://www.cfbenchmarks.com).
Creation and Redemption of Shares
The Trust issues and redeems Baskets \14\ on a continuous basis.
Baskets are only issued or redeemed in exchange for an amount of cash
determined by the Trustee on each day that Nasdaq is open for regular
trading. No Shares are issued unless the Cash Custodian has allocated
to the Trust's account the corresponding amount of cash. The amount of
cash necessary for the creation of a Basket, or to be received upon
redemption of a Basket, will decrease over the life of the Trust, due
to the payment or accrual of fees and other expenses or liabilities
payable by the Trust. Baskets may be created or redeemed only by
Authorized Participants, who pay BlackRock Investments, LLC (``BRIL''),
an affiliate of the Trustee and a wholly owned subsidiary of BlackRock,
Inc., that has been retained by the Trust to perform certain order
processing, Authorized Participant communications, and related services
in connection with the issuance and redemption of Baskets, a
transaction fee for each order to create or redeem Baskets.
---------------------------------------------------------------------------

\14\ Baskets will be offered continuously at NAV per Share for
40,000 Shares. Therefore, a Basket of Shares would be valued at NAV
per Share multiplied by the Basket size and the bitcoin required to
be delivered in exchange for a creation of a Basket would equal the
dollar value of the NAV per Share multiplied by the Basket size for
such creations. The Trust may change the number of Shares in a
Basket. Only Authorized Participants may purchase or redeem Baskets.
Shares will be offered to the public from time to time at varying
prices that will reflect the price of bitcoin and the trading price
of the Shares on Nasdaq at the time of the offer.
---------------------------------------------------------------------------

The Sponsor will maintain ownership and control of the bitcoin in a
manner consistent with good delivery requirements for spot commodity
transactions.
Overview of the Bitcoin Industry
Bitcoin is a digital asset that is created and transmitted through
the operations of the peer-to-peer Bitcoin network, a decentralized
network of computers that operates on cryptographic protocols (the
``Bitcoin network''). No single entity owns or operates the Bitcoin
network, the infrastructure of which is collectively maintained by its
user base. The Bitcoin network allows people to exchange tokens of
value, called bitcoin, which are recorded on a public transaction
ledger known as the Bitcoin blockchain (the ``Bitcoin blockchain'').
Bitcoin can be used to pay for goods and services, or it can be
converted to fiat currencies, such as the U.S. dollar, at rates
determined on bitcoin platforms that enable trading in bitcoin or in
individual end-user-to-end-user transactions under a barter system.
The Bitcoin network is commonly understood to be decentralized and
does not require governmental authorities or financial institution
intermediaries to create, transmit or determine the value of bitcoin.
Rather, bitcoin is created and allocated by the Bitcoin network
protocol through a ``mining'' process. The value of bitcoin is
determined by the supply of and demand for bitcoin-on-bitcoin platforms
or in private end-user-to-end-user transactions.
New bitcoins are created and rewarded to the miners of a block in
the Bitcoin blockchain for verifying transactions. The Bitcoin
blockchain is a shared database that includes all blocks that have been
solved by miners and it is updated to include new blocks as they are
solved. Each bitcoin transaction is broadcast to the Bitcoin network
and, when included in a block, recorded in the Bitcoin blockchain. As
each new block records outstanding bitcoin transactions, and
outstanding transactions are settled and validated through such
recording, the Bitcoin blockchain represents a complete, transparent
and unbroken history of all transactions of the Bitcoin network.
History of Bitcoin
The Bitcoin network was initially contemplated in a whitepaper that
also described bitcoin and the operating software to govern the Bitcoin
network. The whitepaper was purportedly authored by Satoshi Nakamoto.
However, no individual with that name has been reliably identified as
bitcoin's creator, and the general consensus is that the name is likely
a pseudonym for the actual inventor or inventors. The first bitcoins
were created in 2009 after Nakamoto released the Bitcoin network source
code (the software and protocol that created and launched the Bitcoin
network). The Bitcoin network has been under active development since
that time by a loose group of software developers who have come to be
known as core developers.
Overview of Bitcoin Network Operations
In order to own, transfer or use bitcoin directly on the Bitcoin
network (as opposed to through an intermediary, such as an exchange), a
person generally must have internet access to connect to the Bitcoin
network. Bitcoin transactions may be made directly between end-users
without the need for a third-party intermediary. To prevent the
possibility of double-spending bitcoin, a user must notify the Bitcoin
network of the transaction by broadcasting the transaction data to its
network peers. The Bitcoin network provides confirmation against
double-spending by memorializing every transaction in the Bitcoin
blockchain, which is publicly accessible and transparent. This
memorialization and verification against double-spending is
accomplished through the Bitcoin network mining process, which adds
``blocks'' of data, including recent transaction information, to the
Bitcoin blockchain.
Overview of Bitcoin Transfers
Prior to engaging in bitcoin transactions directly on the Bitcoin
network, a user generally must first install on its computer or mobile
device

[[Page 2326]]

a Bitcoin network software program that will allow the user to generate
a private and public key pair associated with a bitcoin address
commonly referred to as a ``wallet.'' The Bitcoin network software
program and the bitcoin address also enable the user to connect to the
Bitcoin network and transfer bitcoin to, and receive bitcoin from,
other users.
Each Bitcoin network address, or wallet, is associated with a
unique ``public key'' and ``private key'' pair. To receive bitcoin, the
bitcoin recipient must provide its public key to the party initiating
the transfer. This activity is analogous to a recipient for a
transaction in U.S. dollars providing a routing address in wire
instructions to the payor so that cash may be wired to the recipient's
account. The payor approves the transfer to the address provided by the
recipient by ``signing'' a transaction that consists of the recipient's
public key with the private key of the address from where the payor is
transferring the bitcoin. The recipient, however, does not make public
or provide to the sender its related private key.
Neither the recipient nor the sender reveals their private keys in
a transaction because the private key authorizes transfer of the funds
in that address to other users. Therefore, if a user loses his or her
private key, the user may permanently lose access to the bitcoin
contained in the associated address. Likewise, bitcoin is irretrievably
lost if the private key associated with them is deleted and no backup
has been made. When sending bitcoin, a user's Bitcoin network software
program must validate the transaction with the associated private key.
The resulting digitally validated transaction is sent by the user's
Bitcoin network software program to the Bitcoin network to allow
transaction confirmation.
Some bitcoin transactions are conducted ``off-blockchain'' and are
therefore not recorded in the Bitcoin blockchain. Some ``off-blockchain
transactions'' involve the transfer of control over, or ownership of, a
specific digital wallet holding bitcoin or the reallocation of
ownership of certain bitcoin in a digital wallet containing assets
owned by multiple persons, such as a digital wallet maintained by a
digital assets platform. In contrast to on-blockchain transactions,
which are publicly recorded on the Bitcoin blockchain, information and
data regarding off-blockchain transactions are generally not publicly
available. Therefore, off-blockchain transactions are not truly bitcoin
transactions in that they do not involve the transfer of transaction
data on the Bitcoin network and do not reflect a movement of bitcoin
between addresses recorded in the Bitcoin blockchain. For these
reasons, off-blockchain transactions are subject to risks as any such
transfer of bitcoin ownership is not protected by the protocol behind
the Bitcoin network or recorded in, and validated through, the
blockchain mechanism.
Summary of a Bitcoin Transaction
In a bitcoin transaction directly on the Bitcoin network between
two parties (as opposed to through an intermediary, such as a
custodian), the following circumstances must initially be in place: (i)
the party seeking to send bitcoin must have a Bitcoin network public
key, and the Bitcoin network must recognize that public key as having
sufficient bitcoin for the transaction; (ii) the receiving party must
have a Bitcoin network public key; and (iii) the spending party must
have internet access with which to send its spending transaction.
The receiving party must provide the spending party with its public
key and allow the Bitcoin blockchain to record the sending of bitcoin
to that public key. After the provision of a recipient's Bitcoin
network public key, the spending party must enter the address into its
Bitcoin network software program along with the number of bitcoin to be
sent. The number of bitcoin to be sent will typically be agreed upon
between the two parties based on a set number of bitcoin or an agreed
upon conversion of the value of fiat currency to bitcoin. Since every
computation on the Bitcoin network requires the payment of bitcoin,
including verification and memorialization of bitcoin transfers, there
is a transaction fee involved with the transfer, which is based on
computation complexity and not on the value of the transfer and is paid
by the payor with a fractional number of bitcoin.
After the entry of the Bitcoin network address, the number of
bitcoin to be sent and the transaction fees, if any, to be paid, will
be transmitted by the spending party. The transmission of the spending
transaction results in the creation of a data packet by the spending
party's Bitcoin network software program, which is transmitted onto the
decentralized Bitcoin network, resulting in the distribution of the
information among the software programs of users across the Bitcoin
network for eventual inclusion in the Bitcoin blockchain.
As discussed in greater detail below, Bitcoin network miners record
transactions when they solve for and add blocks of information to the
Bitcoin blockchain. When a miner solves for a block, it creates that
block, which includes data relating to (i) the solution to the block,
(ii) a reference to the prior block in the Bitcoin blockchain to which
the new block is being added and (iii) transactions that have occurred
but have not yet been added to the Bitcoin blockchain. The miner
becomes aware of outstanding, unrecorded transactions through the data
packet transmission and distribution discussed above.
Upon the addition of a block included in the Bitcoin blockchain,
the Bitcoin network software program of both the spending party and the
receiving party will show confirmation of the transaction on the
Bitcoin blockchain and reflect an adjustment to the bitcoin balance in
each party's Bitcoin network public key, completing the bitcoin
transaction. Once a transaction is confirmed on the Bitcoin blockchain,
it is irreversible.
Creation of a New Bitcoin
New bitcoins are created through the mining process. The process by
which bitcoin is ``mined'' results in new blocks being added to the
Bitcoin blockchain and new bitcoin tokens being issued to the miners.
Computers on the Bitcoin network engage in a set of prescribed complex
mathematical calculations in order to add a block to the Bitcoin
blockchain and thereby confirm bitcoin transactions included in that
block's data. The Bitcoin network is designed in such a way that the
reward for adding new blocks to the Bitcoin blockchain decreases over
time. In the future, once new bitcoin tokens are no longer awarded for
adding a new block, miners will only have transaction fees to
incentivize them, and as a result, it is expected that miners will need
to be better compensated with higher transaction fees to ensure that
there is adequate incentive for them to continue mining.
Limits on Bitcoin Supply
Under the source code that governs the Bitcoin network, the supply
of new bitcoin is mathematically controlled so that the number of
bitcoin grows at a limited rate pursuant to a pre-set schedule. The
number of bitcoin awarded for solving a new block is automatically
halved after every 210,000 blocks are added to the Bitcoin blockchain,
approximately every 4 years. Currently, the fixed reward for solving a
new block is 6.25 bitcoin per block and this is expected to decrease by
half to become 3.125 bitcoin in approximately early 2024. This

[[Page 2327]]

deliberately controlled rate of bitcoin creation means that the number
of bitcoin in existence will increase at a controlled rate until the
number of bitcoin in existence reaches the pre-determined 21 million
bitcoin. However, the 21 million supply cap could be changed in a hard
fork. A hard fork could change the source code to the Bitcoin network,
including the 21 million bitcoin supply cap.
Background
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.\15\ 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 (``CFTC'') regulated futures market.\16\ 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 exchange traded products (``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.'' \17\
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\15\ 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'').
\16\ 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).
\17\ 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

[[Page 2328]]

market in order to determine whether such products were consistent with
the Act. With this in mind, the CME bitcoin futures (``Bitcoin
Futures'') market, as described below, 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
recently approved proposals related to the listing and trading of funds
that would primarily hold Bitcoin Futures that are registered under the
Securities Act of 1933 instead of the 1940 Act.\18\ In the Teucrium
Approval, the Commission found the Bitcoin Futures market to be a
regulated market of significant size as it relates to 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 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 Bitcoin Futures
market represents a regulated market of significant size as it relates
both to the Bitcoin Futures market and to the spot bitcoin market and
that this proposal should be approved.
---------------------------------------------------------------------------

\18\ 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'').
---------------------------------------------------------------------------

Bitcoin Futures ETFs
The Exchange and Sponsor applaud the Commission for allowing the
launch of exchange-traded funds (``ETFs'') registered under the 1940
Act and the recent Bitcoin Futures Approvals that provide exposure to
bitcoin primarily through 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.\19\ Leaving aside the analysis of that
standard until later in this proposal,\20\ the Exchange believes that
the below rationale that the Commission applied to a Bitcoin Futures
ETF should result in the Commission approving this and other Spot
Bitcoin ETP proposals:
---------------------------------------------------------------------------

\19\ 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.
\20\ 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 Bitcoin Futures market
caused by a person attempting to manipulate the proposed futures ETP
by manipulating the price of Bitcoin Futures contracts, whether that
attempt is made by directly trading on the Bitcoin Futures market or
indirectly by trading outside of the 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.\21\
---------------------------------------------------------------------------

\21\ See Teucrium Approval at 21679.

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 Bitcoin Futures market caused by a person attempting to manipulate
the proposed futures ETP by manipulating the price of Bitcoin Futures
contracts . . . indirectly by trading outside of the 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. If CME is able to detect
such attempts at manipulation in the complex and interconnected spot
bitcoin market, how would such an ability to detect attempted
manipulation and the utility in sharing that information with the
listing exchange apply only to Bitcoin Futures ETFs and not Spot
Bitcoin ETPs? Stated a different way, given that there is significant
trading volume on numerous bitcoin platforms that are not part of the
CME CF Bitcoin Reference Rate and that arbitrage opportunities across
bitcoin platforms means that such trading volume will influence spot
bitcoin prices across the market and, despite this, the Commission
still believes that CME can detect attempted manipulation of the
Bitcoin Futures through ``trading outside of the Bitcoin Futures
market,'' it is clear that such ability would apply equally to both
Bitcoin Futures ETFs and Spot Bitcoin ETPs. To take it a step further,
such an ability would also seem to be a strong indication that the
Bitcoin Futures market represents a regulated market of significant
size. To be clear, the Exchange agrees with the Commission on this
point (and the implications of their conclusions) and notes that the
pricing mechanism applicable to the Shares is similar to the CME CF
Bitcoin Reference Rate, as further discussed below.
In addition, the structure of Bitcoin Futures ETFs provides
negative outcomes for buy and hold investors as compared to a Spot
Bitcoin ETP.\22\ Specifically, the cost of rolling Bitcoin Futures
contracts will cause the Bitcoin Futures ETFs to typically 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.
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

[[Page 2329]]

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.
---------------------------------------------------------------------------

\22\ 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.
---------------------------------------------------------------------------

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. While the 1940 Act does offer
certain investor protections, those protections do not relate to
mitigating potential manipulation of the holdings of an ETF in a way
that warrants distinction between Bitcoin Futures ETFs and Spot Bitcoin
ETPs and the SEC has granted approval for a Bitcoin Futures ETP that is
not regulated by the 1940 Act.\23\ To be clear, both the Exchange and
Sponsor believe that the Bitcoin Futures market is a regulated market
of significant size and that such manipulation concerns are mitigated
as described throughout this proposal. After issuing the Bitcoin
Futures Approvals which conclude the Bitcoin Futures market is a
regulated market of significant size as it relates to Bitcoin Futures,
the only consistent outcome would be approving Spot Bitcoin ETPs on the
basis that the Bitcoin Futures market is also a regulated market of
significant size as it relates to the bitcoin spot market. Including in
the analysis the significant and preventable losses to U.S. investors
that comes with Bitcoin Futures ETFs, disapproving Spot Bitcoin ETPs
seems even more arbitrary and capricious. Given the current landscape,
approving this proposal (and others like it) and allowing Spot Bitcoin
ETPs to be listed and traded alongside Bitcoin Futures ETFs would
establish a consistent regulatory approach, provide U.S. investors with
choice in product structures for bitcoin exposure, and offer
flexibility in the means of gaining exposure to bitcoin through
transparent, regulated, U.S. exchange listed vehicles.
---------------------------------------------------------------------------

\23\ See Teucrium Approval.
---------------------------------------------------------------------------

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 platform that
lacks sufficient protections. Typically, retail platforms 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 point of
failure 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 or via a digital
asset platform.
Finally, some publicly traded companies with mostly 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.\24\ 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.\25\ Such public 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 public
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.\26\ 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.
---------------------------------------------------------------------------

\24\ 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.
\25\ 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.
\26\ 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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[[Page 2330]]

[GRAPHIC] [TIFF OMITTED] TN12JA24.008

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.\27\ 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
143,215 Bitcoin Futures contracts traded in April 2023 (approximately
$20.7 billion) compared to 193,182 ($5 billion), 104,713 ($3.9
billion), 118,714 ($42.7 billion), and 111,964 ($23.2 billion)
contracts traded in April 2019, April 2020, April 2021, and April 2022,
respectively.
---------------------------------------------------------------------------

\27\ The CME CF Bitcoin Reference Rate is based on a publicly
available calculation methodology based on pricing sourced from
several crypto platforms and trading platforms, including Bitstamp,
Coinbase, Gemini, itBit, Kraken, and LMAX Digital.

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[[Page 2331]]

[GRAPHIC] [TIFF OMITTED] TN12JA24.009

The number of large open interest holders \28\ and unique accounts
trading Bitcoin Futures have both increased, even in the face of
heightened bitcoin price volatility.
---------------------------------------------------------------------------

\28\ 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 $29,268.81 per bitcoin on
4/30/2023, more than 100 firms had outstanding positions of greater
than $3.65 million in Bitcoin Futures.
[GRAPHIC] [TIFF OMITTED] TN12JA24.010

[[Page 2332]]

[GRAPHIC] [TIFF OMITTED] TN12JA24.011

Preventing Fraudulent and Manipulative Practices
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; \29\ 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 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.
---------------------------------------------------------------------------

\29\ The Exchange believes 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 platforms 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 platform or Over-the-Counter platform (``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.
---------------------------------------------------------------------------

(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 \30\ with a regulated market of significant size.
Both the Exchange and CME are members of ISG.\31\ 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.\32\
---------------------------------------------------------------------------

\30\ 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'').
\31\ For a list of the current members and affiliate members of
ISG, see https://www.isgportal.com/.
\32\ See Wilshire Phoenix Disapproval.
---------------------------------------------------------------------------

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.\33\
---------------------------------------------------------------------------

\33\ 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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[[Page 2333]]

(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 Bitcoin Futures
market caused by a person attempting to manipulate the proposed futures
ETP by manipulating the price of Bitcoin Futures contracts . . .
indirectly by trading outside of the 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.
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
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
Kaiko, the average daily adjusted volume for spot bitcoin across USD
denominated trading pairs from January 1, 2023, to May 31, 2023, was
$6.0 billion. According to data from Kaiko, the aggregate 2% bitcoin
market depth on the bid and ask side for USD denominated trading pairs
has been on average 6,875 BTC (approximately $167.2 million), for the
period between January 1, 2023, and May 31, 2023. 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 Bitcoin Futures price discovery and
the overall size of the bitcoin market 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
The Exchange is also 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.
As noted in the Surveillance section, the surveillance program
includes real-time patterns for price and volume movements and post-
trade surveillance patterns (e.g., spoofing, marking the close,
pinging, phishing). In addition to the Exchange's existing
surveillance, a new pattern will be added to surveil for significant
deviation in the Commodity-Based Trust Shares' price from the
underlying asset's price. The Exchange will use the trade data from an
external vendor that consolidates the real-time data from multiple
bitcoin platforms.
Trading of Shares on the Exchange will be subject to the Exchange's
surveillance program for derivative products, as well as cross-market
surveillances administered by Financial Industry Regulatory Authority
(``FINRA''), on behalf of the Exchange pursuant to a regulatory
services agreement, which are also designed to detect violations of
Exchange rules and applicable federal securities laws. The Exchange is
responsible for FINRA's performance under this regulatory services
agreement.
The Exchange will require the Trust to represent to the Exchange
that it will advise the Exchange of any failure by the Trust to comply
with the continued listing requirements, and, pursuant to its
obligations under section 19(g)(1) of the Exchange Act, the Exchange
will surveil for compliance with the continued listing requirements. If
the Trust is not in compliance with the applicable listing
requirements, the Exchange will commence delisting procedures under the
Nasdaq 5800 Series. In addition, the Exchange also has a general policy
prohibiting the distribution of material, non-public information by its
employees.
The Exchange will communicate as needed regarding trading in the
Shares with other markets and other entities that are members of the
ISG, and the Exchange may obtain trading information regarding trading
in the Shares from such markets and other entities.
Availability of Information
The website for the Trust, which will be publicly accessible at no
charge, will contain the following information: (a) the prior Business
Day's NAV per Share; (b) the prior Business Day's Nasdaq official
closing price; (c) calculation of the premium or discount of such
Nasdaq official closing price against such NAV per Share; (d) data in
chart form displaying the frequency distribution of discounts and
premiums of the Nasdaq official closing price against the NAV per
Share, within appropriate ranges for each of the four previous calendar
quarters (or for the life of the Trust, if shorter); (e) the
prospectus; and (f) other applicable quantitative information. The
Trust Administrator will also disseminate the Trust's holdings on a
daily basis on the Trust's website. The NAV per Share for the Trust
will be calculated by the Trust 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 relevant securities
information processor.
Also, an estimated value that reflects an estimated IIV will be
disseminated. For more information on the IIV, including the
calculation methodology, see ``Intraday Indicative Value'' above. The
IIV disseminated during the Exchange's Regular Market Session should
not be viewed as an actual real time update of the NAV per Share, 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 Market Session by one or more major
market data vendors. In addition, the IIV will be available through
online information services.
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 CF Benchmarks. Information relating
to trading,

[[Page 2334]]

including price and volume information, in bitcoin is available from
major market data vendors and from the platforms on which bitcoin are
traded. Depth of book information is also available from bitcoin
platforms. The normal trading hours for bitcoin platforms are 24 hours
per day, 365 days per year.
Information regarding market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. Information
regarding the previous day's closing price and trading volume
information for the Shares will be published daily in the financial
section of newspapers.
Initial and Continued Listing
The Shares will be subject to Nasdaq Rule 5711(d)(vi), 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 per Share will be calculated daily and will be
made available to all market participants at the same time. A minimum
of 80,000 Commodity-Based Trust Shares, or the equivalent of two
Baskets, will be required to be outstanding at the time of commencement
of trading on the Exchange. Upon termination of the Trust, the Shares
will be removed from listing. The Delaware Trustee, will be a trust
company having substantial capital and surplus and the experience and
facilities for handling corporate trust business, as required under
Nasdaq Rule 5711(d)(vi)(D) and no change will be made to the Delaware
Trustee without prior notice to and approval of the Exchange.
As required in Nasdaq Rule 5711(d)(viii), 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 the underlying
commodity, related futures or options on futures, or any other related
derivatives, which the registered Market Maker may have or over which
it may exercise investment discretion. No registered Market Maker in
the Shares shall trade in the underlying commodity, related futures or
options on futures, or any other related 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
Nasdaq Rule 5711(d). In addition to the existing obligations under
Exchange rules regarding the production of books and records, the
registered Market Maker in the Shares shall make available to the
Exchange such books, records or other information pertaining to
transactions by such entity or any limited partner, officer or approved
person thereof, registered or non-registered employee affiliated with
such entity for its or their own accounts in the underlying commodity,
related futures or options on futures, or any other related
derivatives, as may be requested by the Exchange.
The Exchange is able to obtain information regarding trading in the
Shares and the underlying bitcoin, Bitcoin Futures contracts, options
on Bitcoin Futures, or any other bitcoin derivative through members
acting as registered Market Makers, in connection with their
proprietary or customer trades.
As a general matter, the Exchange has regulatory jurisdiction over
its members, and their associated persons. The Exchange also has
regulatory jurisdiction over any person or entity controlling a member,
as well as a subsidiary or affiliate of a member that is in the
securities business. A subsidiary or affiliate of a member organization
that does business only in commodities would not be subject to Exchange
jurisdiction, but the Exchange could obtain information regarding the
activities of such subsidiary or affiliate through surveillance sharing
agreements with regulatory organizations of which such subsidiary or
affiliate is a member.
Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. The Exchange will
allow trading in the Shares from 4:00 a.m. to 8:00 p.m. ET. The
Exchange has appropriate rules to facilitate transactions in the Shares
during all trading sessions. The Shares of the Trust will conform to
the initial and continued listing criteria set forth in Nasdaq Rule
5711(d).
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 Nasdaq Rules 4120 and 4121, including
without limitation the conditions specified in Nasdaq Rule 4120(a)(9)
and (10) and the trading pauses under Nasdaq Rules 4120(a)(11) and
(12).
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.
If the IIV or the value of the Index is not being disseminated as
required, the Exchange may halt trading during the day in which the
interruption to the dissemination of the IIV or the value of the Index
occurs. If the interruption to the dissemination of the IIV or the
value of the Index persists past the trading day in which it occurred,
the Exchange will halt trading no later than the beginning of the
trading day following the interruption.
In addition, if the Exchange becomes aware that the NAV per Share
with respect to the Shares is not disseminated to all market
participants at the same time, it will halt trading in the Shares until
such time as the NAV per Share is available to all market participants.
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. The surveillance
program includes real-time patterns for price and volume movements and
post-trade surveillance patterns (e.g., spoofing, marking the close,
pinging, phishing). In addition to the Exchange's existing
surveillance, a new pattern will be added to surveil for significant
deviation in the Commodity-Based Trust Shares' price from the
underlying asset's price. The Exchange will use the trade data from an
external vendor that consolidates the real-time data from multiple
bitcoin platforms.
Trading of Shares on the Exchange will be subject to the Exchange's
surveillance program for derivative products, as well as cross-market
surveillances administered by FINRA, on behalf of the Exchange pursuant
to a regulatory services agreement, which are also designed to detect
violations of Exchange rules and applicable federal securities laws.
The Exchange is responsible for FINRA's performance under this
regulatory services agreement.
The Exchange will require the Trust to represent to the Exchange
that it will advise the Exchange of any failure by

[[Page 2335]]

the Trust 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 is not in compliance with the applicable
listing requirements, the Exchange will commence delisting procedures
under the Nasdaq 5800 Series. In addition, the Exchange also has a
general policy prohibiting the distribution of material, non-public
information by its employees.
The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares with other
markets and other entities that are members of the ISG, and the
Exchange or FINRA, on behalf of the Exchange, or both, may obtain
trading information regarding trading in the Shares from such markets
and other entities. The Exchange also 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.
Information Circular
Prior to the commencement of trading, the Exchange will inform its
members in an information circular (``Information Circular'') of the
special characteristics and risks associated with trading the Shares.
Specifically, the Information Circular will discuss the following: (1)
the procedures for creations and redemptions of Shares in Baskets (and
that Shares are not individually redeemable); (2) Section 10 of Nasdaq
General Rule 9, which imposes suitability obligations on Nasdaq members
with respect to recommending transactions in the Shares to customers;
(3) how information regarding the IIV is disseminated; (4) the risks
involved in trading the Shares during the pre-market and post-market
sessions when an updated IIV will not be calculated or publicly
disseminated; (5) the requirement that members deliver a prospectus to
investors purchasing newly issued Shares prior to or concurrently with
the confirmation of a transaction; and (6) trading information. The
Information Circular will also discuss any exemptive, no action and
interpretive relief granted by the Commission from any rules under the
Act.
The Information Circular will also reference the fact that there is
no regulated source of last sale information regarding bitcoin, that
the Commission has no jurisdiction over the trading of bitcoin as a
commodity, and that the CFTC has regulatory jurisdiction over the
trading of Bitcoin Futures contracts and options on Bitcoin Futures
contracts.
Additionally, the Information Circular will reference that the
Trust is subject to various fees and expenses described in the
Registration Statement. The Information Circular will also disclose the
trading hours of the Shares. The Information Circular will disclose
that information about the Shares will be publicly available on the
Trust's website.
2. Statutory Basis
The Exchange believes that the proposal is consistent with section
6(b) of the Act \34\ in general and section 6(b)(5) of the Act \35\ 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.
---------------------------------------------------------------------------

\34\ 15 U.S.C. 78f.
\35\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

The Commission has approved numerous series of Trust Issued
Receipts,\36\ including Commodity-Based Trust Shares,\37\ 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; 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 because this filing sufficiently demonstrates that
the standard that has previously been articulated by the Commission
applicable to Commodity-Based Trust Shares has been met as outlined
below.
---------------------------------------------------------------------------

\36\ See Exchange Rule 5720.
\37\ Commodity-Based Trust Shares, as described in Exchange Rule
5711(d), are a type of Trust Issued Receipt.
---------------------------------------------------------------------------

Designed To Prevent Fraudulent and Manipulative Acts and Practices
In order for a proposal to list and trade a series of Commodity-
Based Trust Shares to be deemed consistent with the Act, the Commission
requires that an exchange demonstrate that there is a comprehensive
surveillance-sharing agreement in place with a regulated market of
significant size. Both the Exchange and CME are members of ISG.\38\ As
such, the only remaining issue to be addressed is whether the Bitcoin
Futures market constitutes a market of significant size, which the
Exchange believes 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.\39\
---------------------------------------------------------------------------

\38\ For a list of the current members and affiliate members of
ISG, see https://www.isgportal.com/.
\39\ See Wilshire Phoenix Disapproval.
---------------------------------------------------------------------------

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.\40\
---------------------------------------------------------------------------

\40\ 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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[[Page 2336]]

proposed futures ETP by manipulating the price of Bitcoin Futures
contracts . . . indirectly by trading outside of the 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.
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
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
Messari, the average daily adjusted real volume for spot bitcoin from
January 1, 2023, to May 12, 2023 was $8.5 billion. According to data
from Kaiko, the aggregate 1% bitcoin market depth on the bid and ask
side has been on average 5,373 bitcoin (approximately $161 million),
for the period between April 26, 2023 and May 12, 2023. 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 Bitcoin Futures price discovery and
the overall size of the bitcoin market 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
The Exchange is also 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.
As noted in the Surveillance section, the surveillance program
includes real-time patterns for price and volume movements and post-
trade surveillance patterns (e.g., spoofing, marking the close,
pinging, phishing). In addition to the Exchange's existing
surveillance, a new pattern will be added to surveil for significant
deviation in the Commodity-Based Trust Shares' price from the
underlying asset's price. The Exchange will use the trade data from an
external vendor that consolidates the real-time data from multiple
bitcoin platforms.
Trading of Shares on the Exchange will be subject to the Exchange's
surveillance program for derivative products, as well as cross-market
surveillances administered by FINRA, on behalf of the Exchange pursuant
to a regulatory services agreement, which are also designed to detect
violations of Exchange rules and applicable federal securities laws.
The Exchange is responsible for FINRA's performance under this
regulatory services agreement.
The Exchange will require the Trust to represent to the Exchange
that it will advise the Exchange of any failure by the Trust to comply
with the continued listing requirements, and, pursuant to its
obligations under section 19(g)(1) of the Exchange Act, the Exchange
will surveil for compliance with the continued listing requirements. If
the Trust is not in compliance with the applicable listing
requirements, the Exchange will commence delisting procedures under the
Nasdaq 5800 Series. In addition, the Exchange also has a general policy
prohibiting the distribution of material, non-public information by its
employees.
The Exchange will communicate as needed regarding trading in the
Shares with other markets and other entities that are members of the
ISG, and the Exchange may obtain trading information regarding trading
in the Shares from such markets and other entities.
The Exchange also believes that reviewing this proposal through the
lens of the Bitcoin Futures Approvals would also lead the Commission to
approving this proposal. Previous disapproval orders have made clear
that a market that constitutes a regulated market of significant size
is generally a future and/or options market based on the underlying
reference asset rather than the spot commodity markets, which are often
unregulated.\41\ The Exchange believes that the following excerpt from
the Teucrium Approval is particular informative:
---------------------------------------------------------------------------

\41\ 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.
---------------------------------------------------------------------------

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 Bitcoin Futures market caused
by a person attempting to manipulate the proposed futures ETP by
manipulating the price of Bitcoin Futures contracts, whether that
attempt is made by directly trading on the CME Bitcoin futures market
or indirectly by trading outside of the 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\ See Teucrium Approval at 21679.
---------------------------------------------------------------------------

[[Page 2337]]

such attempts at manipulation in the complex and interconnected spot
bitcoin market, how would such an ability to detect attempted
manipulation and the utility in sharing that information with the
listing exchange apply only to Bitcoin Futures ETFs and not Spot
Bitcoin ETPs? Stated a different way, given that there is significant
trading volume on numerous bitcoin platforms that are not part of the
CME CF Bitcoin Reference Rate and that arbitrage opportunities across
bitcoin platforms means that such trading volume will influence spot
bitcoin prices across the market and, despite this, the Commission
still believes that CME can detect attempted manipulation of the
Bitcoin Futures through ``trading outside of the Bitcoin Futures
market,'' it is clear that such ability would apply equally to both
Bitcoin Futures ETFs and Spot Bitcoin ETPs. To take it a step further,
such an ability would also seem to be a strong indication that the
Bitcoin Futures market represents a regulated market of significant
size. To be clear, the Exchange agrees with the Commission on this
point (and the implications of their conclusions) and notes that the
pricing mechanism applicable to the Shares is similar to the CME CF
Bitcoin Reference Rate.
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 Nasdaq Rule 5711(d). 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, as well as cross-market surveillances administered
by FINRA, on behalf of the Exchange pursuant to a regulatory services
agreement, which are also designed to detect violations of Exchange
rules and applicable federal securities laws, 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 the Nasdaq 5800
Series. The Exchange may obtain information regarding trading in the
Shares and listed bitcoin derivatives via the ISG, from other exchanges
who are members or affiliates of the ISG, or with which the Exchange
has entered into a comprehensive surveillance sharing agreement.
Availability of Information
The Exchange also believes that the proposal promotes market
transparency in that a large amount of information is currently
available about bitcoin and will be available regarding the Trust and
the Shares. In addition to the price transparency of the CF Benchmarks
Index, the Trust will provide information regarding the Trust's bitcoin
holdings as well as additional data regarding the Trust.
The website for the Trust (https://www.iShares.com), which will be
publicly accessible at no charge, will contain the following
information: (a) the prior Business Day's NAV per Share; (b) the prior
Business Day's Nasdaq official closing price; (c) calculation of the
premium or discount of such Nasdaq official closing price against such
NAV per Share; (d) data in chart form displaying the frequency
distribution of discounts and premiums of the Nasdaq official closing
price against the NAV per Share, within appropriate ranges for each of
the four previous calendar quarters (or for the life of the Trust, if
shorter); (e) the prospectus; and (f) other applicable quantitative
information. The Trust Administrator will also disseminate the Trust's
holdings on a daily basis on the Trust's website. Information about the
CF Benchmarks Index, including key elements of how the CF Benchmarks
Index is calculated, is publicly available at https://www.cfbenchmarks.com/. The NAV per Share for the Trust will be
calculated by the Trust 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 relevant securities
information processor.
Also, an estimated value that reflects an estimated IIV will be
disseminated. For more information on IIV, including the calculation
methodology, see ``Intraday Indicative Value x 02EE; above. One or more
major market data vendors 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 Market Session (9:30 a.m.
to 4:00 p.m. ET). The IIV will be calculated by using the prior day's
closing NAV per Share as a base and updating that value during the
Exchange's Regular Market Session to reflect changes in the value of
the Trust's NAV per Share during the trading day.
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 CF Benchmarks. Information relating
to trading, including price and volume information, in bitcoin is
available from major market data vendors and from the platforms on
which bitcoin are traded. Depth of book information is also available
from bitcoin platforms. The normal trading hours for bitcoin platforms
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 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. Finally, the Exchange notes that in addition
to all of the arguments herein which it believes sufficiently
establishes the Bitcoin Futures market as a regulated market of
significant size, it is logically

[[Page 2338]]

inconsistent to find that the Bitcoin Futures market is a significant
market as it relates to the 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
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

No written comments were either solicited or received.

III. Solicitation of Comments

Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-NASDAQ-2023-016 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-2023-016. 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-2023-016 and should
be submitted on or before February 2, 2024.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\43\
---------------------------------------------------------------------------

\43\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-00508 Filed 1-11-24; 8:45 am]
BILLING CODE 8011-01-P

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