Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change to List and Trade Shares of the Bitwise Bitcoin and Ethereum ETF under NYSE Arca Rule 8.201-E (Commodity-Based Trust Shares), 101654-101664 [2024-29469]
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101654
Federal Register / Vol. 89, No. 241 / Monday, December 16, 2024 / Notices
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–NYSEARCA–2024–90 and should be
submitted on or before January 6, 2025.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–29471 Filed 12–13–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–101864; File No. SR–
NYSEARCA–2024–104]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change to List and Trade Shares
of the Bitwise Bitcoin and Ethereum
ETF under NYSE Arca Rule 8.201–E
(Commodity-Based Trust Shares)
December 10, 2024.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on
November 26, 2024, NYSE Arca, Inc.
(‘‘NYSE Arca’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade shares of the Bitwise Bitcoin and
Ethereum ETF (the ‘‘Trust’’) under
NYSE Arca Rule 8.201–E (CommodityBased Trust Shares). The proposed rule
change is available on the Exchange’s
website at www.nyse.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
15 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
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statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to list and
trade shares (‘‘Shares’’) of the Trust 4
pursuant to NYSE Arca Rule 8.201–E,
which governs the listing and trading of
Commodity Based Trust Shares.5
According to the Registration
Statement, the Trust will not be
registered as an investment company
under the Investment Company Act of
1940,6 and is not required to register
thereunder. The Trust is not a
commodity pool for purposes of the
Commodity Exchange Act.7
The Exchange represents that the
Shares satisfy the requirements of NYSE
Arca Rule 8.201–E and thereby qualify
for listing on the Exchange.8
Operation of the Trust 9
The Trust will issue the Shares
which, according to the Registration
Statement, represent units of undivided
beneficial ownership of the Trust. The
Trust is a Delaware statutory trust and
will operate pursuant to a trust
agreement (the ‘‘Trust Agreement’’)
between Bitwise Investment Advisers,
LLC (the ‘‘Sponsor’’ or ‘‘Bitwise’’) and
Delaware Trust Company, as the Trust’s
trustee (the ‘‘Trustee’’). Coinbase
Custody Trust Company, LLC will
maintain custody of the Trust’s bitcoin
4 The Trust is a Delaware statutory trust. On
November 26, 2024, the Trust filed with the
Commission an initial registration statement (the
‘‘Registration Statement’’) on Form S–1 under the
Securities Act of 1933 (15 U.S.C. 77a). The
description of the operation of the Trust herein is
based, in part, on the most recent 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.
5 Commodity-Based Trust Shares are securities
issued by a trust that represents investors’ discrete
identifiable and undivided beneficial ownership
interest in the commodities deposited into the trust.
6 15 U.S.C. 80a–1.
7 17 U.S.C. 1.
8 With respect to the application of Rule 10A–3
(17 CFR 240.10A–3) under the Act, the Trust relies
on the exemption contained in Rule 10A–3(c)(7).
9 The description of the operation of the Trust,
the Shares, and the ether market contained herein
is based, in part, on the Registration Statement. See
note 4, supra.
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and ether (the ‘‘Bitcoin and Ether
Custodian’’). Bank of New York Mellon
will be the custodian for the Trust’s
cash holdings (in such role, the ‘‘Cash
Custodian’’), the administrator of the
Trust (in such role, the
‘‘Administrator’’), and the transfer agent
for the Trust (in such role, the ‘‘Transfer
Agent’’).
According to the Registration
Statement, the investment objective of
the Trust is to seek to provide exposure
to the value of bitcoin and ether held by
the Trust, less the expenses of the
Trust’s operations and other liabilities.
The Trust’s allocation of its assets to
bitcoin and ether will approximate the
relative market capitalization of bitcoin
and ether to one another.10 In seeking to
achieve its investment objective, the
Trust will hold bitcoin and ether and
establish its Net Asset Value (‘‘NAV’’) at
the end of every business day by
reference to the CME CF Bitcoin—New
York Variant for its bitcoin holdings (the
‘‘Bitcoin Pricing Benchmark’’) and to
the CME CF Ether—Dollar Reference
Rate—New York Variant for its ether
holdings (the ‘‘Ether Pricing
Benchmark,’’ and, with the Bitcoin
Pricing Benchmark, the ‘‘Pricing
Benchmarks’’).11
The Trust’s only assets will be
bitcoin, ether, and cash.12 The Trust
10 As of the date of this filing, the relative market
capitalization of bitcoin and ether is 83% bitcoin
and 17% ether. The Trust will calculate the market
capitalization of bitcoin and ether by multiplying
the Pricing Benchmarks by the current circulating
supply of bitcoin and ether respectively, as
determined by the Sponsor, and will calculate the
relative market capitalization by dividing each of
bitcoin and ether’s market capitalization by the
combined market capitalization of both.
11 The Pricing Benchmarks are calculated by CF
Benchmarks Ltd. (the ‘‘Benchmark Provider’’) based
on an aggregation of executed trade flow of major
bitcoin and ether trading platforms. As further
discussed below, the Pricing Benchmarks are
designed to provide a daily, 4:00 p.m. Eastern Time
(‘‘E.T.’’) reference rate of the U.S. dollar price of one
bitcoin or one ether that may be used to develop
financial products.
12 The Trust conducts creations and redemptions
of its Shares for cash. Authorized Participants
(defined below) will deliver cash to the Cash
Custodian pursuant to creation orders for Shares
and the Cash Custodian will hold such cash until
such time as it can be converted to bitcoin or ether,
which the Trust intends to do on the same business
day in which such cash is received by the Cash
Custodian. Additionally, the Trust will sell bitcoin
and ether in exchange for cash pursuant to
redemption orders of its Shares. In connection with
such sales, an approved Digital Asset Trading
Counterparty (defined below) will send cash to the
Cash Custodian. The Cash Custodian will hold such
cash until it can be distributed to the redeeming
Authorized Participant, which it intends to do on
the same business day in which it is received. In
connection with the purchases and sales of bitcoin
and ether pursuant to its creation and redemption
activity, it is possible that the Trust may retain de
minimis amounts of cash as a result of rounding
differences. The Trust may also initially hold small
amounts of cash to initiate Trust operations in the
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does not seek to hold any non-bitcoin or
non-ether crypto assets and has
expressly disclaimed ownership of any
such assets in the event the Trust ever
involuntarily comes into possession of
such assets.13 The Trust will not use
derivatives that may subject the Trust to
counterparty and credit risks. The Trust
will process creations and redemptions
in cash. The Trust’s only recurring
ordinary expense is expected to be the
Sponsor’s unitary management fee (the
‘‘Sponsor Fee’’), which will accrue daily
and will be payable in bitcoin and ether
monthly in arrears. The Administrator
will calculate the Sponsor Fee on a
daily basis by applying an annualized
rate to the Trust’s total bitcoin and ether
holdings, and the amount of bitcoin and
ether payable in respect of each daily
accrual shall be determined by reference
to the Pricing Benchmarks. Financial
institutions authorized to create and
redeem Shares (each, an ‘‘Authorized
Participant’’) will deliver, or cause to be
delivered, cash in exchange for Shares
of the Trust, and the Trust will deliver
cash to Authorized Participants when
those Authorized Participants redeem
Shares of the Trust.
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Custody of the Trust’s Bitcoin and Ether
The Trust’s Bitcoin and Ether
Custodian will maintain custody of all
of the Trust’s bitcoin and ether, other
than that which is maintained in a
trading account (the ‘‘Trading Balance’’)
with Coinbase, Inc. (the ‘‘Prime
Execution Agent,’’ which is an affiliate
of the Bitcoin and Ether Custodian). The
immediate aftermath of its Registration Statement
being declared effective. Lastly, the Trust may also
sell bitcoin and ether and temporarily hold cash as
part of a liquidation of the Trust or to pay certain
extraordinary expenses not assumed by the
Sponsor. Under the Trust Agreement, the Sponsor
has agreed to assume the normal operating expenses
of the Trust, subject to certain limitations. For
example, the Trust will bear any indemnification or
litigation liabilities as extraordinary expenses. In
any event, in the ongoing course of business, the
amounts of cash retained by the Trust are not
expected to constitute a material portion of the
Trust’s holdings.
13 The Trust may, from time to time, passively
receive, by virtue of holding ether, certain
additional digital assets (‘‘IR Assets’’) or rights to
receive IR Assets (‘‘Incidental Rights’’) through a
fork of the Bitcoin network or Ethereum network or
an airdrop of assets. The Trust will not seek to
acquire such IR Assets or Incidental Rights.
Pursuant to the terms of the Trust Agreement, the
Trust has disclaimed ownership in any such IR
Assets and/or Incidental Rights to make clear that
such assets are not and shall never be considered
assets of the Trust and will not be taken into
account for purposes of determining the Trust’s
NAV or NAV per Share. Neither the Trust, nor the
Sponsor, nor the Bitcoin and Ether Custodian, nor
any other person associated with the Trust will,
directly or indirectly, engage in action where any
portion of the Trust’s ether becomes subject to the
Ethereum proof-of-stake validation or is used to
earn additional ether or generate income or other
earnings.
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Bitcoin and Ether Custodian will
maintain an account that holds the
Trust’s bitcoin (the ‘‘Trust Bitcoin
Account’’) and an account that holds the
Trust’s ether (the ‘‘Trust Ether
Account,’’ and together with the Trust
Bitcoin Account, the ‘‘Trust Digital
Asset Accounts’’), and will facilitate the
transfer of bitcoin and ether required for
the operation of the Trust. The Trading
Balance will only be used in the limited
circumstances in which the Trust is
using the Agent Execution Model (as
defined below) to effectuate the
purchases and sales of bitcoin or ether.
The Bitcoin and Ether Custodian
provides safekeeping of bitcoin and
ether using a multi-layer cold storage
security platform designed to provide
offline security of the bitcoin and ether
held by the Bitcoin and Ether
Custodian.
Valuation of the Trust’s Bitcoin and
Ether
The net assets of the Trust and its
Shares are valued on a daily basis with
reference to the Pricing Benchmarks,
which are standardized reference rates
published by the Benchmark Provider
designed to reflect the performance of
bitcoin and ether in U.S. dollars. The
Bitcoin Pricing Benchmark and Ether
Pricing Benchmark were created to
facilitate financial products based on
bitcoin and ether, respectively. The
Bitcoin Pricing Benchmark serves as a
once-a-day benchmark rate of the U.S.
dollar price of bitcoin (USD/BTC), and
the Ether Pricing Benchmark serves as a
once-a-day benchmark rate of the U.S.
dollar price of ether (USD/ETH), each
calculated as of 4:00 p.m. E.T. The
Bitcoin Pricing Benchmark aggregates
the trade flow of several major bitcoin
trading venues, and the Ether Pricing
Benchmark aggregates the trade flow of
several major ether trading venues, each
during an observation window between
3:00 p.m. and 4:00 p.m. E.T. into the
U.S. dollar price of one bitcoin or ether,
as applicable, at 4:00 p.m. E.T.
The Bitcoin Pricing Benchmark uses
the same methodology as the CME CF
Bitcoin Reference Rate (‘‘BRR’’), which
was designed by the CME Group and the
Benchmark Provider to facilitate the
cash settlement of bitcoin futures
contracts traded on the Chicago
Mercantile Exchange (‘‘CME’’).14 The
CME Group also publishes the CME CF
Bitcoin Real Time Index (the ‘‘CME
Bitcoin Real Time Price’’), which is a
14 The only material difference between the
Bitcoin Pricing Benchmark and the BRR is that the
BRR measures the U.S. dollar price of one bitcoin
as of 4:00 p.m. London time and the Bitcoin Pricing
Benchmark measures the U.S. dollar price of one
bitcoin as of 4:00 p.m. E.T.
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101655
continuous measure of the U.S. dollar
price of one bitcoin calculated once per
second. Similarly, the Ether Pricing
Benchmark uses the same methodology
as the CME CF Ether-Dollar Reference
Rate (‘‘ERR’’), which was designed by
the CME Group and the Benchmark
Provider to facilitate the cash settlement
of ether futures contracts traded on the
CME.15 The CME Group also publishes
the CME CF Ether Real Time Index (the
‘‘CME Ether Real Time Price’’), which is
a continuous measure of the U.S. dollar
price of one ether calculated once per
second. Each of the Pricing Benchmarks,
BRR, ERR, CME Bitcoin Real Time
Price, and CME Ether Real Time Price
are representative of the bitcoin or ether
trading activity, as applicable, on the
Constituent Platforms,16 which include,
as of the date of this filing, Bitstamp,
Coinbase, Gemini, itBit, LMAX, and
Kraken.
The Trust uses the Pricing
Benchmarks to calculate its NAV, as
described below in ‘‘Net Asset Value.’’
The Sponsor, in its sole discretion,
may cause the Trust to price its portfolio
based upon an index, benchmark, or
standard other than the Pricing
Benchmarks at any time, with prior
notice to the shareholders, if investment
conditions change or the Sponsor
believes that another index, benchmark,
or standard better aligns with the Trust’s
investment objective and strategy. The
Sponsor may make this decision for a
number of reasons, including, but not
limited to, a determination that the
Pricing Benchmarks price of bitcoin or
ether differs materially from the global
market price of bitcoin or ether and/or
that third parties are able to purchase
and sell bitcoin or ether on public or
private markets not included among the
Constituent Platforms, and such
transactions may take place at prices
materially higher or lower than the
Pricing Benchmarks price. The Sponsor,
however, is under no obligation
whatsoever to make such changes in any
circumstance. In the event that the
Sponsor intends to establish the Trust’s
NAV by reference to an index,
benchmark, or standard other than the
Pricing Benchmarks, it will provide
shareholders with notice in a prospectus
supplement and/or through a current
15 The only material difference between the Ether
Pricing Benchmark and ERR is that the ERR
measures the U.S. dollar price of one ether as of
4:00 p.m. London time, and the Pricing Index
measures the U.S. dollar price of one ether as of
4:00 p.m. E.T.
16 The ‘‘Constituent Platforms’’ are the bitcoin
and ether trading venues included in the Pricing
Benchmarks.
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Federal Register / Vol. 89, No. 241 / Monday, December 16, 2024 / Notices
report on Form 8–K or in the Trust’s
annual or quarterly reports.17
Net Asset Value
The Trust’s only assets will be bitcoin
and ether and, under limited
circumstances, cash. The Trust’s NAV
and NAV per Share will be determined
by the Administrator once each
Exchange trading day as of 4:00 p.m.
E.T., or as soon thereafter as practicable.
The Administrator will calculate the
NAV by multiplying the number of
bitcoin and ether held by the Trust by
the Bitcoin Pricing Benchmark or Ether
Pricing Benchmark, respectively, for
such day, adding any additional
receivables and subtracting the accrued
but unpaid liabilities of the Trust. The
NAV per Share is calculated by dividing
the NAV by the number of Shares then
outstanding. The Administrator will
determine the price of the Trust’s
bitcoin and ether by reference to the
Pricing Benchmarks, which are
published and calculated as set forth
above.
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Intraday Trust Value
The Trust uses the CME Bitcoin Real
Time Price and CME Ether Real Time
Price to calculate an Indicative Trust
Value (‘‘ITV’’). One or more major
market data vendors will disseminate
the ITV, updated every 15 seconds each
trading day as calculated by the
Exchange or a third-party financial data
provider during the Exchange’s Core
Trading Session (9:30 a.m. to 4:00 p.m.,
E.T.). The ITV will be calculated
throughout the trading day by using the
prior day’s holdings at the close of
business and the most recently reported
price level of the CME Bitcoin Real
Time Price and CME Ether Real Time
Price. The ITV will be widely
disseminated by one or more major
market data vendors during the NYSE
Arca Core Trading Session.
Creation and Redemption of Shares
The Trust creates and redeems Shares
from time to time, but only in one or
more Creation Units, which will
initially consist of at least 10,000
Shares, but may be subject to change
(‘‘Creation Unit’’). A Creation Unit is
only made in exchange for delivery to
the Trust or the distribution by the Trust
of an amount of cash, equivalent to the
value of ether represented by the
Creation Unit being created or
redeemed, the amount of which is
representative of the combined NAV of
17 The Sponsor will provide notice of any such
changes in the Trust’s periodic or current reports
and, if the Sponsor makes such a change other than
on an ad hoc or temporary basis, will file a
proposed rule change with the Commission.
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the number of Shares included in the
Creation Units being created or
redeemed determined as of 4:00 p.m.
E.T. on the day the order to create or
redeem Creation Units is properly
received. Except when aggregated in
Creation Units or under extraordinary
circumstances permitted under the
Trust Agreement, the Shares are not
redeemable securities.
Authorized Participants are the only
persons that may place orders to create
and redeem Creation Units. Authorized
Participants must be (1) registered
broker-dealers or other securities market
participants, such as banks and other
financial institutions, that are not
required to register as broker-dealers to
engage in securities transactions
described below, and (2) Depository
Trust Company (‘‘DTC’’) participants.
To become an Authorized Participant, a
person must enter into an Authorized
Participant Agreement with the Trust
and/or the Trust’s marketing agent (the
‘‘Marketing Agent’’).
According to the Registration
Statement, when purchasing or selling
ether in response to the purchase of
Creation Units or the redemption of
Creation Units, which will be processed
in cash, the Trust would do so pursuant
to either (1) a ‘‘Trust-Directed Trade
Model,’’ or (2) an ‘‘Agent Execution
Model,’’ which are each described in
more detail below.
The Trust intends to utilize the TrustDirected Trade Model for all purchases
and sales of bitcoin and ether and
would only utilize the Agent Execution
Model in the event that no digital asset
trading counterparty approved by the
Sponsor (a ‘‘Digital Asset Trading
Counterparty’’) 18 is able to effectuate
the Trust’s purchase or sale of bitcoin or
ether. Under the Trust-Directed Trade
Model, in connection with receipt of a
purchase order or redemption order, the
Sponsor, on behalf of the Trust, would
be responsible for acquiring bitcoin and
ether from an approved Digital Asset
Trading Counterparty in an amount
equal to the Basket Amount. When
seeking to purchase bitcoin and ether on
behalf of the Trust, the Sponsor will
seek to purchase bitcoin and ether at
commercially reasonable prices and
terms from any of the approved Digital
Asset Trading Counterparties.19 Once
18 The Digital Asset Trading Counterparties with
which the Sponsor will engage in ether transactions
are unaffiliated third parties that are not acting as
agents of the Trust, the Sponsor or the Authorized
Participant, and all transactions will be done on an
arms-length basis. There is no contractual
relationship between the Trust, the Sponsor or the
Digital Asset Trading Counterparty.
19 The Sponsor will maintain ownership and
control of bitcoin and ether in a manner consistent
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agreed upon, the transaction will
generally occur on an ‘‘over-thecounter’’ basis.
Whether utilizing the Trust-Directed
Trade Model or the Agent Execution
Model, 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 Trust or
a third party with respect to purchasing,
holding, delivering, or receiving bitcoin
or ether as part of the creation or
redemption process. Additionally,
under either the Trust-Directed Trade
Model or the Agent Execution Model,
the Trust will create Shares by receiving
bitcoin and ether from a third party that
is not the Authorized Participant and is
not affiliated with the Sponsor or the
Trust, and the Trust—not the
Authorized Participant—is responsible
for selecting the third party to deliver
the bitcoin and ether. The third party
will not be acting as an agent of the
Authorized Participant with respect to
the delivery of the bitcoin and ether to
the Trust or acting at the direction of the
Authorized Participant with respect to
the delivery of the bitcoin and ether to
the Trust. Additionally, the Trust will
redeem Shares by delivering bitcoin and
ether to a third party that is not the
Authorized Participant and is not
affiliated with the Sponsor or the Trust,
and the Trust—not the Authorized
Participant—is responsible for selecting
the third party to receive the bitcoin and
ether. Finally, the third party will not be
acting as an agent of the Authorized
Participant with respect to the receipt of
the bitcoin or ether from the Trust or
acting at the direction of the Authorized
Participant with respect to the receipt of
the bitcoin or ether from the Trust.
Acquiring and Selling Ether Pursuant to
Creation and Redemption of Shares
Under the Trust-Directed Trade Model
Under the Trust-Directed Trade
Model and as set forth in the
Registration Statement, on any business
day, an Authorized Participant may
create Shares by placing an order to
purchase one or more Creation Units
with the Transfer Agent through the
Marketing Agent. Such orders are
subject to approval by the Marketing
Agent and the Transfer Agent. For
purposes of processing creation and
redemption orders, a ‘‘business day’’
means any day other than a day when
the Exchange is closed for regular
with good delivery requirements for spot
commodity transactions.
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trading (‘‘Business Day’’). To be
processed on the date submitted,
creation orders must be placed before
4:00 p.m. E.T. or the close of regular
trading on the Exchange, whichever is
earlier, but may be required to be placed
earlier at the discretion of the Sponsor.
A purchase order will be effective on
the date it is received by the Transfer
Agent and approved by the Marketing
Agent (‘‘Purchase Order Date’’).
Creation Units are processed in cash.
By placing a purchase order, an
Authorized Participant agrees to
deposit, or cause to be deposited, an
amount of cash equal to the quantity of
bitcoin and ether attributable to each
Share of the Trust (net of accrued but
unpaid expenses and liabilities)
multiplied by the number of Shares
(10,000) comprising a Creation Unit (the
‘‘Basket Amount’’). The Sponsor will
cause to be published each Business
Day, prior to the commencement of
trading on the Exchange, the Basket
Amount relating to a Creation Unit
applicable for such Business Day. That
amount is derived by multiplying the
Basket Amount by the value of bitcoin
and ether ascribed by the Pricing Index.
However, the Authorized Participant is
also responsible for any additional cash
required to account for the price at
which the Trust agrees to purchase the
requisite amount of bitcoin and ether
from a Digital Asset Trading
Counterparty to the extent it is greater
than the Pricing Index price on each
Purchase Order Date.
Prior to the delivery of Creation Units,
the Authorized Participant must also
have wired to the Transfer Agent the
nonrefundable transaction fee due for
the creation order. Authorized
Participants may not withdraw a
creation request. If an Authorized
Participant fails to consummate the
foregoing, the order may be cancelled.
Following the acceptance of a
purchase order, the Authorized
Participant must wire the cash amount
described above to the Cash Custodian,
and the Digital Asset Trading
Counterparty must deposit the required
amount of bitcoin and ether with the
Bitcoin and Ether Custodian by the end
of the day E.T. on the Business Day
following the Purchase Order Date. The
bitcoin and ether will be purchased
from Digital Asset Trading
Counterparties that are not acting as
agents of the Trust or agents of the
Authorized Participant. These
transactions will be done on an armslength basis, and there is no contractual
relationship between the Trust, the
Sponsor, or the Digital Asset Trading
Counterparty to acquire such bitcoin
and ether. Prior to any movement of
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cash from the Cash Custodian to the
Digital Asset Trading Counterparty or
movement of Shares from the Transfer
Agent to the Authorized Participant’s
DTC account to settle the transaction,
the bitcoin and ether must be deposited
at the Bitcoin and Ether Custodian.
The Digital Asset Trading
Counterparty must deposit the required
amount of bitcoin and ether by end of
day E.T. on the Business Day following
the Purchase Order Date prior to any
movement of cash from the Cash
Custodian or Shares from the Transfer
Agent. Upon receipt of the deposit
amount of bitcoin and ether at the
Bitcoin and Ether Custodian from the
Digital Asset Trading Counterparty, the
Bitcoin and Ether Custodian will notify
the Sponsor that the bitcoin and ether
have been received. The Sponsor will
then notify the Transfer Agent that the
bitcoin and ether have been received,
and the Transfer Agent will direct DTC
to credit the number of Shares ordered
to the Authorized Participant’s DTC
account and will wire the cash
previously sent by the Authorized
Participant to the Digital Asset Trading
Counterparty to complete settlement of
the Purchase Order and the acquisition
of the bitcoin and ether by the Trust, as
described above.
As between the Trust and the
Authorized Participant, the expense and
risk of the difference between the value
of bitcoin and ether calculated by the
Administrator for daily valuation using
the Pricing Benchmarks and the price at
which the Trust acquires the bitcoin and
ether will be borne solely by the
Authorized Participant to the extent that
the Trust pays more for bitcoin and
ether than the price used by the Trust
for daily valuation. Any such additional
cash amount will be included in the
amount of cash calculated by the
Administrator on the Purchase Order
Date, communicated to the Authorized
Participant on the Purchase Order Date,
and wired by the Authorized Participant
to the Cash Custodian on the day
following the Purchase Order Date. If
the Digital Asset Trading Counterparty
fails to deliver the bitcoin and ether to
the Bitcoin and Ether Custodian, no
cash is sent from the Cash Custodian to
the Digital Asset Trading Counterparty,
no Shares are transferred to the
Authorized Participant’s DTC account,
the cash is returned to the Authorized
Participant, and the Purchase Order is
cancelled.
Under the Trust-Directed Trade
Model and according to the Registration
Statement, the procedures by which an
Authorized Participant can redeem one
or more Creation Units mirror the
procedures for the creation of Creation
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Units. On any Business Day, an
Authorized Participant may place an
order with the Transfer Agent through
the Marketing Agent to redeem one or
more Creation Units. To be processed on
the date submitted, redemption orders
must be placed before 4:00 p.m. E.T. or
the close of regular trading on the
Exchange, whichever is earlier, or
earlier as determined by the Sponsor. A
redemption order will be effective on
the date it is received by the Transfer
Agent and approved by the Marketing
Agent (‘‘Redemption Order Date’’). The
redemption procedures allow
Authorized Participants to redeem
Creation Units and do not entitle an
individual shareholder to redeem any
Shares in an amount less than a
Creation Unit, or to redeem Creation
Units other than through an Authorized
Participant. In connection with receipt
of a redemption order accepted by the
Marketing Agent and Transfer Agent,
the Sponsor, on behalf of the Trust, is
responsible for selling the bitcoin and
ether to an approved Digital Asset
Trading Counterparty in an amount
equal to the Basket Amount.
The redemption distribution from the
Trust will consist of a transfer to the
redeeming Authorized Participant, or its
agent, of the amount of cash the Trust
received in connection with a sale of the
Basket Amount of bitcoin and ether to
a Digital Asset Trading Counterparty
made pursuant to the redemption order.
The Sponsor will cause to be published
each Business Day, prior to the
commencement of trading on the
Exchange, the redemption distribution
amount relating to a Creation Unit
applicable for such Business Day. The
redemption distribution amount is
derived by multiplying the Basket
Amount by the value of bitcoin and
ether ascribed by the Pricing
Benchmarks. However, as between the
Trust and the Authorized Participant,
the expense and risk of the difference
between the value of bitcoin and ether
ascribed by the Pricing Benchmarks and
the price at which the Trust sells the
bitcoin and ether will be borne solely by
the Authorized Participant to the extent
that the Trust receives less for bitcoin
and ether than the value ascribed by the
Pricing Benchmarks. Prior to the
delivery of Creation Units, the
Authorized Participant must also have
wired to the Transfer Agent the
nonrefundable transaction fee due for
the redemption order.
The redemption distribution due from
the Trust will be delivered by the
Transfer Agent to the Authorized
Participant once the Cash Custodian has
received the cash from the Digital Asset
Trading Counterparty. The Bitcoin and
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Ether Custodian will not send the
Basket Amount of bitcoin and ether to
the Digital Asset Trading Counterparty
until the Cash Custodian has received
the cash from the Digital Asset Trading
Counterparty and is instructed by the
Sponsor to make such transfer. Once the
Digital Asset Trading Counterparty has
sent the cash to the Cash Custodian in
an agreed upon amount to settle the
agreed upon sale of the Basket Amount
of bitcoin and ether, the Transfer Agent
will notify the Sponsor. The Sponsor
will then notify the Bitcoin and Ether
Custodian to transfer the bitcoin and
ether to the Digital Asset Trading
Counterparty, and the Transfer Agent
will wire the cash proceeds to the
Authorized Participant once the Trust’s
DTC account has been credited with the
Shares represented by the Creation Unit
from the redeeming Authorized
Participant. Once the Authorized
Participant has delivered the Shares
represented by the Creation Unit to be
redeemed to the Trust’s DTC account,
the Cash Custodian will wire the
requisite amount of cash to the
Authorized Participant. If the Trust’s
DTC account has not been credited with
all of the Shares of the Creation Unit to
be redeemed, the redemption
distribution will be delayed until such
time as the Transfer Agent confirms
receipt of all such Shares. If the Digital
Asset Trading Counterparty fails to
deliver the cash to the Cash Custodian,
the transaction will be cancelled, and no
transfer of bitcoin or ether or Shares will
occur.
Acquiring and Selling Ether Pursuant to
Creation and Redemption of Shares
Under the Agent Execution Model
Under the Agent Execution Model,
the Prime Execution Agent, acting in an
agency capacity, would conduct bitcoin
and ether purchases and sales on behalf
of the Trust with third parties through
its Coinbase Prime service pursuant to
the Prime Execution Agent Agreement.
To utilize the Agent Execution Model,
the Trust may maintain some bitcoin,
ether, or cash in the Trading Balance
with the Prime Execution Agent. The
Prime Execution Agent Agreement
provides that the Trust does not have an
identifiable claim to any particular
bitcoin or ether (and cash); rather, the
Trust’s Trading Balance represents an
entitlement to a pro rata share of the
bitcoin or ether (and cash) the Prime
Execution Agent holds on behalf of
customers who hold similar
entitlements against the Prime
Execution Agent. In this way, the
Trust’s Trading Balance represents an
omnibus claim on the Prime Execution
Agent’s bitcoin or ether (and cash) held
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on behalf of the Prime Execution
Agent’s customers.
To avoid having to pre-fund
purchases or sales of bitcoin or ether in
connection with cash creations and
redemptions and sales of bitcoin or
ether to pay Trust expenses not assumed
by the Sponsor, to the extent applicable,
the Trust may borrow bitcoin, ether, or
cash as trade credit (‘‘Trade Credit’’)
from Coinbase Credit, Inc. (the ‘‘Trade
Credit Lender’’) on a short-term basis
pursuant to the Coinbase Credit
Committed Trade Financing Agreement
(the ‘‘Trade Financing Agreement’’).
On the day of the Purchase Order
Date, the Trust would enter into a
transaction to buy bitcoin and ether
through the Prime Execution Agent for
cash. Because the Trust’s Trading
Balance may not be funded with cash on
the Purchase Order Date for the
purchase of bitcoin and ether in
connection with the Purchase Order
under the Agent Execution Model, the
Trust may borrow Trade Credits in the
form of cash from the Trade Credit
Lender pursuant to the Trade Financing
Agreement or may require the
Authorized Participant to deliver the
required cash for the Purchase Order on
the Purchase Order Date. The extension
of Trade Credits on the Purchase Order
Date allows the Trust to purchase
bitcoin and ether through the Prime
Execution Agent on the Purchase Order
Date, with such bitcoin and ether being
deposited in the Trust’s Trading
Balance.
On the day following the Purchase
Order Date (the ‘‘Purchase Order
Settlement Date’’), the Trust would
deliver Shares to the Authorized
Participant in exchange for cash
received from the Authorized
Participant. Where applicable, the Trust
would use the cash to repay the Trade
Credits borrowed from the Trade Credit
Lender. On the Purchase Order
Settlement Date for a Purchase Order
utilizing the Agent Execution Model,
the bitcoin and ether associated with the
Purchase Order and purchased on the
Purchase Order Date is swept from the
Trust’s Trading Balance with the Prime
Execution Agent to the Trust Digital
Asset Account with the Bitcoin and
Ether Custodian pursuant to a regular
end-of-day sweep process. Transfers of
bitcoin and ether into the Trust’s
Trading Balance are off-chain
transactions and transfers from the
Trust’s Trading Balance to the Trust
Digital Asset Account are ‘‘on-chain’’
transactions represented on the bitcoin
and ether blockchains, as applicable.
Any financing fee owed to the Trade
Credit Lender is deemed part of trade
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execution costs and embedded in the
trade price for each transaction.
For a Redemption Order utilizing the
Agent Execution Model, on the day of
the Redemption Order Date the Trust
would enter into a transaction to sell
bitcoin and ether through the Prime
Execution Agent for cash. The Trust’s
Trading Balance with the Prime
Execution Agent may not be funded
with bitcoin and ether on trade date for
the sale of bitcoin and ether in
connection with the redemption order
under the Agent Execution Model, when
bitcoin and ether remains in the Trust
Digital Asset Account with the Bitcoin
and Ether Custodian at the point of
intended execution of a sale of bitcoin
and ether. In those circumstances the
Trust may borrow Trade Credits in the
form of bitcoin and ether from the Trade
Credit Lender, which allows the Trust to
sell bitcoin and ether through the Prime
Execution Agent on the Redemption
Order Date, and the cash proceeds are
deposited in the Trust’s Trading Balance
with the Prime Execution Agent. On the
business day following the Redemption
Order Date (the ‘‘Redemption Order
Settlement Date’’) for a redemption
order utilizing the Agent Execution
Model where Trade Credits were
utilized, the Trust delivers cash to the
Authorized Participant in exchange for
Shares received from the Authorized
Participant. In the event Trade Credits
were used, the Trust will use the bitcoin
and ether that is moved from the Trust
Digital Asset Account with the Bitcoin
and Ether Custodian to the Trading
Balance with the Prime Execution Agent
to repay the Trade Credits borrowed
from the Trade Credit Lender.
For a redemption of Creation Units
utilizing the Agent Execution Model,
the Sponsor would instruct the Bitcoin
and Ether Custodian to prepare to
transfer the bitcoin and ether associated
with the redemption order from the
Trust Digital Asset Account with the
Bitcoin and Ether Custodian to the
Trust’s Trading Balance with the Prime
Execution Agent. On the Redemption
Order Settlement Date, the Trust would
enter into a transaction to sell bitcoin
and ether through the Prime Execution
Agent for cash, and the Prime Execution
Agent credits the Trust’s Trading
Balance with the cash. On the same day,
the Authorized Participant would
deliver the necessary Shares to the Trust
and the Trust delivers cash to the
Authorized Participant.
Background on Bitcoin
Bitcoin is the digital asset that is
native to, and created and transmitted
through the operations of, the peer-topeer ‘‘Bitcoin network,’’ a decentralized
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network of computers that operates on
cryptographic protocols. No single
entity owns or operates the Bitcoin
network, the infrastructure of which is
collectively maintained by a
decentralized user base. The Bitcoin
network allows people to exchange
tokens of value, called bitcoin, which
are recorded on a public transaction
ledger known as the ‘‘Bitcoin
blockchain.’’ Bitcoin can be used to pay
for goods and services, or it can be
converted to fiat currencies, such as the
U.S. dollar, at rates determined on
digital asset trading platforms or in
individual end-user-to-end-user
transactions under a barter system.
Although nascent in use, bitcoin may be
used as a medium of exchange, unit of
account or store of value.
The Bitcoin network is decentralized
and does not require governmental
authorities or financial institution
intermediaries to create, transmit or
determine the value of bitcoin. In
addition, no party may easily censor
transactions on the Bitcoin network. As
a result, the Bitcoin network is often
referred to as decentralized and
censorship resistant.
The value of bitcoin is determined by
the supply of and demand for bitcoin.
New bitcoin are created and rewarded to
the parties providing the Bitcoin
network’s infrastructure (‘‘miners’’) in
exchange for their expending
computational power to verifying
transactions and add them to the Bitcoin
blockchain. The Bitcoin blockchain is
effectively a decentralized database that
includes all blocks that have been
solved by miners and it is updated to
include new blocks as they are solved.
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Each bitcoin transaction is broadcast to
the Bitcoin network and, when included
in a block, recorded in the Bitcoin
blockchain. As each new block records
outstanding bitcoin transactions, and
outstanding transactions are settled and
validated through such recording, the
Bitcoin blockchain represents a
complete, transparent and unbroken
history of all transactions of the Bitcoin
network.
The CME Bitcoin Futures Market
The CME Group announced the
planned launch of bitcoin futures on
October 31, 2017. Trading began on
December 17, 2017.20 Each contract
represents five bitcoin and is based on
the CME CF Bitcoin Reference Rate. The
contracts trade and settle like other cash
settled commodity futures contracts.
Nearly every measurable metric
related to bitcoin futures has trended up
20 See ‘‘CME Group Announces Launch of Bitcoin
Futures,’’ October 31, 2017, available at https://
www.cmegroup.com/media-room/press-releases/
2017/10/31/cme_group_announceslauncho
fbitcoinfutures.html. At the same time as the launch
of the CME Market, the Cboe Futures Exchange,
LLC announced and subsequently launched Cboe
bitcoin futures. See ‘‘CFE to Commence Trading in
Cboe Bitcoin (USD) Futures Soon,’’ December 01,
2017, available at cdn.cboe.com/resources/
release_notes/2017/Cboe-Bitcoin-USD-FuturesLaunch-Notification.pdf. Each future was cash
settled, with the CME Market tracking the CME UK
Reference Rate and the Cboe bitcoin futures
tracking a bitcoin trading platform daily auction
price. The Cboe Futures Exchange, LLC
subsequently discontinued its bitcoin futures
market effective June 2019. ‘‘Cboe put the brakes on
bitcoin futures,’’ March 15, 2019, available at
https://www.reuters.com/article/us-cboe-bitcoin/
cboe-puts-the-brakes-on-bitcoin-futures-idUSKCN
1QW261. The Trust uses the CME US Reference
Rate to calculate its NAV.
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101659
since launch. For example, there were
348,635 bitcoin futures contracts traded
in September 2024 (approximately
$110.6 billion) compared to 192,620
($26.0 billion) contracts, 279,859
contracts ($27.3 billion), 159,803
contracts ($34.8 billion), and 201,893
contracts ($10.8 billion) traded in
September 2023, September 2022,
September 2021, and September 2020,
respectively.21
Open interest was 39,590 bitcoin
futures contracts in September 2024
(approximately $12.6 billion) compared
to 15,014 contracts ($2.0 billion), 14,867
contracts ($1.4 billion), 7,276 contracts
($1.6 billion), and 7,487 contracts ($0.4
billion) traded in September 2023,
September 2022, September 2021, and
September 2020, respectively.22
The number of large open interest
holders 23 has increased as well, even in
the face of heightened bitcoin price
volatility, as demonstrated in the figure
that follows.24
21 Data from CME Volume and Average Daily
Volume Reports, available at https://www.
cmegroup.com/market-data/volume-open-interest.
htmlvolumeTotals.
22 Data from CME Open Interest Reports, available
at https://www.cmegroup.com/market-data/volumeopen-interest.html#openInterestTools.
23 A large open interest holder in bitcoin futures
is an entity that holds at least 25 contracts, which
is the equivalent of 125 bitcoin. At a price of
approximately $64,300.87 per bitcoin on 9/24/2024,
more than 115 firms had outstanding positions of
greater than $8.04 million in bitcoin futures. Data
from The Block, available at https://www.
theblock.co/data/crypto-markets/cme-cots/largeopen-interest-holders-of-cme-bitcoin-futures.
24 Data from 4/10/2018 to 10/22/24, from The
Block.
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The Commodity Futures Trading
Commission (‘‘CFTC’’) regulates the
CME bitcoin futures market, and both
the Exchange and CME are members of
the Intermarket Surveillance Group
(‘‘ISG’’).25
2020
2021
ether, which are recorded on a
distributed, public recordkeeping
system or ledger known as a blockchain,
and which can be used to pay for goods
and services, including computational
power on the Ethereum network, or
converted to fiat currencies, such as the
U.S. dollar, at rates determined on spot
trading platforms or in individual peerto-peer transactions. By combining the
recordkeeping system of the Ethereum
blockchain with a flexible scripting
language that can be used to implement
a wide variety of instructions, the
Ethereum network is intended to act as
a public computational layer on top of
which users can build their own public
software programs, as an alternative to
centralized web services. On the
Ethereum network, ether is the unit of
account that users pay for the
computational resources consumed by
running programs of their choice.
Background on Ethereum
Ethereum is free software that is
hosted on computers distributed
throughout the globe. Ethereum
employs an array of computer codebased logic, called a protocol, to create
a unified understanding of ownership,
commercial activity, and economic
logic. This allows users to engage in
commerce without the need to trust any
of its participants or counterparties.
Ethereum code creates verifiable and
unambiguous rules that assign clear,
strong property rights to create a
platform for unrestrained business
formation and free exchange. No single
intermediary or entity operates or
controls the Ethereum network, the
transaction validation and
recordkeeping infrastructure of which is
collectively maintained by a disparate
user base. The Ethereum network allows
people to exchange tokens of value, or
CME began offering trading in ether
futures on February 8, 2021.26 Each
contract represents fifty ether and is
based on the ERR. The contracts trade
25 For a list of the current members and affiliate
members of ISG, see https://www.isgportal.com/.
26 See ‘‘CME Group Announces Launch of Ether
Futures,’’ February 8, 2021, available at https://
www.cmegroup.com/media-room/press-releases/
2021/2/08/cme_group_announceslaunch
ofetherfutures.html.
27 Data from CME Volume and Average Daily
Volume Reports, available at https://www.
cmegroup.com/market-data/volume-openinterest.html volumeTotals.
28 Data from CME Open Interest Reports, available
at https://www.cmegroup.com/market-data/volumeopeninterest.html#openInterestTools.
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CME Ether Futures Market
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2023
2022
2024
and settle like other cash settled
commodity futures contracts.
Most measurable metrics related to
CME ether futures have trended up
since launch. For example, there were
95,261 CME ether futures contracts
traded in September 2024
(approximately $12.4 billion) compared
to 78,571 contracts ($6.6 billion),
163,114 contracts ($10.9 billion), and
130,546 contracts ($19.5 billion) traded
in September 2023, September 2022,
and September 2021, respectively. In
the first month of trading, there were
11,637 billion contracts ($0.8 billion)
traded.27
Open interest was 6,746 CME ether
futures contracts in September 2024
(approximately $875.1 million)
compared to 4,577 contracts ($384.3
million), 5,035 contracts ($336.8
million), and 4,388 contracts ($656.8
million) in September 2023, September
2022, and September 2021,
respectively.28
The number of large open interest
holders 29 has increased as well, as
demonstrated in the figure that
follows.30
29 A large open interest holder in ether futures is
an entity that holds at least 25 contracts, which is
the equivalent of 1250 ether. Data from The Block,
available at https://www.theblock.co/data/cryptomarkets/cme-cots/large-open-interest-holders-ofcme-ether-futures.
30 Data from 4/10/2018 to 10/22/2024, from The
Block.
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Applicable Standard
The Commission has historically
approved or disapproved exchange
filings to list and trade series of Trust
Issued Receipts, including spot,
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 However, the Commission
recently approved the listing and
trading of shares of spot bitcoin
exchange-traded products (‘‘Spot
Bitcoin ETPs’’) and spot ether exchangetraded products (‘‘Spot Ether ETPs’’),
finding that there were sufficient ‘‘other
means’’ of preventing fraud and
manipulation sufficient to satisfy the
requirements of Section 6(b)(5) of the
31 See Securities Exchange Act Release No. 83723
(July 26, 2018), 83 FR 37579 (August 1, 2018) (SR–
BatsBZX–2016–30) (Order Setting Aside Action by
Delegated Authority and Disapproving a Proposed
Rule Change, as Modified by Amendments No. 1
and 2, to List and Trade Shares of the Winklevoss
Bitcoin Trust) (‘‘Winklevoss Order’’). In the
Winklevoss Order, the Commission set forth both
the importance and definition of a surveilled,
regulated market of significant size, explaining that,
for approved commodity-trust ETPs, ‘‘there has
been in every case at least one significant, regulated
market for trading futures on the underlying
commodity-whether gold, silver, platinum,
palladium, or copper—and the ETP listing exchange
has entered into surveillance-sharing agreements
with, or held Intermarket Surveillance Group
membership in common with, that market.’’
Winklevoss Order, 83 FR at 37594.
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Exchange Act.32 In each of the Spot
Bitcoin ETP Approval Order and Spot
Ether Approval Order, the Commission
concluded, through a robust correlation
analysis, that fraud or manipulation that
impacts prices in spot bitcoin markets
or spot ether markets would likely
similarly impact CME bitcoin futures
prices and CME ether futures prices,
respectively.33 The Commission further
found that, because the CME’s
surveillance can assist in detecting
those impacts on CME bitcoin futures
prices and CME ether futures prices, a
listing exchange’s comprehensive
surveillance sharing agreement
(‘‘CSSA’’) with the CME can be
reasonably expected to assist in
surveilling for fraudulent and
32 See Securities Exchange Act Release No. 34–
99306 (January 10, 2024), 89 FR 3008 (January 17,
2024) (SR–NYSEARCA–2021–90; SR–NYSEARCA–
2023–44; SRNYSEARCA–2023–58; SR–NASDAQ–
2023–016; SR–NASDAQ–2023–019; SR–CboeBZX–
2023028; SR–CboeBZX–2023–038; SR–CboeBZX–
2023–040; SR–CboeBZX–2023–042; SRCboeBZX–
2023–044; SR–CboeBZX–2023–072) (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’’); Securities Exchange Act
Release No. 100224 (May 23, 2024), 89 FR 46937
(May 30, 2024) (SR–NYSEARCA–2023–70; SR–
NYSEARCA–2024–31; SR–NASDAQ–2023–045;
SR–CboeBZX–2023–069; SR–CboeBZX–2023–070;
SR–CboeBZX–2023–087; SR–CboeBZX–2023–095;
SR–CboeBZX–2024–018) (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’’).
33 See Spot Bitcoin ETP Approval Order, 89 FR
at 3010; Spot Ether ETP Approval Order, 89 FR at
46938.
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manipulative acts and practices in the
context of the Spot Bitcoin ETPs and
Spot Ether ETPs.34
The Trust is structured and will
operate in a manner materially the same
as the Spot Bitcoin ETPs and Spot Ether
ETPs.35 The Sponsor believes that the
Exchange’s ability to obtain information
regarding trading in bitcoin futures and
ether futures from the CME, which, like
the Exchange, is a member of the ISG,
would assist the Exchange in detecting
potential fraud or manipulation with
respect to trading in the Shares. The
Sponsor thus believes that, for reasons
similar to those set forth in the Spot
Bitcoin ETP Approval Order and Spot
Ether ETP Approval Order, listing and
trading Shares of the Fund would be
consistent with the requirements of the
Act.
Availability of Information
The NAV per Share will be calculated
and disseminated daily to all market
participants at the same time. Quotation
and last-sale information regarding the
Shares will be disseminated through the
facilities of the CTA. The ITV will be
calculated every 15 seconds throughout
the Core Trading Session each trading
day.
34 See Spot Bitcoin ETP Approval Order, 89 FR
at 3010; Spot Ether ETP Approval Order, 89 FR at
46938–39.
35 The Sponsor is also the sponsor of the Bitwise
Bitcoin ETF and the Bitwise Ethereum ETF, which
were approved pursuant to the Spot Bitcoin ETP
Approval Order and Spot Ether ETP Approval,
respectively, and which are both currently listed
and traded on NYSE Arca.
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The CFTC regulates the CME ether
futures market, and both the Exchange
and CME are members of the ISG.
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The Sponsor will cause information
about the Shares to be posted to the
Trust’s website (https://
www.bitwiseinvestments.com/): (1) the
NAV and NAV per Share for each
Exchange trading day, posted at end of
day; (2) the daily holdings of the Trust,
before 9:30 a.m. E.T. on each Exchange
trading day; (3) the Trust’s effective
prospectus, in a form available for
download; and (4) the Shares’ ticker and
CUSIP information, along with
additional quantitative information
updated on a daily basis for the Trust.
For example, the Trust’s website will
include (1) the prior Business Day’s
trading volume, the prior Business Day’s
reported NAV and closing price, and a
calculation of the premium and
discount of the closing price or midpoint of the bid/ask spread at the time
of NAV calculation (‘‘Bid/Ask Price’’)
against the NAV; and (2) data in chart
format displaying the frequency
distribution of discounts and premiums
of the daily closing price or Bid/Ask
Price against the NAV, within
appropriate ranges, for at least each of
the four previous calendar quarters. The
Trust’s website will be publicly
available prior to the public offering of
Shares and accessible at no charge.
Investors may obtain on a 24-hour
basis ether pricing information based on
the Pricing Benchmarks, BRR, ERR,
CME Bitcoin Real Time Price, CME
Ether Real Time Price, spot bitcoin
market prices, bitcoin futures prices,
spot ether market prices, and ether
futures prices from various financial
information service providers. Current
bitcoin spot market prices and ether
spot market prices are also available
with bid/ask spreads from bitcoin and
ether trading platforms, including the
Constituent Platforms of the Pricing
Benchmarks.
Information regarding market price
and trading volume of the Shares will be
continually available on a real-time
basis throughout the day on brokers’
computer screens and other electronic
services.
Information regarding the previous
day’s closing price and trading volume
information for the Shares will be
published daily in the financial section
of newspapers.
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 of
the Trust.36 Trading in Shares of the
Trust will be halted if the circuit breaker
parameters in NYSE Arca Rule 7.12–E
36 See
NYSE Arca Rule 7.12–E.
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have been reached. Trading also may be
halted because of market conditions or
for reasons that, in the view of the
Exchange, make trading in the Shares
inadvisable.
The Exchange may halt trading during
the day in which an interruption to the
dissemination of the ITV, CME Bitcoin
Real Time Price, CME Ether Real Time
Price, or Pricing Benchmarks (if the
Exchange becomes aware that the
Pricing Benchmarks are not being
published) occurs.37 If the interruption
to the dissemination of the ITV, CME
Bitcoin Real Time Price, CME Ether Real
Time Price, or Pricing Benchmarks
persists past the trading day in which it
occurred, the Exchange will halt trading
no later than the beginning of the Core
Trading Session 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. Shares will trade on
the NYSE Arca Marketplace from 4:00
a.m. to 8:00 p.m. E.T. in accordance
with NYSE Arca Rule 7.34–E (Early,
Core, and Late Trading Sessions). The
Exchange has appropriate rules to
facilitate transactions in the Shares
during all trading sessions. As provided
in NYSE Arca Rule 7.6–E, the minimum
price variation (‘‘MPV’’) for quoting and
entry of orders in equity securities
traded on the NYSE Arca Marketplace is
$0.01, with the exception of securities
that are priced less than $1.00 for which
the MPV for order entry is $0.0001.
The Shares will conform to the initial
and continued listing criteria under
NYSE Arca Rule 8.201–E. The trading of
the Shares will be subject to NYSE Arca
Rule 8.201–E(g), which sets forth certain
restrictions on Equity Trading Permit
(‘‘ETP’’) Holders acting as registered
Market Makers in Commodity-Based
Trust Shares to facilitate surveillance.38
37 A limit up/limit down condition in the futures
market would not be considered an interruption
requiring the Trust to be halted.
38 Under NYSE Arca Rule 8.201-E(g), an ETP
Holder acting as a registered Market Maker in the
Shares is required to provide the Exchange with
information relating to its accounts for trading in
the underlying commodity, related futures or
options on futures, or any other related derivatives.
Commentary .04 of NYSE Arca Rule 11.3-E requires
an ETP Holder acting as a registered Market Maker,
and its affiliates, in the Shares to establish,
maintain and enforce written policies and
PO 00000
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The Exchange represents that, for initial
and continued listing, the Trust will be
in compliance with Rule 10A–3 under
the Act,39 as provided by NYSE Arca
Rule 5.3–E. A minimum of 100,000
Shares of the Trust will be outstanding
at the commencement of trading on the
Exchange.
Surveillance
The Exchange represents that trading
in the Shares of the Trust will be subject
to the existing trading surveillances
administered by the Exchange, as well
as cross-market surveillances
administered by FINRA on behalf of the
Exchange, which are designed to detect
violations of Exchange rules and
applicable federal securities laws.40 The
Exchange represents that these
procedures are adequate to properly
monitor Exchange trading of the Shares
in all trading sessions and to deter and
detect violations of Exchange rules and
federal securities laws applicable to
trading on the Exchange.
The surveillances referred to above
generally focus on detecting securities
trading outside their normal patterns,
which could be indicative of
manipulative or other violative activity.
When such situations are detected,
surveillance analysis follows and
investigations are opened, where
appropriate, to review the behavior of
all relevant parties for all relevant
trading violations.
The Exchange or FINRA, on behalf of
the Exchange, or both, will
communicate as needed regarding
trading in the Shares with other markets
and other entities that are members of
the ISG, and the Exchange or FINRA, on
behalf of the Exchange, or both, may
obtain trading information regarding
trading in the Shares, bitcoin
derivatives, and ether derivatives from
procedures reasonably designed to prevent the
misuse of any material nonpublic information with
respect to such products, any components of the
related products, any physical asset or commodity
underlying the product, applicable currencies,
underlying indexes, related futures or options on
futures, and any related derivative instruments
(including the Shares). As a general matter, the
Exchange has regulatory jurisdiction over its ETP
Holders and their associated persons, which
include any person or entity controlling an ETP
Holder. To the extent the Exchange may be found
to lack jurisdiction over a subsidiary or affiliate of
an ETP Holder 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.
39 17 CFR 240.10A–3. See note 8, supra.
40 FINRA conducts 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.
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such markets and other entities. In
addition, the Exchange may obtain
information regarding trading in the
Shares, bitcoin derivatives, and ether
derivatives from markets and other
entities or with which the Exchange has
in place a CSSA. The Exchange is also
able to obtain information regarding
trading in the Shares and any
underlying bitcoin, bitcoin derivatives,
ether, or ether derivatives in connection
with ETP Holders’ proprietary trades or
customer trades effected through ETP
Holders on any relevant market. Under
NYSE Arca Rule 8.201–E(g), an ETP
Holder acting as a registered Market
Maker in the Shares is required to
provide the Exchange with information
relating to its accounts for trading in any
underlying commodity, related futures
or options on futures, or any other
related derivatives. Commentary .04 of
NYSE Arca Rule 11.3–E requires an ETP
Holder acting as a registered Market
Maker, and its affiliates, in the Shares to
establish, maintain and enforce written
policies and procedures reasonably
designed to prevent the misuse of any
material nonpublic information with
respect to such products, any
components of the related products, any
physical asset or commodity underlying
the product, applicable currencies,
underlying indexes, related futures or
options on futures, and any related
derivative instruments (including the
Shares). As a general matter, the
Exchange has regulatory jurisdiction
over its ETP Holders and their
associated persons, which include any
person or entity controlling an ETP
Holder. To the extent the Exchange may
be found to lack jurisdiction over a
subsidiary or affiliate of an ETP Holder
that does business only in commodities
or futures contracts and that subsidiary
or affiliate is a member of another
regulatory organization, the Exchange
could obtain information regarding the
activities of such subsidiary or affiliate
through surveillance sharing agreements
with regulatory organizations to the
extent the Exchange has such an
agreement with an organization of
which the subsidiary or affiliate is a
member.
In addition, the Exchange also has a
general policy prohibiting the
distribution of material, non-public
information by its employees.
All statements and representations
made in this filing regarding (a) the
description of the index, portfolio, or
reference asset of the Trust, (b)
limitations on index or portfolio
holdings or reference assets, or (c) the
applicability of Exchange listing rules
specified in this rule filing shall
constitute continued listing
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17:41 Dec 13, 2024
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requirements for listing the Shares on
the Exchange.
The Sponsor has represented to the
Exchange that it will advise the
Exchange of any failure by the Trust to
comply with the continued listing
requirements, and, pursuant to its
obligations under Section 19(g)(1) of the
Act, the Exchange will monitor for
compliance with the continued listing
requirements. If the Trust is not in
compliance with the applicable listing
requirements, the Exchange will
commence delisting procedures under
NYSE Arca Rule 5.5–E(m).
Information Bulletin
Prior to the commencement of
trading, the Exchange will inform its
ETP Holders in an ‘‘Information
Bulletin’’ of the special characteristics
and risks associated with trading the
Shares. Specifically, the Information
Bulletin will discuss the following: (1)
the procedures for creations of Shares in
Creation Units; (2) NYSE Arca Rule 9.2–
E(a), which imposes a duty of due
diligence on its ETP Holders to learn the
essential facts relating to every customer
prior to trading the Shares; (3)
information regarding how the value of
the ITV and NAV is disseminated; (4)
the possibility that trading spreads and
the resulting premium or discount on
the Shares may widen during the
Opening and Late Trading Sessions,
when an updated ITV will not be
calculated or publicly disseminated; (5)
the requirement that members deliver a
prospectus to investors purchasing
newly issued Shares prior to or
concurrently with the confirmation of a
transaction and (6) trading information.
In addition, the Information Bulletin
will reference that the Trust is subject
to various fees and expenses as
described in the annual report. The
Information Bulletin will disclose that
information about the Shares of the
Trust is publicly available on the Trust’s
website.
The Information Bulletin will also
discuss any relief, if granted, by the
Commission or the staff from any rules
under the Act.
2. Statutory Basis
The basis under the Act for this
proposed rule change is the requirement
under Section 6(b)(5) 41 that an
exchange have rules that are designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to remove
impediments to, and perfect the
mechanism of a free and open market
41 15
PO 00000
U.S.C. 78f(b)(5).
Frm 00115
Fmt 4703
Sfmt 4703
101663
and, in general, to protect investors and
the public interest.
The Exchange believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices and to protect
investors and the public interest in that
the Shares will be listed and traded on
the Exchange pursuant to the initial and
continued listing criteria in NYSE Arca
Rule 8.201–E. The Exchange has in
place surveillance procedures that are
adequate to properly monitor Exchange
trading in the Shares in all trading
sessions and to deter and detect
attempted manipulation of the Shares or
other violations of Exchange rules and
applicable federal securities laws. The
Exchange or FINRA, on behalf of the
Exchange, or both, will communicate as
needed regarding trading in the Shares,
bitcoin derivatives, and ether
derivatives with other markets 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, bitcoin
derivatives, and ether derivatives from
such markets. In addition, the Exchange
may obtain information regarding
trading in the Shares, bitcoin
derivatives, and ether derivatives from
markets that are members of ISG or with
which the Exchange has in place a
CSSA. The Exchange is also able to
obtain information regarding trading in
the Shares and any underlying bitcoin,
bitcoin derivatives, ether, or ether
derivatives through ETP Holders, in
connection with such ETP Holders’
proprietary trades or customer trades
effected through ETP Holders on any
relevant market.
The proposed rule change is also
designed to prevent fraudulent and
manipulative acts and practices because
the Trust is structured similarly to and
will operate in materially the same
manner as the Spot Bitcoin ETPs and
Spot Ether ETPs previously approved by
the Commission. The Exchange further
believes that the proposed rule change
is designed to prevent fraudulent and
manipulative acts and practices
because, as noted by the Commission in
the Bitcoin ETP Approval Order and
Ether ETP Approval Order, the
Exchange’s ability to obtain information
regarding trading in the Shares and
futures from other markets that are
members of the ISG (including the CME)
would assist the Exchange in detecting
and deterring misconduct. In particular,
the CME bitcoin futures market and
CME ether futures market are large,
surveilled, and regulated markets that
are closely connected with the spot
markets for bitcoin and ether,
respectively, through which the
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Exchange could obtain information to
assist in detecting and deterring
potential fraud or manipulation.
Quotation and last-sale information
regarding the Shares will be
disseminated through the facilities of
the CTA. The Trust’s website will also
include a form of the prospectus for the
Trust that may be downloaded. The
website will include the Shares’ ticker
and CUSIP information, along with
additional quantitative information
updated on a daily basis for the Trust.
The Trust’s website will include (1)
daily trading volume, the prior Business
Day’s reported NAV and closing price,
and a calculation of the premium and
discount of the closing price or midpoint of the Bid/Ask Price against the
NAV; and (ii) data in chart format
displaying the frequency distribution of
discounts and premiums of the daily
closing price or Bid/Ask Price against
the NAV, within appropriate ranges, for
at least each of the four previous
calendar quarters. The Trust’s website
will be publicly available prior to the
public offering of Shares and accessible
at no charge.
Trading in Shares of the Trust will be
halted if the circuit breaker parameters
in NYSE Arca Rule 7.12–E have been
reached or because of market conditions
or for reasons that, in the view of the
Exchange, make trading in the Shares
inadvisable.
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of a new type of exchange-traded
product based on the price of bitcoin
and ether that will enhance competition
among market participants, to the
benefit of investors and the marketplace.
As noted above, the Exchange has in
place surveillance procedures that are
adequate to properly monitor trading in
the Shares in all trading sessions and to
deter and detect violations of Exchange
rules and applicable federal securities
laws.
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 will facilitate the listing and
trading of a new type of CommodityBased Trust Share based on the price of
bitcoin and ether that would enhance
competition among market participants,
to the benefit of investors and the
marketplace.
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17:41 Dec 13, 2024
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. 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 self-regulatory organization
consents, the Commission will:
(A) by order approve or disapprove
the 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–
NYSEARCA–2024–104 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to file
number SR–NYSEARCA–2024–104.
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
PO 00000
Frm 00116
Fmt 4703
Sfmt 4703
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–NYSEARCA–2024–104 and should
be submitted on or before January 6,
2025.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.42
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024–29469 Filed 12–13–24; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[SEC File No. 270–232, OMB Control No.
3235–0225]
Proposed Collection; Comment
Request; Extension: Rule 17f–4
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 350l–3520) (the
‘‘Paperwork Reduction Act’’), the
Securities and Exchange Commission
(the ‘‘Commission’’) is soliciting
comments on the collection of
information summarized below. The
Commission plans to submit this
existing collection of information to the
Office of Management and Budget for
extension and approval.
Section 17(f) (15 U.S.C. 80a–17(f))
under the Investment Company Act of
1940 (the ‘‘Act’’) 1 permits registered
management investment companies and
their custodians to deposit the securities
they own in a system for the central
handling of securities (‘‘securities
42 17
1 15
E:\FR\FM\16DEN1.SGM
CFR 200.30–3(a)(12).
U.S.C. 80a.
16DEN1
]]>Agencies
[Federal Register Volume 89, Number 241 (Monday, December 16, 2024)]
[Notices]
[Pages 101654-101664]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-29469]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101864; File No. SR-NYSEARCA-2024-104]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change to List and Trade Shares of the Bitwise Bitcoin
and Ethereum ETF under NYSE Arca Rule 8.201-E (Commodity-Based Trust
Shares)
December 10, 2024.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on November 26, 2024, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade shares of the Bitwise
Bitcoin and Ethereum ETF (the ``Trust'') under NYSE Arca Rule 8.201-E
(Commodity-Based Trust Shares). The proposed rule change is available
on the Exchange's website at www.nyse.com, at the principal office of
the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade shares (``Shares'') of the
Trust \4\ pursuant to NYSE Arca Rule 8.201-E, which governs the listing
and trading of Commodity Based Trust Shares.\5\
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\4\ The Trust is a Delaware statutory trust. On November 26,
2024, the Trust filed with the Commission an initial registration
statement (the ``Registration Statement'') on Form S-1 under the
Securities Act of 1933 (15 U.S.C. 77a). The description of the
operation of the Trust herein is based, in part, on the most recent
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.
\5\ Commodity-Based Trust Shares are securities issued by a
trust that represents investors' discrete identifiable and undivided
beneficial ownership interest in the commodities deposited into the
trust.
---------------------------------------------------------------------------
According to the Registration Statement, the Trust will not be
registered as an investment company under the Investment Company Act of
1940,\6\ and is not required to register thereunder. The Trust is not a
commodity pool for purposes of the Commodity Exchange Act.\7\
---------------------------------------------------------------------------
\6\ 15 U.S.C. 80a-1.
\7\ 17 U.S.C. 1.
---------------------------------------------------------------------------
The Exchange represents that the Shares satisfy the requirements of
NYSE Arca Rule 8.201-E and thereby qualify for listing on the
Exchange.\8\
---------------------------------------------------------------------------
\8\ With respect to the application of Rule 10A-3 (17 CFR
240.10A-3) under the Act, the Trust relies on the exemption
contained in Rule 10A-3(c)(7).
---------------------------------------------------------------------------
Operation of the Trust \9\
---------------------------------------------------------------------------
\9\ The description of the operation of the Trust, the Shares,
and the ether market contained herein is based, in part, on the
Registration Statement. See note 4, supra.
---------------------------------------------------------------------------
The Trust will issue the Shares which, according to the
Registration Statement, represent units of undivided beneficial
ownership of the Trust. The Trust is a Delaware statutory trust and
will operate pursuant to a trust agreement (the ``Trust Agreement'')
between Bitwise Investment Advisers, LLC (the ``Sponsor'' or
``Bitwise'') and Delaware Trust Company, as the Trust's trustee (the
``Trustee''). Coinbase Custody Trust Company, LLC will maintain custody
of the Trust's bitcoin and ether (the ``Bitcoin and Ether Custodian'').
Bank of New York Mellon will be the custodian for the Trust's cash
holdings (in such role, the ``Cash Custodian''), the administrator of
the Trust (in such role, the ``Administrator''), and the transfer agent
for the Trust (in such role, the ``Transfer Agent'').
According to the Registration Statement, the investment objective
of the Trust is to seek to provide exposure to the value of bitcoin and
ether held by the Trust, less the expenses of the Trust's operations
and other liabilities. The Trust's allocation of its assets to bitcoin
and ether will approximate the relative market capitalization of
bitcoin and ether to one another.\10\ In seeking to achieve its
investment objective, the Trust will hold bitcoin and ether and
establish its Net Asset Value (``NAV'') at the end of every business
day by reference to the CME CF Bitcoin--New York Variant for its
bitcoin holdings (the ``Bitcoin Pricing Benchmark'') and to the CME CF
Ether--Dollar Reference Rate--New York Variant for its ether holdings
(the ``Ether Pricing Benchmark,'' and, with the Bitcoin Pricing
Benchmark, the ``Pricing Benchmarks'').\11\
---------------------------------------------------------------------------
\10\ As of the date of this filing, the relative market
capitalization of bitcoin and ether is 83% bitcoin and 17% ether.
The Trust will calculate the market capitalization of bitcoin and
ether by multiplying the Pricing Benchmarks by the current
circulating supply of bitcoin and ether respectively, as determined
by the Sponsor, and will calculate the relative market
capitalization by dividing each of bitcoin and ether's market
capitalization by the combined market capitalization of both.
\11\ The Pricing Benchmarks are calculated by CF Benchmarks Ltd.
(the ``Benchmark Provider'') based on an aggregation of executed
trade flow of major bitcoin and ether trading platforms. As further
discussed below, the Pricing Benchmarks are designed to provide a
daily, 4:00 p.m. Eastern Time (``E.T.'') reference rate of the U.S.
dollar price of one bitcoin or one ether that may be used to develop
financial products.
---------------------------------------------------------------------------
The Trust's only assets will be bitcoin, ether, and cash.\12\ The
Trust
[[Page 101655]]
does not seek to hold any non-bitcoin or non-ether crypto assets and
has expressly disclaimed ownership of any such assets in the event the
Trust ever involuntarily comes into possession of such assets.\13\ The
Trust will not use derivatives that may subject the Trust to
counterparty and credit risks. The Trust will process creations and
redemptions in cash. The Trust's only recurring ordinary expense is
expected to be the Sponsor's unitary management fee (the ``Sponsor
Fee''), which will accrue daily and will be payable in bitcoin and
ether monthly in arrears. The Administrator will calculate the Sponsor
Fee on a daily basis by applying an annualized rate to the Trust's
total bitcoin and ether holdings, and the amount of bitcoin and ether
payable in respect of each daily accrual shall be determined by
reference to the Pricing Benchmarks. Financial institutions authorized
to create and redeem Shares (each, an ``Authorized Participant'') will
deliver, or cause to be delivered, cash in exchange for Shares of the
Trust, and the Trust will deliver cash to Authorized Participants when
those Authorized Participants redeem Shares of the Trust.
---------------------------------------------------------------------------
\12\ The Trust conducts creations and redemptions of its Shares
for cash. Authorized Participants (defined below) will deliver cash
to the Cash Custodian pursuant to creation orders for Shares and the
Cash Custodian will hold such cash until such time as it can be
converted to bitcoin or ether, which the Trust intends to do on the
same business day in which such cash is received by the Cash
Custodian. Additionally, the Trust will sell bitcoin and ether in
exchange for cash pursuant to redemption orders of its Shares. In
connection with such sales, an approved Digital Asset Trading
Counterparty (defined below) will send cash to the Cash Custodian.
The Cash Custodian will hold such cash until it can be distributed
to the redeeming Authorized Participant, which it intends to do on
the same business day in which it is received. In connection with
the purchases and sales of bitcoin and ether pursuant to its
creation and redemption activity, it is possible that the Trust may
retain de minimis amounts of cash as a result of rounding
differences. The Trust may also initially hold small amounts of cash
to initiate Trust operations in the immediate aftermath of its
Registration Statement being declared effective. Lastly, the Trust
may also sell bitcoin and ether and temporarily hold cash as part of
a liquidation of the Trust or to pay certain extraordinary expenses
not assumed by the Sponsor. Under the Trust Agreement, the Sponsor
has agreed to assume the normal operating expenses of the Trust,
subject to certain limitations. For example, the Trust will bear any
indemnification or litigation liabilities as extraordinary expenses.
In any event, in the ongoing course of business, the amounts of cash
retained by the Trust are not expected to constitute a material
portion of the Trust's holdings.
\13\ The Trust may, from time to time, passively receive, by
virtue of holding ether, certain additional digital assets (``IR
Assets'') or rights to receive IR Assets (``Incidental Rights'')
through a fork of the Bitcoin network or Ethereum network or an
airdrop of assets. The Trust will not seek to acquire such IR Assets
or Incidental Rights. Pursuant to the terms of the Trust Agreement,
the Trust has disclaimed ownership in any such IR Assets and/or
Incidental Rights to make clear that such assets are not and shall
never be considered assets of the Trust and will not be taken into
account for purposes of determining the Trust's NAV or NAV per
Share. Neither the Trust, nor the Sponsor, nor the Bitcoin and Ether
Custodian, nor any other person associated with the Trust will,
directly or indirectly, engage in action where any portion of the
Trust's ether becomes subject to the Ethereum proof-of-stake
validation or is used to earn additional ether or generate income or
other earnings.
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Custody of the Trust's Bitcoin and Ether
The Trust's Bitcoin and Ether Custodian will maintain custody of
all of the Trust's bitcoin and ether, other than that which is
maintained in a trading account (the ``Trading Balance'') with
Coinbase, Inc. (the ``Prime Execution Agent,'' which is an affiliate of
the Bitcoin and Ether Custodian). The Bitcoin and Ether Custodian will
maintain an account that holds the Trust's bitcoin (the ``Trust Bitcoin
Account'') and an account that holds the Trust's ether (the ``Trust
Ether Account,'' and together with the Trust Bitcoin Account, the
``Trust Digital Asset Accounts''), and will facilitate the transfer of
bitcoin and ether required for the operation of the Trust. The Trading
Balance will only be used in the limited circumstances in which the
Trust is using the Agent Execution Model (as defined below) to
effectuate the purchases and sales of bitcoin or ether. The Bitcoin and
Ether Custodian provides safekeeping of bitcoin and ether using a
multi-layer cold storage security platform designed to provide offline
security of the bitcoin and ether held by the Bitcoin and Ether
Custodian.
Valuation of the Trust's Bitcoin and Ether
The net assets of the Trust and its Shares are valued on a daily
basis with reference to the Pricing Benchmarks, which are standardized
reference rates published by the Benchmark Provider designed to reflect
the performance of bitcoin and ether in U.S. dollars. The Bitcoin
Pricing Benchmark and Ether Pricing Benchmark were created to
facilitate financial products based on bitcoin and ether, respectively.
The Bitcoin Pricing Benchmark serves as a once-a-day benchmark rate of
the U.S. dollar price of bitcoin (USD/BTC), and the Ether Pricing
Benchmark serves as a once-a-day benchmark rate of the U.S. dollar
price of ether (USD/ETH), each calculated as of 4:00 p.m. E.T. The
Bitcoin Pricing Benchmark aggregates the trade flow of several major
bitcoin trading venues, and the Ether Pricing Benchmark aggregates the
trade flow of several major ether trading venues, each during an
observation window between 3:00 p.m. and 4:00 p.m. E.T. into the U.S.
dollar price of one bitcoin or ether, as applicable, at 4:00 p.m. E.T.
The Bitcoin Pricing Benchmark uses the same methodology as the CME
CF Bitcoin Reference Rate (``BRR''), which was designed by the CME
Group and the Benchmark Provider to facilitate the cash settlement of
bitcoin futures contracts traded on the Chicago Mercantile Exchange
(``CME'').\14\ The CME Group also publishes the CME CF Bitcoin Real
Time Index (the ``CME Bitcoin Real Time Price''), which is a continuous
measure of the U.S. dollar price of one bitcoin calculated once per
second. Similarly, the Ether Pricing Benchmark uses the same
methodology as the CME CF Ether-Dollar Reference Rate (``ERR''), which
was designed by the CME Group and the Benchmark Provider to facilitate
the cash settlement of ether futures contracts traded on the CME.\15\
The CME Group also publishes the CME CF Ether Real Time Index (the
``CME Ether Real Time Price''), which is a continuous measure of the
U.S. dollar price of one ether calculated once per second. Each of the
Pricing Benchmarks, BRR, ERR, CME Bitcoin Real Time Price, and CME
Ether Real Time Price are representative of the bitcoin or ether
trading activity, as applicable, on the Constituent Platforms,\16\
which include, as of the date of this filing, Bitstamp, Coinbase,
Gemini, itBit, LMAX, and Kraken.
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\14\ The only material difference between the Bitcoin Pricing
Benchmark and the BRR is that the BRR measures the U.S. dollar price
of one bitcoin as of 4:00 p.m. London time and the Bitcoin Pricing
Benchmark measures the U.S. dollar price of one bitcoin as of 4:00
p.m. E.T.
\15\ The only material difference between the Ether Pricing
Benchmark and ERR is that the ERR measures the U.S. dollar price of
one ether as of 4:00 p.m. London time, and the Pricing Index
measures the U.S. dollar price of one ether as of 4:00 p.m. E.T.
\16\ The ``Constituent Platforms'' are the bitcoin and ether
trading venues included in the Pricing Benchmarks.
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The Trust uses the Pricing Benchmarks to calculate its NAV, as
described below in ``Net Asset Value.''
The Sponsor, in its sole discretion, may cause the Trust to price
its portfolio based upon an index, benchmark, or standard other than
the Pricing Benchmarks at any time, with prior notice to the
shareholders, if investment conditions change or the Sponsor believes
that another index, benchmark, or standard better aligns with the
Trust's investment objective and strategy. The Sponsor may make this
decision for a number of reasons, including, but not limited to, a
determination that the Pricing Benchmarks price of bitcoin or ether
differs materially from the global market price of bitcoin or ether
and/or that third parties are able to purchase and sell bitcoin or
ether on public or private markets not included among the Constituent
Platforms, and such transactions may take place at prices materially
higher or lower than the Pricing Benchmarks price. The Sponsor,
however, is under no obligation whatsoever to make such changes in any
circumstance. In the event that the Sponsor intends to establish the
Trust's NAV by reference to an index, benchmark, or standard other than
the Pricing Benchmarks, it will provide shareholders with notice in a
prospectus supplement and/or through a current
[[Page 101656]]
report on Form 8-K or in the Trust's annual or quarterly reports.\17\
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\17\ The Sponsor will provide notice of any such changes in the
Trust's periodic or current reports and, if the Sponsor makes such a
change other than on an ad hoc or temporary basis, will file a
proposed rule change with the Commission.
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Net Asset Value
The Trust's only assets will be bitcoin and ether and, under
limited circumstances, cash. The Trust's NAV and NAV per Share will be
determined by the Administrator once each Exchange trading day as of
4:00 p.m. E.T., or as soon thereafter as practicable. The Administrator
will calculate the NAV by multiplying the number of bitcoin and ether
held by the Trust by the Bitcoin Pricing Benchmark or Ether Pricing
Benchmark, respectively, for such day, adding any additional
receivables and subtracting the accrued but unpaid liabilities of the
Trust. The NAV per Share is calculated by dividing the NAV by the
number of Shares then outstanding. The Administrator will determine the
price of the Trust's bitcoin and ether by reference to the Pricing
Benchmarks, which are published and calculated as set forth above.
Intraday Trust Value
The Trust uses the CME Bitcoin Real Time Price and CME Ether Real
Time Price to calculate an Indicative Trust Value (``ITV''). One or
more major market data vendors will disseminate the ITV, updated every
15 seconds each trading day as calculated by the Exchange or a third-
party financial data provider during the Exchange's Core Trading
Session (9:30 a.m. to 4:00 p.m., E.T.). The ITV will be calculated
throughout the trading day by using the prior day's holdings at the
close of business and the most recently reported price level of the CME
Bitcoin Real Time Price and CME Ether Real Time Price. The ITV will be
widely disseminated by one or more major market data vendors during the
NYSE Arca Core Trading Session.
Creation and Redemption of Shares
The Trust creates and redeems Shares from time to time, but only in
one or more Creation Units, which will initially consist of at least
10,000 Shares, but may be subject to change (``Creation Unit''). A
Creation Unit is only made in exchange for delivery to the Trust or the
distribution by the Trust of an amount of cash, equivalent to the value
of ether represented by the Creation Unit being created or redeemed,
the amount of which is representative of the combined NAV of the number
of Shares included in the Creation Units being created or redeemed
determined as of 4:00 p.m. E.T. on the day the order to create or
redeem Creation Units is properly received. Except when aggregated in
Creation Units or under extraordinary circumstances permitted under the
Trust Agreement, the Shares are not redeemable securities.
Authorized Participants are the only persons that may place orders
to create and redeem Creation Units. Authorized Participants must be
(1) registered broker-dealers or other securities market participants,
such as banks and other financial institutions, that are not required
to register as broker-dealers to engage in securities transactions
described below, and (2) Depository Trust Company (``DTC'')
participants. To become an Authorized Participant, a person must enter
into an Authorized Participant Agreement with the Trust and/or the
Trust's marketing agent (the ``Marketing Agent'').
According to the Registration Statement, when purchasing or selling
ether in response to the purchase of Creation Units or the redemption
of Creation Units, which will be processed in cash, the Trust would do
so pursuant to either (1) a ``Trust-Directed Trade Model,'' or (2) an
``Agent Execution Model,'' which are each described in more detail
below.
The Trust intends to utilize the Trust-Directed Trade Model for all
purchases and sales of bitcoin and ether and would only utilize the
Agent Execution Model in the event that no digital asset trading
counterparty approved by the Sponsor (a ``Digital Asset Trading
Counterparty'') \18\ is able to effectuate the Trust's purchase or sale
of bitcoin or ether. Under the Trust-Directed Trade Model, in
connection with receipt of a purchase order or redemption order, the
Sponsor, on behalf of the Trust, would be responsible for acquiring
bitcoin and ether from an approved Digital Asset Trading Counterparty
in an amount equal to the Basket Amount. When seeking to purchase
bitcoin and ether on behalf of the Trust, the Sponsor will seek to
purchase bitcoin and ether at commercially reasonable prices and terms
from any of the approved Digital Asset Trading Counterparties.\19\ Once
agreed upon, the transaction will generally occur on an ``over-the-
counter'' basis.
---------------------------------------------------------------------------
\18\ The Digital Asset Trading Counterparties with which the
Sponsor will engage in ether transactions are unaffiliated third
parties that are not acting as agents of the Trust, the Sponsor or
the Authorized Participant, and all transactions will be done on an
arms-length basis. There is no contractual relationship between the
Trust, the Sponsor or the Digital Asset Trading Counterparty.
\19\ The Sponsor will maintain ownership and control of bitcoin
and ether in a manner consistent with good delivery requirements for
spot commodity transactions.
---------------------------------------------------------------------------
Whether utilizing the Trust-Directed Trade Model or the Agent
Execution Model, 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 Trust or a third
party with respect to purchasing, holding, delivering, or receiving
bitcoin or ether as part of the creation or redemption process.
Additionally, under either the Trust-Directed Trade Model or the Agent
Execution Model, the Trust will create Shares by receiving bitcoin and
ether from a third party that is not the Authorized Participant and is
not affiliated with the Sponsor or the Trust, and the Trust--not the
Authorized Participant--is responsible for selecting the third party to
deliver the bitcoin and ether. The third party will not be acting as an
agent of the Authorized Participant with respect to the delivery of the
bitcoin and ether to the Trust or acting at the direction of the
Authorized Participant with respect to the delivery of the bitcoin and
ether to the Trust. Additionally, the Trust will redeem Shares by
delivering bitcoin and ether to a third party that is not the
Authorized Participant and is not affiliated with the Sponsor or the
Trust, and the Trust--not the Authorized Participant--is responsible
for selecting the third party to receive the bitcoin and ether.
Finally, the third party will not be acting as an agent of the
Authorized Participant with respect to the receipt of the bitcoin or
ether from the Trust or acting at the direction of the Authorized
Participant with respect to the receipt of the bitcoin or ether from
the Trust.
Acquiring and Selling Ether Pursuant to Creation and Redemption of
Shares Under the Trust-Directed Trade Model
Under the Trust-Directed Trade Model and as set forth in the
Registration Statement, on any business day, an Authorized Participant
may create Shares by placing an order to purchase one or more Creation
Units with the Transfer Agent through the Marketing Agent. Such orders
are subject to approval by the Marketing Agent and the Transfer Agent.
For purposes of processing creation and redemption orders, a ``business
day'' means any day other than a day when the Exchange is closed for
regular
[[Page 101657]]
trading (``Business Day''). To be processed on the date submitted,
creation orders must be placed before 4:00 p.m. E.T. or the close of
regular trading on the Exchange, whichever is earlier, but may be
required to be placed earlier at the discretion of the Sponsor. A
purchase order will be effective on the date it is received by the
Transfer Agent and approved by the Marketing Agent (``Purchase Order
Date'').
Creation Units are processed in cash. By placing a purchase order,
an Authorized Participant agrees to deposit, or cause to be deposited,
an amount of cash equal to the quantity of bitcoin and ether
attributable to each Share of the Trust (net of accrued but unpaid
expenses and liabilities) multiplied by the number of Shares (10,000)
comprising a Creation Unit (the ``Basket Amount''). The Sponsor will
cause to be published each Business Day, prior to the commencement of
trading on the Exchange, the Basket Amount relating to a Creation Unit
applicable for such Business Day. That amount is derived by multiplying
the Basket Amount by the value of bitcoin and ether ascribed by the
Pricing Index. However, the Authorized Participant is also responsible
for any additional cash required to account for the price at which the
Trust agrees to purchase the requisite amount of bitcoin and ether from
a Digital Asset Trading Counterparty to the extent it is greater than
the Pricing Index price on each Purchase Order Date.
Prior to the delivery of Creation Units, the Authorized Participant
must also have wired to the Transfer Agent the nonrefundable
transaction fee due for the creation order. Authorized Participants may
not withdraw a creation request. If an Authorized Participant fails to
consummate the foregoing, the order may be cancelled.
Following the acceptance of a purchase order, the Authorized
Participant must wire the cash amount described above to the Cash
Custodian, and the Digital Asset Trading Counterparty must deposit the
required amount of bitcoin and ether with the Bitcoin and Ether
Custodian by the end of the day E.T. on the Business Day following the
Purchase Order Date. The bitcoin and ether will be purchased from
Digital Asset Trading Counterparties that are not acting as agents of
the Trust or agents of the Authorized Participant. These transactions
will be done on an arms-length basis, and there is no contractual
relationship between the Trust, the Sponsor, or the Digital Asset
Trading Counterparty to acquire such bitcoin and ether. Prior to any
movement of cash from the Cash Custodian to the Digital Asset Trading
Counterparty or movement of Shares from the Transfer Agent to the
Authorized Participant's DTC account to settle the transaction, the
bitcoin and ether must be deposited at the Bitcoin and Ether Custodian.
The Digital Asset Trading Counterparty must deposit the required
amount of bitcoin and ether by end of day E.T. on the Business Day
following the Purchase Order Date prior to any movement of cash from
the Cash Custodian or Shares from the Transfer Agent. Upon receipt of
the deposit amount of bitcoin and ether at the Bitcoin and Ether
Custodian from the Digital Asset Trading Counterparty, the Bitcoin and
Ether Custodian will notify the Sponsor that the bitcoin and ether have
been received. The Sponsor will then notify the Transfer Agent that the
bitcoin and ether have been received, and the Transfer Agent will
direct DTC to credit the number of Shares ordered to the Authorized
Participant's DTC account and will wire the cash previously sent by the
Authorized Participant to the Digital Asset Trading Counterparty to
complete settlement of the Purchase Order and the acquisition of the
bitcoin and ether by the Trust, as described above.
As between the Trust and the Authorized Participant, the expense
and risk of the difference between the value of bitcoin and ether
calculated by the Administrator for daily valuation using the Pricing
Benchmarks and the price at which the Trust acquires the bitcoin and
ether will be borne solely by the Authorized Participant to the extent
that the Trust pays more for bitcoin and ether than the price used by
the Trust for daily valuation. Any such additional cash amount will be
included in the amount of cash calculated by the Administrator on the
Purchase Order Date, communicated to the Authorized Participant on the
Purchase Order Date, and wired by the Authorized Participant to the
Cash Custodian on the day following the Purchase Order Date. If the
Digital Asset Trading Counterparty fails to deliver the bitcoin and
ether to the Bitcoin and Ether Custodian, no cash is sent from the Cash
Custodian to the Digital Asset Trading Counterparty, no Shares are
transferred to the Authorized Participant's DTC account, the cash is
returned to the Authorized Participant, and the Purchase Order is
cancelled.
Under the Trust-Directed Trade Model and according to the
Registration Statement, the procedures by which an Authorized
Participant can redeem one or more Creation Units mirror the procedures
for the creation of Creation Units. On any Business Day, an Authorized
Participant may place an order with the Transfer Agent through the
Marketing Agent to redeem one or more Creation Units. To be processed
on the date submitted, redemption orders must be placed before 4:00
p.m. E.T. or the close of regular trading on the Exchange, whichever is
earlier, or earlier as determined by the Sponsor. A redemption order
will be effective on the date it is received by the Transfer Agent and
approved by the Marketing Agent (``Redemption Order Date''). The
redemption procedures allow Authorized Participants to redeem Creation
Units and do not entitle an individual shareholder to redeem any Shares
in an amount less than a Creation Unit, or to redeem Creation Units
other than through an Authorized Participant. In connection with
receipt of a redemption order accepted by the Marketing Agent and
Transfer Agent, the Sponsor, on behalf of the Trust, is responsible for
selling the bitcoin and ether to an approved Digital Asset Trading
Counterparty in an amount equal to the Basket Amount.
The redemption distribution from the Trust will consist of a
transfer to the redeeming Authorized Participant, or its agent, of the
amount of cash the Trust received in connection with a sale of the
Basket Amount of bitcoin and ether to a Digital Asset Trading
Counterparty made pursuant to the redemption order. The Sponsor will
cause to be published each Business Day, prior to the commencement of
trading on the Exchange, the redemption distribution amount relating to
a Creation Unit applicable for such Business Day. The redemption
distribution amount is derived by multiplying the Basket Amount by the
value of bitcoin and ether ascribed by the Pricing Benchmarks. However,
as between the Trust and the Authorized Participant, the expense and
risk of the difference between the value of bitcoin and ether ascribed
by the Pricing Benchmarks and the price at which the Trust sells the
bitcoin and ether will be borne solely by the Authorized Participant to
the extent that the Trust receives less for bitcoin and ether than the
value ascribed by the Pricing Benchmarks. Prior to the delivery of
Creation Units, the Authorized Participant must also have wired to the
Transfer Agent the nonrefundable transaction fee due for the redemption
order.
The redemption distribution due from the Trust will be delivered by
the Transfer Agent to the Authorized Participant once the Cash
Custodian has received the cash from the Digital Asset Trading
Counterparty. The Bitcoin and
[[Page 101658]]
Ether Custodian will not send the Basket Amount of bitcoin and ether to
the Digital Asset Trading Counterparty until the Cash Custodian has
received the cash from the Digital Asset Trading Counterparty and is
instructed by the Sponsor to make such transfer. Once the Digital Asset
Trading Counterparty has sent the cash to the Cash Custodian in an
agreed upon amount to settle the agreed upon sale of the Basket Amount
of bitcoin and ether, the Transfer Agent will notify the Sponsor. The
Sponsor will then notify the Bitcoin and Ether Custodian to transfer
the bitcoin and ether to the Digital Asset Trading Counterparty, and
the Transfer Agent will wire the cash proceeds to the Authorized
Participant once the Trust's DTC account has been credited with the
Shares represented by the Creation Unit from the redeeming Authorized
Participant. Once the Authorized Participant has delivered the Shares
represented by the Creation Unit to be redeemed to the Trust's DTC
account, the Cash Custodian will wire the requisite amount of cash to
the Authorized Participant. If the Trust's DTC account has not been
credited with all of the Shares of the Creation Unit to be redeemed,
the redemption distribution will be delayed until such time as the
Transfer Agent confirms receipt of all such Shares. If the Digital
Asset Trading Counterparty fails to deliver the cash to the Cash
Custodian, the transaction will be cancelled, and no transfer of
bitcoin or ether or Shares will occur.
Acquiring and Selling Ether Pursuant to Creation and Redemption of
Shares Under the Agent Execution Model
Under the Agent Execution Model, the Prime Execution Agent, acting
in an agency capacity, would conduct bitcoin and ether purchases and
sales on behalf of the Trust with third parties through its Coinbase
Prime service pursuant to the Prime Execution Agent Agreement. To
utilize the Agent Execution Model, the Trust may maintain some bitcoin,
ether, or cash in the Trading Balance with the Prime Execution Agent.
The Prime Execution Agent Agreement provides that the Trust does not
have an identifiable claim to any particular bitcoin or ether (and
cash); rather, the Trust's Trading Balance represents an entitlement to
a pro rata share of the bitcoin or ether (and cash) the Prime Execution
Agent holds on behalf of customers who hold similar entitlements
against the Prime Execution Agent. In this way, the Trust's Trading
Balance represents an omnibus claim on the Prime Execution Agent's
bitcoin or ether (and cash) held on behalf of the Prime Execution
Agent's customers.
To avoid having to pre-fund purchases or sales of bitcoin or ether
in connection with cash creations and redemptions and sales of bitcoin
or ether to pay Trust expenses not assumed by the Sponsor, to the
extent applicable, the Trust may borrow bitcoin, ether, or cash as
trade credit (``Trade Credit'') from Coinbase Credit, Inc. (the ``Trade
Credit Lender'') on a short-term basis pursuant to the Coinbase Credit
Committed Trade Financing Agreement (the ``Trade Financing
Agreement'').
On the day of the Purchase Order Date, the Trust would enter into a
transaction to buy bitcoin and ether through the Prime Execution Agent
for cash. Because the Trust's Trading Balance may not be funded with
cash on the Purchase Order Date for the purchase of bitcoin and ether
in connection with the Purchase Order under the Agent Execution Model,
the Trust may borrow Trade Credits in the form of cash from the Trade
Credit Lender pursuant to the Trade Financing Agreement or may require
the Authorized Participant to deliver the required cash for the
Purchase Order on the Purchase Order Date. The extension of Trade
Credits on the Purchase Order Date allows the Trust to purchase bitcoin
and ether through the Prime Execution Agent on the Purchase Order Date,
with such bitcoin and ether being deposited in the Trust's Trading
Balance.
On the day following the Purchase Order Date (the ``Purchase Order
Settlement Date''), the Trust would deliver Shares to the Authorized
Participant in exchange for cash received from the Authorized
Participant. Where applicable, the Trust would use the cash to repay
the Trade Credits borrowed from the Trade Credit Lender. On the
Purchase Order Settlement Date for a Purchase Order utilizing the Agent
Execution Model, the bitcoin and ether associated with the Purchase
Order and purchased on the Purchase Order Date is swept from the
Trust's Trading Balance with the Prime Execution Agent to the Trust
Digital Asset Account with the Bitcoin and Ether Custodian pursuant to
a regular end-of-day sweep process. Transfers of bitcoin and ether into
the Trust's Trading Balance are off-chain transactions and transfers
from the Trust's Trading Balance to the Trust Digital Asset Account are
``on-chain'' transactions represented on the bitcoin and ether
blockchains, as applicable. Any financing fee owed to the Trade Credit
Lender is deemed part of trade execution costs and embedded in the
trade price for each transaction.
For a Redemption Order utilizing the Agent Execution Model, on the
day of the Redemption Order Date the Trust would enter into a
transaction to sell bitcoin and ether through the Prime Execution Agent
for cash. The Trust's Trading Balance with the Prime Execution Agent
may not be funded with bitcoin and ether on trade date for the sale of
bitcoin and ether in connection with the redemption order under the
Agent Execution Model, when bitcoin and ether remains in the Trust
Digital Asset Account with the Bitcoin and Ether Custodian at the point
of intended execution of a sale of bitcoin and ether. In those
circumstances the Trust may borrow Trade Credits in the form of bitcoin
and ether from the Trade Credit Lender, which allows the Trust to sell
bitcoin and ether through the Prime Execution Agent on the Redemption
Order Date, and the cash proceeds are deposited in the Trust's Trading
Balance with the Prime Execution Agent. On the business day following
the Redemption Order Date (the ``Redemption Order Settlement Date'')
for a redemption order utilizing the Agent Execution Model where Trade
Credits were utilized, the Trust delivers cash to the Authorized
Participant in exchange for Shares received from the Authorized
Participant. In the event Trade Credits were used, the Trust will use
the bitcoin and ether that is moved from the Trust Digital Asset
Account with the Bitcoin and Ether Custodian to the Trading Balance
with the Prime Execution Agent to repay the Trade Credits borrowed from
the Trade Credit Lender.
For a redemption of Creation Units utilizing the Agent Execution
Model, the Sponsor would instruct the Bitcoin and Ether Custodian to
prepare to transfer the bitcoin and ether associated with the
redemption order from the Trust Digital Asset Account with the Bitcoin
and Ether Custodian to the Trust's Trading Balance with the Prime
Execution Agent. On the Redemption Order Settlement Date, the Trust
would enter into a transaction to sell bitcoin and ether through the
Prime Execution Agent for cash, and the Prime Execution Agent credits
the Trust's Trading Balance with the cash. On the same day, the
Authorized Participant would deliver the necessary Shares to the Trust
and the Trust delivers cash to the Authorized Participant.
Background on Bitcoin
Bitcoin is the digital asset that is native to, and created and
transmitted through the operations of, the peer-to-peer ``Bitcoin
network,'' a decentralized
[[Page 101659]]
network of computers that operates on cryptographic protocols. No
single entity owns or operates the Bitcoin network, the infrastructure
of which is collectively maintained by a decentralized user base. The
Bitcoin network allows people to exchange tokens of value, called
bitcoin, which are recorded on a public transaction ledger known as the
``Bitcoin blockchain.'' Bitcoin can be used to pay for goods and
services, or it can be converted to fiat currencies, such as the U.S.
dollar, at rates determined on digital asset trading platforms or in
individual end-user-to-end-user transactions under a barter system.
Although nascent in use, bitcoin may be used as a medium of exchange,
unit of account or store of value.
The Bitcoin network is decentralized and does not require
governmental authorities or financial institution intermediaries to
create, transmit or determine the value of bitcoin. In addition, no
party may easily censor transactions on the Bitcoin network. As a
result, the Bitcoin network is often referred to as decentralized and
censorship resistant.
The value of bitcoin is determined by the supply of and demand for
bitcoin. New bitcoin are created and rewarded to the parties providing
the Bitcoin network's infrastructure (``miners'') in exchange for their
expending computational power to verifying transactions and add them to
the Bitcoin blockchain. The Bitcoin blockchain is effectively a
decentralized database that includes all blocks that have been solved
by miners and it is updated to include new blocks as they are solved.
Each bitcoin transaction is broadcast to the Bitcoin network and, when
included in a block, recorded in the Bitcoin blockchain. As each new
block records outstanding bitcoin transactions, and outstanding
transactions are settled and validated through such recording, the
Bitcoin blockchain represents a complete, transparent and unbroken
history of all transactions of the Bitcoin network.
The CME Bitcoin Futures Market
The CME Group announced the planned launch of bitcoin futures on
October 31, 2017. Trading began on December 17, 2017.\20\ Each contract
represents five bitcoin and is based on the CME CF Bitcoin Reference
Rate. The contracts trade and settle like other cash settled commodity
futures contracts.
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\20\ See ``CME Group Announces Launch of Bitcoin Futures,''
October 31, 2017, available at https://www.cmegroup.com/media-room/press-releases/2017/10/31/cme_group_announceslaunchofbitcoinfutures.html. At the same time as
the launch of the CME Market, the Cboe Futures Exchange, LLC
announced and subsequently launched Cboe bitcoin futures. See ``CFE
to Commence Trading in Cboe Bitcoin (USD) Futures Soon,'' December
01, 2017, available at cdn.cboe.com/resources/release_notes/2017/Cboe-Bitcoin-USD-Futures-Launch-Notification.pdf. Each future was
cash settled, with the CME Market tracking the CME UK Reference Rate
and the Cboe bitcoin futures tracking a bitcoin trading platform
daily auction price. The Cboe Futures Exchange, LLC subsequently
discontinued its bitcoin futures market effective June 2019. ``Cboe
put the brakes on bitcoin futures,'' March 15, 2019, available at
https://www.reuters.com/article/us-cboe-bitcoin/cboe-puts-the-brakes-on-bitcoin-futures-idUSKCN1QW261. The Trust uses the CME US
Reference Rate to calculate its NAV.
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Nearly every measurable metric related to bitcoin futures has
trended up since launch. For example, there were 348,635 bitcoin
futures contracts traded in September 2024 (approximately $110.6
billion) compared to 192,620 ($26.0 billion) contracts, 279,859
contracts ($27.3 billion), 159,803 contracts ($34.8 billion), and
201,893 contracts ($10.8 billion) traded in September 2023, September
2022, September 2021, and September 2020, respectively.\21\
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\21\ Data from CME Volume and Average Daily Volume Reports,
available at https://www.cmegroup.com/market-data/volume-open-interest.htmlvolumeTotals.
---------------------------------------------------------------------------
Open interest was 39,590 bitcoin futures contracts in September
2024 (approximately $12.6 billion) compared to 15,014 contracts ($2.0
billion), 14,867 contracts ($1.4 billion), 7,276 contracts ($1.6
billion), and 7,487 contracts ($0.4 billion) traded in September 2023,
September 2022, September 2021, and September 2020, respectively.\22\
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\22\ Data from CME Open Interest Reports, available at https://www.cmegroup.com/market-data/volume-open-interest.html#openInterestTools.
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The number of large open interest holders \23\ has increased as
well, even in the face of heightened bitcoin price volatility, as
demonstrated in the figure that follows.\24\
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\23\ A large open interest holder in bitcoin futures is an
entity that holds at least 25 contracts, which is the equivalent of
125 bitcoin. At a price of approximately $64,300.87 per bitcoin on
9/24/2024, more than 115 firms had outstanding positions of greater
than $8.04 million in bitcoin futures. Data from The Block,
available at https://www.theblock.co/data/crypto-markets/cme-cots/large-open-interest-holders-of-cme-bitcoin-futures.
\24\ Data from 4/10/2018 to 10/22/24, from The Block.
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[[Page 101660]]
[GRAPHIC] [TIFF OMITTED] TN16DE24.014
The Commodity Futures Trading Commission (``CFTC'') regulates the
CME bitcoin futures market, and both the Exchange and CME are members
of the Intermarket Surveillance Group (``ISG'').\25\
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\25\ For a list of the current members and affiliate members of
ISG, see https://www.isgportal.com/.
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Background on Ethereum
Ethereum is free software that is hosted on computers distributed
throughout the globe. Ethereum employs an array of computer code-based
logic, called a protocol, to create a unified understanding of
ownership, commercial activity, and economic logic. This allows users
to engage in commerce without the need to trust any of its participants
or counterparties. Ethereum code creates verifiable and unambiguous
rules that assign clear, strong property rights to create a platform
for unrestrained business formation and free exchange. No single
intermediary or entity operates or controls the Ethereum network, the
transaction validation and recordkeeping infrastructure of which is
collectively maintained by a disparate user base. The Ethereum network
allows people to exchange tokens of value, or ether, which are recorded
on a distributed, public recordkeeping system or ledger known as a
blockchain, and which can be used to pay for goods and services,
including computational power on the Ethereum network, or converted to
fiat currencies, such as the U.S. dollar, at rates determined on spot
trading platforms or in individual peer-to-peer transactions. By
combining the recordkeeping system of the Ethereum blockchain with a
flexible scripting language that can be used to implement a wide
variety of instructions, the Ethereum network is intended to act as a
public computational layer on top of which users can build their own
public software programs, as an alternative to centralized web
services. On the Ethereum network, ether is the unit of account that
users pay for the computational resources consumed by running programs
of their choice.
CME Ether Futures Market
CME began offering trading in ether futures on February 8,
2021.\26\ Each contract represents fifty ether and is based on the ERR.
The contracts trade and settle like other cash settled commodity
futures contracts.
---------------------------------------------------------------------------
\26\ See ``CME Group Announces Launch of Ether Futures,''
February 8, 2021, available at https://www.cmegroup.com/media-room/press-releases/2021/2/08/cme_group_announceslaunchofetherfutures.html.
---------------------------------------------------------------------------
Most measurable metrics related to CME ether futures have trended
up since launch. For example, there were 95,261 CME ether futures
contracts traded in September 2024 (approximately $12.4 billion)
compared to 78,571 contracts ($6.6 billion), 163,114 contracts ($10.9
billion), and 130,546 contracts ($19.5 billion) traded in September
2023, September 2022, and September 2021, respectively. In the first
month of trading, there were 11,637 billion contracts ($0.8 billion)
traded.\27\
---------------------------------------------------------------------------
\27\ Data from CME Volume and Average Daily Volume Reports,
available at https://www.cmegroup.com/market-data/volume-open-interest.html volumeTotals.
---------------------------------------------------------------------------
Open interest was 6,746 CME ether futures contracts in September
2024 (approximately $875.1 million) compared to 4,577 contracts ($384.3
million), 5,035 contracts ($336.8 million), and 4,388 contracts ($656.8
million) in September 2023, September 2022, and September 2021,
respectively.\28\
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\28\ Data from CME Open Interest Reports, available at https://www.cmegroup.com/market-data/volume-openinterest.html#openInterestTools.
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The number of large open interest holders \29\ has increased as
well, as demonstrated in the figure that follows.\30\
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\29\ A large open interest holder in ether futures is an entity
that holds at least 25 contracts, which is the equivalent of 1250
ether. Data from The Block, available at https://www.theblock.co/data/crypto-markets/cme-cots/large-open-interest-holders-of-cme-ether-futures.
\30\ Data from 4/10/2018 to 10/22/2024, from The Block.
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[[Page 101661]]
[GRAPHIC] [TIFF OMITTED] TN16DE24.015
The CFTC regulates the CME ether futures market, and both the
Exchange and CME are members of the ISG.
Applicable Standard
The Commission has historically approved or disapproved exchange
filings to list and trade series of Trust Issued Receipts, including
spot, 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\ However, the Commission recently approved the
listing and trading of shares of spot bitcoin exchange-traded products
(``Spot Bitcoin ETPs'') and spot ether exchange-traded products (``Spot
Ether ETPs''), finding that there were sufficient ``other means'' of
preventing fraud and manipulation sufficient to satisfy the
requirements of Section 6(b)(5) of the Exchange Act.\32\ In each of the
Spot Bitcoin ETP Approval Order and Spot Ether Approval Order, the
Commission concluded, through a robust correlation analysis, that fraud
or manipulation that impacts prices in spot bitcoin markets or spot
ether markets would likely similarly impact CME bitcoin futures prices
and CME ether futures prices, respectively.\33\ The Commission further
found that, because the CME's surveillance can assist in detecting
those impacts on CME bitcoin futures prices and CME ether futures
prices, a listing exchange's comprehensive surveillance sharing
agreement (``CSSA'') with the CME can be reasonably expected to assist
in surveilling for fraudulent and manipulative acts and practices in
the context of the Spot Bitcoin ETPs and Spot Ether ETPs.\34\
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\31\ See Securities Exchange Act Release No. 83723 (July 26,
2018), 83 FR 37579 (August 1, 2018) (SR-BatsBZX-2016-30) (Order
Setting Aside Action by Delegated Authority and Disapproving a
Proposed Rule Change, as Modified by Amendments No. 1 and 2, to List
and Trade Shares of the Winklevoss Bitcoin Trust) (``Winklevoss
Order''). In the Winklevoss Order, the Commission set forth both the
importance and definition of a surveilled, regulated market of
significant size, explaining that, for approved commodity-trust
ETPs, ``there has been in every case at least one significant,
regulated market for trading futures on the underlying commodity-
whether gold, silver, platinum, palladium, or copper--and the ETP
listing exchange has entered into surveillance-sharing agreements
with, or held Intermarket Surveillance Group membership in common
with, that market.'' Winklevoss Order, 83 FR at 37594.
\32\ See Securities Exchange Act Release No. 34-99306 (January
10, 2024), 89 FR 3008 (January 17, 2024) (SR-NYSEARCA-2021-90; SR-
NYSEARCA-2023-44; SRNYSEARCA-2023-58; SR-NASDAQ-2023-016; SR-NASDAQ-
2023-019; SR-CboeBZX-2023028; SR-CboeBZX-2023-038; SR-CboeBZX-2023-
040; SR-CboeBZX-2023-042; SRCboeBZX-2023-044; SR-CboeBZX-2023-072)
(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''); Securities Exchange Act Release No. 100224
(May 23, 2024), 89 FR 46937 (May 30, 2024) (SR-NYSEARCA-2023-70; SR-
NYSEARCA-2024-31; SR-NASDAQ-2023-045; SR-CboeBZX-2023-069; SR-
CboeBZX-2023-070; SR-CboeBZX-2023-087; SR-CboeBZX-2023-095; SR-
CboeBZX-2024-018) (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'').
\33\ See Spot Bitcoin ETP Approval Order, 89 FR at 3010; Spot
Ether ETP Approval Order, 89 FR at 46938.
\34\ See Spot Bitcoin ETP Approval Order, 89 FR at 3010; Spot
Ether ETP Approval Order, 89 FR at 46938-39.
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The Trust is structured and will operate in a manner materially the
same as the Spot Bitcoin ETPs and Spot Ether ETPs.\35\ The Sponsor
believes that the Exchange's ability to obtain information regarding
trading in bitcoin futures and ether futures from the CME, which, like
the Exchange, is a member of the ISG, would assist the Exchange in
detecting potential fraud or manipulation with respect to trading in
the Shares. The Sponsor thus believes that, for reasons similar to
those set forth in the Spot Bitcoin ETP Approval Order and Spot Ether
ETP Approval Order, listing and trading Shares of the Fund would be
consistent with the requirements of the Act.
---------------------------------------------------------------------------
\35\ The Sponsor is also the sponsor of the Bitwise Bitcoin ETF
and the Bitwise Ethereum ETF, which were approved pursuant to the
Spot Bitcoin ETP Approval Order and Spot Ether ETP Approval,
respectively, and which are both currently listed and traded on NYSE
Arca.
---------------------------------------------------------------------------
Availability of Information
The NAV per Share will be calculated and disseminated daily to all
market participants at the same time. Quotation and last-sale
information regarding the Shares will be disseminated through the
facilities of the CTA. The ITV will be calculated every 15 seconds
throughout the Core Trading Session each trading day.
[[Page 101662]]
The Sponsor will cause information about the Shares to be posted to
the Trust's website (https://www.bitwiseinvestments.com/): (1) the NAV
and NAV per Share for each Exchange trading day, posted at end of day;
(2) the daily holdings of the Trust, before 9:30 a.m. E.T. on each
Exchange trading day; (3) the Trust's effective prospectus, in a form
available for download; and (4) the Shares' ticker and CUSIP
information, along with additional quantitative information updated on
a daily basis for the Trust. For example, the Trust's website will
include (1) the prior Business Day's trading volume, the prior Business
Day's reported NAV and closing price, and a calculation of the premium
and discount of the closing price or mid-point of the bid/ask spread at
the time of NAV calculation (``Bid/Ask Price'') against the NAV; and
(2) data in chart format displaying the frequency distribution of
discounts and premiums of the daily closing price or Bid/Ask Price
against the NAV, within appropriate ranges, for at least each of the
four previous calendar quarters. The Trust's website will be publicly
available prior to the public offering of Shares and accessible at no
charge.
Investors may obtain on a 24-hour basis ether pricing information
based on the Pricing Benchmarks, BRR, ERR, CME Bitcoin Real Time Price,
CME Ether Real Time Price, spot bitcoin market prices, bitcoin futures
prices, spot ether market prices, and ether futures prices from various
financial information service providers. Current bitcoin spot market
prices and ether spot market prices are also available with bid/ask
spreads from bitcoin and ether trading platforms, including the
Constituent Platforms of the Pricing Benchmarks.
Information regarding market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services.
Information regarding the previous day's closing price and trading
volume information for the Shares will be published daily in the
financial section of newspapers.
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 of the Trust.\36\ Trading in Shares of the Trust
will be halted if the circuit breaker parameters in NYSE Arca Rule
7.12-E have been reached. Trading also may be halted because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable.
---------------------------------------------------------------------------
\36\ See NYSE Arca Rule 7.12-E.
---------------------------------------------------------------------------
The Exchange may halt trading during the day in which an
interruption to the dissemination of the ITV, CME Bitcoin Real Time
Price, CME Ether Real Time Price, or Pricing Benchmarks (if the
Exchange becomes aware that the Pricing Benchmarks are not being
published) occurs.\37\ If the interruption to the dissemination of the
ITV, CME Bitcoin Real Time Price, CME Ether Real Time Price, or Pricing
Benchmarks persists past the trading day in which it occurred, the
Exchange will halt trading no later than the beginning of the Core
Trading Session 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.
---------------------------------------------------------------------------
\37\ A limit up/limit down condition in the futures market would
not be considered an interruption requiring the Trust to be halted.
---------------------------------------------------------------------------
Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4:00 a.m. to 8:00 p.m. E.T. in
accordance with NYSE Arca Rule 7.34-E (Early, Core, and Late Trading
Sessions). The Exchange has appropriate rules to facilitate
transactions in the Shares during all trading sessions. As provided in
NYSE Arca Rule 7.6-E, the minimum price variation (``MPV'') for quoting
and entry of orders in equity securities traded on the NYSE Arca
Marketplace is $0.01, with the exception of securities that are priced
less than $1.00 for which the MPV for order entry is $0.0001.
The Shares will conform to the initial and continued listing
criteria under NYSE Arca Rule 8.201-E. The trading of the Shares will
be subject to NYSE Arca Rule 8.201-E(g), which sets forth certain
restrictions on Equity Trading Permit (``ETP'') Holders acting as
registered Market Makers in Commodity-Based Trust Shares to facilitate
surveillance.\38\ The Exchange represents that, for initial and
continued listing, the Trust will be in compliance with Rule 10A-3
under the Act,\39\ as provided by NYSE Arca Rule 5.3-E. A minimum of
100,000 Shares of the Trust will be outstanding at the commencement of
trading on the Exchange.
---------------------------------------------------------------------------
\38\ Under NYSE Arca Rule 8.201-E(g), an ETP Holder acting as a
registered Market Maker in the Shares is required to provide the
Exchange with information relating to its accounts for trading in
the underlying commodity, related futures or options on futures, or
any other related derivatives. Commentary .04 of NYSE Arca Rule
11.3-E requires an ETP Holder acting as a registered Market Maker,
and its affiliates, in the Shares to establish, maintain and enforce
written policies and procedures reasonably designed to prevent the
misuse of any material nonpublic information with respect to such
products, any components of the related products, any physical asset
or commodity underlying the product, applicable currencies,
underlying indexes, related futures or options on futures, and any
related derivative instruments (including the Shares). As a general
matter, the Exchange has regulatory jurisdiction over its ETP
Holders and their associated persons, which include any person or
entity controlling an ETP Holder. To the extent the Exchange may be
found to lack jurisdiction over a subsidiary or affiliate of an ETP
Holder 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.
\39\ 17 CFR 240.10A-3. See note 8, supra.
---------------------------------------------------------------------------
Surveillance
The Exchange represents that trading in the Shares of the Trust
will be subject to the existing trading surveillances administered by
the Exchange, as well as cross-market surveillances administered by
FINRA on behalf of the Exchange, which are designed to detect
violations of Exchange rules and applicable federal securities
laws.\40\ The Exchange represents that these procedures are adequate to
properly monitor Exchange trading of the Shares in all trading sessions
and to deter and detect violations of Exchange rules and federal
securities laws applicable to trading on the Exchange.
---------------------------------------------------------------------------
\40\ FINRA conducts 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 surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares with other
markets and other entities that are members of the ISG, and the
Exchange or FINRA, on behalf of the Exchange, or both, may obtain
trading information regarding trading in the Shares, bitcoin
derivatives, and ether derivatives from
[[Page 101663]]
such markets and other entities. In addition, the Exchange may obtain
information regarding trading in the Shares, bitcoin derivatives, and
ether derivatives from markets and other entities or with which the
Exchange has in place a CSSA. The Exchange is also able to obtain
information regarding trading in the Shares and any underlying bitcoin,
bitcoin derivatives, ether, or ether derivatives in connection with ETP
Holders' proprietary trades or customer trades effected through ETP
Holders on any relevant market. Under NYSE Arca Rule 8.201-E(g), an ETP
Holder acting as a registered Market Maker in the Shares is required to
provide the Exchange with information relating to its accounts for
trading in any underlying commodity, related futures or options on
futures, or any other related derivatives. Commentary .04 of NYSE Arca
Rule 11.3-E requires an ETP Holder acting as a registered Market Maker,
and its affiliates, in the Shares to establish, maintain and enforce
written policies and procedures reasonably designed to prevent the
misuse of any material nonpublic information with respect to such
products, any components of the related products, any physical asset or
commodity underlying the product, applicable currencies, underlying
indexes, related futures or options on futures, and any related
derivative instruments (including the Shares). As a general matter, the
Exchange has regulatory jurisdiction over its ETP Holders and their
associated persons, which include any person or entity controlling an
ETP Holder. To the extent the Exchange may be found to lack
jurisdiction over a subsidiary or affiliate of an ETP Holder that does
business only in commodities or futures contracts and that subsidiary
or affiliate is a member of another regulatory organization, the
Exchange could obtain information regarding the activities of such
subsidiary or affiliate through surveillance sharing agreements with
regulatory organizations to the extent the Exchange has such an
agreement with an organization of which the subsidiary or affiliate is
a member.
In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
All statements and representations made in this filing regarding
(a) the description of the index, portfolio, or reference asset of the
Trust, (b) limitations on index or portfolio holdings or reference
assets, or (c) the applicability of Exchange listing rules specified in
this rule filing shall constitute continued listing requirements for
listing the Shares on the Exchange.
The Sponsor has represented to the Exchange that it will advise the
Exchange of any failure by the Trust to comply with the continued
listing requirements, and, pursuant to its obligations under Section
19(g)(1) of the Act, the Exchange will monitor for compliance with the
continued listing requirements. If the Trust is not in compliance with
the applicable listing requirements, the Exchange will commence
delisting procedures under NYSE Arca Rule 5.5-E(m).
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its
ETP Holders in an ``Information Bulletin'' of the special
characteristics and risks associated with trading the Shares.
Specifically, the Information Bulletin will discuss the following: (1)
the procedures for creations of Shares in Creation Units; (2) NYSE Arca
Rule 9.2-E(a), which imposes a duty of due diligence on its ETP Holders
to learn the essential facts relating to every customer prior to
trading the Shares; (3) information regarding how the value of the ITV
and NAV is disseminated; (4) the possibility that trading spreads and
the resulting premium or discount on the Shares may widen during the
Opening and Late Trading Sessions, when an updated ITV will not be
calculated or publicly disseminated; (5) the requirement that members
deliver a prospectus to investors purchasing newly issued Shares prior
to or concurrently with the confirmation of a transaction and (6)
trading information.
In addition, the Information Bulletin will reference that the Trust
is subject to various fees and expenses as described in the annual
report. The Information Bulletin will disclose that information about
the Shares of the Trust is publicly available on the Trust's website.
The Information Bulletin will also discuss any relief, if granted,
by the Commission or the staff from any rules under the Act.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \41\ that an exchange have rules that
are designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
---------------------------------------------------------------------------
\41\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices and to protect
investors and the public interest in that the Shares will be listed and
traded on the Exchange pursuant to the initial and continued listing
criteria in NYSE Arca Rule 8.201-E. The Exchange has in place
surveillance procedures that are adequate to properly monitor Exchange
trading in the Shares in all trading sessions and to deter and detect
attempted manipulation of the Shares or other violations of Exchange
rules and applicable federal securities laws. The Exchange or FINRA, on
behalf of the Exchange, or both, will communicate as needed regarding
trading in the Shares, bitcoin derivatives, and ether derivatives with
other markets 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, bitcoin derivatives, and ether
derivatives from such markets. In addition, the Exchange may obtain
information regarding trading in the Shares, bitcoin derivatives, and
ether derivatives from markets that are members of ISG or with which
the Exchange has in place a CSSA. The Exchange is also able to obtain
information regarding trading in the Shares and any underlying bitcoin,
bitcoin derivatives, ether, or ether derivatives through ETP Holders,
in connection with such ETP Holders' proprietary trades or customer
trades effected through ETP Holders on any relevant market.
The proposed rule change is also designed to prevent fraudulent and
manipulative acts and practices because the Trust is structured
similarly to and will operate in materially the same manner as the Spot
Bitcoin ETPs and Spot Ether ETPs previously approved by the Commission.
The Exchange further believes that the proposed rule change is designed
to prevent fraudulent and manipulative acts and practices because, as
noted by the Commission in the Bitcoin ETP Approval Order and Ether ETP
Approval Order, the Exchange's ability to obtain information regarding
trading in the Shares and futures from other markets that are members
of the ISG (including the CME) would assist the Exchange in detecting
and deterring misconduct. In particular, the CME bitcoin futures market
and CME ether futures market are large, surveilled, and regulated
markets that are closely connected with the spot markets for bitcoin
and ether, respectively, through which the
[[Page 101664]]
Exchange could obtain information to assist in detecting and deterring
potential fraud or manipulation.
Quotation and last-sale information regarding the Shares will be
disseminated through the facilities of the CTA. The Trust's website
will also include a form of the prospectus for the Trust that may be
downloaded. The website will include the Shares' ticker and CUSIP
information, along with additional quantitative information updated on
a daily basis for the Trust. The Trust's website will include (1) daily
trading volume, the prior Business Day's reported NAV and closing
price, and a calculation of the premium and discount of the closing
price or mid-point of the Bid/Ask Price against the NAV; and (ii) data
in chart format displaying the frequency distribution of discounts and
premiums of the daily closing price or Bid/Ask Price against the NAV,
within appropriate ranges, for at least each of the four previous
calendar quarters. The Trust's website will be publicly available prior
to the public offering of Shares and accessible at no charge.
Trading in Shares of the Trust will be halted if the circuit
breaker parameters in NYSE Arca Rule 7.12-E have been reached or
because of market conditions or for reasons that, in the view of the
Exchange, make trading in the Shares inadvisable.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of a
new type of exchange-traded product based on the price of bitcoin and
ether that will enhance competition among market participants, to the
benefit of investors and the marketplace. As noted above, the Exchange
has in place surveillance procedures that are adequate to properly
monitor trading in the Shares in all trading sessions and to deter and
detect violations of Exchange rules and applicable federal securities
laws.
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 will facilitate the listing and trading of a new
type of Commodity-Based Trust Share based on the price of bitcoin and
ether that would enhance competition among market participants, to the
benefit of investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to 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 self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove the 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-NYSEARCA-2024-104 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-NYSEARCA-2024-104. 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-NYSEARCA-2024-104 and should
be submitted on or before January 6, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\42\
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\42\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-29469 Filed 12-13-24; 8:45 am]
BILLING CODE 8011-01-P
