Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To List and Trade Shares of the Franklin Crypto Index ETF, a Series of the Franklin Crypto Trust, Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares, 81600-81608 [2024-23167]
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81600
Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Notices
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
• 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–
CBOE–2024–042 on the subject line.
Paper Comments
ddrumheller on DSK120RN23PROD with NOTICES1
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to file
number SR–CBOE–2024–042. 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–CBOE–2024–042 and should be
submitted on or before October 29,
2024.
17:23 Oct 07, 2024
[FR Doc. 2024–23064 Filed 10–7–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.50
Vanessa A. Countryman,
Secretary.
Jkt 265001
[Release No. 34–101233; File No. SR–
CboeBZX–2024–091]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing of
a Proposed Rule Change To List and
Trade Shares of the Franklin Crypto
Index ETF, a Series of the Franklin
Crypto Trust, Under BZX Rule
14.11(e)(4), Commodity-Based Trust
Shares
October 2, 2024.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on
September 19, 2024, Cboe BZX
Exchange, Inc. (‘‘Exchange’’ or ‘‘BZX’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
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 Franklin Crypto Index ETF (the
‘‘Fund’’), a series of the Franklin Crypto
Trust (the ‘‘Trust’’),3 under BZX Rule
14.11(e)(4), Commodity-Based Trust
Shares.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
equities/regulation/rule_filings/bzx/), at
the Exchange’s Office of the Secretary,
and at the Commission’s Public
Reference Room.
50 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 The Trust was formed as a Delaware statutory
trust on August 13, 2024. The Fund is operated as
a partnership for U.S. federal tax purposes. The
Trust and the Fund have no fixed termination date.
1 15
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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
The Exchange proposes to list and
trade the Shares under BZX Rule
14.11(e)(4),4 which governs the listing
and trading of Commodity-Based Trust
Shares on the Exchange.5 Franklin
Holdings, LLC is the sponsor of the
Fund (‘‘Sponsor’’). The Shares will be
registered with the Commission by
means of the Trust’s registration
statement on Form S–1 (the
‘‘Registration Statement’’).6
Section 6(b)(5) and the Applicable
Standards
The Commission has approved
numerous series of Trust Issued
Receipts,7 including Commodity-Based
Trust Shares,8 to be listed on U.S.
national securities exchanges. In order
for any proposed rule change from an
exchange to be approved, the
4 The Commission approved BZX Rule 14.11(e)(4)
in Securities Exchange Act Release No. 65225
(August 30, 2011), 76 FR 55148 (September 6, 2011)
(SR–BATS–2011–018).
5 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, and
intraday indicative values, or the applicability of
Exchange listing rules specified in this filing to list
a series of Other Securities (collectively,
‘‘Continued Listing Representations’’) shall
constitute continued listing requirements for the
Shares listed on the Exchange.
6 On August 16, 2024, the Trust filed with the
Commission the Registration Statement on Form S–
1, submitted to the Commission by the Sponsor on
behalf of the Trust (333–281615). The descriptions
of the Trust, the Shares, and the Index (as defined
below) contained herein are based, in part, on
information in the Registration Statement. The
Registration Statement is not yet effective and the
Shares will not trade on the Exchange until such
time that the Registration Statement is effective.
7 See Exchange Rule 14.11(f).
8 Commodity-Based Trust Shares, as described in
Exchange Rule 14.11(e)(4), are a type of Trust
Issued Receipt.
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Commission must determine that,
among other things, the proposal is
consistent with the requirements of
Section 6(b)(5) of the Act, specifically
including: (i) the requirement that a
national securities exchange’s rules are
designed to prevent fraudulent and
manipulative acts and practices; and (ii)
the requirement that an exchange
proposal be designed, in general, to
protect investors and the public interest.
The Commission has historically
approved or disapproved exchange
filings to list and trade series of Trust
Issued Receipts, including spot-based
Commodity-Based Trust Shares, on the
basis of whether the listing exchange
has in place a comprehensive
surveillance sharing agreement with a
regulated market of significant size
related to the underlying commodity to
be held.9 The Commission has also
consistently recognized, however, that
this is not the exclusive means by which
an ETP listing exchange can meet this
statutory obligation.10 A listing
exchange could, alternatively,
demonstrate that ‘‘other means to
prevent fraudulent and manipulative
acts and practices will be sufficient’’ to
justify dispensing with a surveillance9 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’’). 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.
Further to this point, the Commission’s prior orders
have noted that the spot commodities and currency
markets for which it has previously approved spot
ETPs are generally unregulated and that the
Commission relied on the underlying futures
market as the regulated market of significant size
that formed the basis for approving the series of
Currency and Commodity-Based Trust Shares,
including gold, silver, platinum, palladium, copper,
and other commodities and currencies. The
Commission specifically noted in the Winklevoss
Order that the approval order issued related to the
first spot gold ETP ‘‘was based on an assumption
that the currency market and the spot gold market
were largely unregulated.’’ See Winklevoss Order at
37592. As such, the regulated market of significant
size test does not require that the spot bitcoin and
ether markets 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.
10 See Winklevoss Order, 83 FR at 37580.
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sharing agreement with a regulated
market of significant size.
Both the Exchange and Chicago
Mercantile Exchange (‘‘CME’’) are
members of the Intermarket
Surveillance Group (‘‘ISG’’).11 With this
in mind, the CME ether futures (‘‘Ether
Futures’’) market and the CME bitcoin
futures (‘‘Bitcoin Futures’’) market are
the proper markets to consider in
determining whether there is a related
regulated market of significant size.
Recently, the Commission issued orders
granting approval for proposals to list
bitcoin-based (‘‘Spot Bitcoin ETPs’’) 12
and ether-based (‘‘Spot Ether ETPs’’) 13
commodity trust and trust issued
receipts (these funds are nearly identical
to the Fund but hold either bitcoin or
ether instead of bitcoin and ether). In
the Spot Bitcoin ETP Approval Order,
the Commission stated:
[B]ased on the record before the
Commission and the improved quality of the
correlation analysis in the record . . . the
Commission is able to conclude that fraud or
manipulation that impacts prices in spot
bitcoin markets would likely similarly
impact CME bitcoin futures prices. And
because the CME’s surveillance can assist in
detecting those impacts on CME bitcoin
futures prices, the Exchanges’ comprehensive
surveillance-sharing agreement with the
CME–a U.S. regulated market whose bitcoin
futures market is consistently highly
correlated to spot bitcoin, albeit not of
‘‘significant size’’ related to spot bitcoin–can
be reasonably expected to assist in
surveilling for fraudulent and manipulative
acts and practices in the specific context of
the [p]roposals.14
In the Spot Ether ETP Approval Order
the Commission also concluded that
fraud or manipulation that impacts
prices in spot ether markets would
likely similarly impact CME Ether
Futures prices. Further, for the same
reasons that the CME’s surveillance can
assist in detecting those impacts on
CME Ether Futures prices, the
Exchange’s comprehensive surveillance11 For a list of the current members and affiliate
members of ISG, see www.isgportal.com.
12 See Exchange Act Release No. 99306 (January
10, 2024), 89 FR 3008 (January 17, 2024) (SelfRegulatory Organizations; NYSE Arca, Inc.; The
Nasdaq Stock Market LLC; Cboe BZX Exchange,
Inc.; Order Granting Accelerated Approval of
Proposed Rule Changes, as Modified by
Amendments Thereto, To List and Trade BitcoinBased Commodity-Based Trust Shares and Trust
Units) (the ‘‘Spot Bitcoin ETP Approval Order’’).
13 See Exchange Act Release No. 100224 (May 23,
2024), 89 FR 46937 (May 30, 2024) (Self-Regulatory
Organizations; NYSE Arca, Inc.; The Nasdaq Stock
Market LLC; Cboe BZX Exchange, Inc.; Order
Granting Accelerated Approval of Proposed Rule
Changes, as Modified by Amendments Thereto, To
List and Trade Shares of Ether-Based ExchangeTraded Products) (the ‘‘Spot Ether ETP Approval
Order’’).
14 See the Spot Bitcoin ETP Approval Order at
3011–3012.
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81601
sharing agreement with the CME can be
reasonably expected to assist in
surveilling for fraudulent and
manipulative acts and practices in the
specific context of the proposals.
In sum, in the Spot Bitcoin ETP
Approval Order and Spot Ether ETP
Approval Order the Commission
established that the CME Bitcoin
Futures market and CME Ether Futures
market can reasonably be expected to
assist for fraudulent and manipulative
acts and practices. Further, the listing
exchanges demonstrated ‘‘other means
to prevent fraudulent and manipulative
acts and practices will be sufficient’’ to
justify dispensing with with the
‘‘significant size’’ portion of the
‘‘regulated market of significant size’’
test.
The Exchange notes that the
Commission has also previously
approved the listing and trading of a
series of Commodity-Based Trust Shares
on another exchange that, like the Fund,
holds two commodities.15 Given this
and the above, the Exchange believes
the Shares satisfy the requirements of
Exchange Rule BZX Rule 14.11(e)(4) and
thereby qualify for listing and trading on
the Exchange.
Franklin Crypto Index ETF
CSC Delaware Trust Company, a
subsidiary of the Corporation Service
Company, is the trustee (‘‘Trustee’’).
Bank of New York Mellon is the
custodian for the Fund’s cash and cash
equivalents 16 (the ‘‘Cash Custodian’’)
and also serves as the Fund’s
administrator and transfer agent (the
‘‘Administrator’’ or ‘‘Transfer Agent’’).
Coinbase Custody Trust Company, LLC
(the ‘‘Digital Custodian’’) will be
responsible for custody of the Fund’s
bitcoin and ether. According to the
Registration Statement, each Share will
represent a fractional undivided
beneficial interest in the Fund’s net
assets. The Fund’s assets will only
consist of bitcoin, ether, cash, and cash
equivalents. In the event that any digital
asset other than bitcoin and ether is
included, or is eligible for inclusion, as
a constituent in the Index,17 the Sponsor
will transition the Fund from full
replication to a representative sampling
methodology, holding only bitcoin and
15 See Securities Exchange Act No. 82448
(January 5, 2018) 83 FR 1428 (January 11, 2018)
(SR–NYSEArca–2017–131) (NYSE Arca, Inc.; Notice
of Filing of Amendment No. 2 and Order Approving
on an Accelerated Basis a Proposed Rule Change,
as Modified by Amendment No. 2, To List and
Trade Shares of the Sprott Physical Gold and Silver
Trust Under NYSE Arca Rule 8.201–E).
16 Cash equivalents are short-term instruments
with maturities of less than 3 months.
17 The ‘‘Index’’ refers to the CF Institutional
Digital Asset Index—US-Settlement Price.
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ether in the same proportions
determined by the Index, until such
time that the Fund and the Exchange
receive the necessary regulatory
approval to permit the Fund to hold
such other digital asset.
According to the Registration
Statement, the Trust is neither an
investment company registered under
the 1940 Act,18 nor a commodity pool
for purposes of the Commodity
Exchange Act (‘‘CEA’’), and neither the
Trust, the Fund nor the Sponsor is
subject to regulation as a commodity
pool operator or a commodity trading
adviser in connection with the Shares.
Neither the Trust or the Fund, nor the
Sponsor, nor the Custodian, nor any
other person associated with the Trust
or Fund will, directly or indirectly,
engage in action where any portion of
the Fund’s ether becomes subject to the
Ethereum proof-of-stake validation or is
used to earn additional ether or generate
income or other earnings. The Fund 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 the Fund’s net asset value
(‘‘NAV’’).
When the Fund sells or redeems its
Shares, it will do so in cash transactions
in large blocks of 50,000 Shares (a
‘‘Creation Basket’’) at the Fund’s NAV.
For creations, authorized participants
will deliver, or facilitate the delivery of,
cash to the Fund’s account with the
Cash Custodian in exchange for Shares.
Upon receipt of an approved creation
order, the Sponsor, on behalf of the
Fund, will submit an order to buy the
amount of bitcoin and ether represented
by a Creation Basket. Based off bitcoin/
ether executions, the Cash Custodian
will request the required cash from the
authorized participant. Following
receipt by the Cash Custodian of the
cash from an authorized participant, the
Sponsor, on behalf of the Fund, will
approve an order with one or more
previously onboarded trading partners
to purchase the amount of bitcoin and
ether represented by the Creation
Basket.19 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 Fund’s assets,
18 15
U.S.C. 80a–1.
redemptions, the process will occur in the
reverse order. Upon receipt of an approved
redemption order, the Sponsor, on behalf of the
Fund, will submit an order to sell the amount of
bitcoin and ether represented by a Creation Basket
and the cash proceeds will be remitted to the
authorized participant when the large block of
Shares is received by the Transfer Agent.
19 For
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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 Fund.
Investment Objective
According to the Registration
Statement and as further described
below, the investment objective of the
Fund is for changes in the Shares’ NAV
to reflect the daily changes of the Index,
less expenses and liabilities of the Fund.
The Fund will seek to achieve its
investment objective by investing in
bitcoin and ether in approximately the
same weights as they represent in the
Index, which is a free float-adjusted
market capitalization weighted index of
liquid digital assets that are recognized
as being in conformance with prevailing
markets regulations of major financial
jurisdictions as determined by CF
Benchmarks Ltd. (the ‘‘Index Provider’’).
In seeking to achieve its investment
objective, the Fund will hold only
bitcoin, ether, cash, and cash
equivalents. The price of bitcoin and
ether within the Index is based on the
CME CF Bitcoin Reference Rate—New
York Variant for the Bitcoin—U.S.
Dollar trading pair (the ‘‘CF Bitcoin
Reference Rate’’) and the CME CF EtherDollar Reference Rate—New York
Variant for the ether-U.S. Dollar trading
pair (the ‘‘CF Ether Reference Rate’’, and
together with the CF Bitcoin Reference
Rate, the ‘‘CF Reference Rates’’).
If a CF Reference Rate is not available
or the Sponsor determines, in its sole
discretion, that a CF Reference Rate
should not be used, the Fund’s holdings
may be fair valued in accordance with
the policy approved by the Sponsor.20
The Index
As described in the Registration
Statement, the Fund generally seeks to
reflect the price of the digital assets
included in the Index. Currently, the
Index’s only constituent digital assets
are bitcoin and ether. The Fund’s
investment objective is for changes in
the Shares’ NAV to reflect the daily
changes of the Index, less expenses and
liabilities of the Fund. The Fund will
seek to achieve its investment objective
by investing in bitcoin and ether in
approximately the same weights as they
represent in the Index.
The Index is owned, administered
and calculated by the Index Provider.
The Index is derived from a rules-based
methodology and related ground rules
20 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.
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(together, the ‘‘Index Rules’’), which are
overseen by the Index Provider. Eligible
constituent digital assets are screened,
including for their liquidity, asset
turnover and ability to be stored in
custody by third parties that have
regulatory approval to provide services
for the safe keeping of digital assets on
behalf of investors. To be eligible for
inclusion in the Index, the digital asset
(1) must be listed on two or more
eligible constituent exchanges as
determined by the Index Provider and
(2) must be supported by one or more
eligible third-party custodians as
determined by the Index Provider.
Digital assets that are pegged to the
value of any asset, including but not
limited to stablecoins, are not eligible
for inclusion in the Index. Only markets
and trading pairs where a digital asset
is listed as either the base asset or quote
asset against the U.S. Dollar will be
included in calculations for purposes of
the liquidity screen. The Index Provider
further reserves the right to exclude a
digital asset based on one or more
factors. The resultant digital assets are
deemed to be the investible universe
(‘‘Investible Universe’’) of digital assets
that are eligible for inclusion in the
Index. Digital assets within the 95th
percentile of the free float-adjusted
market capitalization of the Investible
Universe that are determined by the
Index Provider as being in conformance
with prevailing capital markets
regulations of major financial
jurisdictions (including that the SEC has
approved or permitted an exchangetraded product/fund registered under
the Securities Act of 1933 holding such
digital asset to list and launch) and that
meet certain minimum liquidity,
turnover, and full market capitalization
ratios as determined by the Index
Provider pursuant to the Index Rules are
generally included as constituents in the
Index.
The free float supply of each digital
asset is determined by the Index
Provider in accordance with the Index
Rules, with different calculations
applying depending on whether the
digital assets is determined to be ‘‘coincentric’’ (such as bitcoin) or ‘‘accountcentric’’ (such as ether). The Index is
rebalanced and reconstituted quarterly.
The Fund will be reconstituted and
rebalanced in accordance with the
Index.
The price of bitcoin and ether within
the Index is based on the respective CF
Reference Rate (i.e., the CF Bitcoin
Reference Rate and CF Ether Reference
Rate). See the below section titled ‘‘Net
Asset Value’’ for information on how
the CF Reference Rates are calculated.
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In addition, the Sponsor notes that an
oversight function is implemented by
the Index Provider in seeking to ensure
that the CF Reference Rates are
administered through codified policies
for index integrity. CF Reference Rate
data and the description of the CF
Reference Rates 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
Fund (which includes bitcoin, ether,
cash and cash equivalents) less total
liabilities of the Fund. The
Administrator will determine the NAV
of the Fund 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 Fund is the aggregate
value of the Fund’s assets less its
estimated accrued but unpaid liabilities
(which include accrued expenses). In
determining the Fund’s NAV, the
Administrator values the bitcoin and
ether held by the Fund based on the CF
Reference Rates as of 4:00 p.m. ET. The
Administrator also determines the NAV
per Share.
The NAV for the Fund will be
calculated by the Administrator once a
day and will be disseminated daily to
all market participants at the same time.
If one or both of the CF Reference
Rates is not available or the Sponsor
determines, in its sole discretion, that
the CF Bitcoin Reference Rate or the CF
Ether Reference Rate should not be
used, the Fund’s holdings may be fair
valued in accordance with the policy
approved by the Sponsor.
On each business day, as soon as
practicable after 4:00 p.m. ET, the
Administrator evaluates the bitcoin and
ether held by the Fund as reflected by
the CF Reference Rates and determines
the NAV of the Fund.
The CF Reference Rates serve as oncea-day benchmark rates of the U.S. dollar
price of ether (USD/ETH) and bitcoin
(USD/BTC), calculated as of 4:00 p.m.
ET. The CF Reference Rates aggregate
the trade flow of several ether and
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 and ether at 4:00
p.m. ET. Specifically, the CF Reference
Rates are calculated based on the
‘‘Relevant Transactions’’ (as defined
below) of all of its constituent bitcoin
and ether 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
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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 CF Reference Rate is then
determined by the equally-weighted
average of the volume medians of all
partitions.
The Constituent Platforms may
change from time to time. The CF
Reference Rates do 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
XBT/USD and ETH/USD pairs that are
reported and disseminated by a
Constituent Platform through its
publicly available Application
Programming Interface (‘‘API’’) and
observed by the Index Provider.
The Sponsor believes that the use of
the CF Reference Rates is reflective of a
reasonable valuation of the average spot
price of ether and 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 CF
Reference Rates thereby seek to ensure
that transactions in ether and bitcoin
conducted at outlying prices do not
have an undue effect on the value of the
CF Reference Rates, large trades or
clusters of trades transacted over a short
period of time will not have an undue
influence on the CF Reference Rates,
and the effect of large trades at prices
that deviate from the prevailing price
are mitigated from having an undue
influence on the CF Reference Rates.
Availability of Information
The website for the Fund, 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
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81603
Price; 21 (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 Fund, 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
Fund’s website at https://www.frankl
intempleton.com/investments/options/
exchange-traded-funds, or any
successor thereto. The Fund 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 22 to reflect changes in
the value of the Fund’s bitcoin and ether
holdings during the trading day, which
are based on CME CF Ether-Dollar Real
Time Index and CME CF Bitcoin Real
Time Index. 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 online information
services, such as Bloomberg and
Reuters.
The price of bitcoin and ether 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, each CF Reference
Rate is calculated daily and aggregates
the notional value of trading activity
across major spot trading platforms. CF
Reference Rate data, the CF Reference
Rate value, and the description of the
CF Reference Rate are based on
information made publicly available by
the Index Provider on its website at
https://www.cfbenchmarks.com.
21 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.
22 Regular Trading Hours is the time between 9:30
a.m. and 4:00 p.m. Eastern Time.
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Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Notices
Quotation and last sale information
for bitcoin and ether 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 and
ether are available from major market
data vendors and from the trading
platforms on which ether and bitcoin
are traded. Depth of book information is
also available from ether and bitcoin
trading platforms. The normal trading
hours for ether and 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 Custodian
ddrumheller on DSK120RN23PROD with NOTICES1
The Custodian carefully considers the
design of the physical, operational and
cryptographic systems for secure storage
of the Fund’s private keys in an effort
to lower the risk of loss or theft. The
Custodian utilizes a variety of security
measures to ensure that private keys
necessary to transfer digital assets
remain uncompromised and that the
Fund maintains exclusive ownership of
its assets. The Custodian will keep the
private keys associated with the Fund’s
bitcoin and ether in ‘‘cold storage’’ 23
(the ‘‘Cold Vault Balance’’). The
hardware, software, systems, and
procedures of the ether 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
23 The term ‘‘cold storage’’ refers to a safeguarding
method by which the private keys corresponding to
ether 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.
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or use any of the private keys that hold
the Fund’s ether and bitcoin.
Creation and Redemption of Shares
When the Fund sells or redeems its
Shares, it will do so in cash transactions
in blocks of Shares (e.g., a Creation
Basket) that are based on the quantity of
bitcoin and ether attributable to each
Share of the Fund at the NAV.
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 2:00 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 and ether
associated with a Creation Basket for a
given day by dividing the number of
bitcoin and ether held by the Fund as
of the opening of business on that
business day, adjusted for the amount of
bitcoin and ether constituting estimated
accrued but unpaid fees and expenses of
the Fund 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 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 or ether
as part of the creation or redemption
process or otherwise direct the Fund or
a third-party with respect to purchasing,
holding, delivering, or receiving bitcoin
or ether as part of the creation or
redemption process.
The Fund will create Shares by
receiving ether or bitcoin from a thirdparty that is not the authorized
participant and the Fund—not the
authorized participant—is responsible
for selecting the third-party to deliver
the ether and bitcoin. Further, the thirdparty will not be acting as an agent of
the authorized participant with respect
to the delivery of the ether and bitcoin
to the Fund or acting at the direction of
the authorized participant with respect
to the delivery of the bitcoin and ether
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to the Fund. The Fund will redeem
Shares by delivering bitcoin and ether to
a third-party that is not the authorized
participant and the Fund—not the
authorized participant—is responsible
for selecting the third-party to receive
the ether and bitcoin. Further, the thirdparty will not be acting as an agent of
the authorized participant with respect
to the receipt of the ether and bitcoin
from the Fund or acting at the direction
of the authorized participant with
respect to the receipt of the ether and
bitcoin from the Fund.
The Sponsor (including its delegates)
will maintain ownership and control of
the Fund’s ether and 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
Fund must be in compliance with Rule
10A–3 under the Act. A minimum of
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 that the NAV and
information about the assets of the Fund
will be made available to all market
participants at the same time. The
Exchange notes that the Shares will
meet the definition of Rule
14.11(e)(4)(C)(i) except that the Fund
will hold two commodities (i.e., bitcoin
and ether) rather than a single
commodity in addition to cash and cash
equivalents. Specifically, the Shares
will be: (a) issued by a trust that holds
(1) two specified commodities 24
deposited with the trust, or (2) two
specified commodities and, in addition
to such specified commodities, cash; (b)
issued by such trust in a specified
aggregate minimum number in return
for a deposit of a quantity of the
underlying commodities 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 commodities and/or cash.
The Exchange notes that the
Commission has previously approved
the listing and trading of series of
24 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.
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ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Notices
Commodity-Based Trust Shares that
hold more than one commodity.25
Upon termination of the Fund, the
Shares will be removed from listing.
The Trustee 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 Fund 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
25 See Securities Exchange Act No. 82448
(January 5, 2018) 83 FR 1428 (January 11, 2018)
(SR-NYSEArca–2017–131) (NYSE Arca, Inc.; Notice
of Filing of Amendment No. 2 and Order Approving
on an Accelerated Basis a Proposed Rule Change,
as Modified by Amendment No. 2, To List and
Trade Shares of the Sprott Physical Gold and Silver
Trust Under NYSE Arca Rule 8.201–E).
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17:23 Oct 07, 2024
Jkt 265001
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 ether and
bitcoin, CME Ether Futures and CME
Bitcoin Futures, options on CME Ether
Futures and CME Bitcoin Futures, or
any other bitcoin or ether 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, which
include any person or entity controlling
a Member. To the extent the Exchange
may be found to lack jurisdiction over
a subsidiary or affiliate of a Member that
does business only in commodities or
futures contracts, the Exchange could
obtain information regarding the
activities of such subsidiary or affiliate
through surveillance sharing agreements
with regulatory organizations of which
such subsidiary or affiliate is a member.
Trading Halts
With respect to trading halts, the
Exchange may consider all relevant
factors in exercising its discretion to
halt or suspend trading in the Shares.
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 or ether 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
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81605
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 Fund 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
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 Ether
Futures and CME Bitcoin Futures, or
any other bitcoin or ether 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 Ether Futures and CME
Bitcoin Futures, or any other ether or
bitcoin derivative from such markets
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Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Notices
and other entities.26 The Exchange may
obtain information regarding trading in
the Shares, CME Ether Futures and CME
Bitcoin Futures, or any other ether or
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 Fund 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 Fund or the Shares are not in
compliance with the applicable listing
requirements, the Exchange will
commence delisting procedures under
Exchange Rule 14.12.
ddrumheller on DSK120RN23PROD with NOTICES1
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
Fund’s NAV are disseminated; (iv) the
risks involved in trading the Shares
outside of Regular Trading Hours 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 ether or bitcoin,
that the Commission has no jurisdiction
over the trading of ether or bitcoin as a
commodity, and that the CFTC has
regulatory jurisdiction over the trading
of CME Ether Futures contracts and
CME Bitcoin Futures contracts and
26 For a list of the current members and affiliate
members of ISG, see www.isgportal.com.
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17:23 Oct 07, 2024
Jkt 265001
options on CME Ether Futures contracts
and 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 27 in general and Section
6(b)(5) of the Act 28 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,29 including Commodity-Based
Trust Shares,30 to be listed on U.S.
national securities exchanges. In order
for any proposed rule change from an
exchange to be approved, the
Commission must determine that,
among other things, the proposal is
consistent with the requirements of
Section 6(b)(5) of the Act, specifically
including: (i) the requirement that a
national securities exchange’s rules are
designed to prevent fraudulent and
manipulative acts and practices; and (ii)
the requirement that an exchange
proposal be designed, in general, to
protect investors and the public interest.
The Exchange believes that this
proposal is consistent with the
requirements of Section 6(b)(5) of the
Act.
The Commission has historically
approved or disapproved exchange
filings to list and trade series of Trust
Issued Receipts, including spot-based
Commodity-Based Trust Shares, on the
basis of whether the listing exchange
has in place a comprehensive
surveillance sharing agreement with a
regulated market of significant size
related to the underlying commodity to
27 15
U.S.C. 78f.
U.S.C. 78f(b)(5).
29 See Exchange Rule 14.11(f).
30 Commodity-Based Trust Shares, as described in
Exchange Rule 14.11(e)(4), are a type of Trust
Issued Receipt.
28 15
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Sfmt 4703
be held.31 The Commission has also
consistently recognized, however, that
this is not the exclusive means by which
an ETP listing exchange can meet this
statutory obligation.32 A listing
exchange could, alternatively,
demonstrate that ‘‘other means to
prevent fraudulent and manipulative
acts and practices will be sufficient’’ to
justify dispensing with a surveillancesharing agreement with a regulated
market of significant size.
Both the Exchange and the CME are
members of the ISG.33 With this in
mind, the CME Ether Futures market
and the CME Bitcoin Futures market are
the proper markets to consider in
determining whether there is a related
regulated market of significant size.
Recently, the Commission issued orders
granting approval for proposals to list
Spot Bitcoin ETPs and Spot Ether ETPs.
In the Spot Bitcoin ETP Approval Order,
the Commission stated:
[B]ased on the record before the
Commission and the improved quality of the
correlation analysis in the record. . .the
Commission is able to conclude that fraud or
manipulation that impacts prices in spot
bitcoin markets would likely similarly
impact CME bitcoin futures prices. And
because the CME’s surveillance can assist in
31 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’’). 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.
Further to this point, the Commission’s prior orders
have noted that the spot commodities and currency
markets for which it has previously approved spot
ETPs are generally unregulated and that the
Commission relied on the underlying futures
market as the regulated market of significant size
that formed the basis for approving the series of
Currency and Commodity-Based Trust Shares,
including gold, silver, platinum, palladium, copper,
and other commodities and currencies. The
Commission specifically noted in the Winklevoss
Order that the approval order issued related to the
first spot gold ETP ‘‘was based on an assumption
that the currency market and the spot gold market
were largely unregulated.’’ See Winklevoss Order at
37592. As such, the regulated market of significant
size test does not require that the spot bitcoin and
ether markets 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.
32 See Winklevoss Order, 83 FR at 37580.
33 For a list of the current members and affiliate
members of ISG, see www.isgportal.com.
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Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Notices
detecting those impacts on CME bitcoin
futures prices, the Exchanges’ comprehensive
surveillance-sharing agreement with the
CME–a U.S. regulated market whose bitcoin
futures market is consistently highly
correlated to spot bitcoin, albeit not of
‘‘significant size’’ related to spot bitcoin–can
be reasonably expected to assist in
surveilling for fraudulent and manipulative
acts and practices in the specific context of
the [p]roposals.34
In the Spot Ether ETP Approval Order
the Commission also concluded that
fraud or manipulation that impacts
prices in spot ether markets would
likely similarly impact CME Ether
Futures prices. Further, for the same
reasons that the CME’s surveillance can
assist in detecting those impacts on
CME Ether Futures prices, the
Exchange’s comprehensive surveillancesharing agreement with the CME can be
reasonably expected to assist in
surveilling for fraudulent and
manipulative acts and practices in the
specific context of the proposals.
In sum, in the Spot Bitcoin ETP
Approval Order and Spot Ether ETP
Approval Order the Commission
established that the CME Bitcoin
Futures market and CME Ether Futures
market can reasonably be expected to
assist for fraudulent and manipulative
acts and practices. Further, the
Commission determined that the listing
exchanges demonstrated ‘‘other means
to prevent fraudulent and manipulative
acts and practices will be sufficient’’ to
justify dispensing with a surveillancesharing agreement with a regulated
market of significant size.
The Exchange notes that the
Commission has also previously
approved the listing and trading of a
series of Commodity-Based Trust Shares
that, like the Fund, holds two
commodities.35 Given this and the
above, the Exchange believes the Shares
satisfy the requirements of Exchange
Rule BZX Rule 14.11(e)(4) and thereby
qualify for listing and trading on the
Exchange.
ddrumheller on DSK120RN23PROD with NOTICES1
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
34 See the Spot Bitcoin ETP Approval Order at
3011–3012.
35 See Securities Exchange Act No. 82448
(January 5, 2018) 83 FR 1428 (January 11, 2018)
(SR–NYSEArca–2017–131) (NYSE Arca, Inc.; Notice
of Filing of Amendment No. 2 and Order Approving
on an Accelerated Basis a Proposed Rule Change,
as Modified by Amendment No. 2, To List and
Trade Shares of the Sprott Physical Gold and Silver
Trust Under NYSE Arca Rule 8.201–E).
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17:23 Oct 07, 2024
Jkt 265001
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 Fund 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 Fund 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 ether or
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
In addition to the price transparency
of the Index, the Fund will provide
information regarding the Fund’s
bitcoin and ether holdings as well as
additional data regarding the Fund.
The website for the Fund, 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; 36 (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 Fund, 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
36 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.
PO 00000
Frm 00191
Fmt 4703
Sfmt 4703
81607
Fund’s website at https://
www.franklintempleton.com/
investments/options/exchange-tradedfunds, or any successor thereto. The
Fund 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 Fund’s
bitcoin and ether holdings during the
trading day, which are based on CME
CF Ether-Dollar Real Time Index and
CME CF Bitcoin Real Time Index. 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 and ether 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, each CF Reference
Rate is calculated daily and aggregates
the notional value of trading activity
across major spot trading platforms. CF
Reference Rate data, the CF Reference
Rate value, and the description of the
CF Reference Rate 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 ether and 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 and
ether are available from major market
data vendors and from the trading
platforms on which ether and bitcoin
are traded. Depth of book information is
also available from ether and bitcoin
trading platforms. The normal trading
hours for ether and 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
E:\FR\FM\08OCN1.SGM
08OCN1
81608
Federal Register / Vol. 89, No. 195 / Tuesday, October 8, 2024 / Notices
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 proposed rule change is designed
to perfect the mechanism of a free and
open market, and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of an additional type of exchange-traded
product that will enhance competition
among market participants, to the
benefit of investors and the marketplace.
As noted above, the Exchange has in
place surveillance procedures relating to
trading in the Shares and may obtain
information via ISG from other
exchanges that are members of ISG or
with which the Exchange has entered
into a surveillance sharing agreement.
The Exchange or FINRA, on behalf of
the Exchange, or both, will
communicate as needed regarding
trading in the Shares, CME Ether
Futures and CME Bitcoin Futures, or
any other bitcoin or ether 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 Ether Futures and CME
Bitcoin Futures, or any other ether or
bitcoin derivative from such markets
and other entities.37 The Exchange may
obtain information regarding trading in
the Shares, CME Ether Futures and CME
Bitcoin Futures, or any other ether or
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.
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.
ddrumheller on DSK120RN23PROD with NOTICES1
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange notes that the proposed rule
change, rather will facilitate the listing
and trading of an additional exchangetraded product that will enhance
competition among both market
participants and listing venues, to the
benefit of investors and the marketplace.
37 For a list of the current members and affiliate
members of ISG, see www.isgportal.com.
VerDate Sep<11>2014
17:23 Oct 07, 2024
Jkt 265001
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the Exchange consents, the Commission
will:
A. by order approve or disapprove
such proposed rule change, or
B. institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change 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–2024–091 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–2024–091. 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
PO 00000
Frm 00192
Fmt 4703
Sfmt 4703
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–2024–091 and should be
submitted on or before October 29,
2024.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.38
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024–23167 Filed 10–7–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101231; File No. SR–IEX–
2024–20]
Self-Regulatory Organizations;
Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend Rule
11.330 To Adopt a New Market Data
Product To Be Known as DEEP+
October 2, 2024.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on
September 19, 2024, the Investors
Exchange LLC (‘‘IEX’’ 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 been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
38 17
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
E:\FR\FM\08OCN1.SGM
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]]>Agencies
[Federal Register Volume 89, Number 195 (Tuesday, October 8, 2024)]
[Notices]
[Pages 81600-81608]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-23167]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101233; File No. SR-CboeBZX-2024-091]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To List and Trade Shares of the
Franklin Crypto Index ETF, a Series of the Franklin Crypto Trust, Under
BZX Rule 14.11(e)(4), Commodity-Based Trust Shares
October 2, 2024.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on September 19, 2024, Cboe BZX Exchange, Inc. (``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (``Commission'' or ``SEC'')
a proposed rule change to list and trade shares of the Franklin Crypto
Index ETF (the ``Fund''), a series of the Franklin Crypto Trust (the
``Trust''),\3\ under BZX Rule 14.11(e)(4), Commodity-Based Trust
Shares.
---------------------------------------------------------------------------
\3\ The Trust was formed as a Delaware statutory trust on August
13, 2024. The Fund is operated as a partnership for U.S. federal tax
purposes. The Trust and the Fund have no fixed termination date.
---------------------------------------------------------------------------
The text of the proposed rule change is also available on the
Exchange's website (https://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade the Shares under BZX Rule
14.11(e)(4),\4\ which governs the listing and trading of Commodity-
Based Trust Shares on the Exchange.\5\ Franklin Holdings, LLC is the
sponsor of the Fund (``Sponsor''). The Shares will be registered with
the Commission by means of the Trust's registration statement on Form
S-1 (the ``Registration Statement'').\6\
---------------------------------------------------------------------------
\4\ The Commission approved BZX Rule 14.11(e)(4) in Securities
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148
(September 6, 2011) (SR-BATS-2011-018).
\5\ 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, and intraday indicative
values, or the applicability of Exchange listing rules specified in
this filing to list a series of Other Securities (collectively,
``Continued Listing Representations'') shall constitute continued
listing requirements for the Shares listed on the Exchange.
\6\ On August 16, 2024, the Trust filed with the Commission the
Registration Statement on Form S-1, submitted to the Commission by
the Sponsor on behalf of the Trust (333-281615). The descriptions of
the Trust, the Shares, and the Index (as defined below) contained
herein are based, in part, on information in the Registration
Statement. The Registration Statement is not yet effective and the
Shares will not trade on the Exchange until such time that the
Registration Statement is effective.
---------------------------------------------------------------------------
Section 6(b)(5) and the Applicable Standards
The Commission has approved numerous series of Trust Issued
Receipts,\7\ including Commodity-Based Trust Shares,\8\ to be listed on
U.S. national securities exchanges. In order for any proposed rule
change from an exchange to be approved, the
[[Page 81601]]
Commission must determine that, among other things, the proposal is
consistent with the requirements of Section 6(b)(5) of the Act,
specifically including: (i) the requirement that a national securities
exchange's rules are designed to prevent fraudulent and manipulative
acts and practices; and (ii) the requirement that an exchange proposal
be designed, in general, to protect investors and the public interest.
---------------------------------------------------------------------------
\7\ See Exchange Rule 14.11(f).
\8\ Commodity-Based Trust Shares, as described in Exchange Rule
14.11(e)(4), are a type of Trust Issued Receipt.
---------------------------------------------------------------------------
The Commission has historically approved or disapproved exchange
filings to list and trade series of Trust Issued Receipts, including
spot-based Commodity-Based Trust Shares, on the basis of whether the
listing exchange has in place a comprehensive surveillance sharing
agreement with a regulated market of significant size related to the
underlying commodity to be held.\9\ The Commission has also
consistently recognized, however, that this is not the exclusive means
by which an ETP listing exchange can meet this statutory
obligation.\10\ A listing exchange could, alternatively, demonstrate
that ``other means to prevent fraudulent and manipulative acts and
practices will be sufficient'' to justify dispensing with a
surveillance-sharing agreement with a regulated market of significant
size.
---------------------------------------------------------------------------
\9\ 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''). 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. Further
to this point, the Commission's prior orders have noted that the
spot commodities and currency markets for which it has previously
approved spot ETPs are generally unregulated and that the Commission
relied on the underlying futures market as the regulated market of
significant size that formed the basis for approving the series of
Currency and Commodity-Based Trust Shares, including gold, silver,
platinum, palladium, copper, and other commodities and currencies.
The Commission specifically noted in the Winklevoss Order that the
approval order issued related to the first spot gold ETP ``was based
on an assumption that the currency market and the spot gold market
were largely unregulated.'' See Winklevoss Order at 37592. As such,
the regulated market of significant size test does not require that
the spot bitcoin and ether markets 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.
\10\ See Winklevoss Order, 83 FR at 37580.
---------------------------------------------------------------------------
Both the Exchange and Chicago Mercantile Exchange (``CME'') are
members of the Intermarket Surveillance Group (``ISG'').\11\ With this
in mind, the CME ether futures (``Ether Futures'') market and the CME
bitcoin futures (``Bitcoin Futures'') market are the proper markets to
consider in determining whether there is a related regulated market of
significant size. Recently, the Commission issued orders granting
approval for proposals to list bitcoin-based (``Spot Bitcoin ETPs'')
\12\ and ether-based (``Spot Ether ETPs'') \13\ commodity trust and
trust issued receipts (these funds are nearly identical to the Fund but
hold either bitcoin or ether instead of bitcoin and ether). In the Spot
Bitcoin ETP Approval Order, the Commission stated:
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\11\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com.
\12\ See Exchange Act Release No. 99306 (January 10, 2024), 89
FR 3008 (January 17, 2024) (Self-Regulatory Organizations; NYSE
Arca, Inc.; The Nasdaq Stock Market LLC; Cboe BZX Exchange, Inc.;
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) (the ``Spot Bitcoin
ETP Approval Order'').
\13\ See Exchange Act Release No. 100224 (May 23, 2024), 89 FR
46937 (May 30, 2024) (Self-Regulatory Organizations; NYSE Arca,
Inc.; The Nasdaq Stock Market LLC; Cboe BZX Exchange, Inc.; Order
Granting Accelerated Approval of Proposed Rule Changes, as Modified
by Amendments Thereto, To List and Trade Shares of Ether-Based
Exchange-Traded Products) (the ``Spot Ether ETP Approval Order'').
[B]ased on the record before the Commission and the improved
quality of the correlation analysis in the record . . . the
Commission is able to conclude that fraud or manipulation that
impacts prices in spot bitcoin markets would likely similarly impact
CME bitcoin futures prices. And because the CME's surveillance can
assist in detecting those impacts on CME bitcoin futures prices, the
Exchanges' comprehensive surveillance-sharing agreement with the
CME-a U.S. regulated market whose bitcoin futures market is
consistently highly correlated to spot bitcoin, albeit not of
``significant size'' related to spot bitcoin-can be reasonably
expected to assist in surveilling for fraudulent and manipulative
acts and practices in the specific context of the [p]roposals.\14\
---------------------------------------------------------------------------
\14\ See the Spot Bitcoin ETP Approval Order at 3011-3012.
In the Spot Ether ETP Approval Order the Commission also concluded
that fraud or manipulation that impacts prices in spot ether markets
would likely similarly impact CME Ether Futures prices. Further, for
the same reasons that the CME's surveillance can assist in detecting
those impacts on CME Ether Futures prices, the Exchange's comprehensive
surveillance-sharing agreement with the CME can be reasonably expected
to assist in surveilling for fraudulent and manipulative acts and
practices in the specific context of the proposals.
In sum, in the Spot Bitcoin ETP Approval Order and Spot Ether ETP
Approval Order the Commission established that the CME Bitcoin Futures
market and CME Ether Futures market can reasonably be expected to
assist for fraudulent and manipulative acts and practices. Further, the
listing exchanges demonstrated ``other means to prevent fraudulent and
manipulative acts and practices will be sufficient'' to justify
dispensing with with the ``significant size'' portion of the
``regulated market of significant size'' test.
The Exchange notes that the Commission has also previously approved
the listing and trading of a series of Commodity-Based Trust Shares on
another exchange that, like the Fund, holds two commodities.\15\ Given
this and the above, the Exchange believes the Shares satisfy the
requirements of Exchange Rule BZX Rule 14.11(e)(4) and thereby qualify
for listing and trading on the Exchange.
---------------------------------------------------------------------------
\15\ See Securities Exchange Act No. 82448 (January 5, 2018) 83
FR 1428 (January 11, 2018) (SR-NYSEArca-2017-131) (NYSE Arca, Inc.;
Notice of Filing of Amendment No. 2 and Order Approving on an
Accelerated Basis a Proposed Rule Change, as Modified by Amendment
No. 2, To List and Trade Shares of the Sprott Physical Gold and
Silver Trust Under NYSE Arca Rule 8.201-E).
---------------------------------------------------------------------------
Franklin Crypto Index ETF
CSC Delaware Trust Company, a subsidiary of the Corporation Service
Company, is the trustee (``Trustee''). Bank of New York Mellon is the
custodian for the Fund's cash and cash equivalents \16\ (the ``Cash
Custodian'') and also serves as the Fund's administrator and transfer
agent (the ``Administrator'' or ``Transfer Agent''). Coinbase Custody
Trust Company, LLC (the ``Digital Custodian'') will be responsible for
custody of the Fund's bitcoin and ether. According to the Registration
Statement, each Share will represent a fractional undivided beneficial
interest in the Fund's net assets. The Fund's assets will only consist
of bitcoin, ether, cash, and cash equivalents. In the event that any
digital asset other than bitcoin and ether is included, or is eligible
for inclusion, as a constituent in the Index,\17\ the Sponsor will
transition the Fund from full replication to a representative sampling
methodology, holding only bitcoin and
[[Page 81602]]
ether in the same proportions determined by the Index, until such time
that the Fund and the Exchange receive the necessary regulatory
approval to permit the Fund to hold such other digital asset.
---------------------------------------------------------------------------
\16\ Cash equivalents are short-term instruments with maturities
of less than 3 months.
\17\ The ``Index'' refers to the CF Institutional Digital Asset
Index--US-Settlement Price.
---------------------------------------------------------------------------
According to the Registration Statement, the Trust is neither an
investment company registered under the 1940 Act,\18\ nor a commodity
pool for purposes of the Commodity Exchange Act (``CEA''), and neither
the Trust, the Fund nor the Sponsor is subject to regulation as a
commodity pool operator or a commodity trading adviser in connection
with the Shares.
---------------------------------------------------------------------------
\18\ 15 U.S.C. 80a-1.
---------------------------------------------------------------------------
Neither the Trust or the Fund, nor the Sponsor, nor the Custodian,
nor any other person associated with the Trust or Fund will, directly
or indirectly, engage in action where any portion of the Fund's ether
becomes subject to the Ethereum proof-of-stake validation or is used to
earn additional ether or generate income or other earnings. The Fund
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 the
Fund's net asset value (``NAV'').
When the Fund sells or redeems its Shares, it will do so in cash
transactions in large blocks of 50,000 Shares (a ``Creation Basket'')
at the Fund's NAV. For creations, authorized participants will deliver,
or facilitate the delivery of, cash to the Fund's account with the Cash
Custodian in exchange for Shares. Upon receipt of an approved creation
order, the Sponsor, on behalf of the Fund, will submit an order to buy
the amount of bitcoin and ether represented by a Creation Basket. Based
off bitcoin/ether executions, the Cash Custodian will request the
required cash from the authorized participant. Following receipt by the
Cash Custodian of the cash from an authorized participant, the Sponsor,
on behalf of the Fund, will approve an order with one or more
previously onboarded trading partners to purchase the amount of bitcoin
and ether represented by the Creation Basket.\19\ 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 Fund'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 Fund.
---------------------------------------------------------------------------
\19\ For redemptions, the process will occur in the reverse
order. Upon receipt of an approved redemption order, the Sponsor, on
behalf of the Fund, will submit an order to sell the amount of
bitcoin and ether represented by a Creation Basket and the cash
proceeds will be remitted to the authorized participant when the
large block of Shares is received by the Transfer Agent.
---------------------------------------------------------------------------
Investment Objective
According to the Registration Statement and as further described
below, the investment objective of the Fund is for changes in the
Shares' NAV to reflect the daily changes of the Index, less expenses
and liabilities of the Fund. The Fund will seek to achieve its
investment objective by investing in bitcoin and ether in approximately
the same weights as they represent in the Index, which is a free float-
adjusted market capitalization weighted index of liquid digital assets
that are recognized as being in conformance with prevailing markets
regulations of major financial jurisdictions as determined by CF
Benchmarks Ltd. (the ``Index Provider'').
In seeking to achieve its investment objective, the Fund will hold
only bitcoin, ether, cash, and cash equivalents. The price of bitcoin
and ether within the Index is based on the CME CF Bitcoin Reference
Rate--New York Variant for the Bitcoin--U.S. Dollar trading pair (the
``CF Bitcoin Reference Rate'') and the CME CF Ether-Dollar Reference
Rate--New York Variant for the ether-U.S. Dollar trading pair (the ``CF
Ether Reference Rate'', and together with the CF Bitcoin Reference
Rate, the ``CF Reference Rates'').
If a CF Reference Rate is not available or the Sponsor determines,
in its sole discretion, that a CF Reference Rate should not be used,
the Fund's holdings may be fair valued in accordance with the policy
approved by the Sponsor.\20\
---------------------------------------------------------------------------
\20\ 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 Fund generally
seeks to reflect the price of the digital assets included in the Index.
Currently, the Index's only constituent digital assets are bitcoin and
ether. The Fund's investment objective is for changes in the Shares'
NAV to reflect the daily changes of the Index, less expenses and
liabilities of the Fund. The Fund will seek to achieve its investment
objective by investing in bitcoin and ether in approximately the same
weights as they represent in the Index.
The Index is owned, administered and calculated by the Index
Provider. The Index is derived from a rules-based methodology and
related ground rules (together, the ``Index Rules''), which are
overseen by the Index Provider. Eligible constituent digital assets are
screened, including for their liquidity, asset turnover and ability to
be stored in custody by third parties that have regulatory approval to
provide services for the safe keeping of digital assets on behalf of
investors. To be eligible for inclusion in the Index, the digital asset
(1) must be listed on two or more eligible constituent exchanges as
determined by the Index Provider and (2) must be supported by one or
more eligible third-party custodians as determined by the Index
Provider. Digital assets that are pegged to the value of any asset,
including but not limited to stablecoins, are not eligible for
inclusion in the Index. Only markets and trading pairs where a digital
asset is listed as either the base asset or quote asset against the
U.S. Dollar will be included in calculations for purposes of the
liquidity screen. The Index Provider further reserves the right to
exclude a digital asset based on one or more factors. The resultant
digital assets are deemed to be the investible universe (``Investible
Universe'') of digital assets that are eligible for inclusion in the
Index. Digital assets within the 95th percentile of the free float-
adjusted market capitalization of the Investible Universe that are
determined by the Index Provider as being in conformance with
prevailing capital markets regulations of major financial jurisdictions
(including that the SEC has approved or permitted an exchange-traded
product/fund registered under the Securities Act of 1933 holding such
digital asset to list and launch) and that meet certain minimum
liquidity, turnover, and full market capitalization ratios as
determined by the Index Provider pursuant to the Index Rules are
generally included as constituents in the Index.
The free float supply of each digital asset is determined by the
Index Provider in accordance with the Index Rules, with different
calculations applying depending on whether the digital assets is
determined to be ``coin-centric'' (such as bitcoin) or ``account-
centric'' (such as ether). The Index is rebalanced and reconstituted
quarterly. The Fund will be reconstituted and rebalanced in accordance
with the Index.
The price of bitcoin and ether within the Index is based on the
respective CF Reference Rate (i.e., the CF Bitcoin Reference Rate and
CF Ether Reference Rate). See the below section titled ``Net Asset
Value'' for information on how the CF Reference Rates are calculated.
[[Page 81603]]
In addition, the Sponsor notes that an oversight function is
implemented by the Index Provider in seeking to ensure that the CF
Reference Rates are administered through codified policies for index
integrity. CF Reference Rate data and the description of the CF
Reference Rates 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 Fund (which includes bitcoin,
ether, cash and cash equivalents) less total liabilities of the Fund.
The Administrator will determine the NAV of the Fund 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 Fund is the aggregate value of the
Fund's assets less its estimated accrued but unpaid liabilities (which
include accrued expenses). In determining the Fund's NAV, the
Administrator values the bitcoin and ether held by the Fund based on
the CF Reference Rates as of 4:00 p.m. ET. The Administrator also
determines the NAV per Share.
The NAV for the Fund will be calculated by the Administrator once a
day and will be disseminated daily to all market participants at the
same time.
If one or both of the CF Reference Rates is not available or the
Sponsor determines, in its sole discretion, that the CF Bitcoin
Reference Rate or the CF Ether Reference Rate should not be used, the
Fund's holdings may be fair valued in accordance with the policy
approved by the Sponsor.
On each business day, as soon as practicable after 4:00 p.m. ET,
the Administrator evaluates the bitcoin and ether held by the Fund as
reflected by the CF Reference Rates and determines the NAV of the Fund.
The CF Reference Rates serve as once-a-day benchmark rates of the
U.S. dollar price of ether (USD/ETH) and bitcoin (USD/BTC), calculated
as of 4:00 p.m. ET. The CF Reference Rates aggregate the trade flow of
several ether and 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 and ether at 4:00 p.m. ET. Specifically, the CF Reference
Rates are calculated based on the ``Relevant Transactions'' (as defined
below) of all of its constituent bitcoin and ether 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 CF Reference Rate is then determined by the equally-
weighted average of the volume medians of all partitions.
The Constituent Platforms may change from time to time. The CF
Reference Rates do 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 XBT/USD and ETH/USD pairs
that are reported and disseminated by a Constituent Platform through
its publicly available Application Programming Interface (``API'') and
observed by the Index Provider.
The Sponsor believes that the use of the CF Reference Rates is
reflective of a reasonable valuation of the average spot price of ether
and 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 CF Reference Rates thereby seek to ensure that
transactions in ether and bitcoin conducted at outlying prices do not
have an undue effect on the value of the CF Reference Rates, large
trades or clusters of trades transacted over a short period of time
will not have an undue influence on the CF Reference Rates, and the
effect of large trades at prices that deviate from the prevailing price
are mitigated from having an undue influence on the CF Reference Rates.
Availability of Information
The website for the Fund, 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; \21\ (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 Fund, 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 Fund's website at https://www.franklintempleton.com/investments/options/exchange-traded-funds, or
any successor thereto. The Fund will also disseminate its holdings on a
daily basis on its website.
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\21\ 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 \22\ to reflect changes in the value of
the Fund's bitcoin and ether holdings during the trading day, which are
based on CME CF Ether-Dollar Real Time Index and CME CF Bitcoin Real
Time Index. 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
online information services, such as Bloomberg and Reuters.
---------------------------------------------------------------------------
\22\ Regular Trading Hours is the time between 9:30 a.m. and
4:00 p.m. Eastern Time.
---------------------------------------------------------------------------
The price of bitcoin and ether 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, each CF Reference Rate is calculated daily and
aggregates the notional value of trading activity across major spot
trading platforms. CF Reference Rate data, the CF Reference Rate value,
and the description of the CF Reference Rate are based on information
made publicly available by the Index Provider on its website at https://www.cfbenchmarks.com.
[[Page 81604]]
Quotation and last sale information for bitcoin and ether 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 and ether are available from major
market data vendors and from the trading platforms on which ether and
bitcoin are traded. Depth of book information is also available from
ether and bitcoin trading platforms. The normal trading hours for ether
and 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 Custodian
The Custodian carefully considers the design of the physical,
operational and cryptographic systems for secure storage of the Fund's
private keys in an effort to lower the risk of loss or theft. The
Custodian utilizes a variety of security measures to ensure that
private keys necessary to transfer digital assets remain uncompromised
and that the Fund maintains exclusive ownership of its assets. The
Custodian will keep the private keys associated with the Fund's bitcoin
and ether in ``cold storage'' \23\ (the ``Cold Vault Balance''). The
hardware, software, systems, and procedures of the ether 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 Fund's
ether and bitcoin.
---------------------------------------------------------------------------
\23\ The term ``cold storage'' refers to a safeguarding method
by which the private keys corresponding to ether 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 Fund sells or redeems its Shares, it will do so in cash
transactions in blocks of Shares (e.g., a Creation Basket) that are
based on the quantity of bitcoin and ether attributable to each Share
of the Fund at the NAV. 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 2:00 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
and ether associated with a Creation Basket for a given day by dividing
the number of bitcoin and ether held by the Fund as of the opening of
business on that business day, adjusted for the amount of bitcoin and
ether constituting estimated accrued but unpaid fees and expenses of
the Fund 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 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 or ether as part of the creation or redemption
process or otherwise direct the Fund or a third-party with respect to
purchasing, holding, delivering, or receiving bitcoin or ether as part
of the creation or redemption process.
The Fund will create Shares by receiving ether or bitcoin from a
third-party that is not the authorized participant and the Fund--not
the authorized participant--is responsible for selecting the third-
party to deliver the ether and bitcoin. Further, the third-party will
not be acting as an agent of the authorized participant with respect to
the delivery of the ether and bitcoin to the Fund or acting at the
direction of the authorized participant with respect to the delivery of
the bitcoin and ether to the Fund. The Fund will redeem Shares by
delivering bitcoin and ether to a third-party that is not the
authorized participant and the Fund--not the authorized participant--is
responsible for selecting the third-party to receive the ether and
bitcoin. Further, the third-party will not be acting as an agent of the
authorized participant with respect to the receipt of the ether and
bitcoin from the Fund or acting at the direction of the authorized
participant with respect to the receipt of the ether and bitcoin from
the Fund.
The Sponsor (including its delegates) will maintain ownership and
control of the Fund's ether and 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 Fund must be in compliance with Rule 10A-3
under the Act. A minimum of 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 that the NAV
and information about the assets of the Fund will be made available to
all market participants at the same time. The Exchange notes that the
Shares will meet the definition of Rule 14.11(e)(4)(C)(i) except that
the Fund will hold two commodities (i.e., bitcoin and ether) rather
than a single commodity in addition to cash and cash equivalents.
Specifically, the Shares will be: (a) issued by a trust that holds (1)
two specified commodities \24\ deposited with the trust, or (2) two
specified commodities and, in addition to such specified commodities,
cash; (b) issued by such trust in a specified aggregate minimum number
in return for a deposit of a quantity of the underlying commodities
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
commodities and/or cash. The Exchange notes that the Commission has
previously approved the listing and trading of series of
[[Page 81605]]
Commodity-Based Trust Shares that hold more than one commodity.\25\
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\24\ 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.
\25\ See Securities Exchange Act No. 82448 (January 5, 2018) 83
FR 1428 (January 11, 2018) (SR-NYSEArca-2017-131) (NYSE Arca, Inc.;
Notice of Filing of Amendment No. 2 and Order Approving on an
Accelerated Basis a Proposed Rule Change, as Modified by Amendment
No. 2, To List and Trade Shares of the Sprott Physical Gold and
Silver Trust Under NYSE Arca Rule 8.201-E).
---------------------------------------------------------------------------
Upon termination of the Fund, the Shares will be removed from
listing. The Trustee 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 Fund 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 ether and bitcoin, CME Ether Futures and CME
Bitcoin Futures, options on CME Ether Futures and CME Bitcoin Futures,
or any other bitcoin or ether 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, which include any person or
entity controlling a Member. To the extent the Exchange may be found to
lack jurisdiction over a subsidiary or affiliate of a Member that does
business only in commodities or futures contracts, the Exchange could
obtain information regarding the activities of such subsidiary or
affiliate through surveillance sharing agreements with regulatory
organizations of which such subsidiary or affiliate is a member.
Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares. 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 or
ether 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 Fund 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 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 Ether
Futures and CME Bitcoin Futures, or any other bitcoin or ether
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 Ether Futures and CME Bitcoin Futures, or any other ether or
bitcoin derivative from such markets
[[Page 81606]]
and other entities.\26\ The Exchange may obtain information regarding
trading in the Shares, CME Ether Futures and CME Bitcoin Futures, or
any other ether or 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.
---------------------------------------------------------------------------
\26\ 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 Fund 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 Fund 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 Fund's NAV are disseminated; (iv)
the risks involved in trading the Shares outside of Regular Trading
Hours 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 ether or bitcoin,
that the Commission has no jurisdiction over the trading of ether or
bitcoin as a commodity, and that the CFTC has regulatory jurisdiction
over the trading of CME Ether Futures contracts and CME Bitcoin Futures
contracts and options on CME Ether Futures contracts and 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, 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 \27\ in general and Section 6(b)(5) of the Act \28\ 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.
---------------------------------------------------------------------------
\27\ 15 U.S.C. 78f.
\28\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Commission has approved numerous series of Trust Issued
Receipts,\29\ including Commodity-Based Trust Shares,\30\ to be listed
on U.S. national securities exchanges. In order for any proposed rule
change from an exchange to be approved, the Commission must determine
that, among other things, the proposal is consistent with the
requirements of Section 6(b)(5) of the Act, specifically including: (i)
the requirement that a national securities exchange's rules are
designed to prevent fraudulent and manipulative acts and practices; and
(ii) the requirement that an exchange proposal be designed, in general,
to protect investors and the public interest. The Exchange believes
that this proposal is consistent with the requirements of Section
6(b)(5) of the Act.
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\29\ See Exchange Rule 14.11(f).
\30\ Commodity-Based Trust Shares, as described in Exchange Rule
14.11(e)(4), are a type of Trust Issued Receipt.
---------------------------------------------------------------------------
The Commission has historically approved or disapproved exchange
filings to list and trade series of Trust Issued Receipts, including
spot-based Commodity-Based Trust Shares, on the basis of whether the
listing exchange has in place a comprehensive surveillance sharing
agreement with a regulated market of significant size related to the
underlying commodity to be held.\31\ The Commission has also
consistently recognized, however, that this is not the exclusive means
by which an ETP listing exchange can meet this statutory
obligation.\32\ A listing exchange could, alternatively, demonstrate
that ``other means to prevent fraudulent and manipulative acts and
practices will be sufficient'' to justify dispensing with a
surveillance-sharing agreement with a regulated market of significant
size.
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\31\ 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''). 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. Further
to this point, the Commission's prior orders have noted that the
spot commodities and currency markets for which it has previously
approved spot ETPs are generally unregulated and that the Commission
relied on the underlying futures market as the regulated market of
significant size that formed the basis for approving the series of
Currency and Commodity-Based Trust Shares, including gold, silver,
platinum, palladium, copper, and other commodities and currencies.
The Commission specifically noted in the Winklevoss Order that the
approval order issued related to the first spot gold ETP ``was based
on an assumption that the currency market and the spot gold market
were largely unregulated.'' See Winklevoss Order at 37592. As such,
the regulated market of significant size test does not require that
the spot bitcoin and ether markets 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.
\32\ See Winklevoss Order, 83 FR at 37580.
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Both the Exchange and the CME are members of the ISG.\33\ With this
in mind, the CME Ether Futures market and the CME Bitcoin Futures
market are the proper markets to consider in determining whether there
is a related regulated market of significant size. Recently, the
Commission issued orders granting approval for proposals to list Spot
Bitcoin ETPs and Spot Ether ETPs. In the Spot Bitcoin ETP Approval
Order, the Commission stated:
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\33\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com.
[B]ased on the record before the Commission and the improved
quality of the correlation analysis in the record. . .the Commission
is able to conclude that fraud or manipulation that impacts prices
in spot bitcoin markets would likely similarly impact CME bitcoin
futures prices. And because the CME's surveillance can assist in
[[Page 81607]]
detecting those impacts on CME bitcoin futures prices, the
Exchanges' comprehensive surveillance-sharing agreement with the
CME-a U.S. regulated market whose bitcoin futures market is
consistently highly correlated to spot bitcoin, albeit not of
``significant size'' related to spot bitcoin-can be reasonably
expected to assist in surveilling for fraudulent and manipulative
acts and practices in the specific context of the [p]roposals.\34\
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\34\ See the Spot Bitcoin ETP Approval Order at 3011-3012.
In the Spot Ether ETP Approval Order the Commission also concluded
that fraud or manipulation that impacts prices in spot ether markets
would likely similarly impact CME Ether Futures prices. Further, for
the same reasons that the CME's surveillance can assist in detecting
those impacts on CME Ether Futures prices, the Exchange's comprehensive
surveillance-sharing agreement with the CME can be reasonably expected
to assist in surveilling for fraudulent and manipulative acts and
practices in the specific context of the proposals.
In sum, in the Spot Bitcoin ETP Approval Order and Spot Ether ETP
Approval Order the Commission established that the CME Bitcoin Futures
market and CME Ether Futures market can reasonably be expected to
assist for fraudulent and manipulative acts and practices. Further, the
Commission determined that the listing exchanges demonstrated ``other
means to prevent fraudulent and manipulative acts and practices will be
sufficient'' to justify dispensing with a surveillance-sharing
agreement with a regulated market of significant size.
The Exchange notes that the Commission has also previously approved
the listing and trading of a series of Commodity-Based Trust Shares
that, like the Fund, holds two commodities.\35\ Given this and the
above, the Exchange believes the Shares satisfy the requirements of
Exchange Rule BZX Rule 14.11(e)(4) and thereby qualify for listing and
trading on the Exchange.
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\35\ See Securities Exchange Act No. 82448 (January 5, 2018) 83
FR 1428 (January 11, 2018) (SR-NYSEArca-2017-131) (NYSE Arca, Inc.;
Notice of Filing of Amendment No. 2 and Order Approving on an
Accelerated Basis a Proposed Rule Change, as Modified by Amendment
No. 2, To List and Trade Shares of the Sprott Physical Gold and
Silver Trust Under NYSE Arca Rule 8.201-E).
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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 Fund 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 Fund 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 ether
or 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
In addition to the price transparency of the Index, the Fund will
provide information regarding the Fund's bitcoin and ether holdings as
well as additional data regarding the Fund.
The website for the Fund, 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; \36\ (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 Fund, 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 Fund's website at https://www.franklintempleton.com/investments/options/exchange-traded-funds, or
any successor thereto. The Fund will also disseminate its holdings on a
daily basis on its website.
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\36\ As defined in Rule 11.23(a)(3), the term ``BZX Official
Closing Price'' shall mean the price disseminated to the
consolidated tape as the market center closing trade.
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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 Fund's bitcoin and ether holdings
during the trading day, which are based on CME CF Ether-Dollar Real
Time Index and CME CF Bitcoin Real Time Index. 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 and ether 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, each CF Reference Rate is calculated daily and
aggregates the notional value of trading activity across major spot
trading platforms. CF Reference Rate data, the CF Reference Rate value,
and the description of the CF Reference Rate 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 ether and 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 and ether are available from major
market data vendors and from the trading platforms on which ether and
bitcoin are traded. Depth of book information is also available from
ether and bitcoin trading platforms. The normal trading hours for ether
and 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
[[Page 81608]]
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 proposed rule change is designed to perfect the mechanism of a
free and open market, and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of exchange-traded product that will enhance
competition among market participants, to the benefit of investors and
the marketplace. As noted above, the Exchange has in place surveillance
procedures relating to trading in the Shares and may obtain information
via ISG from other exchanges that are members of ISG or with which the
Exchange has entered into a surveillance sharing agreement. The
Exchange or FINRA, on behalf of the Exchange, or both, will communicate
as needed regarding trading in the Shares, CME Ether Futures and CME
Bitcoin Futures, or any other bitcoin or ether 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 Ether Futures
and CME Bitcoin Futures, or any other ether or bitcoin derivative from
such markets and other entities.\37\ The Exchange may obtain
information regarding trading in the Shares, CME Ether Futures and CME
Bitcoin Futures, or any other ether or 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.
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\37\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com.
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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 purposes of the Act. The Exchange notes that the
proposed rule change, rather will facilitate the listing and trading of
an additional exchange-traded product that will enhance competition
among both market participants and listing venues, to the benefit of
investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
A. by order approve or disapprove such proposed rule change, or
B. institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change 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-2024-091 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-2024-091. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-CboeBZX-2024-091 and should
be submitted on or before October 29, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\38\
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\38\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-23167 Filed 10-7-24; 8:45 am]
BILLING CODE 8011-01-P
