Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of Amendment No. 1 to a Proposed Rule Change To List and Trade Shares of the Pando Asset Spot Bitcoin Trust Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares, 54555-54570 [2024-14379]

Download as PDF Federal Register / Vol. 89, No. 126 / Monday, July 1, 2024 / Notices All submissions should refer to file number SR–C2–2024–012. 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–C2–2024–012 and should be submitted on or before July 22, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.17 Vanessa A. Countryman, Secretary. [FR Doc. 2024–14386 Filed 6–28–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION ddrumheller on DSK120RN23PROD with NOTICES1 [Release No. 34–100420; File No. SR– CboeBZX–2023–101] On December 5, 2023, Cboe BZX Exchange, Inc. (‘‘BZX’’ or ‘‘Exchange’’) filed with the Securities and Exchange VerDate Sep<11>2014 20:36 Jun 28, 2024 Jkt 262001 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 99197 (Dec. 18, 2023), 88 FR 88668. Comments on the proposed rule change are available at https:// www.sec.gov/comments/sr-cboebzx-2023-101/ srcboebzx2023101.htm. 4 15 U.S.C. 78s(b)(2). 5 See Securities Exchange Act Release No. 99460, 89 FR 8472 (Feb. 7, 2024). 6 15 U.S.C. 78s(b)(2)(B). 7 See Securities Exchange Act Release No. 99833, 89 FR 21310 (Mar. 27, 2024). 8 See Securities Exchange Act Release No. 100289, 89 FR 49926 (June 12, 2024). 9 The Trust was formed as a Delaware statutory trust on November 16, 2023, and is operated as a grantor trust for U.S. Federal tax purposes. The Trust has no fixed termination date. 2 17 June 25, 2024. CFR 200.30–3(a)(12). 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 Pando Asset Spot Bitcoin Trust (the ‘‘Trust’’),9 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 1 15 Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of Amendment No. 1 to a Proposed Rule Change To List and Trade Shares of the Pando Asset Spot Bitcoin Trust Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares 17 17 Commission (‘‘Commission’’ or ‘‘SEC’’), 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 Pando Asset Spot Bitcoin Trust under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares. The proposed rule change was published for comment in the Federal Register on December 22, 2023.3 On February 1, 2024, 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 March 21, 2024, the Commission instituted proceedings under Section 19(b)(2)(B) of the Act 6 to determine whether to approve or disapprove the proposed rule change.7 On June 6, 2024, the Commission designated a longer period for Commission action on the proposed rule change.8 On June 24, 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 publishing this notice to solicit comments on the proposed rule change, as modified by Amendment No. 1, from interested persons. PO 00000 Frm 00152 Fmt 4703 Sfmt 4703 54555 (https://markets.cboe.com/us/equities/ regulation/rule_filings/bzx/), at the Exchange’s Office of the Secretary, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose This Amendment No. 1 to SR– CboeBZX–2023–101 amends and replaces in its entirety the proposal as originally submitted on December 5, 2023. The Exchange submits this Amendment No. 1 in order to clarify certain points and add additional details to the proposal. The Exchange proposes to list and trade the Shares under BZX Rule 14.11(e)(4),10 which governs the listing and trading of Commodity-Based Trust Shares on the Exchange.11 Pando Asset AG is the Sponsor (‘‘Sponsor’’). The Shares will be registered with the Commission by means of the Trust’s registration statement on Form S–1 (the ‘‘Registration Statement’’).12 Coinbase Custody Trust Company, LLC (the ‘‘Bitcoin Custodian’’), which is a thirdparty U.S.-based trust company and 10 The Commission approved BZX Rule 14.11(e)(4) in Securities Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148 (September 6, 2011) (SR–BATS–2011–018). 11 Any of the statements or representations regarding the index composition, the description of the portfolio or reference assets, limitations on portfolio holdings or reference assets, dissemination and availability of index, reference asset, intraday indicative values, and Verified Intraday Indicative Values (as applicable), or the applicability of Exchange listing rules specified in any filing to list a series of Other Securities (collectively, ‘‘Continued Listing Representations’’) shall constitute continued listing requirements for the securities listed on the Exchange. 12 See Form S–1 Registration Statement filed on November 29, 2023 (Registration No. 333–275781). The Registration Statement is not yet effective,and the Shares will not trade on the Exchange until such time that the Registration Statement is effective. E:\FR\FM\01JYN1.SGM 01JYN1 54556 Federal Register / Vol. 89, No. 126 / Monday, July 1, 2024 / Notices qualified custodian, will be responsible for custody of the Trust’s bitcoin holdings and U.S. Bank will be the custodian for the Trust’s cash holdings, if any (the ‘‘Cash Custodian’’ and together with the Bitcoin Custodian, the ‘‘Custodians’’). As further discussed below, the Commission has historically approved or disapproved exchange filings to list and trade series of Trust Issued Receipts,13 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.14 Prior orders from the Commission have pointed out that in every prior approval order for Commodity-Based Trust Shares, there has been a derivatives market that represents the regulated market of significant size, generally a Commodity Futures Trading Commission (the ‘‘CFTC’’) regulated futures market.15 13 See Exchange Rule 14.11(f)(1). 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’’). 15 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. ddrumheller on DSK120RN23PROD with NOTICES1 14 See VerDate Sep<11>2014 20:36 Jun 28, 2024 Jkt 262001 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– PO 00000 Frm 00153 Fmt 4703 Sfmt 4703 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 16 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 market in order to determine whether such products were consistent with the Act. With this in mind, the Chicago 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). 16 See Exchange Rule 14.11(e)(5). 17 See Winklevoss Order at 37592. E:\FR\FM\01JYN1.SGM 01JYN1 Federal Register / Vol. 89, No. 126 / Monday, July 1, 2024 / Notices ddrumheller on DSK120RN23PROD with NOTICES1 Mercantile Exchange (‘‘CME’’) bitcoin futures (‘‘Bitcoin Futures’’) market is the proper market to consider in determining whether there is a related regulated market of significant size. Further to this point, the Exchange notes that the Commission has approved proposals related to the listing and trading of funds that would primarily hold CME Bitcoin Futures that are registered under the Securities Act of 1933.18 In the Teucrium Approval, the Commission found the CME Bitcoin Futures market to be a regulated market of significant size as it relates to CME Bitcoin Futures; a position that represents a departure from prior disapproval orders for ETPs that would hold actual bitcoin instead of derivatives contracts (‘‘Spot Bitcoin ETPs’’) that use the exact same pricing methodology as the CME Bitcoin Futures. In the recently decided Grayscale Investments, LLC v. Securities and Exchange Commission,19 however, the court addressed this conflict by finding that the SEC had failed to provide a coherent explanation as to why it had approved the Bitcoin Futures ETPs while disapproving the proposal to list and trade shares of the Grayscale Bitcoin Trust and vacating the disapproval order.20 As further discussed below, both the Exchange and the Sponsor believe that this proposal and the included analysis are sufficient to establish that the CME Bitcoin Futures market represents a regulated market of significant size as it relates both to the CME Bitcoin Futures market and to the spot bitcoin market and that this proposal should be approved, consistent with the Teucrium precedent and in view of the court’s findings relating to the Grayscale Order. Finally, as discussed in greater detail below, by using professional custodians and other service providers, the Trust provides investors interested in exposure to bitcoin via the securities markets with important protections that are not always available to investors that invest directly in bitcoin, including protection against counterparty insolvency, cyber attacks, and other risks. For example, an exchange-traded vehicle such as the Trust, which will be subject to the registration and periodic reporting requirements of the 1933 Act and the Exchange Act, would offer U.S. 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’’). 19 Grayscale Investments, LLC v. Securities and Exchange Commission, et al., Case No. 22–1142 (the ‘‘Grayscale Order’’). 20 Id. VerDate Sep<11>2014 20:36 Jun 28, 2024 Jkt 262001 investors an alternative to directing their bitcoin investments into loosely regulated offshore vehicles (including loosely regulated centralized trading platforms that have since faced bankruptcy proceedings or other insolvencies). Background Bitcoin is a digital asset based on the decentralized, open source protocol of the peer-to-peer computer network launched in 2009 that governs the creation, movement, and ownership of bitcoin and hosts the public ledger, or ‘‘blockchain,’’ on which all bitcoin transactions are recorded (the ‘‘Bitcoin Network’’ or ‘‘Bitcoin’’). The decentralized nature of the Bitcoin Network allows parties to transact directly with one another based on cryptographic proof instead of relying on a trusted third party. The protocol also lays out the rate of issuance of new bitcoin within the Bitcoin Network, a rate that is reduced by half approximately every four years with an eventual hard cap of 21 million. It’s generally understood that the combination of these two features—a systemic hard cap of 21 million bitcoin and the ability to transact trustlessly with anyone connected to the Bitcoin Network—gives bitcoin its value. The first rule filing proposing to list an ETP to provide exposure to bitcoin in the U.S. was submitted by the Exchange on June 30, 2016.21 At that time, blockchain technology, and digital assets that utilized it, were relatively new to the broader public. The market capitalization of all bitcoin in existence at that time was approximately $10 billion. No registered offering of digital asset securities or shares in an investment vehicle with exposure to bitcoin or any other cryptocurrency had yet been conducted, and the regulated infrastructure for conducting a digital asset securities offering had not begun to develop.22 Similarly, regulated U.S. Bitcoin Futures contracts did not exist. The CFTC had determined that bitcoin is a commodity,23 but had not engaged 21 See Winklevoss Order. assets that are securities under U.S. law are referred to throughout this proposal as ‘‘digital asset securities.’’ All other digital assets, including bitcoin, are referred to interchangeably as ‘‘cryptocurrencies’’ or ‘‘virtual currencies.’’ The term ‘‘digital assets’’ refers to all digital assets, including both digital asset securities and cryptocurrencies, together. 23 See ‘‘In the Matter of Coinflip, Inc.’’ (‘‘Coinflip’’) (CFTC Docket 15–29 (September 17, 2015)) (order instituting proceedings pursuant to Sections 6(c) and 6(d) of the CEA, making findings and imposing remedial sanctions), in which the CFTC stated: ‘‘Section 1a(9) of the CEA defines ‘commodity’ to include, among other things, ‘all services, rights, and interests in which contracts for 22 Digital PO 00000 Frm 00154 Fmt 4703 Sfmt 4703 54557 in significant enforcement actions in the space. The New York Department of Financial Services (‘‘NYDFS’’) adopted its final ‘‘BitLicense’’ regulatory framework in 2015, but had only approved four entities to engage in activities relating to virtual currencies (whether through granting a BitLicense or a limited-purpose trust charter) as of June 30, 2016.24 While the first over-thecounter bitcoin fund launched in 2013, public trading was limited and the fund had only $60 million in assets.25 There were very few, if any, traditional financial institutions engaged in the space, whether through investment or providing services to digital asset companies. In January 2018, the staff of the Commission noted in a letter to the Investment Company Institute (‘‘ICI’’) and Securities Industry and Financial Markets Association (‘‘SIFMA’’) that it was not aware, at that time, of a single custodian providing fund custodial services for digital assets.26 The digital assets financial ecosystem, including bitcoin, has progressed significantly in the intervening years. The development of a regulated market for digital asset securities has significantly evolved, with market participants having conducted registered public offerings of both digital asset securities 27 and shares in investment vehicles holding Bitcoin Futures.28 Additionally, licensed and regulated service providers have emerged to provide fund custodial services for digital assets, among other future delivery are presently or in the future dealt in.’ 7 U.S.C. 1a(9). The definition of a ‘commodity’; is broad. See, e.g., Board of Trade of City of Chicago v. SEC, 677 F. 2d 1137, 1142 (7th Cir. 1982). Bitcoin and other virtual currencies are encompassed in the definition and properly defined as commodities.’’ 24 A list of virtual currency businesses that are entities regulated by the NYDFS is available on the NYDFS website. See https://www.dfs.ny.gov/ apps_and_licensing/virtual_currency_businesses/ regulated_entities. 25 Data as of March 31, 2016 according to publicly available filings. See Bitcoin Investment Trust Form S–1, dated May 27, 2016, available: https:// www.sec.gov/Archives/edgar/data/1588489/ 000095012316017801/filename1.htm. 26 See letter from Dalia Blass, Director, Division of Investment Management, U.S. Securities and Exchange Commission to Paul Schott Stevens, President & CEO, Investment Company Institute and Timothy W. Cameron, Asset Management Group—Head, Securities Industry and Financial Markets Association (January 18, 2018), available at https://www.sec.gov/divisions/investment/ noaction/2018/cryptocurrency-011818.htm. 27 See Prospectus supplement filed pursuant to Rule 424(b)(1) for INX Tokens (Registration No. 333–233363), available at: https://www.sec.gov/ Archives/edgar/data/1725882/ 000121390020023202/ea125858424b1_inxlimited.htm. 28 See Prospectus filed by Stone Ridge Trust VI on behalf of NYDIG Bitcoin Strategy Trust Registration, available at: https://www.sec.gov/ Archives/edgar/data/1764894/ 000119312519309942/d693146d497.htm. E:\FR\FM\01JYN1.SGM 01JYN1 54558 Federal Register / Vol. 89, No. 126 / Monday, July 1, 2024 / Notices ddrumheller on DSK120RN23PROD with NOTICES1 services, including the Bitcoin Custodian. For example, in February 2023, the Commission proposed to amend Rule 206(4)–2 under the Advisers Act of 1940 (the ‘‘custody rule’’) to expand the scope beyond client funds and securities to include all crypto assets, among other assets; 29 in May 2021, the staff of the Commission released a statement permitting openend mutual funds to invest in cashsettled Bitcoin Futures; in December 2020, the Commission adopted a conditional no-action position permitting certain special purpose broker-dealers to custody digital asset securities under Rule 15c3–3 under the Exchange Act (the ‘‘Custody Statement’’); 30 in September 2020, the staff of the Commission released a noaction letter permitting certain brokerdealers to operate a non-custodial Alternative Trading System (‘‘ATS’’) for digital asset securities, subject to specified conditions; 31 in October 2019, the staff of the Commission granted temporary relief from the clearing agency registration requirement to an entity seeking to establish a securities clearance and settlement system based on distributed ledger technology,32 and multiple transfer agents who provide services for digital asset securities registered with the Commission.33 Outside the Commission’s purview, the regulatory landscape has also changed significantly since 2016, and cryptocurrency markets have grown and evolved as well. The market for bitcoin is approximately 100 times larger, having at one point reached a market 29 See Investment Advisers Act Release No. 6240 88 FR 14672 (March 9, 2023) (Safeguarding Advisory Client Assets). 30 See Securities Exchange Act Release No. 90788, 86 FR 11627 (February 26, 2021) (File Number S7– 25–20) (Custody of Digital Asset Securities by Special Purpose Broker-Dealers). 31 See letter from Elizabeth Baird, Deputy Director, Division of Trading and Markets, U.S. Securities and Exchange Commission to Kris Dailey, Vice President, Risk Oversight & Operational Regulation, Financial Industry Regulatory Authority (September 25, 2020), available at: https://www.sec.gov/divisions/ marketreg/mr-noaction/2020/finra-ats-role-insettlement-of-digital-asset-security-trades09252020.pdf. 32 See letter from Jeffrey S. Mooney, Associate Director, Division of Trading and Markets, U.S. Securities and Exchange Commission to Charles G. Cascarilla & Daniel M. Burstein, Paxos Trust Company, LLC (October 28, 2019), available at: https://www.sec.gov/divisions/marketreg/mrnoaction/2019/paxos-trust-company-10281917a.pdf. 33 See, e.g., Form TA–1/A filed by Tokensoft Transfer Agent LLC (CIK: 0001794142) on January 8, 2021, available at: https://www.sec.gov/Archives/ edgar/data/1794142/000179414219000001/ xslFTA1X01/primary_doc.xml. VerDate Sep<11>2014 20:36 Jun 28, 2024 Jkt 262001 capitalization of over $1 trillion.34 According to the CME Bitcoin Futures report, from February 13, 2023 through March 27, 2023, CFTC regulated Bitcoin Futures represented between $750 million and $3.2 billion in notional trading volume on CME Bitcoin Futures on a daily basis.35 Open interest was over $1.4 billion for the entirety of the period and at one point was over $2 billion.36 ETPs that primarily hold CME Bitcoin Futures have raised over $1 billion dollars in assets. The CFTC has exercised its regulatory jurisdiction in bringing a number of enforcement actions related to bitcoin and against trading platforms that offer cryptocurrency trading.37 As of February 14, 2023, the NYDFS has granted no fewer than thirty-four BitLicenses,38 including to established public payment companies like PayPal Holdings, Inc. and Square, Inc., and limited purpose trust charters to entities providing cryptocurrency custody services. In addition, the Treasury’s Office of Foreign Assets Control (‘‘OFAC’’) has brought enforcement actions over apparent violations of applicable sanctions laws in connection with the provision of wallet management services for digital assets.39 34 As of December 1, 2021, the total market capitalization of all bitcoin in circulation was approximately $1.08 trillion. 35 Data sourced from the CME Bitcoin Futures Report: 30 March 2023, available at: https:// www.cmegroup.com/markets/cryptocurrencies/ bitcoin/bitcoin.volume.htm. 36 See, e.g., Id. 37 The CFTC’s annual report for Fiscal Year 2022 (which ended on September 30, 2022) noted that the CFTC completed the fiscal year with 18 enforcement filings related to digital assets. ‘‘Digital asset actions included manipulation, a $1.7 billion fraudulent scheme, and a decentralized autonomous organization (DAO) failing to register as a SEF or FCM or to seek DCM designation.’’ See CFTC FY 2022 Agency Financial Report, available at: https://www.cftc.gov/media/7941/2022afr/ download. Additionally, the CFTC filed on March 27, 2023, a civil enforcement action against the owner/operators of the Binance centralized digital asset trading platform, which is one of the largest bitcoin derivative exchanges. See CFTC Release No. 8680–23 (March 27, 2023), available at: https:// www.cftc.gov/PressRoom/PressReleases/8680-23. 38 See https://www.dfs.ny.gov/virtual_currency_ businesses. 39 See U.S. Department of the Treasury Enforcement Release: ‘‘OFAC Enters Into $98,830 Settlement with BitGo, Inc. for Apparent Violations of Multiple Sanctions Programs Related to Digital Currency Transactions’’ (December 30, 2020) available at: https://home.treasury.gov/system/files/ 126/20201230_bitgo.pdf. See also U.S. Department of the Treasury Enforcement Release: ‘‘Treasury Announces Two Enforcement Actions for over $24M and $29M Against Virtual Currency Exchange, Bittrex, Inc.’’ (October 11, 2022) available at: https://home.treasury.gov/news/pressreleases/jy1006. See also U.S. Department of Treasure Enforcement Release ‘‘OFAC Settles with Virtual Currency Exchange Kraken for $362,158.70 Related to Apparent Violations of the Iranian Transactions and Sanctions Regulations’’ PO 00000 Frm 00155 Fmt 4703 Sfmt 4703 In addition to the regulatory developments laid out above, more traditional financial market participants have become more active in cryptocurrency trading and investment activity: large insurance companies, asset managers, university endowments, pension funds, and even historically bitcoin skeptical fund managers have allocated to bitcoin investments. As noted in the Financial Stability Oversight Council (‘‘FSOC’’) report on Digital Asset Financial Stability Risks and Regulation, ‘‘[i]ndustry surveys suggest that the scale of these investments grew quickly during the boom in crypto-asset markets through late 2021. In June 2022, PwC estimated that the number of crypto-specialist hedge funds was more than 300 globally, with $4.1 billion in assets under management. In addition, in a survey PwC found that 38 percent of surveyed traditional hedge funds were currently investing in ‘digital assets,’ compared to 21 percent the year prior.’’ 40 The largest over-the-counter bitcoin fund previously filed a Form 10 registration statement, which the staff of the Commission reviewed and which took effect automatically, and is now a reporting company.41 Established U.S. exchange-traded companies like Tesla, Inc., MicroStrategy Incorporated, and Square, Inc., among others, have announced substantial investments in bitcoin in amounts as large as $1.5 billion (Tesla) and $425 million (MicroStrategy). The foregoing examples demonstrate that bitcoin has gained mainstream usage and recognition across the U.S. market. Despite these developments, access for U.S. retail investors to gain exposure to bitcoin via a transparent and U.S. regulated, U.S. exchange-traded vehicle remains limited. Instead current options include: (i) facing the counter-party risk, legal uncertainty, technical risk, and complexity associated with accessing spot bitcoin; (ii) over-the-counter bitcoin funds (‘‘OTC Bitcoin Funds’’) with high management fees and potentially volatile premiums and (November 28, 2022) available at: https:// home.treasury.gov/system/files/126/20221128_ kraken.pdf. 40 See the FSOC ‘‘Report on Digital Asset Financial Stability Risks and Regulation 2022’’ (October 3, 2022) (at footnote 26) at https:// home.treasury.gov/system/files/261/FSOC-DigitalAssets-Report-2022.pdf. 41 See Letter from Division of Corporation Finance, Office of Real Estate & Construction to Barry E. Silbert, Chief Executive Officer, Grayscale Bitcoin Trust (January 31, 2020) https:// www.sec.gov/Archives/edgar/data/1588489/ 000000000020000953/filename1.pdf. E:\FR\FM\01JYN1.SGM 01JYN1 Federal Register / Vol. 89, No. 126 / Monday, July 1, 2024 / Notices ddrumheller on DSK120RN23PROD with NOTICES1 discounts; 42 (iii) purchasing shares of operating companies that they believe will provide proxy exposure to bitcoin with limited disclosure about the associated risks; 43 or (iv) purchasing Bitcoin Futures exchange-traded funds (‘‘ETFs’’), as defined below, which represent a sub-optimal structure for long-term investors that will cost them significant amounts of money every year compared to Spot Bitcoin ETPs, as further discussed below. Meanwhile, investors in many other countries, including Canada and Brazil, are able to use more traditional exchange listed and traded products (including ETFs holding physical bitcoin) to gain exposure to bitcoin. Similarly, investors in Switzerland and across Europe have access to ETPs which trade on regulated exchanges and provide exposure to a broad array of spot crypto assets. U.S. investors, by contrast, are left with 42 The premium and discount for OTC Bitcoin Funds is known to move rapidly. For example, over the period of 12/21/20 to 1/21/21, the premium for the largest OTC Bitcoin Funds went from 40.18% to 2.79%. While the price of bitcoin appreciated significantly during this period and NAV per share increased by 41.25%, the price per share increased by only 3.58%. This means that investors are buying shares of a fund that experiences significant volatility in its premium and discount outside of the fluctuations in price of the underlying asset. Even operating within the normal premium and discount range, it’s possible for an investor to buy shares of an OTC Bitcoin Funds only to have those shares quickly lose 10% or more in dollar value excluding any movement of the price of bitcoin. That is to say—the price of bitcoin could have stayed exactly the same from market close on one day to market open the next, yet the value of the shares held by the investor decreased only because of the fluctuation of the premium. As more investment vehicles, including mutual funds and ETFs, seek to gain exposure to bitcoin, the easiest option for a buy and hold strategy for such vehicles is often an OTC Bitcoin Funds, meaning that even investors that do not directly buy OTC Bitcoin Funds can be disadvantaged by extreme premiums (or discounts) and premium/discount volatility. 43 A number of operating companies engaged in unrelated businesses—such as Tesla (a car manufacturer) and MicroStrategy (an enterprise software company)—have announced investments as large as $5.3 billion in bitcoin. Without access to bitcoin exchange-traded products, retail investors seeking investment exposure to bitcoin may end up purchasing shares in these companies in order to gain the exposure to bitcoin that they seek. In fact, mainstream financial news networks have written a number of articles providing investors with guidance for obtaining bitcoin exposure through publicly traded companies (such as MicroStrategy, Tesla, and bitcoin mining companies, among others) instead of dealing with the complications associated with buying spot bitcoin in the absence of a Bitcoin ETP. See e.g., ‘‘7 public companies with exposure to bitcoin’’ (February 8, 2021) available at: https://finance.yahoo.com/news/7-publiccompanies-with-exposure-to-bitcoin154201525.html; and ‘‘Want to get in the crypto trade without holding bitcoin yourself? Here are some investing ideas’’ (February 19, 2021) available at: https://www.cnbc.com/2021/02/19/ways-toinvest-in-bitcoin-without-holding-thecryptocurrency-yourself-.html. VerDate Sep<11>2014 20:36 Jun 28, 2024 Jkt 262001 fewer and more risky means of getting bitcoin exposure, as described above.44 To this point, the lack of a Spot Bitcoin ETP exposes U.S. investor assets to significant risk because investors that would otherwise seek crypto asset exposure through a Spot Bitcoin ETP are forced to find alternative exposure through generally riskier means. For instance, many U.S. investors that held their digital assets in accounts at FTX,45 Celsius Network LLC,46 BlockFi Inc.47 and Voyager Digital Holdings, Inc.48 have become unsecured creditors in the insolvencies of those entities. If a Spot Bitcoin ETP was available, it is likely that at least a portion of the billions of dollars tied up in those proceedings would still reside in the brokerage accounts of U.S. investors, having instead been invested in a transparent, regulated, and well-understood structure—a Spot Bitcoin ETP. To this point, approval of a Spot Bitcoin ETP would represent a major win for the protection of U.S. investors in the crypto asset space. As further described below, the Trust, like all other series of Commodity-Based Trust Shares, is designed to protect investors against the risk of losses through fraud and insolvency that arise by holding bitcoin, on centralized platforms. Additionally, investors in other countries, specifically Canada, generally pay lower fees than U.S. retail investors that invest in OTC Bitcoin Funds due to the fee pressure that results from increased competition among available bitcoin investment options. Without an approved and regulated Spot Bitcoin ETP in the U.S. as a viable alternative, U.S. investors could seek to purchase shares of non-U.S. bitcoin vehicles in order to get access to bitcoin exposure. Given the separate regulatory regime and the potential difficulties associated with any international litigation, such an arrangement would create more risk exposure for U.S. investors than they would otherwise have with a U.S. exchange listed ETP. In addition to the benefits to U.S. investors articulated throughout this proposal, approving this proposal (and others like it) would provide U.S. ETFs and mutual funds with a U.S.-listed and regulated product to provide such access rather than 44 The Exchange notes that the list of countries above is not exhaustive and that securities regulators in a number of additional countries have either approved or otherwise allowed the listing and trading of Spot Bitcoin ETPs. 45 See FTX Trading Ltd., et al., Case No. 22– 11068. 46 See Celsius Network LLC, et al., Case No. 22– 10964. 47 See BlockFi Inc., Case No. 22–19361. 48 See Voyager Digital Holdings, Inc., et al., Case No. 22–10943. PO 00000 Frm 00156 Fmt 4703 Sfmt 4703 54559 relying on either more expensive, riskier U.S. based products or products listed and primarily regulated in other countries. Bitcoin Futures ETFs The Exchange and Sponsor applaud the Commission for allowing the launch of ETFs registered under the Investment Company Act of 1940, as amended (the ‘‘1940 Act’’), and the Bitcoin Futures Approvals that provide exposure to bitcoin primarily through CME Bitcoin Futures (‘‘Bitcoin Futures ETFs’’). Allowing such products to list and trade is a productive first step in providing U.S. investors and traders with transparent, exchange-listed tools for expressing an investment 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.49 Leaving aside the analysis of that standard until later in this proposal,50 the Exchange believes that the following rationale the Commission applied to a Bitcoin Futures ETF should result in the 49 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. 50 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. E:\FR\FM\01JYN1.SGM 01JYN1 54560 Federal Register / Vol. 89, No. 126 / Monday, July 1, 2024 / Notices Commission approving this and other Spot Bitcoin ETP proposals: The CME ‘‘comprehensively surveils futures market conditions and price movements on a real-time and ongoing basis in order to detect and prevent price distortions, including price distortions caused by manipulative efforts.’’ Thus, the CME’s surveillance can reasonably be relied upon to capture the effects on the CME Bitcoin Futures market caused by a person attempting to manipulate the proposed futures ETP by manipulating the price of CME Bitcoin Futures contracts, whether that attempt is made by directly trading on the CME Bitcoin Futures market or indirectly by trading outside of the CME Bitcoin Futures market. As such, when the CME shares its surveillance information with Arca, the information would assist in detecting and deterring fraudulent or manipulative misconduct related to the non-cash assets held by the proposed ETP.51 CME Bitcoin Futures pricing is based on pricing from spot bitcoin markets. The statement from the Teucrium Approval that ‘‘CME’s surveillance can reasonably be relied upon to capture the effects on the CME Bitcoin Futures market caused by a person attempting to manipulate the proposed futures ETP by manipulating the price of CME Bitcoin Futures contracts. . .indirectly by trading outside of the CME Bitcoin Futures market,’’ makes clear that the Commission believes that CME’s surveillance can capture the effects of trading on the relevant spot markets on the pricing of CME Bitcoin Futures. This was further acknowledged in the ‘‘Grayscale lawsuit’’ 52 when Judge Rao stated ‘‘. . .the Commission in the Teucrium order recognizes that the futures prices are influenced by the spot prices, and the Commission concludes in approving futures ETPs that any fraud on the spot market can be adequately addressed by the fact that the futures market is a regulated one. . .’’. The Exchange agrees with the Commission on this point and notes that the pricing mechanism applicable to the Shares is similar to that of the CME Bitcoin Futures. The structure of Bitcoin Futures ETFs provides negative outcomes for buy and hold investors as compared to a Spot Bitcoin ETP.53 Specifically, the cost of 51 See Teucrium Approval at 21679. Investments, LLC v. Securities and Exchange Commission, et al., Case No. 22–1142. 53 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- ddrumheller on DSK120RN23PROD with NOTICES1 52 Grayscale VerDate Sep<11>2014 20:36 Jun 28, 2024 Jkt 262001 rolling CME Bitcoin Futures contracts will cause the Bitcoin Futures ETFs to lag the performance of bitcoin itself and would cost U.S. investors significant amounts of money on an annual basis compared to Spot Bitcoin ETPs. Such rolling costs would not be required for Spot Bitcoin ETPs that hold bitcoin. Further, Bitcoin Futures ETFs could potentially hit CME position limits, which would force a Bitcoin Futures ETF to invest in non-futures assets for bitcoin exposure and cause potential investor confusion and lack of certainty about what such Bitcoin Futures ETFs are actually holding to try to get exposure to bitcoin, which would also materially change the risk profile associated with such an ETF. While Bitcoin Futures ETFs represent a useful trading tool, they are clearly suboptimal as the sole exchange traded vehicle structure for U.S. investors that are looking for long-term exposure to bitcoin and could, based on the calculations above, unnecessarily cost U.S. investors significant amounts of money every year compared to Spot Bitcoin ETPs. The Exchange believes that any proposal to list and trade a Spot Bitcoin ETP should be reviewed by the Commission with this important investor protection context in mind. Based on the foregoing, the Exchange and Sponsor believe that an objective review of the proposals to list Spot Bitcoin ETPs compared to and in view of the Bitcoin Futures ETFs and the Bitcoin Futures Approvals as well as limitations of existing approved product structures, would lead to the conclusion that Spot Bitcoin ETPs would benefit U.S. investors and should be available to U.S. investors. As such, this proposal and other comparable proposals to list and trade Spot Bitcoin ETPs should be approved by the Commission. In summary, U.S. investors 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 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-etfprospects-shine?nopaging=1&__cf_chl_jschl_tk__ =pmd_JsK.fjXz9eAQW9zol0qpzhXDrrlpIV doCloLXbLjl44-1635476946-0gqNtZGzNApCjcnBszQql. PO 00000 Frm 00157 Fmt 4703 Sfmt 4703 would apply equally to the spot markets underlying the futures contracts held by a Bitcoin Futures ETF. Both the Exchange and Sponsor believe that the CME Bitcoin Futures market is a regulated market of significant size and that such manipulation concerns are mitigated, as described extensively below. After allowing and approving the listing and trading of Bitcoin Futures ETFs that hold primarily CME Bitcoin Futures, however, the only consistent outcome would be approving Spot Bitcoin ETPs on the basis that the CME Bitcoin Futures market is a regulated market of significant size. Given the current landscape, approving this proposal (and others like it) and allowing Spot Bitcoin ETPs to be listed and traded alongside Bitcoin Futures ETFs would establish a consistent regulatory approach, provide U.S. investors with choice in product structures for bitcoin exposure, and offer flexibility in the means of gaining exposure to bitcoin through transparent, regulated, U.S. exchange-listed vehicles. 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.54 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.55 54 According to CME, the CME CF Bitcoin Reference Rate aggregates the trade flow of major bitcoin spot trading platforms during a specific calculation window into a once-a-day reference rate of the U.S. dollar price of bitcoin. Calculation rules are geared toward maximum transparency and realtime replicability in underlying spot markets, including Bitstamp, Coinbase, Gemini, itBit, Kraken, and LMAX Digital. For additional information, refer to https://www.cmegroup.com/ trading/cryptocurrency-indices/cf-bitcoin-referencerate.html?redirect=/trading/cf-bitcoin-referencerate.html. 55 Source: CME, Yahoo Finance 4/30/23. E:\FR\FM\01JYN1.SGM 01JYN1 54561 Federal Register / Vol. 89, No. 126 / Monday, July 1, 2024 / Notices CME BitcolnFutures Open tnterest.·(OJ) i6R] :7ol< :i.4KIi I :i.bKi ~ 8 SK! •• 6Ki i;: .10K : dlll1111mll ll111I I !2018 ;oK ··--- 20i~ The number of large open interest holders 56 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 90 ... 80 "Cl 70 {j') <lJ 0 :i:: 60 0 # 50 40 30 20 10 VerDate Sep<11>2014 20:36 Jun 28, 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 00158 Fmt 4703 Sfmt 4725 2023 more than 100 firms had outstanding positions of greater than $3.65 million in Bitcoin Futures. E:\FR\FM\01JYN1.SGM 01JYN1 EN01JY24.001</GPH> 56 A large open interest holder in Bitcoin Futures is an entity that holds at least 25 contracts, which 2020 EN01JY24.000</GPH> ddrumheller on DSK120RN23PROD with NOTICES1 2019 54562 Federal Register / Vol. 89, No. 126 / Monday, July 1, 2024 / Notices ·CI\/IEBitcoinFuturesAverageDailyVoJume(ADV) ·· ················ ····· l6sk ·····lMK i3lt:· • 121<! .. rnd · ··'55K ::~:i 101< L.... •· ....... ;4hK! ' 0 !351(; 301< .!! ~ • ··j2SK} '.20K. i1ok jSK 2019 The Sponsor further believes that publicly available research, including research done as part of rule filings proposing to list and trade shares of Spot Bitcoin ETPs, corroborates the overall trend outlined above and supports the thesis that the Bitcoin Futures pricing leads the spot market and, thus, a person attempting to manipulate the Shares would also have to trade on that market to manipulate the ETP. Specifically, the Sponsor believes that such research indicates that Bitcoin Futures lead the bitcoin spot market in price formation.57 Section 6(b)(5) and the Applicable Standards ddrumheller on DSK120RN23PROD with NOTICES1 The Commission has approved numerous series of Trust Issued Receipts,58 including Commodity-Based 57 See Exchange Act Releases No. 94080 (January 27, 2022), 87 FR 5527 (April 12, 2022) (specifically ‘‘Amendment No. 1 to the Proposed Rule Change To List and Trade Shares of the Wise Origin Bitcoin Trust Under BZX Rule 14.11(3)(4), CommodityBased Trust Shares’’); 94982 (May 25, 2022), 87 FR 33250 (June 1, 2022); 94844 (May 4, 2022), 87 FR 28043 (May 10, 2022); and 93445 (October 28, 2021), 86 FR 60695 (November 3, 2021). See also Hu, Y., Hou, Y. and Oxley, L. (2019). ‘‘What role do futures markets play in Bitcoin pricing? Causality, cointegration and price discovery from a time-varying perspective’’ (available at: https:// www.ncbi.nlm.nih.gov/pmc/articles/PMC7481826/). This academic research paper concludes that ‘‘There exist no episodes where the Bitcoin spot markets dominates the price discovery processes with regard to Bitcoin futures. This points to a conclusion that the price formation originates solely in the Bitcoin futures market. We can, therefore, conclude that the Bitcoin futures markets dominate the dynamic price discovery process based upon time-varying information share measures. Overall, price discovery seems to occur in the Bitcoin futures markets rather than the underlying spot market based upon a time-varying perspective.’’ 58 See Exchange Rule 14.11(f). VerDate Sep<11>2014 20:36 Jun 28, 2024 Jkt 262001 2021 2022 Trust Shares,59 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; 60 and 59 Commodity-Based Trust Shares, as described in Exchange Rule 14.11(e)(4), are a type of Trust Issued Receipt. 60 As the Exchange has stated in a number of other public documents, it continues to believe that bitcoin is resistant to price manipulation and that ‘‘other means to prevent fraudulent and manipulative acts and practices’’ exist to justify dispensing with the requisite surveillance sharing agreement. The geographically diverse and continuous nature of bitcoin trading render it difficult and prohibitively costly to manipulate the price of bitcoin. The fragmentation across bitcoin platforms, the relatively slow speed of transactions, and the capital necessary to maintain a significant presence on each trading platform make manipulation of bitcoin prices through continuous trading activity challenging. To the extent that there are bitcoin trading 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 trading platforms 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 trading platform or OTC platform. As a result, the potential for manipulation on a trading platform would require overcoming the liquidity supply of such arbitrageurs who are effectively eliminating any cross-market pricing differences. PO 00000 Frm 00159 Fmt 4703 Sfmt 4703 2023 (ii) the requirement that an exchange proposal be designed, in general, to protect investors and the public interest. The Exchange believes that this proposal is consistent with the requirements of Section 6(b)(5) of the Act and that this filing sufficiently demonstrates that the CME Bitcoin Futures market represents a regulated market of significant size and that, on the whole, the manipulation concerns previously articulated by the Commission are sufficiently mitigated to the point that they are outweighed by quantifiable investor protection issues that would be resolved by approving this proposal. (i) Designed To Prevent Fraudulent and Manipulative Acts and Practices In order to meet this standard in a proposal to list and trade a series of Commodity-Based Trust Shares, the Commission requires that an exchange demonstrate that there is a comprehensive surveillance-sharing agreement in place 61 with a regulated 61 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 E:\FR\FM\01JYN1.SGM 01JYN1 EN01JY24.002</GPH> 2018 Federal Register / Vol. 89, No. 126 / Monday, July 1, 2024 / Notices market of significant size. Both the Exchange and CME are members of the Intermarket Surveillance Group (‘‘ISG’’).62 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.63 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.64 ddrumheller on DSK120RN23PROD with NOTICES1 (a) Manipulation of the ETP According to the research and analysis presented above, the Bitcoin Futures market is the leading market for bitcoin price formation. Where Bitcoin Futures lead the price in the spot market such that a potential manipulator of the bitcoin spot market (beyond just the constituents of the Index 65) would have to participate in the Bitcoin Futures market, it follows that a potential manipulator of the Shares would similarly have to transact in the Bitcoin Futures market because the Index is based on spot prices. As such, the from obtaining this information from, or producing it to, the other party.’’ The Commission has historically held that joint membership in the 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’’). 62 For a list of the current members and affiliate members of ISG, see www.isgportal.com. 63 See Wilshire Phoenix Disapproval. 64 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. 65 As further described below, the ‘‘Index’’ for the Trust is the CME CF Bitcoin Reference Rate. VerDate Sep<11>2014 20:36 Jun 28, 2024 Jkt 262001 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 trading of 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 influencing prices in the Bitcoin Futures market or spot market for a number of reasons, including the significant daily trading volume in the Bitcoin Futures market, the size of bitcoin’s market capitalization, 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. As the court found in the Grayscale Order, the Exchange and the Sponsor submit that ‘‘[b]ecause the spot market is deeper and more liquid than the futures market, manipulation should be more difficult, not less.’’ (c) Other Means To Prevent Fraudulent and Manipulative Acts and Practices The Commission also permits a listing exchange to demonstrate that ‘‘other means to prevent fraudulent and manipulative acts and practices’’ are sufficient to justify dispensing with the requisite surveillance-sharing agreement. The Exchange and Sponsor believe that such conditions are present. (ii) Designed To Protect Investors and the Public Interest The Exchange believes that the proposal is designed to protect investors and the public interest. Over the past several years, U.S. investor exposure to bitcoin through OTC Bitcoin Funds has grown into the tens of billions of dollars, including through Bitcoin Futures ETFs. With that growth, so too has grown the quantifiable investor protection issues to U.S. investors including in connection with roll costs for Bitcoin Futures ETFs and premium/ discount volatility and management fees for OTC Bitcoin Funds. The Exchange believes that the concerns related to the prevention of fraudulent and manipulative acts and practices have been sufficiently addressed for this proposal to be consistent with the Act and, to the extent that the Commission disagrees with that assertion, such concerns are now outweighed by investor protection concerns. As such, the Exchange believes that approving this proposal (and comparable proposals) provides the Commission PO 00000 Frm 00160 Fmt 4703 Sfmt 4703 54563 with the opportunity to allow U.S. investors to access bitcoin in a regulated and transparent exchange-traded vehicle that would act to limit risk and benefit U.S. investors by: (i) reducing premium and discount volatility as compared to OTC investment vehicles; (ii) increasing competitive pressure on management fees resulting in fee compression/ reductions; (iii) reducing risks and costs as compared to those associated with investing in Bitcoin Futures ETFs and operating companies that represent imperfect proxies for bitcoin exposure; and (iv) providing an alternative to custodying spot bitcoin. Pando Asset Spot Bitcoin Trust Wilmington Trust is the trustee (‘‘Trustee’’). The Bitcoin Custodian will be responsible for safekeeping of the Trust’s bitcoin. U.S. Bank serves as the Trust’s administrator (the ‘‘Administrator’’), transfer agent (the ‘‘Transfer Agent’’), and will act as the Cash Custodian of the Trust’s cash and cash equivalents.66 As noted above, Coinbase Custody Trust Company, LLC is the Bitcoin Custodian and will be responsible for safekeep of the Trust’s bitcoin. According to the Registration Statement, each Share will represent a fractional undivided beneficial interest in the Trust. The Trust’s assets will consist only of bitcoin, cash, and cash equivalents. According to the Registration Statement, the Trust is neither an investment company registered under the Investment Company Act of 1940, as amended,67 nor a commodity pool for purposes of the Commodity Exchange Act (‘‘CEA’’), and neither the Trust nor or the Sponsor is subject to regulation as a commodity pool operator or a commodity trading adviser in connection with the Shares. The Trust will not acquire and will disclaim any incidental right (‘‘IR’’) or IR asset received, for example as a result of forks or airdrops, and such assets will not be taken into account for purposes of determining NAV. When the Trust sells or redeems its Shares, it will do so in cash transactions in blocks of 5,000 Shares (a ‘‘Creation Basket’’) at the Trust’s net asset value (‘‘NAV’’). Authorized participants will deliver, or facilitate the delivery of, cash to the Trust’s account with the Cash Custodian in exchange for Shares when they purchase Shares, and the Trust, through the Cash Custodian, will deliver cash to such authorized participants 66 Cash equivalents are short-term instruments with maturities of less than 3 months. 67 15 U.S.C. 80a–1. E:\FR\FM\01JYN1.SGM 01JYN1 54564 Federal Register / Vol. 89, No. 126 / Monday, July 1, 2024 / Notices when they redeem Shares. Authorized participants may then offer Shares to the public at prices that depend on various factors, including the supply and demand for Shares, the value of the Trust’s assets, and market conditions at the time of a transaction. Shareholders who buy or sell Shares during the day from their broker may do so at a premium or discount relative to the NAV of the Shares of the Trust. Investment Objective According to the Registration Statement and as further described below, the investment objective of the Trust is to generally reflect the performance of the price of bitcoin before payment of the Trust’s expenses. In seeking to achieve its investment objective, the Trust will hold only bitcoin, cash, and cash equivalents. The Trust will value its Shares daily based on the value of bitcoin as reflected by the Index, which is an independently calculated value based on an aggregation of executed trade flow of major bitcoin spot trading platforms. Specifically, the Index is calculated based on certain transactions of all of its constituent bitcoin trading platforms, which are currently Bitstamp, Coinbase, itBit, Kraken, Gemini, and LMAX Digital, and which may change from time to time. If the Index is not available or the Sponsor determines, in its sole discretion, that the Index should not be used, the Trust’s holdings may be fair valued in accordance with the policy approved by the Sponsor.68 ddrumheller on DSK120RN23PROD with NOTICES1 The Index As described in the Registration Statement, the Trust will value its Shares daily based on the value of bitcoin as reflected by the Index. The Index is calculated daily and aggregates the notional value of bitcoin trading activity across major bitcoin spot trading platforms. The Index uses the same methodology as the CME CF Bitcoin Reference Rate (‘‘BRR’’), including utilizing the same constituent bitcoin trading platforms, which is the underlying rate to determine settlement of CME Bitcoin Futures contracts, except that the Index is calculated as of 4 p.m. ET, whereas the BRR is calculated as of 4 p.m. London time. The Index is designed based on the International Organization of Securities Commissions (‘‘IOSCO’’) Principals for Financial Benchmarks. The 68 Any alternative method will only be employed on an ad hoc basis. Any permanent change to the calculation of the NAV would require a proposed rule change under Rule 19b–4. VerDate Sep<11>2014 20:36 Jun 28, 2024 Jkt 262001 administrator of the Index is CF Benchmarks Ltd. (the ‘‘Index Provider’’). The Index was created to facilitate financial products based on bitcoin. It 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 Index, which has been calculated and published since February 28, 2022, aggregates the trade flow of several bitcoin trading 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 Index is calculated based on the ‘‘Relevant Transactions’’ (as defined below) of all of its constituent bitcoin trading platforms, which are currently Coinbase, Bitstamp, Kraken, itBit, LMAX Digital and Gemini (the ‘‘Constituent Platforms’’), as follows: • All Relevant Transactions are added to a joint list, recording the time of execution, trade price and size for each transaction. • The list is partitioned by timestamp into 12 equally-sized time intervals of 5 (five) minute length. • For each partition separately, the volume-weighted median trade price is calculated from the trade prices and sizes of all Relevant Transactions, i.e., across all Constituent Platforms. A volume-weighted median differs from a standard median in that a weighting factor, in this case trade size, is factored into the calculation. • The Index is then determined by the equally-weighted average of the volume medians of all partitions. The Index does not include any futures prices in its methodology. 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 Provider. The Sponsor believes that the use of the Index is reflective of a reasonable valuation of the average spot price of bitcoin and that resistance to manipulation is a priority aim of its design methodology. The methodology: (i) takes an observation period and divides it into equal partitions of time; (ii) then calculates the volume-weighted median of all transactions within each partition; and (iii) the value is determined from the arithmetic mean of the volume-weighted medians, equally weighted. By employing the foregoing steps, the Index thereby seeks to ensure that transactions in bitcoin conducted at PO 00000 Frm 00161 Fmt 4703 Sfmt 4703 outlying prices do not have an undue effect on the value of the Index, large trades or clusters of trades transacted over a short period of time will not have an undue influence on the Index value, and the effect of large trades at prices that deviate from the prevailing price are mitigated from having an undue influence on the Index value. In addition, the Sponsor notes that an oversight function is implemented by the Index Provider in seeking to ensure that the Index is administered through codified policies for Index integrity. Index data and the description of the Index are based on information made publicly available by the Index Provider on its website at https:// www.cfbenchmarks.com. Net Asset Value NAV means the total assets of the Trust (which includes bitcoin, cash and cash equivalents) less total liabilities of the Trust. The Administrator will determine the NAV of the Trust on each day that the Exchange is open for regular trading, as promptly as practical after 4:00 p.m. ET. The NAV of the Trust is the aggregate value of the Trust’s assets less its estimated accrued but unpaid liabilities (which include accrued expenses). In determining the Trust’s NAV, the Administrator values the bitcoin held by the Trust based on the price set by the Index as of 4:00 p.m. ET. The Administrator also determines the NAV per Share. The NAV for the Trust will be calculated by the Administrator once a day and will be disseminated daily to all market participants at the same time. Availability of Information The website for the Trust, which will be publicly accessible at no charge, will contain the following information: (a) the current NAV per Share daily and the prior business day’s NAV per Share and the reported BZX Official Closing Price; 69 (b) the BZX Official Closing Price in relation to the NAV per Share as of the time the NAV is calculated and a calculation of the premium or discount of such price against such NAV per Share; (c) data in chart form displaying the frequency distribution of discounts and premiums of the BZX 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); (d) the prospectus; and (e) other applicable quantitative information. The aforementioned 69 As defined in Rule 11.23(a)(3), the term ‘‘BZX Official Closing Price’’ shall mean the price disseminated to the consolidated tape as the market center closing trade. E:\FR\FM\01JYN1.SGM 01JYN1 ddrumheller on DSK120RN23PROD with NOTICES1 Federal Register / Vol. 89, No. 126 / Monday, July 1, 2024 / Notices information will be published as of the close of business available on the Trust’s website at https:// puglisiassoc.com, or any successor thereto. The Trust will also disseminate its holdings on a daily basis on its website. The Intraday Indicative Value (‘‘IIV’’) will be calculated by using the prior day’s closing NAV per Share as a base and updating that value during Regular Trading Hours to reflect changes in the value of the Trust’s bitcoin holdings during the trading day, which is based on the CME CF Bitcoin Real Time Index (‘‘BRTI’’). The IIV disseminated during Regular Trading Hours should not be viewed as an actual real-time update of the NAV, which will be calculated only once at the end of each trading day. The IIV will be widely disseminated on a per Share basis every 15 seconds during the Exchange’s Regular Trading Hours through the facilities of the consolidated tape association (CTA) and Consolidated Quotation System (CQS) high speed lines. In addition, the IIV will be available through on-line information services such as Bloomberg and Reuters. The price of bitcoin will be made available by one or more major market data vendors, updated at least every 15 seconds during Regular Trading Hours. As noted above, the Index is calculated daily and aggregates the notional value of bitcoin trading activity across major bitcoin spot trading platforms. Index data, the Index value, and the description of the Index are based on information made publicly available by the Index Provider on its website at https:// www.cfbenchmarks.com. Quotation and last sale information for bitcoin is widely disseminated through a variety of major market data vendors, including Bloomberg and Reuters. Information relating to trading, including price and volume information, in bitcoin is available from major market data vendors and from the trading platforms on which bitcoin are traded. Depth of book information is also available from bitcoin trading platforms. The normal trading hours for bitcoin trading 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 BZX Official Closing Price and trading volume information for the Shares will be published daily in the financial section of newspapers. Quotation and last-sale information VerDate Sep<11>2014 20:36 Jun 28, 2024 Jkt 262001 regarding the Shares will be disseminated through the facilities of the CTA. The Bitcoin Custodian The Bitcoin Custodian carefully considers the design of the physical, operational and cryptographic systems for secure storage of the Trust’s private keys in an effort to lower the risk of loss or theft. The Bitcoin Custodian utilizes a variety of security measures to ensure that private keys necessary to transfer digital assets remain uncompromised and that the Trust maintains exclusive ownership of its assets. The Bitcoin Custodian will keep a substantial portion of the private keys associated with the Trust’s bitcoin in ‘‘cold storage’’ 70 or similarly secure technology (the ‘‘Cold Vault Balance’’) The hardware, software, systems, and procedures of the Bitcoin Custodian may not be available or cost-effective for many investors to access directly Only specific individuals are authorized to participate in the custody process, and no individual acting alone will be able to access or use any of the private keys. In addition, no combination of the executive officers of the Sponsor, acting alone or together, will be able to access or use any of the private keys that hold the Trust’s bitcoin. Creation and Redemption of Shares When the Trust sells or redeems its Shares, it will do so in cash transactions in blocks of 5,000 Shares that are based on the quantity of bitcoin attributable to each Share of the Trust (e.g., a Creation Basket) at the NAV. 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 70 The term ‘‘cold storage’’ refers to a safeguarding method by which the private keys corresponding to bitcoins stored on a digital wallet are removed from any computers actively connected to the internet. Cold storage of private keys may involve keeping such wallet on a non-networked computer or electronic device or storing the public key and private keys relating to the digital wallet on a storage device (for example, a USB thumb drive) or printed medium (for example, papyrus or paper) and deleting the digital wallet from all computers. PO 00000 Frm 00162 Fmt 4703 Sfmt 4703 54565 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. According to the Registration Statement, on any business day, an authorized participant may place an order to create one or more Creation Baskets. Purchase orders for cash transaction Creation Baskets must be placed by 4:00 p.m. Eastern Time, or the close of regular trading on the Exchange, whichever is earlier. The day on which an order is received is considered the purchase order date. The total deposit of cash required is based on the combined NAV of the number of Shares included in the Creation Baskets being created determined as of 4:00 p.m. ET on the date the order to purchase is properly received. The Administrator determines the quantity of bitcoin associated with a Creation Basket for a given day by dividing the number of bitcoin held by the Trust as of the opening of business on that business day, adjusted for the amount of bitcoin constituting estimated accrued but unpaid fees and expenses of the Trust as of the opening of business on that business day, by the quotient of the number of Shares outstanding at the opening of business divided by the number of Shares in a Creation Basket. The procedures by which an authorized participant can redeem one or more Creation Baskets mirror the procedures for the creation of Creation Baskets. The Sponsor (including its delegates) will maintain ownership and control of the Trust’s bitcoin in a manner consistent with good delivery requirements for spot commodity transactions. Rule 14.11(e)(4)—Commodity-Based Trust Shares The Shares will be subject to BZX Rule 14.11(e)(4), which sets forth the initial and continued listing criteria applicable to Commodity-Based Trust Shares. The Exchange represents that, for initial and continued listing, the Trust must be in compliance with Rule 10A–3 under the Act. A minimum of E:\FR\FM\01JYN1.SGM 01JYN1 ddrumheller on DSK120RN23PROD with NOTICES1 54566 Federal Register / Vol. 89, No. 126 / Monday, July 1, 2024 / Notices 100,000 Shares will be outstanding at the commencement of listing on the Exchange. The Exchange will obtain a representation that the NAV will be calculated daily and information about the NAV and the assets of the Trust will be made available to all market participants at the same time. The Exchange notes that, as defined in Rule 14.11(e)(4)(C)(i), the Shares will be: (a) issued by a trust that holds (1) a specified commodity 71 deposited with the trust, or (2) a specified commodity and, in addition to such specified commodity, cash; (b) issued by such trust in a specified aggregate minimum number in return for a deposit of a quantity of the underlying commodity and/or cash; and (c) when aggregated in the same specified minimum number, may be redeemed at a holder’s request by such trust which will deliver to the redeeming holder the quantity of the underlying commodity and/or cash. Upon termination of the Trust, the Shares will be removed from listing. The Trustee, Delaware Trust Company, is a trust company having substantial capital and surplus and the experience and facilities for handling corporate trust business, as required under Rule 14.11(e)(4)(E)(iv)(a) and that no change will be made to the trustee without prior notice to and approval of the Exchange. The Exchange also notes that, pursuant to Rule 14.11(e)(4)(F), neither the Exchange nor any agent of the Exchange shall have any liability for damages, claims, losses or expenses caused by any errors, omissions or delays in calculating or disseminating any underlying commodity value, the current value of the underlying commodity required to be deposited to the Trust in connection with issuance of Commodity-Based Trust Shares; resulting from any negligent act or omission by the Exchange, or any agent of the Exchange, or any act, condition or cause beyond the reasonable control of the Exchange, its agent, including, but not limited to, an act of God; fire; flood; extraordinary weather conditions; war; insurrection; riot; strike; accident; action of government; communications or power failure; equipment or software malfunction; or any error, omission or delay in the reports of transactions in an underlying commodity. Finally, as required in Rule 14.11(e)(4)(G), the Exchange notes that any registered market maker (‘‘Market Maker’’) in the Shares must file with the Exchange in 71 For purposes of Rule 14.11(e)(4), the term commodity takes on the definition of the term as provided in the Commodity Exchange Act. As noted above, the CFTC has opined that Bitcoin is a commodity as defined in Section 1a(9) of the Commodity Exchange Act. See Coinflip. VerDate Sep<11>2014 20:36 Jun 28, 2024 Jkt 262001 a manner prescribed by the Exchange and keep current a list identifying all accounts for trading in an underlying commodity, related commodity futures or options on commodity futures, or any other related commodity derivatives, which the registered Market Maker may have or over which it may exercise investment discretion. No registered Market Maker shall trade in an underlying commodity, related commodity futures or options on commodity futures, or any other related commodity derivatives, in an account in which a registered Market Maker, directly or indirectly, controls trading activities, or has a direct interest in the profits or losses thereof, which has not been reported to the Exchange as required by this Rule. In addition to the existing obligations under Exchange rules regarding the production of books and records (see, e.g., Rule 4.2), the registered Market Maker in CommodityBased Trust Shares shall make available to the Exchange such books, records or other information pertaining to transactions by such entity or registered or non-registered employee affiliated with such entity for its or their own accounts for trading the underlying physical commodity, related commodity futures or options on commodity futures, or any other related commodity derivatives, as may be requested by the Exchange. 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 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 PO 00000 Frm 00163 Fmt 4703 Sfmt 4703 Shares under the conditions specified in BZX Rule 11.18. Trading may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable. These may include: (1) the extent to which trading is not occurring in the bitcoin underlying the Shares; or (2) whether other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present. Trading in the Shares also will be subject to Rule 14.11(e)(4)(E)(ii), which sets forth circumstances under which trading in the Shares may be halted. 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 with respect to the Shares is not disseminated to all market participants at the same time, it will halt trading in the Shares until such time as the NAV is available to all market participants. Trading Rules The Exchange deems the Shares to be equity securities, thus rendering trading in the Shares subject to the Exchange’s existing rules governing the trading of equity securities. BZX will allow trading in the Shares during all trading sessions on the Exchange. The Exchange has appropriate rules to facilitate transactions in the Shares during all trading sessions. As provided in BZX Rule 11.11(a) the minimum price variation for quoting and entry of orders in securities traded on the Exchange is $0.01 where the price is greater than $1.00 per share or $0.0001 where the price is less than $1.00 per share. The Shares of the Trust will conform to the initial and continued listing criteria set forth in BZX Rule 14.11(e)(4). Surveillance The Exchange represents that its surveillance procedures are adequate to properly monitor the trading of the Shares on the Exchange during all trading sessions and to deter and detect violations of Exchange rules and the applicable federal securities laws. Trading of the Shares through the Exchange will be subject to the Exchange’s surveillance procedures for derivative products, including E:\FR\FM\01JYN1.SGM 01JYN1 Federal Register / Vol. 89, No. 126 / Monday, July 1, 2024 / Notices ddrumheller on DSK120RN23PROD with NOTICES1 Commodity-Based Trust Shares. FINRA conducts certain cross-market surveillances on behalf of the Exchange pursuant to a regulatory services agreement. The Exchange is responsible for FINRA’s performance under this regulatory services agreement. The Exchange or FINRA, on behalf of the Exchange, or both, will communicate as needed regarding trading in the Shares, CME Bitcoin Futures, or any other bitcoin derivative 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, CME Bitcoin Futures, or any other bitcoin derivative from such markets and other entities.72 The Exchange may obtain information regarding trading in the Shares, CME Bitcoin Futures, or any other bitcoin derivative via ISG, from other exchanges who are members or affiliates of the ISG, or with which the Exchange has entered into a comprehensive surveillance sharing agreement. In addition, the Exchange also has a general policy prohibiting the distribution of material, non-public information by its employees. The Sponsor has represented to the Exchange that it will advise the Exchange of any failure by the Trust or the Shares to comply with the continued listing requirements, and, pursuant to its obligations under Section 19(g)(1) of the Exchange Act, the Exchange will surveil for compliance with the continued listing requirements. If the Trust or the Shares are not in compliance with the applicable listing requirements, the Exchange will commence delisting procedures under Exchange Rule 14.12. Information Circular Prior to the commencement of trading, the Exchange will inform its members in an Information Circular of the special characteristics and risks associated with trading the Shares. Specifically, the Information Circular will discuss the following: (i) the procedures for the creation and redemption of Creation Baskets (and that the Shares are not individually redeemable); (ii) BZX Rule 3.7, which imposes suitability obligations on Exchange members with respect to recommending transactions in the Shares to customers; (iii) how information regarding the IIV and the Trust’s NAV are disseminated; (iv) the risks involved in trading the Shares 72 For a list of the current members and affiliate members of ISG, see www.isgportal.com. VerDate Sep<11>2014 20:36 Jun 28, 2024 Jkt 262001 outside of Regular Trading Hours 73 when an updated IIV will not be calculated or publicly disseminated; (v) the requirement that members deliver a prospectus to investors purchasing newly issued Shares prior to or concurrently with the confirmation of a transaction; and (vi) trading information. 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 CME Bitcoin Futures contracts and options on CME Bitcoin Futures contracts. In addition, the Information Circular will advise members, prior to the commencement of trading, of the prospectus delivery requirements applicable to the Shares. Members purchasing the Shares for resale to investors will deliver a prospectus to such investors. The Information Circular will also discuss any exemptive, noaction and interpretive relief granted by the Commission from any rules under the Act. 2. Statutory Basis The Exchange believes that the proposal is consistent with Section 6(b) of the Act 74 in general and Section 6(b)(5) of the Act 75 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, including Commodity-Based Trust Shares, 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; 76 and 73 Regular Trading Hours is the time between 9:30 a.m. and 4:00 p.m. Eastern time. 74 15 U.S.C. 78f. 75 15 U.S.C. 78f(b)(5). 76 As the Exchange has stated in a number of other public documents, it continues to believe that bitcoin is resistant to price manipulation and that PO 00000 Frm 00164 Fmt 4703 Sfmt 4703 54567 (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, in conjunction with precedent filings, sufficiently demonstrates that the CME Bitcoin Futures market represents a regulated market of significant size and that, on the whole, the manipulation concerns previously articulated by the Commission are sufficiently mitigated to the point that they are outweighed by quantifiable investor protection issues that would be resolved by approving this proposal. (i) Designed To Prevent Fraudulent and Manipulative Acts and Practices In order to meet this standard in a proposal to list and trade a series of Commodity-Based Trust Shares, the Commission requires that an exchange demonstrate that there is a comprehensive surveillance-sharing agreement in place 77 with a regulated ‘‘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 and impractical. To the extent that there are bitcoin trading 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 trading platform 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 trading platform or OTC platform. As a result, the potential for manipulation on a trading platform would require overcoming the liquidity supply of such arbitrageurs who are effectively eliminating any cross-market pricing differences. 77 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 E:\FR\FM\01JYN1.SGM Continued 01JYN1 54568 Federal Register / Vol. 89, No. 126 / Monday, July 1, 2024 / Notices market of significant size. Both the Exchange and CME are members of ISG. 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.78 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.79 ddrumheller on DSK120RN23PROD with NOTICES1 (a) Manipulation of the ETP According to the research and analysis presented above, the Bitcoin Futures market is the leading market for bitcoin price formation. Where Bitcoin Futures lead the price in the spot market such that a potential manipulator of the bitcoin spot market (beyond just the constituents of the Index) would have to participate in the Bitcoin Futures market, it follows that a potential manipulator of the Shares would similarly have to transact in the Bitcoin Futures market because the Index is based on spot prices. As such, the 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 ISG constitutes such a surveillance sharing agreement. See Wilshire Phoenix Disapproval). 78 Id. 79 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. VerDate Sep<11>2014 20:36 Jun 28, 2024 Jkt 262001 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 influence on prices in the Bitcoin Futures market or spot market for a number of reasons, including the significant daily trading volume in the Bitcoin Futures market, the size of bitcoin’s market capitalization, 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. As the court found in the Grayscale Order, the Exchange and the Sponsor submit that ‘‘[b]ecause the spot market is deeper and more liquid than the futures market, manipulation should be more difficult, not less.’’ (c) Other Means To Prevent Fraudulent and Manipulative Acts and Practices As noted above, the Commission also permits a listing exchange to demonstrate that ‘‘other means to prevent fraudulent and manipulative acts and practices’’ are sufficient to justify dispensing with the requisite surveillance-sharing agreement. The Exchange and Sponsor believe that such conditions are present in this case, in addition to the existence of a surveillance sharing agreement that meets the Commission’s previously articulated standards. (ii) Designed To Protect Investors and the Public Interest The Exchange believes that the proposal is designed to protect investors and the public interest. Over the past several years, U.S. investor exposure to bitcoin through OTC Bitcoin Funds has grown into the tens of billions of dollars, including through Bitcoin Futures ETFs. With that growth, so too has grown the quantifiable investor protection issues to U.S. investors including in connection with roll costs for Bitcoin Futures ETFs and premium/ discount volatility and management fees for OTC Bitcoin Funds. The Exchange believes that the concerns related to the prevention of fraudulent and manipulative acts and practices have been sufficiently addressed for this proposal to be consistent with the Act and, to the extent that the Commission disagrees with that assertion, such PO 00000 Frm 00165 Fmt 4703 Sfmt 4703 concerns are now outweighed by investor protection concerns. As such, the Exchange believes that approving this proposal (and comparable proposals) provides the Commission with the opportunity to allow U.S. investors to access bitcoin in a regulated and transparent exchange-traded vehicle that would act to limit risk and benefit U.S. investors by: (i) reducing premium and discount volatility as compared to OTC investment vehicles; (ii) increasing competitive pressure on management fees resulting in fee compression/ reductions; (iii) reducing risks and costs as compared to those associated with investing in Bitcoin Futures ETFs and operating companies that represent imperfect proxies for bitcoin exposure; and (iv) providing an alternative to custodying spot bitcoin. Commodity-Based Trust Shares The Exchange believes that the proposed rule change is designed to prevent fraudulent and manipulative acts and practices in that the Shares will be listed on the Exchange pursuant to the initial and continued listing criteria in Exchange Rule 14.11(e)(4). The Exchange believes that its surveillance procedures are adequate to properly monitor the trading of the Shares on the Exchange during all trading sessions and to deter and detect violations of Exchange rules and the applicable federal securities laws. Trading of the Shares through the Exchange will be subject to the Exchange’s surveillance procedures for derivative products, including Commodity-Based Trust Shares. The issuer has represented to the Exchange that it will advise the Exchange of any failure by the Trust or the Shares to comply with the continued listing requirements, and, pursuant to its obligations under Section 19(g)(1) of the Exchange Act, the Exchange will surveil for compliance with the continued listing requirements. If the Trust or the Shares are not in compliance with the applicable listing requirements, the Exchange will commence delisting procedures under Exchange Rule 14.12. The Exchange may obtain information regarding trading in the Shares and listed bitcoin derivatives via the ISG, from other exchanges who are members or affiliates of the ISG, or with which the Exchange has entered into a comprehensive surveillance sharing agreement. Availability of Information The Exchange also believes that the proposal promotes market transparency in that a large amount of information is currently available about bitcoin and will be available regarding the Trust and E:\FR\FM\01JYN1.SGM 01JYN1 ddrumheller on DSK120RN23PROD with NOTICES1 Federal Register / Vol. 89, No. 126 / Monday, July 1, 2024 / Notices the Shares. The website for the Trust, which will be publicly accessible at no charge, will contain the following information: (a) the current NAV per Share daily and the prior business day’s NAV per Share and the reported BZX Official Closing Price; (b) the BZX Official Closing Price 80 in relation to the NAV per Share as of the time the NAV is calculated and a calculation of the premium or discount of such price against such NAV per Share; (c) data in chart form displaying the frequency distribution of discounts and premiums of the BZX 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); (d) the prospectus; and (e) other applicable quantitative information. The aforementioned information will be published as of the close of business available on the Trust’s website at https:// puglisiassoc.com/, or any successor thereto. The Trust will also disseminate its holdings on a daily basis on its website. The IIV will be calculated by using the prior day’s closing NAV per Share as a base and updating that value during Regular Trading Hours to reflect changes in the value of the Trust’s bitcoin holdings during the trading day, which is based on the CME CF Bitcoin Real Time Index (‘‘BRTI’’). The IIV disseminated during Regular Trading Hours should not be viewed as an actual real-time update of the NAV, which will be calculated only once at the end of each trading day. The IIV will be widely disseminated on a per Share basis every 15 seconds during the Exchange’s Regular Trading Hours through the facilities of the consolidated tape association (CTA) and Consolidated Quotation System (CQS) high speed lines. In addition, the IIV will be available through on-line information services such as Bloomberg and Reuters. The price of bitcoin will be made available by one or more major market data vendors, updated at least every 15 seconds during Regular Trading Hours. As noted above, the Index is calculated daily and aggregates the notional value of bitcoin trading activity across major bitcoin spot trading platforms. Index data, the Index value, and the description of the Index are based on information made publicly available by the Index Provider on its website at https:// www.cfbenchmarks.com. 80 As defined in Rule 11.23(a)(3), the term ‘‘BZX Official Closing Price’’ shall mean the price disseminated to the consolidated tape as the market center closing trade. VerDate Sep<11>2014 20:36 Jun 28, 2024 Jkt 262001 Quotation and last sale information for bitcoin is widely disseminated through a variety of major market data vendors, including Bloomberg and Reuters. Information relating to trading, including price and volume information, in bitcoin is available from major market data vendors and from the trading platforms on which bitcoin are traded. Depth of book information is also available from bitcoin trading platforms. The normal trading hours for bitcoin trading 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 BZX Official Closing Price and trading volume information for the Shares will be published daily in the financial section of newspapers. Quotation and last-sale information regarding the Shares will be disseminated through the facilities of the CTA. In sum, the Exchange believes that this proposal is consistent with the requirements of Section 6(b)(5) of the Act, that this filing sufficiently demonstrates that the CME Bitcoin Futures market represents a regulated market of significant size, and that on the whole the manipulation concerns previously articulated by the Commission are sufficiently mitigated to the point that they are outweighed by investor protection issues that would be resolved by approving this proposal. The Exchange believes that the proposal is, in particular, designed to protect investors and the public interest. The investor protection issues for U.S. investors has grown significantly over the last several years, through roll costs for Bitcoin Futures ETFs and premium/ discount volatility and management fees for OTC Bitcoin Funds. As discussed herein, this growth investor protection concerns need to be reevaluated and rebalanced with the prevention of fraudulent and manipulative acts and practices concerns that previous disapproval orders have relied upon. The Exchange notes that in addition to all of the arguments herein which it believes sufficiently establish the CME Bitcoin Futures market as a regulated market of significant size, it is logically inconsistent to find that the CME Bitcoin Futures market is a significant market as it relates to the CME Bitcoin Futures market, but not a significant market as it relates to the bitcoin spot market for the numerous reasons laid out above. PO 00000 Frm 00166 Fmt 4703 Sfmt 4703 54569 Finally, the Exchange believes this proposal should be approved as it is similar to other proposals to list spot bitcoin ETFs, which were recently approved by the Commission.81 For the above reasons, the Exchange believes that the proposed rule change is consistent with the requirements of Section 6(b)(5) of the Act. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purpose of the Act. The Exchange notes that the proposed rule change, rather will facilitate the listing and trading of an additional exchange-traded product that will enhance competition among both market participants and listing venues, to the benefit of investors and the marketplace. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange neither solicited nor received comments on the proposed rule change. III. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change, as modified by Amendment No. 1, is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include file number SR– CboeBZX–2023–101 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to file number SR–CboeBZX–2023–101. 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 81 See Securities Exchange Act Release No. 99306 (January 10, 2024) 89 FR 3008 (January 17, 2024) (Order Granting Accelerated Approval of Proposed Rule Changes, as Modified by Amendments Thereto, To List and Trade Bitcoin-Based Commodity-Based Trust Shares and Trust Units). E:\FR\FM\01JYN1.SGM 01JYN1 54570 Federal Register / Vol. 89, No. 126 / Monday, July 1, 2024 / Notices post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–CboeBZX–2023–101 and should be submitted on or before July 22, 2024. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.82 Vanessa A. Countryman, Secretary. [FR Doc. 2024–14379 Filed 6–28–24; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–100421; File No. SR–NYSE– 2024–37] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Connectivity Fee Schedule been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend the Connectivity Fee Schedule (‘‘Fee Schedule’’) regarding colocation services and fees to provide Users with wireless connectivity to additional market data feeds. The proposed rule change is available on the Exchange’s website at www.nyse.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend the Fee Schedule regarding colocation services and fees to provide Users 4 with wireless connectivity to additional market data feeds. The Exchange currently provides Users with wireless connections to nine market data feeds or combinations of feeds from third-party markets (the ‘‘Existing Third Party Data’’), and wired ddrumheller on DSK120RN23PROD with NOTICES1 June 25, 2024. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that on June 12, 2024, New York Stock Exchange LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have 8217 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 20:36 Jun 28, 2024 Jkt 262001 4 For purposes of the Exchange’s colocation services, a ‘‘User’’ means any market participant that requests to receive colocation services directly from the Exchange. See Securities Exchange Act Release No. 76008 (September 29, 2015), 80 FR 60190 (October 5, 2015) (SR–NYSE–2015–40). As specified in the Fee Schedule, a User that incurs colocation fees for a particular colocation service pursuant thereto would not be subject to colocation fees for the same colocation service charged by the Exchange’s affiliates NYSE American LLC, NYSE Arca, Inc., NYSE Chicago, Inc., and NYSE National, Inc. (together, the ‘‘Affiliate SROs’’). Each Affiliate SRO has submitted substantially the same proposed rule change to propose the changes described herein. See SR–NYSEAMER–2024–40, SR– NYSEARCA–2024–54, SR–NYSECHX–2024–24, and SR–NYSENAT–2024–20. PO 00000 Frm 00167 Fmt 4703 Sfmt 4703 connections to more than 45 market data feeds or combinations of feeds.5 The Exchange proposes to add to the Fee Schedule wireless connections (‘‘Connectivity’’) to four additional market data feeds (together, the ‘‘Proposed Third Party Data’’): • MIAX Pearl Equities Depth of Market Feed (‘‘MIAX DoM’’),6 • Nasdaq BX TotalView-ITCH FPGA,7 • Nasdaq PSX TotalView, and • Nasdaq PSX TotalView-ITCH FPGA.8 As with most other Existing Third Party Data,9 the monthly charge for Connectivity to Proposed Third Party Data would be subject to a 30-day testing period, during which the monthly charge per connection would be waived. Consistent with that fact, the Exchange proposes to amend the Fee Schedule to clarify that this provision is applicable to Connectivity to the Proposed Third Party Data. Users would be offered Connectivity to Proposed Third Party Data through connections into the colocation center in the Mahwah, New Jersey data center (‘‘MDC’’).10 5 See Securities Exchange Act Release No. 99806 (March 20. 2024), 89 FR 21055 (March 26, 2024) (SR–NYSE–2024–15). 6 As described by MIAX PEARL, LCC, ‘‘[t]he [MIAX] DoM feed is a data feed that contains the displayed price and size of each order entered on MIAX PEARL Equities, as well as order execution information, order cancellations, order modifications, order identification numbers, and administrative messages.’’ Securities Exchange Act Release No. 91073 (February 5, 2021), 86 FR 9096, 9100 (February 11, 2021) (SR–PEARL–2021–02). 7 The difference between the Nasdaq BX TotalView feed and the Nasdaq BX TotalView-ITCH feed, which is part of the Existing Third Party Data, is the delivery mechanism: the data is the same. As described by Nasdaq BX, Inc., ‘‘BX TotalView is a real-time market data product that provides full order depth using a series of order messages to track the life of customer orders in the BX market, as well as trade data for BX executions and administrative messages such as Trading Action messages, Symbol Directory, and Event Control messages.’’ Securities Exchange Act Release No. 98158 (August 17, 2023), 88 FR 57505 (August 23, 2023) (SR–BX–2023–020), at 57506. 8 According to Nasdaq PHLX LLC, ‘‘PSX TotalView is a real-time market data product that provides full order depth using a series of order messages to track the life of customer orders in the PSX market, as well as trade data for PSX executions and administrative messages such as Trading Action messages, Symbol Directory, and Event Control messages.’’ Securities Exchange Act Release No. 95195 (August 21, 2023), 88 FR 58324 (August 25, 2023) (SR–Phlx–2023–37), at 58325. The difference between the two PSX TotalView feeds is the delivery mechanism: the data is the same. Id. 9 See Securities Exchange Act Release No. 76748 (December 23, 2015), 80 FR 81609 (December 30, 2015) (SR–NYSE–2015–52). 10 Through its Fixed Income and Data Services (‘‘FIDS’’) (previously ICE Data Services) business, Intercontinental Exchange, Inc. (‘‘ICE’’) operates the MDC. The Exchange and the Affiliate SROs are indirect subsidiaries of ICE. The proposed services E:\FR\FM\01JYN1.SGM 01JYN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 89, Number 126 (Monday, July 1, 2024)]
[Notices]
[Pages 54555-54570]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-14379]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100420; File No. SR-CboeBZX-2023-101]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of Amendment No. 1 to a Proposed Rule Change To List and Trade
Shares of the Pando Asset Spot Bitcoin Trust Under BZX Rule
14.11(e)(4), Commodity-Based Trust Shares

June 25, 2024.
On December 5, 2023, Cboe BZX Exchange, Inc. (``BZX'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'' or ``SEC''), 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 Pando Asset Spot Bitcoin Trust under BZX Rule
14.11(e)(4), Commodity-Based Trust Shares. The proposed rule change was
published for comment in the Federal Register on December 22, 2023.\3\
On February 1, 2024, 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 March 21, 2024, the Commission instituted proceedings
under Section 19(b)(2)(B) of the Act \6\ to determine whether to
approve or disapprove the proposed rule change.\7\ On June 6, 2024, the
Commission designated a longer period for Commission action on the
proposed rule change.\8\ On June 24, 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 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. 99197 (Dec. 18,
2023), 88 FR 88668. Comments on the proposed rule change are
available at https://www.sec.gov/comments/sr-cboebzx-2023-101/srcboebzx2023101.htm.
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 99460, 89 FR 8472
(Feb. 7, 2024).
\6\ 15 U.S.C. 78s(b)(2)(B).
\7\ See Securities Exchange Act Release No. 99833, 89 FR 21310
(Mar. 27, 2024).
\8\ See Securities Exchange Act Release No. 100289, 89 FR 49926
(June 12, 2024).
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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 Pando Asset Spot
Bitcoin Trust (the ``Trust''),\9\ 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.
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\9\ The Trust was formed as a Delaware statutory trust on
November 16, 2023, and is operated as a grantor trust for U.S.
Federal tax purposes. The Trust has no fixed termination date.
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

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

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

1. Purpose
This Amendment No. 1 to SR-CboeBZX-2023-101 amends and replaces in
its entirety the proposal as originally submitted on December 5, 2023.
The Exchange submits this Amendment No. 1 in order to clarify certain
points and add additional details to the proposal.
The Exchange proposes to list and trade the Shares under BZX Rule
14.11(e)(4),\10\ which governs the listing and trading of Commodity-
Based Trust Shares on the Exchange.\11\ Pando Asset AG is the Sponsor
(``Sponsor''). The Shares will be registered with the Commission by
means of the Trust's registration statement on Form S-1 (the
``Registration Statement'').\12\ Coinbase Custody Trust Company, LLC
(the ``Bitcoin Custodian''), which is a third-party U.S.-based trust
company and

[[Page 54556]]

qualified custodian, will be responsible for custody of the Trust's
bitcoin holdings and U.S. Bank will be the custodian for the Trust's
cash holdings, if any (the ``Cash Custodian'' and together with the
Bitcoin Custodian, the ``Custodians'').
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\10\ The Commission approved BZX Rule 14.11(e)(4) in Securities
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148
(September 6, 2011) (SR-BATS-2011-018).
\11\ Any of the statements or representations regarding the
index composition, the description of the portfolio or reference
assets, limitations on portfolio holdings or reference assets,
dissemination and availability of index, reference asset, intraday
indicative values, and Verified Intraday Indicative Values (as
applicable), or the applicability of Exchange listing rules
specified in any filing to list a series of Other Securities
(collectively, ``Continued Listing Representations'') shall
constitute continued listing requirements for the securities listed
on the Exchange.
\12\ See Form S-1 Registration Statement filed on November 29,
2023 (Registration No. 333-275781). The Registration Statement is
not yet effective,and the Shares will not trade on the Exchange
until such time that the Registration Statement is effective.
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As further discussed below, the Commission has historically
approved or disapproved exchange filings to list and trade series of
Trust Issued Receipts,\13\ 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.\14\
Prior orders from the Commission have pointed out that in every prior
approval order for Commodity-Based Trust Shares, there has been a
derivatives market that represents the regulated market of significant
size, generally a Commodity Futures Trading Commission (the ``CFTC'')
regulated futures market.\15\ 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 \16\
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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\13\ See Exchange Rule 14.11(f)(1).
\14\ 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'').
\15\ 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).
\16\ See Exchange Rule 14.11(e)(5).
\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 market in order to
determine whether such products were consistent with the Act. With this
in mind, the Chicago

[[Page 54557]]

Mercantile Exchange (``CME'') bitcoin futures (``Bitcoin Futures'')
market is the proper market to consider in determining whether there is
a related regulated market of significant size.
Further to this point, the Exchange notes that the Commission has
approved proposals related to the listing and trading of funds that
would primarily hold CME Bitcoin Futures that are registered under the
Securities Act of 1933.\18\ In the Teucrium Approval, the Commission
found the CME Bitcoin Futures market to be a regulated market of
significant size as it relates to CME Bitcoin Futures; a position that
represents a departure from prior disapproval orders for ETPs that
would hold actual bitcoin instead of derivatives contracts (``Spot
Bitcoin ETPs'') that use the exact same pricing methodology as the CME
Bitcoin Futures. In the recently decided Grayscale Investments, LLC v.
Securities and Exchange Commission,\19\ however, the court addressed
this conflict by finding that the SEC had failed to provide a coherent
explanation as to why it had approved the Bitcoin Futures ETPs while
disapproving the proposal to list and trade shares of the Grayscale
Bitcoin Trust and vacating the disapproval order.\20\ As further
discussed below, both the Exchange and the Sponsor believe that this
proposal and the included analysis are sufficient to establish that the
CME Bitcoin Futures market represents a regulated market of significant
size as it relates both to the CME Bitcoin Futures market and to the
spot bitcoin market and that this proposal should be approved,
consistent with the Teucrium precedent and in view of the court's
findings relating to the Grayscale Order.
---------------------------------------------------------------------------

\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'').
\19\ Grayscale Investments, LLC v. Securities and Exchange
Commission, et al., Case No. 22-1142 (the ``Grayscale Order'').
\20\ Id.
---------------------------------------------------------------------------

Finally, as discussed in greater detail below, by using
professional custodians and other service providers, the Trust provides
investors interested in exposure to bitcoin via the securities markets
with important protections that are not always available to investors
that invest directly in bitcoin, including protection against
counterparty insolvency, cyber attacks, and other risks. For example,
an exchange-traded vehicle such as the Trust, which will be subject to
the registration and periodic reporting requirements of the 1933 Act
and the Exchange Act, would offer U.S. investors an alternative to
directing their bitcoin investments into loosely regulated offshore
vehicles (including loosely regulated centralized trading platforms
that have since faced bankruptcy proceedings or other insolvencies).
Background
Bitcoin is a digital asset based on the decentralized, open source
protocol of the peer-to-peer computer network launched in 2009 that
governs the creation, movement, and ownership of bitcoin and hosts the
public ledger, or ``blockchain,'' on which all bitcoin transactions are
recorded (the ``Bitcoin Network'' or ``Bitcoin''). The decentralized
nature of the Bitcoin Network allows parties to transact directly with
one another based on cryptographic proof instead of relying on a
trusted third party. The protocol also lays out the rate of issuance of
new bitcoin within the Bitcoin Network, a rate that is reduced by half
approximately every four years with an eventual hard cap of 21 million.
It's generally understood that the combination of these two features--a
systemic hard cap of 21 million bitcoin and the ability to transact
trustlessly with anyone connected to the Bitcoin Network--gives bitcoin
its value. The first rule filing proposing to list an ETP to provide
exposure to bitcoin in the U.S. was submitted by the Exchange on June
30, 2016.\21\ At that time, blockchain technology, and digital assets
that utilized it, were relatively new to the broader public. The market
capitalization of all bitcoin in existence at that time was
approximately $10 billion. No registered offering of digital asset
securities or shares in an investment vehicle with exposure to bitcoin
or any other cryptocurrency had yet been conducted, and the regulated
infrastructure for conducting a digital asset securities offering had
not begun to develop.\22\ Similarly, regulated U.S. Bitcoin Futures
contracts did not exist. The CFTC had determined that bitcoin is a
commodity,\23\ but had not engaged in significant enforcement actions
in the space. The New York Department of Financial Services (``NYDFS'')
adopted its final ``BitLicense'' regulatory framework in 2015, but had
only approved four entities to engage in activities relating to virtual
currencies (whether through granting a BitLicense or a limited-purpose
trust charter) as of June 30, 2016.\24\ While the first over-the-
counter bitcoin fund launched in 2013, public trading was limited and
the fund had only $60 million in assets.\25\ There were very few, if
any, traditional financial institutions engaged in the space, whether
through investment or providing services to digital asset companies. In
January 2018, the staff of the Commission noted in a letter to the
Investment Company Institute (``ICI'') and Securities Industry and
Financial Markets Association (``SIFMA'') that it was not aware, at
that time, of a single custodian providing fund custodial services for
digital assets.\26\ The digital assets financial ecosystem, including
bitcoin, has progressed significantly in the intervening years. The
development of a regulated market for digital asset securities has
significantly evolved, with market participants having conducted
registered public offerings of both digital asset securities \27\ and
shares in investment vehicles holding Bitcoin Futures.\28\
Additionally, licensed and regulated service providers have emerged to
provide fund custodial services for digital assets, among other

[[Page 54558]]

services, including the Bitcoin Custodian. For example, in February
2023, the Commission proposed to amend Rule 206(4)-2 under the Advisers
Act of 1940 (the ``custody rule'') to expand the scope beyond client
funds and securities to include all crypto assets, among other assets;
\29\ in May 2021, the staff of the Commission released a statement
permitting open-end mutual funds to invest in cash-settled Bitcoin
Futures; in December 2020, the Commission adopted a conditional no-
action position permitting certain special purpose broker-dealers to
custody digital asset securities under Rule 15c3-3 under the Exchange
Act (the ``Custody Statement''); \30\ in September 2020, the staff of
the Commission released a no-action letter permitting certain broker-
dealers to operate a non-custodial Alternative Trading System (``ATS'')
for digital asset securities, subject to specified conditions; \31\ in
October 2019, the staff of the Commission granted temporary relief from
the clearing agency registration requirement to an entity seeking to
establish a securities clearance and settlement system based on
distributed ledger technology,\32\ and multiple transfer agents who
provide services for digital asset securities registered with the
Commission.\33\
---------------------------------------------------------------------------

\21\ See Winklevoss Order.
\22\ Digital assets that are securities under U.S. law are
referred to throughout this proposal as ``digital asset
securities.'' All other digital assets, including bitcoin, are
referred to interchangeably as ``cryptocurrencies'' or ``virtual
currencies.'' The term ``digital assets'' refers to all digital
assets, including both digital asset securities and
cryptocurrencies, together.
\23\ See ``In the Matter of Coinflip, Inc.'' (``Coinflip'')
(CFTC Docket 15-29 (September 17, 2015)) (order instituting
proceedings pursuant to Sections 6(c) and 6(d) of the CEA, making
findings and imposing remedial sanctions), in which the CFTC stated:
``Section 1a(9) of the CEA defines `commodity' to include, among
other things, `all services, rights, and interests in which
contracts for future delivery are presently or in the future dealt
in.' 7 U.S.C. 1a(9). The definition of a `commodity'; is broad. See,
e.g., Board of Trade of City of Chicago v. SEC, 677 F. 2d 1137, 1142
(7th Cir. 1982). Bitcoin and other virtual currencies are
encompassed in the definition and properly defined as commodities.''
\24\ A list of virtual currency businesses that are entities
regulated by the NYDFS is available on the NYDFS website. See
https://www.dfs.ny.gov/apps_and_licensing/virtual_currency_businesses/regulated_entities.
\25\ Data as of March 31, 2016 according to publicly available
filings. See Bitcoin Investment Trust Form S-1, dated May 27, 2016,
available: https://www.sec.gov/Archives/edgar/data/1588489/000095012316017801/filename1.htm.
\26\ See letter from Dalia Blass, Director, Division of
Investment Management, U.S. Securities and Exchange Commission to
Paul Schott Stevens, President & CEO, Investment Company Institute
and Timothy W. Cameron, Asset Management Group--Head, Securities
Industry and Financial Markets Association (January 18, 2018),
available at https://www.sec.gov/divisions/investment/noaction/2018/cryptocurrency-011818.htm.
\27\ See Prospectus supplement filed pursuant to Rule 424(b)(1)
for INX Tokens (Registration No. 333-233363), available at: https://www.sec.gov/Archives/edgar/data/1725882/000121390020023202/ea125858-424b1_inxlimited.htm.
\28\ See Prospectus filed by Stone Ridge Trust VI on behalf of
NYDIG Bitcoin Strategy Trust Registration, available at: https://www.sec.gov/Archives/edgar/data/1764894/000119312519309942/d693146d497.htm.
\29\ See Investment Advisers Act Release No. 6240 88 FR 14672
(March 9, 2023) (Safeguarding Advisory Client Assets).
\30\ See Securities Exchange Act Release No. 90788, 86 FR 11627
(February 26, 2021) (File Number S7-25-20) (Custody of Digital Asset
Securities by Special Purpose Broker-Dealers).
\31\ See letter from Elizabeth Baird, Deputy Director, Division
of Trading and Markets, U.S. Securities and Exchange Commission to
Kris Dailey, Vice President, Risk Oversight & Operational
Regulation, Financial Industry Regulatory Authority (September 25,
2020), available at: https://www.sec.gov/divisions/marketreg/mr-noaction/2020/finra-ats-role-in-settlement-of-digital-asset-security-trades-09252020.pdf.
\32\ See letter from Jeffrey S. Mooney, Associate Director,
Division of Trading and Markets, U.S. Securities and Exchange
Commission to Charles G. Cascarilla & Daniel M. Burstein, Paxos
Trust Company, LLC (October 28, 2019), available at: https://www.sec.gov/divisions/marketreg/mr-noaction/2019/paxos-trust-company-102819-17a.pdf.
\33\ See, e.g., Form TA-1/A filed by Tokensoft Transfer Agent
LLC (CIK: 0001794142) on January 8, 2021, available at: https://www.sec.gov/Archives/edgar/data/1794142/000179414219000001/xslFTA1X01/primary_doc.xml.
---------------------------------------------------------------------------

Outside the Commission's purview, the regulatory landscape has also
changed significantly since 2016, and cryptocurrency markets have grown
and evolved as well. The market for bitcoin is approximately 100 times
larger, having at one point reached a market capitalization of over $1
trillion.\34\ According to the CME Bitcoin Futures report, from
February 13, 2023 through March 27, 2023, CFTC regulated Bitcoin
Futures represented between $750 million and $3.2 billion in notional
trading volume on CME Bitcoin Futures on a daily basis.\35\ Open
interest was over $1.4 billion for the entirety of the period and at
one point was over $2 billion.\36\ ETPs that primarily hold CME Bitcoin
Futures have raised over $1 billion dollars in assets. The CFTC has
exercised its regulatory jurisdiction in bringing a number of
enforcement actions related to bitcoin and against trading platforms
that offer cryptocurrency trading.\37\ As of February 14, 2023, the
NYDFS has granted no fewer than thirty-four BitLicenses,\38\ including
to established public payment companies like PayPal Holdings, Inc. and
Square, Inc., and limited purpose trust charters to entities providing
cryptocurrency custody services. In addition, the Treasury's Office of
Foreign Assets Control (``OFAC'') has brought enforcement actions over
apparent violations of applicable sanctions laws in connection with the
provision of wallet management services for digital assets.\39\
---------------------------------------------------------------------------

\34\ As of December 1, 2021, the total market capitalization of
all bitcoin in circulation was approximately $1.08 trillion.
\35\ Data sourced from the CME Bitcoin Futures Report: 30 March
2023, available at: https://www.cmegroup.com/markets/cryptocurrencies/bitcoin/bitcoin.volume.htm.
\36\ See, e.g., Id.
\37\ The CFTC's annual report for Fiscal Year 2022 (which ended
on September 30, 2022) noted that the CFTC completed the fiscal year
with 18 enforcement filings related to digital assets. ``Digital
asset actions included manipulation, a $1.7 billion fraudulent
scheme, and a decentralized autonomous organization (DAO) failing to
register as a SEF or FCM or to seek DCM designation.'' See CFTC FY
2022 Agency Financial Report, available at: https://www.cftc.gov/media/7941/2022afr/download. Additionally, the CFTC filed on March
27, 2023, a civil enforcement action against the owner/operators of
the Binance centralized digital asset trading platform, which is one
of the largest bitcoin derivative exchanges. See CFTC Release No.
8680-23 (March 27, 2023), available at: https://www.cftc.gov/PressRoom/PressReleases/8680-23.
\38\ See https://www.dfs.ny.gov/virtual_currency_businesses.
\39\ See U.S. Department of the Treasury Enforcement Release:
``OFAC Enters Into $98,830 Settlement with BitGo, Inc. for Apparent
Violations of Multiple Sanctions Programs Related to Digital
Currency Transactions'' (December 30, 2020) available at: https://home.treasury.gov/system/files/126/20201230_bitgo.pdf. See also U.S.
Department of the Treasury Enforcement Release: ``Treasury Announces
Two Enforcement Actions for over $24M and $29M Against Virtual
Currency Exchange, Bittrex, Inc.'' (October 11, 2022) available at:
https://home.treasury.gov/news/press-releases/jy1006. See also U.S.
Department of Treasure Enforcement Release ``OFAC Settles with
Virtual Currency Exchange Kraken for $362,158.70 Related to Apparent
Violations of the Iranian Transactions and Sanctions Regulations''
(November 28, 2022) available at: https://home.treasury.gov/system/files/126/20221128_kraken.pdf.
---------------------------------------------------------------------------

In addition to the regulatory developments laid out above, more
traditional financial market participants have become more active in
cryptocurrency trading and investment activity: large insurance
companies, asset managers, university endowments, pension funds, and
even historically bitcoin skeptical fund managers have allocated to
bitcoin investments. As noted in the Financial Stability Oversight
Council (``FSOC'') report on Digital Asset Financial Stability Risks
and Regulation, ``[i]ndustry surveys suggest that the scale of these
investments grew quickly during the boom in crypto-asset markets
through late 2021. In June 2022, PwC estimated that the number of
crypto-specialist hedge funds was more than 300 globally, with $4.1
billion in assets under management. In addition, in a survey PwC found
that 38 percent of surveyed traditional hedge funds were currently
investing in `digital assets,' compared to 21 percent the year prior.''
\40\ The largest over-the-counter bitcoin fund previously filed a Form
10 registration statement, which the staff of the Commission reviewed
and which took effect automatically, and is now a reporting
company.\41\ Established U.S. exchange-traded companies like Tesla,
Inc., MicroStrategy Incorporated, and Square, Inc., among others, have
announced substantial investments in bitcoin in amounts as large as
$1.5 billion (Tesla) and $425 million (MicroStrategy). The foregoing
examples demonstrate that bitcoin has gained mainstream usage and
recognition across the U.S. market.
---------------------------------------------------------------------------

\40\ See the FSOC ``Report on Digital Asset Financial Stability
Risks and Regulation 2022'' (October 3, 2022) (at footnote 26) at
https://home.treasury.gov/system/files/261/FSOC-Digital-Assets-Report-2022.pdf.
\41\ See Letter from Division of Corporation Finance, Office of
Real Estate & Construction to Barry E. Silbert, Chief Executive
Officer, Grayscale Bitcoin Trust (January 31, 2020) https://www.sec.gov/Archives/edgar/data/1588489/000000000020000953/filename1.pdf.
---------------------------------------------------------------------------

Despite these developments, access for U.S. retail investors to
gain exposure to bitcoin via a transparent and U.S. regulated, U.S.
exchange-traded vehicle remains limited. Instead current options
include: (i) facing the counter-party risk, legal uncertainty,
technical risk, and complexity associated with accessing spot bitcoin;
(ii) over-the-counter bitcoin funds (``OTC Bitcoin Funds'') with high
management fees and potentially volatile premiums and

[[Page 54559]]

discounts; \42\ (iii) purchasing shares of operating companies that
they believe will provide proxy exposure to bitcoin with limited
disclosure about the associated risks; \43\ or (iv) purchasing Bitcoin
Futures exchange-traded funds (``ETFs''), as defined below, which
represent a sub-optimal structure for long-term investors that will
cost them significant amounts of money every year compared to Spot
Bitcoin ETPs, as further discussed below. Meanwhile, investors in many
other countries, including Canada and Brazil, are able to use more
traditional exchange listed and traded products (including ETFs holding
physical bitcoin) to gain exposure to bitcoin. Similarly, investors in
Switzerland and across Europe have access to ETPs which trade on
regulated exchanges and provide exposure to a broad array of spot
crypto assets. U.S. investors, by contrast, are left with fewer and
more risky means of getting bitcoin exposure, as described above.\44\
---------------------------------------------------------------------------

\42\ The premium and discount for OTC Bitcoin Funds is known to
move rapidly. For example, over the period of 12/21/20 to 1/21/21,
the premium for the largest OTC Bitcoin Funds went from 40.18% to
2.79%. While the price of bitcoin appreciated significantly during
this period and NAV per share increased by 41.25%, the price per
share increased by only 3.58%. This means that investors are buying
shares of a fund that experiences significant volatility in its
premium and discount outside of the fluctuations in price of the
underlying asset. Even operating within the normal premium and
discount range, it's possible for an investor to buy shares of an
OTC Bitcoin Funds only to have those shares quickly lose 10% or more
in dollar value excluding any movement of the price of bitcoin. That
is to say--the price of bitcoin could have stayed exactly the same
from market close on one day to market open the next, yet the value
of the shares held by the investor decreased only because of the
fluctuation of the premium. As more investment vehicles, including
mutual funds and ETFs, seek to gain exposure to bitcoin, the easiest
option for a buy and hold strategy for such vehicles is often an OTC
Bitcoin Funds, meaning that even investors that do not directly buy
OTC Bitcoin Funds can be disadvantaged by extreme premiums (or
discounts) and premium/discount volatility.
\43\ A number of operating companies engaged in unrelated
businesses--such as Tesla (a car manufacturer) and MicroStrategy (an
enterprise software company)--have announced investments as large as
$5.3 billion in bitcoin. Without access to bitcoin exchange-traded
products, retail investors seeking investment exposure to bitcoin
may end up purchasing shares in these companies in order to gain the
exposure to bitcoin that they seek. In fact, mainstream financial
news networks have written a number of articles providing investors
with guidance for obtaining bitcoin exposure through publicly traded
companies (such as MicroStrategy, Tesla, and bitcoin mining
companies, among others) instead of dealing with the complications
associated with buying spot bitcoin in the absence of a Bitcoin ETP.
See e.g., ``7 public companies with exposure to bitcoin'' (February
8, 2021) available at: https://finance.yahoo.com/news/7-public-companies-with-exposure-to-bitcoin-154201525.html; and ``Want to get
in the crypto trade without holding bitcoin yourself? Here are some
investing ideas'' (February 19, 2021) available at: https://www.cnbc.com/2021/02/19/ways-to-invest-in-bitcoin-without-holding-the-cryptocurrency-yourself-.html.
\44\ The Exchange notes that the list of countries above is not
exhaustive and that securities regulators in a number of additional
countries have either approved or otherwise allowed the listing and
trading of Spot Bitcoin ETPs.
---------------------------------------------------------------------------

To this point, the lack of a Spot Bitcoin ETP exposes U.S. investor
assets to significant risk because investors that would otherwise seek
crypto asset exposure through a Spot Bitcoin ETP are forced to find
alternative exposure through generally riskier means. For instance,
many U.S. investors that held their digital assets in accounts at
FTX,\45\ Celsius Network LLC,\46\ BlockFi Inc.\47\ and Voyager Digital
Holdings, Inc.\48\ have become unsecured creditors in the insolvencies
of those entities. If a Spot Bitcoin ETP was available, it is likely
that at least a portion of the billions of dollars tied up in those
proceedings would still reside in the brokerage accounts of U.S.
investors, having instead been invested in a transparent, regulated,
and well-understood structure--a Spot Bitcoin ETP. To this point,
approval of a Spot Bitcoin ETP would represent a major win for the
protection of U.S. investors in the crypto asset space. As further
described below, the Trust, like all other series of Commodity-Based
Trust Shares, is designed to protect investors against the risk of
losses through fraud and insolvency that arise by holding bitcoin, on
centralized platforms.
---------------------------------------------------------------------------

\45\ See FTX Trading Ltd., et al., Case No. 22-11068.
\46\ See Celsius Network LLC, et al., Case No. 22-10964.
\47\ See BlockFi Inc., Case No. 22-19361.
\48\ See Voyager Digital Holdings, Inc., et al., Case No. 22-
10943.
---------------------------------------------------------------------------

Additionally, investors in other countries, specifically Canada,
generally pay lower fees than U.S. retail investors that invest in OTC
Bitcoin Funds due to the fee pressure that results from increased
competition among available bitcoin investment options. Without an
approved and regulated Spot Bitcoin ETP in the U.S. as a viable
alternative, U.S. investors could seek to purchase shares of non-U.S.
bitcoin vehicles in order to get access to bitcoin exposure. Given the
separate regulatory regime and the potential difficulties associated
with any international litigation, such an arrangement would create
more risk exposure for U.S. investors than they would otherwise have
with a U.S. exchange listed ETP. In addition to the benefits to U.S.
investors articulated throughout this proposal, approving this proposal
(and others like it) would provide U.S. ETFs and mutual funds with a
U.S.-listed and regulated product to provide such access rather than
relying on either more expensive, riskier U.S. based products or
products listed and primarily regulated in other countries.
Bitcoin Futures ETFs
The Exchange and Sponsor applaud the Commission for allowing the
launch of ETFs registered under the Investment Company Act of 1940, as
amended (the ``1940 Act''), and the Bitcoin Futures Approvals that
provide exposure to bitcoin primarily through CME Bitcoin Futures
(``Bitcoin Futures ETFs''). Allowing such products to list and trade is
a productive first step in providing U.S. investors and traders with
transparent, exchange-listed tools for expressing an investment 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.\49\ Leaving aside the analysis of that
standard until later in this proposal,\50\ the Exchange believes that
the following rationale the Commission applied to a Bitcoin Futures ETF
should result in the

[[Page 54560]]

Commission approving this and other Spot Bitcoin ETP proposals:
---------------------------------------------------------------------------

\49\ 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.
\50\ As further outlined below, both the Exchange and the
Sponsor believe that the Bitcoin Futures market represents a
regulated market of significant size and that this proposal and
others like it should be approved on this basis.

The CME ``comprehensively surveils futures market conditions and
price movements on a real-time and ongoing basis in order to detect
and prevent price distortions, including price distortions caused by
manipulative efforts.'' Thus, the CME's surveillance can reasonably
be relied upon to capture the effects on the CME Bitcoin Futures
market caused by a person attempting to manipulate the proposed
futures ETP by manipulating the price of CME Bitcoin Futures
contracts, whether that attempt is made by directly trading on the
CME Bitcoin Futures market or indirectly by trading outside of the
CME Bitcoin Futures market. As such, when the CME shares its
surveillance information with Arca, the information would assist in
detecting and deterring fraudulent or manipulative misconduct
related to the non-cash assets held by the proposed ETP.\51\
---------------------------------------------------------------------------

\51\ See Teucrium Approval at 21679.

CME Bitcoin Futures pricing is based on pricing from spot bitcoin
markets. The statement from the Teucrium Approval that ``CME's
surveillance can reasonably be relied upon to capture the effects on
the CME Bitcoin Futures market caused by a person attempting to
manipulate the proposed futures ETP by manipulating the price of CME
Bitcoin Futures contracts. . .indirectly by trading outside of the CME
Bitcoin Futures market,'' makes clear that the Commission believes that
CME's surveillance can capture the effects of trading on the relevant
spot markets on the pricing of CME Bitcoin Futures.
This was further acknowledged in the ``Grayscale lawsuit'' \52\
when Judge Rao stated ``. . .the Commission in the Teucrium order
recognizes that the futures prices are influenced by the spot prices,
and the Commission concludes in approving futures ETPs that any fraud
on the spot market can be adequately addressed by the fact that the
futures market is a regulated one. . .''. The Exchange agrees with the
Commission on this point and notes that the pricing mechanism
applicable to the Shares is similar to that of the CME Bitcoin Futures.
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\52\ Grayscale Investments, LLC v. Securities and Exchange
Commission, et al., Case No. 22-1142.
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The structure of Bitcoin Futures ETFs provides negative outcomes
for buy and hold investors as compared to a Spot Bitcoin ETP.\53\
Specifically, the cost of rolling CME Bitcoin Futures contracts will
cause the Bitcoin Futures ETFs to lag the performance of bitcoin itself
and would cost U.S. investors significant amounts of money on an annual
basis compared to Spot Bitcoin ETPs. Such rolling costs would not be
required for Spot Bitcoin ETPs that hold bitcoin. Further, Bitcoin
Futures ETFs could potentially hit CME position limits, which would
force a Bitcoin Futures ETF to invest in non-futures assets for bitcoin
exposure and cause potential investor confusion and lack of certainty
about what such Bitcoin Futures ETFs are actually holding to try to get
exposure to bitcoin, which would also materially change the risk
profile associated with such an ETF. While Bitcoin Futures ETFs
represent a useful trading tool, they are clearly sub-optimal as the
sole exchange traded vehicle structure for U.S. investors that are
looking for long-term exposure to bitcoin and could, based on the
calculations above, unnecessarily cost U.S. investors significant
amounts of money every year compared to Spot Bitcoin ETPs. The Exchange
believes that any proposal to list and trade a Spot Bitcoin ETP should
be reviewed by the Commission with this important investor protection
context in mind.
---------------------------------------------------------------------------

\53\ See e.g., ``Bitcoin ETF's Success Could Come at
Fundholders' Expense,'' Wall Street Journal (October 24, 2021),
available at: https://www.wsj.com/articles/bitcoin-etfs-success-could-come-at-fundholders-expense-11635080580; ``Physical Bitcoin
ETF Prospects Accelerate,'' ETF.com (October 25, 2021), available
at: https://www.etf.com/sections/blog/physical-bitcoin-etf-prospects-shine?nopaging=1&__cf_chl_jschl_tk__=pmd_JsK.fjXz9eAQW9zol0qpzhXDrrlpIVdoCloLXbLjl44-1635476946-0-gqNtZGzNApCjcnBszQql.
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Based on the foregoing, the Exchange and Sponsor believe that an
objective review of the proposals to list Spot Bitcoin ETPs compared to
and in view of the Bitcoin Futures ETFs and the Bitcoin Futures
Approvals as well as limitations of existing approved product
structures, would lead to the conclusion that Spot Bitcoin ETPs would
benefit U.S. investors and should be available to U.S. investors. As
such, this proposal and other comparable proposals to list and trade
Spot Bitcoin ETPs should be approved by the Commission. In summary,
U.S. investors lose significant amounts of money from holding Bitcoin
Futures ETFs as compared to Spot Bitcoin ETPs, losses which could be
prevented by the Commission approving Spot Bitcoin ETPs. Additionally,
any concerns related to preventing fraudulent and manipulative acts and
practices related to Spot Bitcoin ETPs would apply equally to the spot
markets underlying the futures contracts held by a Bitcoin Futures ETF.
Both the Exchange and Sponsor believe that the CME Bitcoin Futures
market is a regulated market of significant size and that such
manipulation concerns are mitigated, as described extensively below.
After allowing and approving the listing and trading of Bitcoin Futures
ETFs that hold primarily CME Bitcoin Futures, however, the only
consistent outcome would be approving Spot Bitcoin ETPs on the basis
that the CME Bitcoin Futures market is a regulated market of
significant size.
Given the current landscape, approving this proposal (and others
like it) and allowing Spot Bitcoin ETPs to be listed and traded
alongside Bitcoin Futures ETFs would establish a consistent regulatory
approach, provide U.S. investors with choice in product structures for
bitcoin exposure, and offer flexibility in the means of gaining
exposure to bitcoin through transparent, regulated, U.S. exchange-
listed vehicles.
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.\54\ 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.\55\
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\54\ According to CME, the CME CF Bitcoin Reference Rate
aggregates the trade flow of major bitcoin spot trading platforms
during a specific calculation window into a once-a-day reference
rate of the U.S. dollar price of bitcoin. Calculation rules are
geared toward maximum transparency and real-time replicability in
underlying spot markets, including Bitstamp, Coinbase, Gemini,
itBit, Kraken, and LMAX Digital. For additional information, refer
to https://www.cmegroup.com/trading/cryptocurrency-indices/cf-bitcoin-reference-rate.html?redirect=/trading/cf-bitcoin-reference-rate.html.
\55\ Source: CME, Yahoo Finance 4/30/23.

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[[Page 54561]]

[GRAPHIC] [TIFF OMITTED] TN01JY24.000

The number of large open interest holders \56\ and unique accounts
trading Bitcoin Futures have both increased, even in the face of
heightened bitcoin price volatility.
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\56\ 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] TN01JY24.001

[[Page 54562]]

[GRAPHIC] [TIFF OMITTED] TN01JY24.002

The Sponsor further believes that publicly available research,
including research done as part of rule filings proposing to list and
trade shares of Spot Bitcoin ETPs, corroborates the overall trend
outlined above and supports the thesis that the Bitcoin Futures pricing
leads the spot market and, thus, a person attempting to manipulate the
Shares would also have to trade on that market to manipulate the ETP.
Specifically, the Sponsor believes that such research indicates that
Bitcoin Futures lead the bitcoin spot market in price formation.\57\
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\57\ See Exchange Act Releases No. 94080 (January 27, 2022), 87
FR 5527 (April 12, 2022) (specifically ``Amendment No. 1 to the
Proposed Rule Change To List and Trade Shares of the Wise Origin
Bitcoin Trust Under BZX Rule 14.11(3)(4), Commodity-Based Trust
Shares''); 94982 (May 25, 2022), 87 FR 33250 (June 1, 2022); 94844
(May 4, 2022), 87 FR 28043 (May 10, 2022); and 93445 (October 28,
2021), 86 FR 60695 (November 3, 2021). See also Hu, Y., Hou, Y. and
Oxley, L. (2019). ``What role do futures markets play in Bitcoin
pricing? Causality, cointegration and price discovery from a time-
varying perspective'' (available at: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7481826/). This academic research paper concludes
that ``There exist no episodes where the Bitcoin spot markets
dominates the price discovery processes with regard to Bitcoin
futures. This points to a conclusion that the price formation
originates solely in the Bitcoin futures market. We can, therefore,
conclude that the Bitcoin futures markets dominate the dynamic price
discovery process based upon time-varying information share
measures. Overall, price discovery seems to occur in the Bitcoin
futures markets rather than the underlying spot market based upon a
time-varying perspective.''
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Section 6(b)(5) and the Applicable Standards
The Commission has approved numerous series of Trust Issued
Receipts,\58\ including Commodity-Based Trust Shares,\59\ 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;
\60\ and (ii) the requirement that an exchange proposal be designed, in
general, to protect investors and the public interest. The Exchange
believes that this proposal is consistent with the requirements of
Section 6(b)(5) of the Act and that this filing sufficiently
demonstrates that the CME Bitcoin Futures market represents a regulated
market of significant size and that, on the whole, the manipulation
concerns previously articulated by the Commission are sufficiently
mitigated to the point that they are outweighed by quantifiable
investor protection issues that would be resolved by approving this
proposal.
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\58\ See Exchange Rule 14.11(f).
\59\ Commodity-Based Trust Shares, as described in Exchange Rule
14.11(e)(4), are a type of Trust Issued Receipt.
\60\ As the Exchange has stated in a number of other public
documents, it continues to believe that bitcoin is resistant to
price manipulation and that ``other means to prevent fraudulent and
manipulative acts and practices'' exist to justify dispensing with
the requisite surveillance sharing agreement. The geographically
diverse and continuous nature of bitcoin trading render it difficult
and prohibitively costly to manipulate the price of bitcoin. The
fragmentation across bitcoin platforms, the relatively slow speed of
transactions, and the capital necessary to maintain a significant
presence on each trading platform make manipulation of bitcoin
prices through continuous trading activity challenging. To the
extent that there are bitcoin trading 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 trading platforms 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 trading platform or
OTC platform. As a result, the potential for manipulation on a
trading platform would require overcoming the liquidity supply of
such arbitrageurs who are effectively eliminating any cross-market
pricing differences.
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(i) Designed To Prevent Fraudulent and Manipulative Acts and Practices
In order to meet this standard in a proposal to list and trade a
series of Commodity-Based Trust Shares, the Commission requires that an
exchange demonstrate that there is a comprehensive surveillance-sharing
agreement in place \61\ with a regulated

[[Page 54563]]

market of significant size. Both the Exchange and CME are members of
the Intermarket Surveillance Group (``ISG'').\62\ 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.\63\
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\61\ 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 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'').
\62\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com.
\63\ 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.\64\
---------------------------------------------------------------------------

\64\ 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.
---------------------------------------------------------------------------

\65\ As further described below, the ``Index'' for the Trust is
the CME CF Bitcoin Reference Rate.
---------------------------------------------------------------------------

(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 influencing prices in the Bitcoin
Futures market or spot market for a number of reasons, including the
significant daily trading volume in the Bitcoin Futures market, the
size of bitcoin's market capitalization, 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. As the court found in the Grayscale Order, the Exchange and the
Sponsor submit that ``[b]ecause the spot market is deeper and more
liquid than the futures market, manipulation should be more difficult,
not less.''
(c) Other Means To Prevent Fraudulent and Manipulative Acts and
Practices
The Commission also permits a listing exchange to demonstrate that
``other means to prevent fraudulent and manipulative acts and
practices'' are sufficient to justify dispensing with the requisite
surveillance-sharing agreement. The Exchange and Sponsor believe that
such conditions are present.
(ii) Designed To Protect Investors and the Public Interest
The Exchange believes that the proposal is designed to protect
investors and the public interest. Over the past several years, U.S.
investor exposure to bitcoin through OTC Bitcoin Funds has grown into
the tens of billions of dollars, including through Bitcoin Futures
ETFs. With that growth, so too has grown the quantifiable investor
protection issues to U.S. investors including in connection with roll
costs for Bitcoin Futures ETFs and premium/discount volatility and
management fees for OTC Bitcoin Funds. The Exchange believes that the
concerns related to the prevention of fraudulent and manipulative acts
and practices have been sufficiently addressed for this proposal to be
consistent with the Act and, to the extent that the Commission
disagrees with that assertion, such concerns are now outweighed by
investor protection concerns. As such, the Exchange believes that
approving this proposal (and comparable proposals) provides the
Commission with the opportunity to allow U.S. investors to access
bitcoin in a regulated and transparent exchange-traded vehicle that
would act to limit risk and benefit U.S. investors by: (i) reducing
premium and discount volatility as compared to OTC investment vehicles;
(ii) increasing competitive pressure on management fees resulting in
fee compression/reductions; (iii) reducing risks and costs as compared
to those associated with investing in Bitcoin Futures ETFs and
operating companies that represent imperfect proxies for bitcoin
exposure; and (iv) providing an alternative to custodying spot bitcoin.
Pando Asset Spot Bitcoin Trust
Wilmington Trust is the trustee (``Trustee''). The Bitcoin
Custodian will be responsible for safekeeping of the Trust's bitcoin.
U.S. Bank serves as the Trust's administrator (the ``Administrator''),
transfer agent (the ``Transfer Agent''), and will act as the Cash
Custodian of the Trust's cash and cash equivalents.\66\ As noted above,
Coinbase Custody Trust Company, LLC is the Bitcoin Custodian and will
be responsible for safekeep of the Trust's bitcoin.
---------------------------------------------------------------------------

\66\ Cash equivalents are short-term instruments with maturities
of less than 3 months.
---------------------------------------------------------------------------

According to the Registration Statement, each Share will represent
a fractional undivided beneficial interest in the Trust. The Trust's
assets will consist only of bitcoin, cash, and cash equivalents.
According to the Registration Statement, the Trust is neither an
investment company registered under the Investment Company Act of 1940,
as amended,\67\ nor a commodity pool for purposes of the Commodity
Exchange Act (``CEA''), and neither the Trust nor or the Sponsor is
subject to regulation as a commodity pool operator or a commodity
trading adviser in connection with the Shares. The Trust will not
acquire and will disclaim any incidental right (``IR'') or IR asset
received, for example as a result of forks or airdrops, and such assets
will not be taken into account for purposes of determining NAV.
---------------------------------------------------------------------------

\67\ 15 U.S.C. 80a-1.
---------------------------------------------------------------------------

When the Trust sells or redeems its Shares, it will do so in cash
transactions in blocks of 5,000 Shares (a ``Creation Basket'') at the
Trust's net asset value (``NAV''). Authorized participants will
deliver, or facilitate the delivery of, cash to the Trust's account
with the Cash Custodian in exchange for Shares when they purchase
Shares, and the Trust, through the Cash Custodian, will deliver cash to
such authorized participants

[[Page 54564]]

when they redeem Shares. Authorized participants may then offer Shares
to the public at prices that depend on various factors, including the
supply and demand for Shares, the value of the Trust's assets, and
market conditions at the time of a transaction. Shareholders who buy or
sell Shares during the day from their broker may do so at a premium or
discount relative to the NAV of the Shares of the Trust.
Investment Objective
According to the Registration Statement and as further described
below, the investment objective of the Trust is to generally reflect
the performance of the price of bitcoin before payment of the Trust's
expenses. In seeking to achieve its investment objective, the Trust
will hold only bitcoin, cash, and cash equivalents. The Trust will
value its Shares daily based on the value of bitcoin as reflected by
the Index, which is an independently calculated value based on an
aggregation of executed trade flow of major bitcoin spot trading
platforms. Specifically, the Index is calculated based on certain
transactions of all of its constituent bitcoin trading platforms, which
are currently Bitstamp, Coinbase, itBit, Kraken, Gemini, and LMAX
Digital, and which may change from time to time. If the Index is not
available or the Sponsor determines, in its sole discretion, that the
Index should not be used, the Trust's holdings may be fair valued in
accordance with the policy approved by the Sponsor.\68\
---------------------------------------------------------------------------

\68\ Any alternative method will only be employed on an ad hoc
basis. Any permanent change to the calculation of the NAV would
require a proposed rule change under Rule 19b-4.
---------------------------------------------------------------------------

The Index
As described in the Registration Statement, the Trust will value
its Shares daily based on the value of bitcoin as reflected by the
Index. The Index is calculated daily and aggregates the notional value
of bitcoin trading activity across major bitcoin spot trading
platforms. The Index uses the same methodology as the CME CF Bitcoin
Reference Rate (``BRR''), including utilizing the same constituent
bitcoin trading platforms, which is the underlying rate to determine
settlement of CME Bitcoin Futures contracts, except that the Index is
calculated as of 4 p.m. ET, whereas the BRR is calculated as of 4 p.m.
London time. The Index is designed based on the International
Organization of Securities Commissions (``IOSCO'') Principals for
Financial Benchmarks. The administrator of the Index is CF Benchmarks
Ltd. (the ``Index Provider'').
The Index was created to facilitate financial products based on
bitcoin. It 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 Index,
which has been calculated and published since February 28, 2022,
aggregates the trade flow of several bitcoin trading 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 Index is
calculated based on the ``Relevant Transactions'' (as defined below) of
all of its constituent bitcoin trading platforms, which are currently
Coinbase, Bitstamp, Kraken, itBit, LMAX Digital and Gemini (the
``Constituent Platforms''), as follows:
All Relevant Transactions are added to a joint list,
recording the time of execution, trade price and size for each
transaction.
The list is partitioned by timestamp into 12 equally-sized
time intervals of 5 (five) minute length.
For each partition separately, the volume-weighted median
trade price is calculated from the trade prices and sizes of all
Relevant Transactions, i.e., across all Constituent Platforms. A
volume-weighted median differs from a standard median in that a
weighting factor, in this case trade size, is factored into the
calculation.
The Index is then determined by the equally-weighted
average of the volume medians of all partitions.
The Index does not include any futures prices in its methodology. 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 Provider.
The Sponsor believes that the use of the Index is reflective of a
reasonable valuation of the average spot price of bitcoin and that
resistance to manipulation is a priority aim of its design methodology.
The methodology: (i) takes an observation period and divides it into
equal partitions of time; (ii) then calculates the volume-weighted
median of all transactions within each partition; and (iii) the value
is determined from the arithmetic mean of the volume-weighted medians,
equally weighted. By employing the foregoing steps, the Index thereby
seeks to ensure that transactions in bitcoin conducted at outlying
prices do not have an undue effect on the value of the Index, large
trades or clusters of trades transacted over a short period of time
will not have an undue influence on the Index value, and the effect of
large trades at prices that deviate from the prevailing price are
mitigated from having an undue influence on the Index value.
In addition, the Sponsor notes that an oversight function is
implemented by the Index Provider in seeking to ensure that the Index
is administered through codified policies for Index integrity.
Index data and the description of the Index are based on
information made publicly available by the Index Provider on its
website at https://www.cfbenchmarks.com.
Net Asset Value
NAV means the total assets of the Trust (which includes bitcoin,
cash and cash equivalents) less total liabilities of the Trust. The
Administrator will determine the NAV of the Trust on each day that the
Exchange is open for regular trading, as promptly as practical after
4:00 p.m. ET. The NAV of the Trust is the aggregate value of the
Trust's assets less its estimated accrued but unpaid liabilities (which
include accrued expenses). In determining the Trust's NAV, the
Administrator values the bitcoin held by the Trust based on the price
set by the Index as of 4:00 p.m. ET. The Administrator also determines
the NAV per Share.
The NAV for the Trust will be calculated by the Administrator once
a day and will be disseminated daily to all market participants at the
same time.
Availability of Information
The website for the Trust, which will be publicly accessible at no
charge, will contain the following information: (a) the current NAV per
Share daily and the prior business day's NAV per Share and the reported
BZX Official Closing Price; \69\ (b) the BZX Official Closing Price in
relation to the NAV per Share as of the time the NAV is calculated and
a calculation of the premium or discount of such price against such NAV
per Share; (c) data in chart form displaying the frequency distribution
of discounts and premiums of the BZX 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); (d) the
prospectus; and (e) other applicable quantitative information. The
aforementioned

[[Page 54565]]

information will be published as of the close of business available on
the Trust's website at https://puglisiassoc.com, or any successor
thereto. The Trust will also disseminate its holdings on a daily basis
on its website.
---------------------------------------------------------------------------

\69\ As defined in Rule 11.23(a)(3), the term ``BZX Official
Closing Price'' shall mean the price disseminated to the
consolidated tape as the market center closing trade.
---------------------------------------------------------------------------

The Intraday Indicative Value (``IIV'') will be calculated by using
the prior day's closing NAV per Share as a base and updating that value
during Regular Trading Hours to reflect changes in the value of the
Trust's bitcoin holdings during the trading day, which is based on the
CME CF Bitcoin Real Time Index (``BRTI''). The IIV disseminated during
Regular Trading Hours should not be viewed as an actual real-time
update of the NAV, which will be calculated only once at the end of
each trading day. The IIV will be widely disseminated on a per Share
basis every 15 seconds during the Exchange's Regular Trading Hours
through the facilities of the consolidated tape association (CTA) and
Consolidated Quotation System (CQS) high speed lines. In addition, the
IIV will be available through on-line information services such as
Bloomberg and Reuters.
The price of bitcoin will be made available by one or more major
market data vendors, updated at least every 15 seconds during Regular
Trading Hours.
As noted above, the Index is calculated daily and aggregates the
notional value of bitcoin trading activity across major bitcoin spot
trading platforms. Index data, the Index value, and the description of
the Index are based on information made publicly available by the Index
Provider on its website at https://www.cfbenchmarks.com.
Quotation and last sale information for bitcoin is widely
disseminated through a variety of major market data vendors, including
Bloomberg and Reuters. Information relating to trading, including price
and volume information, in bitcoin is available from major market data
vendors and from the trading platforms on which bitcoin are traded.
Depth of book information is also available from bitcoin trading
platforms. The normal trading hours for bitcoin trading 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 BZX Official Closing Price and trading
volume information for the Shares will be published daily in the
financial section of newspapers. Quotation and last-sale information
regarding the Shares will be disseminated through the facilities of the
CTA.
The Bitcoin Custodian
The Bitcoin Custodian carefully considers the design of the
physical, operational and cryptographic systems for secure storage of
the Trust's private keys in an effort to lower the risk of loss or
theft. The Bitcoin Custodian utilizes a variety of security measures to
ensure that private keys necessary to transfer digital assets remain
uncompromised and that the Trust maintains exclusive ownership of its
assets. The Bitcoin Custodian will keep a substantial portion of the
private keys associated with the Trust's bitcoin in ``cold storage''
\70\ or similarly secure technology (the ``Cold Vault Balance'') The
hardware, software, systems, and procedures of the Bitcoin Custodian
may not be available or cost-effective for many investors to access
directly Only specific individuals are authorized to participate in the
custody process, and no individual acting alone will be able to access
or use any of the private keys. In addition, no combination of the
executive officers of the Sponsor, acting alone or together, will be
able to access or use any of the private keys that hold the Trust's
bitcoin.
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\70\ The term ``cold storage'' refers to a safeguarding method
by which the private keys corresponding to bitcoins stored on a
digital wallet are removed from any computers actively connected to
the internet. Cold storage of private keys may involve keeping such
wallet on a non-networked computer or electronic device or storing
the public key and private keys relating to the digital wallet on a
storage device (for example, a USB thumb drive) or printed medium
(for example, papyrus or paper) and deleting the digital wallet from
all computers.
---------------------------------------------------------------------------

Creation and Redemption of Shares
When the Trust sells or redeems its Shares, it will do so in cash
transactions in blocks of 5,000 Shares that are based on the quantity
of bitcoin attributable to each Share of the Trust (e.g., a Creation
Basket) at the NAV. 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.
According to the Registration Statement, on any business day, an
authorized participant may place an order to create one or more
Creation Baskets. Purchase orders for cash transaction Creation Baskets
must be placed by 4:00 p.m. Eastern Time, or the close of regular
trading on the Exchange, whichever is earlier. The day on which an
order is received is considered the purchase order date. The total
deposit of cash required is based on the combined NAV of the number of
Shares included in the Creation Baskets being created determined as of
4:00 p.m. ET on the date the order to purchase is properly received.
The Administrator determines the quantity of bitcoin associated with a
Creation Basket for a given day by dividing the number of bitcoin held
by the Trust as of the opening of business on that business day,
adjusted for the amount of bitcoin constituting estimated accrued but
unpaid fees and expenses of the Trust as of the opening of business on
that business day, by the quotient of the number of Shares outstanding
at the opening of business divided by the number of Shares in a
Creation Basket.
The procedures by which an authorized participant can redeem one or
more Creation Baskets mirror the procedures for the creation of
Creation Baskets.
The Sponsor (including its delegates) will maintain ownership and
control of the Trust's bitcoin in a manner consistent with good
delivery requirements for spot commodity transactions.
Rule 14.11(e)(4)--Commodity-Based Trust Shares
The Shares will be subject to BZX Rule 14.11(e)(4), which sets
forth the initial and continued listing criteria applicable to
Commodity-Based Trust Shares. The Exchange represents that, for initial
and continued listing, the Trust must be in compliance with Rule 10A-3
under the Act. A minimum of

[[Page 54566]]

100,000 Shares will be outstanding at the commencement of listing on
the Exchange. The Exchange will obtain a representation that the NAV
will be calculated daily and information about the NAV and the assets
of the Trust will be made available to all market participants at the
same time. The Exchange notes that, as defined in Rule
14.11(e)(4)(C)(i), the Shares will be: (a) issued by a trust that holds
(1) a specified commodity \71\ deposited with the trust, or (2) a
specified commodity and, in addition to such specified commodity, cash;
(b) issued by such trust in a specified aggregate minimum number in
return for a deposit of a quantity of the underlying commodity and/or
cash; and (c) when aggregated in the same specified minimum number, may
be redeemed at a holder's request by such trust which will deliver to
the redeeming holder the quantity of the underlying commodity and/or
cash.
---------------------------------------------------------------------------

\71\ For purposes of Rule 14.11(e)(4), the term commodity takes
on the definition of the term as provided in the Commodity Exchange
Act. As noted above, the CFTC has opined that Bitcoin is a commodity
as defined in Section 1a(9) of the Commodity Exchange Act. See
Coinflip.
---------------------------------------------------------------------------

Upon termination of the Trust, the Shares will be removed from
listing. The Trustee, Delaware Trust Company, is a trust company having
substantial capital and surplus and the experience and facilities for
handling corporate trust business, as required under Rule
14.11(e)(4)(E)(iv)(a) and that no change will be made to the trustee
without prior notice to and approval of the Exchange. The Exchange also
notes that, pursuant to Rule 14.11(e)(4)(F), neither the Exchange nor
any agent of the Exchange shall have any liability for damages, claims,
losses or expenses caused by any errors, omissions or delays in
calculating or disseminating any underlying commodity value, the
current value of the underlying commodity required to be deposited to
the Trust in connection with issuance of Commodity-Based Trust Shares;
resulting from any negligent act or omission by the Exchange, or any
agent of the Exchange, or any act, condition or cause beyond the
reasonable control of the Exchange, its agent, including, but not
limited to, an act of God; fire; flood; extraordinary weather
conditions; war; insurrection; riot; strike; accident; action of
government; communications or power failure; equipment or software
malfunction; or any error, omission or delay in the reports of
transactions in an underlying commodity. Finally, as required in Rule
14.11(e)(4)(G), the Exchange notes that any registered market maker
(``Market Maker'') in the Shares must file with the Exchange in a
manner prescribed by the Exchange and keep current a list identifying
all accounts for trading in an underlying commodity, related commodity
futures or options on commodity futures, or any other related commodity
derivatives, which the registered Market Maker may have or over which
it may exercise investment discretion. No registered Market Maker shall
trade in an underlying commodity, related commodity futures or options
on commodity futures, or any other related commodity derivatives, in an
account in which a registered Market Maker, directly or indirectly,
controls trading activities, or has a direct interest in the profits or
losses thereof, which has not been reported to the Exchange as required
by this Rule. In addition to the existing obligations under Exchange
rules regarding the production of books and records (see, e.g., Rule
4.2), the registered Market Maker in Commodity-Based Trust Shares shall
make available to the Exchange such books, records or other information
pertaining to transactions by such entity or registered or non-
registered employee affiliated with such entity for its or their own
accounts for trading the underlying physical commodity, related
commodity futures or options on commodity futures, or any other related
commodity derivatives, as may be requested by the Exchange.
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 Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares. The Exchange will halt trading in the Shares
under the conditions specified in BZX Rule 11.18. Trading may be halted
because of market conditions or for reasons that, in the view of the
Exchange, make trading in the Shares inadvisable. These may include:
(1) the extent to which trading is not occurring in the bitcoin
underlying the Shares; or (2) whether other unusual conditions or
circumstances detrimental to the maintenance of a fair and orderly
market are present. Trading in the Shares also will be subject to Rule
14.11(e)(4)(E)(ii), which sets forth circumstances under which trading
in the Shares may be halted.
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 with
respect to the Shares is not disseminated to all market participants at
the same time, it will halt trading in the Shares until such time as
the NAV is available to all market participants.
Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. BZX will allow
trading in the Shares during all trading sessions on the Exchange. The
Exchange has appropriate rules to facilitate transactions in the Shares
during all trading sessions. As provided in BZX Rule 11.11(a) the
minimum price variation for quoting and entry of orders in securities
traded on the Exchange is $0.01 where the price is greater than $1.00
per share or $0.0001 where the price is less than $1.00 per share. The
Shares of the Trust will conform to the initial and continued listing
criteria set forth in BZX Rule 14.11(e)(4).
Surveillance
The Exchange represents that its surveillance procedures are
adequate to properly monitor the trading of the Shares on the Exchange
during all trading sessions and to deter and detect violations of
Exchange rules and the applicable federal securities laws. Trading of
the Shares through the Exchange will be subject to the Exchange's
surveillance procedures for derivative products, including

[[Page 54567]]

Commodity-Based Trust Shares. FINRA conducts certain cross-market
surveillances on behalf of the Exchange pursuant to a regulatory
services agreement. The Exchange is responsible for FINRA's performance
under this regulatory services agreement.
The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares, CME Bitcoin
Futures, or any other bitcoin derivative 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, CME Bitcoin Futures, or any other
bitcoin derivative from such markets and other entities.\72\ The
Exchange may obtain information regarding trading in the Shares, CME
Bitcoin Futures, or any other bitcoin derivative via ISG, from other
exchanges who are members or affiliates of the ISG, or with which the
Exchange has entered into a comprehensive surveillance sharing
agreement.
---------------------------------------------------------------------------

\72\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com.
---------------------------------------------------------------------------

In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
The Sponsor has represented to the Exchange that it will advise the
Exchange of any failure by the Trust or the Shares to comply with the
continued listing requirements, and, pursuant to its obligations under
Section 19(g)(1) of the Exchange Act, the Exchange will surveil for
compliance with the continued listing requirements. If the Trust or the
Shares are not in compliance with the applicable listing requirements,
the Exchange will commence delisting procedures under Exchange Rule
14.12.
Information Circular
Prior to the commencement of trading, the Exchange will inform its
members in an Information Circular of the special characteristics and
risks associated with trading the Shares. Specifically, the Information
Circular will discuss the following: (i) the procedures for the
creation and redemption of Creation Baskets (and that the Shares are
not individually redeemable); (ii) BZX Rule 3.7, which imposes
suitability obligations on Exchange members with respect to
recommending transactions in the Shares to customers; (iii) how
information regarding the IIV and the Trust's NAV are disseminated;
(iv) the risks involved in trading the Shares outside of Regular
Trading Hours \73\ when an updated IIV will not be calculated or
publicly disseminated; (v) the requirement that members deliver a
prospectus to investors purchasing newly issued Shares prior to or
concurrently with the confirmation of a transaction; and (vi) trading
information. 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 CME Bitcoin Futures contracts and options on CME
Bitcoin Futures contracts.
---------------------------------------------------------------------------

\73\ Regular Trading Hours is the time between 9:30 a.m. and
4:00 p.m. Eastern time.
---------------------------------------------------------------------------

In addition, the Information Circular will advise members, prior to
the commencement of trading, of the prospectus delivery requirements
applicable to the Shares. Members purchasing the Shares for resale to
investors will deliver a prospectus to such investors. The Information
Circular will also discuss any exemptive, no-action and interpretive
relief granted by the Commission from any rules under the Act.
2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act \74\ in general and Section 6(b)(5) of the Act \75\ 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.
---------------------------------------------------------------------------

\74\ 15 U.S.C. 78f.
\75\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

The Commission has approved numerous series of Trust Issued
Receipts, including Commodity-Based Trust Shares, 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; \76\ 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, in conjunction with precedent filings,
sufficiently demonstrates that the CME Bitcoin Futures market
represents a regulated market of significant size and that, on the
whole, the manipulation concerns previously articulated by the
Commission are sufficiently mitigated to the point that they are
outweighed by quantifiable investor protection issues that would be
resolved by approving this proposal.
---------------------------------------------------------------------------

\76\ As the Exchange has stated in a number of other public
documents, it continues to believe that bitcoin is resistant to
price manipulation and that ``other means to prevent fraudulent and
manipulative acts and practices'' exist to justify dispensing with
the requisite surveillance sharing agreement. The geographically
diverse and continuous nature of bitcoin trading render it difficult
and prohibitively costly to manipulate the price of bitcoin. The
fragmentation across bitcoin platforms, the relatively slow speed of
transactions, and the capital necessary to maintain a significant
presence on each trading platform make manipulation of bitcoin
prices through continuous trading activity challenging and
impractical. To the extent that there are bitcoin trading 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 trading platform 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 trading
platform or OTC platform. As a result, the potential for
manipulation on a trading platform would require overcoming the
liquidity supply of such arbitrageurs who are effectively
eliminating any cross-market pricing differences.
---------------------------------------------------------------------------

[[Page 54568]]

market of significant size. Both the Exchange and CME are members of
ISG. 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.\78\
---------------------------------------------------------------------------

\77\ 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 ISG
constitutes such a surveillance sharing agreement. See Wilshire
Phoenix Disapproval).
\78\ Id.
---------------------------------------------------------------------------

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.\79\
---------------------------------------------------------------------------

\79\ 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.
---------------------------------------------------------------------------

(a) Manipulation of the ETP
According to the research and analysis presented above, the Bitcoin
Futures market is the leading market for bitcoin price formation. Where
Bitcoin Futures lead the price in the spot market such that a potential
manipulator of the bitcoin spot market (beyond just the constituents of
the Index) would have to participate in the Bitcoin Futures market, it
follows that a potential manipulator of the Shares would similarly have
to transact in the Bitcoin Futures market because the Index is based on
spot prices. 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 influence on prices in the Bitcoin Futures
market or spot market for a number of reasons, including the
significant daily trading volume in the Bitcoin Futures market, the
size of bitcoin's market capitalization, 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. As the court found in the Grayscale Order, the Exchange and the
Sponsor submit that ``[b]ecause the spot market is deeper and more
liquid than the futures market, manipulation should be more difficult,
not less.''
(c) Other Means To Prevent Fraudulent and Manipulative Acts and
Practices
As noted above, the Commission also permits a listing exchange to
demonstrate that ``other means to prevent fraudulent and manipulative
acts and practices'' are sufficient to justify dispensing with the
requisite surveillance-sharing agreement. The Exchange and Sponsor
believe that such conditions are present in this case, in addition to
the existence of a surveillance sharing agreement that meets the
Commission's previously articulated standards.
(ii) Designed To Protect Investors and the Public Interest
The Exchange believes that the proposal is designed to protect
investors and the public interest. Over the past several years, U.S.
investor exposure to bitcoin through OTC Bitcoin Funds has grown into
the tens of billions of dollars, including through Bitcoin Futures
ETFs. With that growth, so too has grown the quantifiable investor
protection issues to U.S. investors including in connection with roll
costs for Bitcoin Futures ETFs and premium/discount volatility and
management fees for OTC Bitcoin Funds. The Exchange believes that the
concerns related to the prevention of fraudulent and manipulative acts
and practices have been sufficiently addressed for this proposal to be
consistent with the Act and, to the extent that the Commission
disagrees with that assertion, such concerns are now outweighed by
investor protection concerns. As such, the Exchange believes that
approving this proposal (and comparable proposals) provides the
Commission with the opportunity to allow U.S. investors to access
bitcoin in a regulated and transparent exchange-traded vehicle that
would act to limit risk and benefit U.S. investors by: (i) reducing
premium and discount volatility as compared to OTC investment vehicles;
(ii) increasing competitive pressure on management fees resulting in
fee compression/reductions; (iii) reducing risks and costs as compared
to those associated with investing in Bitcoin Futures ETFs and
operating companies that represent imperfect proxies for bitcoin
exposure; and (iv) providing an alternative to custodying spot bitcoin.
Commodity-Based Trust Shares
The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed on the Exchange pursuant to the initial and
continued listing criteria in Exchange Rule 14.11(e)(4). The Exchange
believes that its surveillance procedures are adequate to properly
monitor the trading of the Shares on the Exchange during all trading
sessions and to deter and detect violations of Exchange rules and the
applicable federal securities laws. Trading of the Shares through the
Exchange will be subject to the Exchange's surveillance procedures for
derivative products, including Commodity-Based Trust Shares. The issuer
has represented to the Exchange that it will advise the Exchange of any
failure by the Trust or the Shares to comply with the continued listing
requirements, and, pursuant to its obligations under Section 19(g)(1)
of the Exchange Act, the Exchange will surveil for compliance with the
continued listing requirements. If the Trust or the Shares are not in
compliance with the applicable listing requirements, the Exchange will
commence delisting procedures under Exchange Rule 14.12. The Exchange
may obtain information regarding trading in the Shares and listed
bitcoin derivatives via the ISG, from other exchanges who are members
or affiliates of the ISG, or with which the Exchange has entered into a
comprehensive surveillance sharing agreement.
Availability of Information
The Exchange also believes that the proposal promotes market
transparency in that a large amount of information is currently
available about bitcoin and will be available regarding the Trust and

[[Page 54569]]

the Shares. The website for the Trust, which will be publicly
accessible at no charge, will contain the following information: (a)
the current NAV per Share daily and the prior business day's NAV per
Share and the reported BZX Official Closing Price; (b) the BZX Official
Closing Price \80\ in relation to the NAV per Share as of the time the
NAV is calculated and a calculation of the premium or discount of such
price against such NAV per Share; (c) data in chart form displaying the
frequency distribution of discounts and premiums of the BZX 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); (d) the prospectus; and (e) other applicable
quantitative information. The aforementioned information will be
published as of the close of business available on the Trust's website
at https://puglisiassoc.com/, or any successor thereto. The Trust will
also disseminate its holdings on a daily basis on its website.
---------------------------------------------------------------------------

\80\ As defined in Rule 11.23(a)(3), the term ``BZX Official
Closing Price'' shall mean the price disseminated to the
consolidated tape as the market center closing trade.
---------------------------------------------------------------------------

The IIV will be calculated by using the prior day's closing NAV per
Share as a base and updating that value during Regular Trading Hours to
reflect changes in the value of the Trust's bitcoin holdings during the
trading day, which is based on the CME CF Bitcoin Real Time Index
(``BRTI''). The IIV disseminated during Regular Trading Hours should
not be viewed as an actual real-time update of the NAV, which will be
calculated only once at the end of each trading day. The IIV will be
widely disseminated on a per Share basis every 15 seconds during the
Exchange's Regular Trading Hours through the facilities of the
consolidated tape association (CTA) and Consolidated Quotation System
(CQS) high speed lines. In addition, the IIV will be available through
on-line information services such as Bloomberg and Reuters.
The price of bitcoin will be made available by one or more major
market data vendors, updated at least every 15 seconds during Regular
Trading Hours.
As noted above, the Index is calculated daily and aggregates the
notional value of bitcoin trading activity across major bitcoin spot
trading platforms. Index data, the Index value, and the description of
the Index are based on information made publicly available by the Index
Provider on its website at https://www.cfbenchmarks.com.
Quotation and last sale information for bitcoin is widely
disseminated through a variety of major market data vendors, including
Bloomberg and Reuters. Information relating to trading, including price
and volume information, in bitcoin is available from major market data
vendors and from the trading platforms on which bitcoin are traded.
Depth of book information is also available from bitcoin trading
platforms. The normal trading hours for bitcoin trading 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 BZX Official Closing Price and trading
volume information for the Shares will be published daily in the
financial section of newspapers. Quotation and last-sale information
regarding the Shares will be disseminated through the facilities of the
CTA.
In sum, the Exchange believes that this proposal is consistent with
the requirements of Section 6(b)(5) of the Act, that this filing
sufficiently demonstrates that the CME Bitcoin Futures market
represents a regulated market of significant size, and that on the
whole the manipulation concerns previously articulated by the
Commission are sufficiently mitigated to the point that they are
outweighed by investor protection issues that would be resolved by
approving this proposal.
The Exchange believes that the proposal is, in particular, designed
to protect investors and the public interest. The investor protection
issues for U.S. investors has grown significantly over the last several
years, through roll costs for Bitcoin Futures ETFs and premium/discount
volatility and management fees for OTC Bitcoin Funds. As discussed
herein, this growth investor protection concerns need to be reevaluated
and rebalanced with the prevention of fraudulent and manipulative acts
and practices concerns that previous disapproval orders have relied
upon. The Exchange notes that in addition to all of the arguments
herein which it believes sufficiently establish the CME Bitcoin Futures
market as a regulated market of significant size, it is logically
inconsistent to find that the CME Bitcoin Futures market is a
significant market as it relates to the CME Bitcoin Futures market, but
not a significant market as it relates to the bitcoin spot market for
the numerous reasons laid out above.
Finally, the Exchange believes this proposal should be approved as
it is similar to other proposals to list spot bitcoin ETFs, which were
recently approved by the Commission.\81\
---------------------------------------------------------------------------

\81\ See Securities Exchange Act Release No. 99306 (January 10,
2024) 89 FR 3008 (January 17, 2024) (Order Granting Accelerated
Approval of Proposed Rule Changes, as Modified by Amendments
Thereto, To List and Trade Bitcoin-Based Commodity-Based Trust
Shares and Trust Units).
---------------------------------------------------------------------------

For the above reasons, the Exchange believes that the proposed rule
change is consistent with the requirements of Section 6(b)(5) of the
Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. The Exchange notes that the
proposed rule change, rather will facilitate the listing and trading of
an additional exchange-traded product that will enhance competition
among both market participants and listing venues, to the benefit of
investors and the marketplace.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

The Exchange neither solicited nor received comments on the
proposed rule change.

III. Solicitation of Comments

Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change, as modified by Amendment No. 1, is consistent with the Act.
Comments may be submitted by any of the following methods:

Electronic Comments

Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-CboeBZX-2023-101 on the subject line.

Paper Comments

Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-CboeBZX-2023-101. 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

[[Page 54570]]

post all comments on the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent
amendments, all written statements with respect to the proposed rule
change that are filed with the Commission, and all written
communications relating to the proposed rule change between the
Commission and any person, other than those that may be withheld from
the public in accordance with the provisions of 5 U.S.C. 552, will be
available for website viewing and printing in the Commission's Public
Reference Room, 100 F Street NE, Washington, DC 20549, on official
business days between the hours of 10 a.m. and 3 p.m. Copies of the
filing also will be available for inspection and copying at the
principal office of the Exchange. Do not include personal identifiable
information in submissions; you should submit only information that you
wish to make available publicly. We may redact in part or withhold
entirely from publication submitted material that is obscene or subject
to copyright protection. All submissions should refer to file number
SR-CboeBZX-2023-101 and should be submitted on or before July 22, 2024.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\82\
---------------------------------------------------------------------------

\82\17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-14379 Filed 6-28-24; 8:45 am]
BILLING CODE 8011-01-P

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