Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To List and Trade Shares of the Canary XRP Trust Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares, 10647-10656 [2025-03029]
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Federal Register / Vol. 90, No. 36 / Tuesday, February 25, 2025 / Notices
to receive rewards in the form of more
ether tokens. The net beneficiaries are
not only validators, or those on behalf
of whom they stake ether, but also the
Ethereum blockchain itself which grows
and is progressively made more secure
through the validation of transactions.
Staking permits validators to contribute
to the network by staking their token to
secure the blockchain, facilitating the
creation of blocks, and helping process
transactions. Validators are
compensated for fulfilling this
important role through transaction fees
and consensus rewards paid by the
blockchain itself.
Staking through mechanisms such as
‘‘point-and-click’’ staking can also
permit the earning of rewards without
certain additional risks to the tokens
held by the Custodian on behalf of the
Trust. As such, not staking the Trust’s
ether would amount to waiving the
Trust’s right to free additional ether, an
act analogous to an equity ETP refusing
dividends from the companies it holds.
Allowing the Trust to stake its ether
would benefit investors and help the
Trust to better track the returns
associated with holding ether. This
would improve the creation and
redemption process for both authorized
participants and the Trust, increase
efficiency, and ultimately benefit the
end investors in the Trusts.
Except for the addition of staking of
the Trust’s ether, all other
representations made in Eth ETP
Amendment No. 2, as amended, remain
unchanged and will continue to
constitute continuing listing
requirements for the Trust.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
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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. As noted
above, the proposed amendment is
intended to benefit investors and allow
the Trust to better track the returns
associated with holding ether. The
Exchange believes these changes will
not impose any burden on competition.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
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III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the Exchange consents, the Commission
will:
A. by order approve or disapprove
such proposed rule change, or
B. institute proceedings to determine
whether the proposed rule change
should be disapproved.
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
CboeBZX–2025–025 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to file
number SR–CboeBZX–2025–025. 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
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copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–CboeBZX–2025–025 and should be
submitted on or before March 18, 2025.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.8
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025–03030 Filed 2–24–25; 8:45 am]
IV. Solicitation of Comments
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BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–102449; File No. SR–
CboeBZX–2025–022]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing of
a Proposed Rule Change To List and
Trade Shares of the Canary XRP Trust
Under BZX Rule 14.11(e)(4),
Commodity-Based Trust Shares
February 19, 2025.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on February
6, 2025, Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) 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 Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe BZX Exchange, Inc. (‘‘BZX’’ or
the ‘‘Exchange’’) is filing with the
Securities and Exchange Commission
(‘‘Commission’’ or ‘‘SEC’’) a proposed
rule change to list and trade shares of
the Canary XRP Trust (the ‘‘Trust’’),3
under BZX Rule 14.11(e)(4),
Commodity-Based Trust Shares. The
text of the proposed rule change is also
8 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 The Trust was formed as a Delaware statutory
trust on June 3, 2024, and is operated as a grantor
trust for U.S. federal tax purposes. The Trust has
no fixed termination date.
1 15
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available on the Exchange’s website
(https://markets.cboe.com/us/equities/
regulation/rule_filings/bzx/), at the
Exchange’s Office of the Secretary, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
The Exchange proposes to list and
trade the Shares under BZX Rule
14.11(e)(4),4 which governs the listing
and trading of Commodity-Based Trust
Shares on the Exchange.5 Canary Capital
Group LLC is the sponsor of the Trust
(the ‘‘Sponsor’’). The Shares will be
registered with the Commission by
means of the Trust’s registration
statement on Form S–1 (the
‘‘Registration Statement’’).6 According
to the Registration Statement, the Trust
is neither an investment company
registered under the Investment
Company Act of 1940, as amended,7 nor
a commodity pool for purposes of the
Commodity Exchange Act (‘‘CEA’’), and
neither the Trust nor the Sponsor is
4 The Commission approved BZX Rule 14.11(e)(4)
in Securities Exchange Act Release No. 65225
(August 30, 2011), 76 FR 55148 (September 6, 2011)
(SR–BATS–2011–018).
5 Any of the statements or representations
regarding the index composition, the description of
the portfolio or reference assets, limitations on
portfolio holdings or reference assets, dissemination
and availability of index, reference asset, and
intraday indicative values, or the applicability of
Exchange listing rules specified in this filing to list
a series of Other Securities (collectively,
‘‘Continued Listing Representations’’) shall
constitute continued listing requirements for the
Shares listed on the Exchange.
6 See the Registration Statement on Form S–1,
dated October 8, 2024, submitted by the Sponsor on
behalf of the Trust. The descriptions of the Trust,
the Shares, and the Pricing Benchmark (as defined
below) contained herein are based, in part, on
information in the Registration Statement. The
Registration Statement is not yet effective, and the
Shares will not trade on the Exchange until such
time that the Registration Statement is effective.
7 15 U.S.C. 80a–1.
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subject to regulation as a commodity
pool operator or a commodity trading
adviser in connection with the Shares.
Since 2017, the Commission has
approved or disapproved exchange
filings to list and trade series of Trust
Issued Receipts, including spot-based
Commodity-Based Trust Shares, on the
basis of whether the listing exchange
has in place a comprehensive
surveillance sharing agreement with a
regulated market of significant size
related to the underlying commodity to
be held (the ‘‘Winklevoss Test’’).8 The
Commission has also consistently
recognized that this not the exclusive
means by which an ETP listing
exchange can meet this statutory
obligation.9 A listing exchange could,
alternatively, demonstrate that ‘‘other
means to prevent fraudulent and
manipulative acts and practices will be
sufficient’’ to justify dispensing with a
surveillance-sharing agreement with a
regulated market of significant size.10
8 See Securities Exchange Act Release Nos. 78262
(July 8, 2016), 81 FR 78262 (July 14. 2016) (the
‘‘Winklevoss Proposal’’). The Winklevoss Proposal
was the first exchange rule filing proposing to list
and trade shares of an ETP that would hold spot
bitcoin (a ‘‘Spot Bitcoin ETP’’). It was subsequently
disapproved by the Commission. See Securities
Exchange Act Release No. 83723 (July 26, 2018), 83
FR 37579 (August 1, 2018) (the ‘‘Winklevoss
Order’’); 99306 (January 10, 2024), 89 FR 3008
(January 17, 2024) (Self-Regulatory Organizations;
NYSE Arca, Inc.; The Nasdaq Stock Market LLC;
Cboe BZX Exchange, Inc.; Order Granting
Accelerated Approval of Proposed Rule Changes, as
Modified by Amendments Thereto, To List and
Trade Bitcoin-Based Commodity-Based Trust
Shares and Trust Units) (the ‘‘Spot Bitcoin ETP
Approval Order’’); 100224 (May 23, 2024), 89 FR
46937 (May 30, 2024) (Self-Regulatory
Organizations; NYSE Arca, Inc.; The Nasdaq Stock
Market LLC; Cboe BZX Exchange, Inc.; Order
Granting Accelerated Approval of Proposed Rule
Changes, as Modified by Amendments Thereto, To
List and Trade Shares of Ether-Based ExchangeTraded Products) (the ‘‘Spot ETH ETP Approval
Order’’).
9 See Winklevoss Order, 83 FR at 37580; see Spot
Bitcoin ETP Approval Order, 89 FR at 3009; see
Spot ETH ETP Approval Order 89 FR at 46938.
10 The Exchange notes that that the Winklevoss
Test was first applied in 2017 in the Winklevoss
Order, which was the first disapproval order related
to an exchange proposal to list and trade a Spot
Bitcoin ETP. All prior approval orders issued by the
Commission approving the listing and trading of
series of Trust Issued Receipts included no specific
analysis related to a ‘‘regulated market of significant
size.’’ In the Winklevoss Order and the
Commission’s prior orders approving the listing and
trading of series of Trust Issued Receipts have noted
that the spot commodities and currency markets for
which it has previously approved spot ETPs are
generally unregulated and that the Commission
relied on the underlying futures market as the
regulated market of significant size that formed the
basis for approving the series of Currency and
Commodity-Based Trust Shares, including gold,
silver, platinum, palladium, copper, and other
commodities and currencies. The Commission
specifically noted in the Winklevoss Order that the
approval order issued related to the first spot gold
ETP ‘‘was based on an assumption that the currency
market and the spot gold market were largely
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The Commission recently issued
orders granting approval for proposals
to list bitcoin- and ether-based
commodity trust shares and bitcoinbased, ether-based, and a combination
of bitcoin- and ether-based trust issued
receipts (these proposed funds are
nearly identical to the Trust, but
proposed to hold bitcoin and/or ether,
respectively, instead of XRP) (‘‘Spot
Bitcoin ETPs’’ and ‘‘Spot ETH ETPs’’).
In both the Spot Bitcoin ETP Approval
Order and Spot ETH ETP Approval
Order, the Commission found that
sufficient ‘‘other means’’ of preventing
fraud and manipulation had been
demonstrated that justified dispensing
with a surveillance-sharing agreement of
significant size. Specifically, the
Commission found that while the
Chicago Mercantile Exchange (‘‘CME’’)
futures market for both bitcoin and ether
were not of ‘‘significant size’’ related to
the spot market, the Exchange
demonstrated that other means could be
reasonably expected to assist in
surveilling for fraudulent and
manipulative acts and practices in the
specific context of the proposals.
As further discussed below, both the
Exchange and the Sponsor believe that
this proposal and the included analysis
are sufficient to establish that the
proposal is consistent with the Act itself
and, additionally, that there are
sufficient ‘‘other means’’ of preventing
fraud and manipulation that warrant
dispensing of the surveillance-sharing
agreement with a regulated market of
significant size, as was done with both
Spot Bitcoin ETPs and Spot ETH ETPs,
and that this proposal should be
approved.
Background
XRP is a digital asset that is created
and transmitted through the operations
of the XRP Ledger, a decentralized
ledger upon which XRP transactions are
processed and settled. XRP can be used
to pay for goods and services, or it can
be converted to fiat currencies, such as
the U.S. dollar. The XRP Ledger is based
on a shared public ledger similar to the
Bitcoin network. However, the XRP
Ledger differentiates itself from other
unregulated.’’ See Winklevoss Order at 37592. As
such, the regulated market of significant size test
does not require that the spot market be regulated
in order for the Commission to approve this
proposal, and precedent makes clear that an
underlying market for a spot commodity or
currency being a regulated market would actually
be an exception to the norm. These largely
unregulated currency and commodity markets do
not provide the same protections as the markets that
are subject to the Commission’s oversight, but the
Commission has consistently looked to surveillance
sharing agreements with the underlying futures
market in order to determine whether such
products were consistent with the Act.
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digital asset networks in that its stated
primary function is transactional utility,
not store of value. The XRP Ledger is
designed to be a global real-time
payment and settlement system. As a
result, the XRP Ledger and XRP aim to
improve the speed at which parties on
the network may transfer value while
also reducing the fees and delays
associated with the traditional methods
of interbank payments.
Unlike a centralized system, no single
entity controls the XRP Ledger. Instead,
a network of independent nodes
validates transactions pursuant to a
consensus-based algorithm. It is this
mechanism, as opposed to the proof-ofwork mechanism utilized by the Bitcoin
blockchain, that allows the XRP Ledger
to be fast, energy-efficient and scalable,
and therefore suitable for its most
prominent use case, the facilitation of
cross-border financial transactions.
Unlike proof-of-work systems, which
require massive computational power to
secure the network, the consensus-based
algorithm utilized by the XRP Ledger is
extremely lightweight in terms of energy
usage, as it relies on trusted validators
rather than mining. The XRP Ledger can
handle up to 1,500 transactions per
second, far more than the Bitcoin or
Ethereum blockchain. This makes the
XRP Ledger suitable for high-volume
use cases, such as cross-border
payments. Lastly, because validators do
not need to spend resources on mining,
transaction fees are extremely low
(typically a fraction of a cent per
transaction).
Transactions are validated on the XRP
Ledger by a network of independent
validator nodes. These nodes do not
mine new blocks but participate in a
consensus process to ensure that
transactions are valid and correctly
ordered on the ledger. Any node can be
a validator, but for practical purposes,
the XRP Ledger depends on a list of
trusted validators known as the Unique
Node List or ‘‘UNL.’’ Validators are
entities (which can be individuals,
institutions or other organizations) that
run nodes to participate in the
consensus process. These validators
ensure the integrity and accuracy of the
ledger. Each node in the network
maintains a Unique Node List—a list of
other validators that the node trusts to
reliably validate transactions. The XRP
Ledger’s decentralized architecture
means that different nodes may
maintain different UNLs, but there
needs to be some overlap in the UNLs
for consensus to work effectively.
Unlike other digital assets such as
bitcoin or ether, XRP was not and is not
mined gradually over time. Instead, all
100 billion XRP tokens were created at
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the time of the XRP Ledger’s launch in
2012. This means that every XRP token
that exists today was generated from the
outset, without the need for a mining
process. Of the 100 billion XRP
generated by the XRP Ledger’s code, the
founders of Ripple Labs retained 20
billion XRP and the rest, nearly 80
billion XRP, was provided to Ripple
Labs Inc. (‘‘Ripple Labs’’).
As noted above, this proposal is to list
and trade shares of the Trust that would
hold spot XRP. Neither the Trust nor the
Sponsor are affiliates of Ripple Labs or
any of its affiliates.
In light of these factors and consistent
with applicable legal precedent,
particularly as applied in SEC v. Ripple
Labs, the Sponsor believes that it is
applying the proper legal standards in
making a good faith determination that
it believes that XRP is not under these
circumstances a security under federal
law in light of the uncertainties inherent
in applying the Howey and Reves
tests.11
Section 6(b)(5) and the Applicable
Standards
The Commission has approved
numerous series of Trust Issued
Receipts,12 including Commodity-Based
Trust Shares,13 to be listed on U.S.
national securities exchanges. In order
for any proposed rule change from an
exchange to be approved, the
Commission must determine that,
among other things, the proposal is
consistent with the requirements of
Section 6(b)(5) of the Act, specifically
11 See SEC v. Ripple Labs, 2023 WL 4507900 at
15, (S.D.N.Y. July 13, 2023) (‘‘(XRP, as a digital
token, is not in and of itself a ‘contract,
transaction[,] or scheme’ that embodies the Howey
requirements of an investment contract.)’’) and 23
‘‘Ripple’s Programmatic Sales were blind bid/ask
transactions, and Programmatic Buyers could not
have known if their payments of money went to
Ripple, or any other seller of XRP. Since 2017,
Ripple’s Programmatic Sales represented less than
1% of the global XRP trading volume. Therefore,
the vast majority of individuals who purchased XRP
from digital asset exchanges did not invest their
money in Ripple at all. An Institutional Buyer
knowingly purchased XRP directly from Ripple
pursuant to a contract, but the economic reality is
that a Programmatic Buyer stood in the same shoes
as a secondary market purchaser who did not know
to whom or what it was paying its money.’’ The
Court specifically notes that the question of
whether secondary market sales of XRP constitute
offers and sales of investment contracts because it
was not before the Court and therefore was not
addressed. However, the general logic applied
above in the Court’s finding that an investment
contract did not exist seems to similarly indicate
that purchases and sales on the secondary market
where the purchaser ‘‘did not know to whom or
what it was paying its money’’ would also not
constitute an investment contract.
12 See Exchange Rule 14.11(f).
13 Commodity-Based Trust Shares, as described in
Exchange Rule 14.11(e)(4), are a type of Trust
Issued Receipt.
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10649
including: (i) the requirement that a
national securities exchange’s rules are
designed to prevent fraudulent and
manipulative acts and practices; 14 and
(ii) the requirement that an exchange
proposal be designed, in general, to
protect investors and the public interest.
The Exchange believes that this
proposal is consistent with the
requirements of Section 6(b)(5) of the
Act and that this filing sufficiently
demonstrates that potential policy
concerns under the Act are sufficiently
mitigated to the point that they are
outweighed by quantifiable investor
protection issues that would be resolved
by approving this proposal.
More recently, the Commission has
applied the Winklevoss Test while also
recognizing that the ‘‘regulated market
of significant size’’ standard is not the
only means for satisfying Section 6(b)(5)
of the Act. In the specifically providing
that a listing exchange could
demonstrate that ‘‘other means to
prevent fraudulent and manipulative
acts and practices’’ are sufficient to
justify dispensing with the requisite
surveillance-sharing agreement.15 While
14 Much like bitcoin and ETH, the Exchange
believes that XRP is resistant to price manipulation
and that ‘‘other means to prevent fraudulent and
manipulative acts and practices’’ exist to justify
dispensing with the requisite surveillance sharing
agreement. The geographically diverse and
continuous nature of XRP trading render it difficult
and prohibitively costly to manipulate the price of
XRP. The fragmentation across platforms and the
capital necessary to maintain a significant presence
on each trading platform make manipulation of XRP
prices through continuous trading activity
challenging. To the extent that there are trading
platforms engaged in or allowing wash trading or
other activity intended to manipulate the price of
XRP on other markets, such pricing does not
normally impact prices on other trading platforms
because participants will generally ignore markets
with quotes that they deem non-executable.
Moreover, the linkage between XRP markets and the
presence of arbitrageurs in those markets means
that the manipulation of the price of XRP on any
single venue would require manipulation of the
global XRP price in order to be effective.
Arbitrageurs must have funds distributed across
multiple trading platforms in order to take
advantage of temporary price dislocations, thereby
making it unlikely that there will be strong
concentration of funds on any particular trading
platforms or OTC platform. Further, the speed and
relatively inexpensive nature of transactions on the
Ripple network allow arbitrageurs to quickly move
capital between trading platforms where price
dislocations may occur. As a result, the potential for
manipulation on a trading platform would require
overcoming the liquidity supply of such
arbitrageurs who are effectively eliminating any
cross-market pricing differences.
15 See Winklevoss Order at 37580. The
Commission has also specifically noted that it ‘‘is
not applying a ‘cannot be manipulated’ standard;
instead, the Commission is examining whether the
proposal meets the requirements of the Exchange
Act and, pursuant to its Rules of Practice, places the
burden on the listing exchange to demonstrate the
validity of its contentions and to establish that the
requirements of the Exchange Act have been met.’’
Id. at 37582.
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there is currently no futures market for
XRP, in the Spot Bitcoin ETF Approval
Order and Spot ETH ETF Approval
Order the Commission determined that
the CME bitcoin futures market and
CME ETH futures market, respectively,
were not of ‘‘significant size’’ related to
the spot market. Instead, the
Commission found that sufficient ‘‘other
means’’ of preventing fraud and
manipulation had been demonstrated
that justified dispensing with a
surveillance-sharing agreement of
significant size. The Exchange and
Sponsor believe that this proposal
provides for other means of preventing
fraud and manipulation justify
dispensing with a surveillance-sharing
agreement of significant size.
Over the past several years, U.S.
investor exposure to XRP, through OTC
XRP Funds and digital asset trading
platforms, has grown into billions of
dollars with a fully diluted market cap
of greater than $300 billion. The
Exchange believes that approving this
proposal (and comparable proposals)
provides the Commission with the
opportunity to allow U.S. investors with
access to XRP in a regulated and
transparent exchange-traded vehicle
that would act to limit risk to U.S.
investors by: (i) reducing premium and
discount volatility; (ii) reducing
management fees through meaningful
competition; and (iii) providing an
alternative to custodying spot XRP.
The policy concerns that the
Exchange Act is designed to address are
also otherwise mitigated by the fact that
the size of the market for the underlying
reference asset ($300+ billion fully
diluted value) and the nature of the XRP
ecosystem reduces its susceptibility to
manipulation. The geographically
diverse and continuous nature of XRP
trading makes it difficult and
prohibitively costly to manipulate the
price of XRP and, in many instances, the
XRP market can be less susceptible to
manipulation than the equity, fixed
income, and commodity futures
markets. There are a number of reasons
this is the case, including that there is
not inside information about revenue,
earnings, corporate activities, or sources
of supply; manipulation of the price on
any single venue would require
manipulation of the global XRP price in
order to be effective; a substantial overthe-counter market provides liquidity
and shock-absorbing capacity; XRP’s 24/
7/365 nature provides constant arbitrage
opportunities across all trading venues;
and it is unlikely that any one actor
could obtain a dominant market share.
Further, XRP is arguably less
susceptible to manipulation than other
commodities that underlie ETPs; there
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may be inside information relating to
the supply of the physical commodity
such as the discovery of new sources of
supply or significant disruptions at
mining facilities that supply the
commodity that simply are inapplicable
as it relates to certain cryptoassets,
including XRP. Further, the Exchange
believes that the fragmentation across
XRP trading platforms and increased
adoption of XRP, as displayed through
increased user engagement and trading
volumes, and the XRP network make
manipulation of XRP prices through
continuous trading activity more
difficult. Moreover, the linkage between
the XRP markets and the presence of
arbitrageurs in those markets means that
the manipulation of the price of XRP
price on any single venue would require
manipulation of the global XRP price in
order to be effective. Arbitrageurs must
have funds distributed across multiple
XRP trading platforms in order to take
advantage of temporary price
dislocations, thereby making it unlikely
that there will be strong concentration
of funds on any particular XRP trading
platform. As a result, the potential for
manipulation on a particular XRP
trading platform would require
overcoming the liquidity supply of such
arbitrageurs who are effectively
eliminating any cross-market pricing
differences. For all of these reasons,
XRP is not particularly susceptible to
manipulation, especially as compared to
other approved ETP reference assets.
Canary XRP ETF
CSC Delaware Trust Company is the
trustee (‘‘Trustee’’). A third party will be
the administrator (‘‘Administrator’’) and
transfer agent (‘‘Transfer Agent’’) and
will be responsible for the custody of
the Trust’s cash and cash equivalents 16
(the ‘‘Cash Custodian’’). A third-party
custodian (the ‘‘Custodian’’) will be
responsible for custody of the Trust’s
XRP.
According to the Registration
Statement, each Share will represent a
fractional undivided beneficial interest
in and ownership of the Trust. The
Trust’s assets will only consist of XRP,
cash, or cash and cash equivalents.
According to the Registration
Statement, the Trust will be neither an
investment company registered under
the Investment Company Act of 1940, as
amended,17 nor a commodity pool for
purposes of the CEA, and neither the
Trust nor the Sponsor is subject to
regulation as a commodity pool operator
16 Cash equivalents are short-term instruments
with maturities of less than 3 months.
17 15 U.S.C. 80a–1.
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or a commodity trading adviser in
connection with the Shares.
The Trust will not acquire and will
disclaim any incidental right (‘‘IR’’), or
IR asset received, for example as a result
of forks or airdrops, and such assets will
not be taken into account for purposes
of determining NAV.
When the Trust sells or redeems its
Shares, it will do so in cash transactions
in blocks of 10,000 Shares (a ‘‘Creation
Basket’’) at the Trust’s net asset value
(‘‘NAV’’). For creations, authorized
participants will deliver cash to the
Trust’s account with the Cash Custodian
in exchange for Shares. Upon receipt of
an approved creation order, the
Sponsor, on behalf of the Trust, will
submit an order to buy the amount of
XRP represented by a Creation Basket.
Based off XRP executions, the Cash
Custodian will request the required cash
from the authorized participant; the
Transfer Agent will only issue Shares
when the authorized participant has
made delivery of the cash. Following
receipt by the Cash Custodian of the
cash from an authorized participant, the
Sponsor, on behalf of the Trust, will
approve an order with one or more
previously onboarded trading partners
to purchase the amount of XRP
represented by the Creation Basket. This
purchase of XRP will normally be
cleared through an affiliate of the
Custodian (although the purchase may
also occur directly with the trading
partner) and the XRP will settle directly
into the Trust’s account at the
Custodian.18 Authorized participants
may then offer Shares to the public at
prices that depend on various factors,
including the supply and demand for
Shares, the value of the Trust’s assets,
and market conditions at the time of a
transaction. Shareholders who buy or
sell Shares during the day from their
broker may do so at a premium or
discount relative to the NAV of the
Shares of the Trust.
Investment Objective
According to the Registration
Statement and as further described
below, the Trust’s investment objective
is to seek to track the performance of
XRP, as measured by the CoinDesk XRP
USD CCIX 30min NY Rate (‘‘Pricing
Benchmark’’), adjusted for the Trust’s
expenses and other liabilities. In seeking
to achieve its investment objective, the
18 For redemptions, the process will occur in the
reverse order. Upon receipt of an approved
redemption order, the Sponsor, on behalf of the
Trust, will submit an order to sell the amount of
XRP represented by a Creation Basket and the cash
proceeds will be remitted to the authorized
participant when the 10,000 Shares are received by
the Transfer Agent.
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Trust will hold XRP and will value its
Shares daily as of 4:00 p.m. ET using the
same methodology used to calculate the
Pricing Benchmark. All of the Trust’s
XRP will be held by the Custodian.
The Pricing Benchmark
As described in the Registration
Statement, The Trust will use the
Pricing Benchmark to calculate the
Trust’s NAV. The Trust will determine
the XRP Pricing Benchmark price and
value its Shares daily based on the value
of XRP as reflected by the Pricing
Benchmark. The Pricing Benchmark
will be calculated daily and aggregates
the notional value of XRP trading across
major XRP spot trading platforms, as
determined by the provider.
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Net Asset Value
NAV means the total assets of the
Trust (which includes all XRP and cash
and cash equivalents) less total
liabilities of the Trust. The
Administrator determines the NAV of
the Trust on each day that the Exchange
is open for regular trading, as promptly
as practical after 4:00 p.m. ET based on
the closing value of the Pricing
Benchmark. The NAV of the Trust is the
aggregate value of the Trust’s assets less
its estimated accrued but unpaid
liabilities (which include accrued
expenses). In determining the NAV, the
Administrator values the XRP held by
the Trust based on the closing value of
the Pricing Benchmark as of 4:00 p.m.
ET. The Administrator also determines
the NAV per Share. The NAV for the
Trust will be calculated by the
Administrator once a day and will be
disseminated daily to all market
participants at the same time.
Availability of Information
In addition to the price transparency
of the Pricing Benchmark, the Trust will
provide information regarding the
Trust’s XRP holdings as well as
additional data regarding the Trust. The
website for the Trust, which will be
publicly accessible at no charge, will
contain the following information: (a)
the current NAV per Share daily and the
prior business day’s NAV per Share and
the reported BZX Official Closing
Price; 19 (b) the BZX Official Closing
Price in relation to the NAV per Share
as of the time the NAV is calculated and
a calculation of the premium or
discount of such price against such
NAV per Share; (c) data in chart form
displaying the frequency distribution of
discounts and premiums of the BZX
19 As defined in Rule 11.23(a)(3), the term ‘‘BZX
Official Closing Price’’ shall mean the price
disseminated to the consolidated tape as the market
center closing trade.
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Official Closing Price against the NAV
per Share, within appropriate ranges for
each of the four previous calendar
quarters (or for the life of the Trust, if
shorter); (d) the prospectus; and (e)
other applicable quantitative
information. The aforementioned
information will be published as of the
close of business and available on the
Sponsor’s website at https://
canary.capital, or any successor thereto.
The NAV for the Trust will be
calculated by the Administrator once a
day and will be disseminated daily to
all market participants at the same time.
Quotation and last-sale information
regarding the Shares will be
disseminated through the facilities of
the Consolidated Tape Association
(‘‘CTA’’). The Trust will also
disseminate its holdings on a daily basis
on its website.
The Intraday Indicative Value (‘‘IIV’’)
will be updated during Regular Trading
Hours to reflect changes in the value of
the Trust’s XRP holdings during the
trading day. The IIV disseminated
during Regular Trading Hours should
not be viewed as an actual real-time
update of the NAV, which will be
calculated only once at the end of each
trading day. The IIV may differ from the
NAV because NAV is calculated, using
the closing value of the Pricing
Benchmark, once a day at 4 p.m. ET,
whereas the IIV draws prices from the
last trade on each constituent platform
in an effort to produce a relevant, realtime price). The Trust will provide an
IIV per Share updated every 15 seconds,
as calculated by the Exchange or a thirdparty financial data provider during the
Exchange’s Regular Trading Hours (9:30
a.m. to 4:00 p.m. E.T.). The IIV will be
widely disseminated on a per Share
basis every 15 seconds during the
Exchange’s Regular Trading Hours
through the facilities of the CTA and
Consolidated Quotation System (CQS)
high speed lines. In addition, the IIV
will be available through on-line
information services, such as Bloomberg
and Reuters.
The price of XRP will be made
available by one or more major market
data vendors, updated at least every 15
seconds during Regular Trading Hours.
As noted above, the Pricing
Benchmark is calculated every 15
seconds and information about the
Pricing Benchmark and Pricing
Benchmark value, including index data
and key elements of how the Pricing
Benchmark is calculated, will be
publicly available at a website
maintained by the provider of the
Pricing Benchmark.
Quotation and last sale information
for XRP is widely disseminated through
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10651
a variety of major market data vendors,
including Bloomberg and Reuters.
Information relating to trading,
including price and volume
information, in XRP is available from
major market data vendors and from the
trading platforms on which XRP are
traded. Depth of book information is
also available from XRP trading
platforms. The normal trading hours for
XRP trading platforms are 24 hours per
day, 365 days per year.
Information regarding market price
and trading volume of the Shares will be
continually available on a real-time
basis throughout the day on brokers’
computer screens and other electronic
services. Information regarding the
previous day’s BZX Official Closing
Price and trading volume information
for the Shares will be published daily in
the financial section of newspapers.
Quotation and last-sale information
regarding the Shares will be
disseminated through the facilities of
the CTA.
The Custodian
The Custodian’s services (i) allow
XRP to be deposited from a public
blockchain address to the Trust’s XRP
account and (ii) allow XRP to be
withdrawn from the XRP account to a
public blockchain address as instructed
by the Trust. The custody agreement
requires the Custodian to hold the
Trust’s XRP in cold storage, unless
required to facilitate withdrawals as a
temporary measure. The Custodian will
use segregated cold storage XRP
addresses for the Trust which are
separate from the XRP addresses that
the Custodian uses for its other
customers and which are directly
verifiable via the XRP blockchain. The
Custodian will safeguard the private
keys to the XRP associated with the
Trust’s XRP account. The Custodian
will at all times record and identify in
its books and records that such XRP
constitutes the property of the Trust.
The Custodian will not withdraw the
Trust’s XRP from the Trust’s account
with the Custodian, or loan,
hypothecate, pledge or otherwise
encumber the Trust’s XRP, without the
Trust’s instruction. If the custody
agreement terminates, the Sponsor may
appoint another custodian, and the
Trust may enter into a custodian
agreement with such custodian.
Creation and Redemption of Shares
When the Trust sells or redeems its
Shares, it will do so in cash transactions
in 10,000 Share increments (a Creation
Basket) that are based on the amount of
XRP held by the Trust on a per Creation
Basket basis. According to the
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Registration Statement, on any business
day, an authorized participant may
place an order to create one or more
Creation Baskets. Purchase orders must
be placed by 4:00 p.m. ET, or the close
of regular trading on the Exchange,
whichever is earlier. The day on which
an order is received is considered the
purchase order date. The total deposit of
cash required is based on the combined
NAV of the number of Shares included
in the Creation Baskets being created
determined as of 4:00 p.m. ET on the
date the order to purchase is properly
received. The Administrator determines
the quantity of XRP associated with a
Creation Basket for a given day by
dividing the number of XRP held by the
Trust as of the opening of business on
that business day, adjusted for the
amount of XRP constituting estimated
accrued but unpaid fees and expenses of
the Trust as of the opening of business
on that business day, by the quotient of
the number of Shares outstanding at the
opening of business divided by the
number of Shares in a Creation Basket.
The 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 XRP 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 XRP as
part of the creation or redemption
process.
The Trust will create Shares by
receiving XRP from a third party that is
not the authorized participant and the
Trust—not the authorized participant—
is responsible for selecting the third
party to facilitate the delivery of XRP.
Further, the third party will not be
acting as an agent of the authorized
participant with respect to the delivery
of the XRP to the Trust or acting at the
direction of the authorized participant
with respect to the delivery of the XRP
to the Trust. When fulfilling a
redemption request, the Trust will
redeem shares by delivering XRP to a
third party that is not the authorized
participant and the Trust—not the
authorized participant—is responsible
for selecting such third party to receive
the XRP. Further, the third party will
not be acting as an agent of the
authorized participant with respect to
the receipt of the XRP from the Trust or
acting at the direction of the authorized
participant with respect to the receipt of
the XRP from the Trust.
The procedures by which an
authorized participant can redeem one
or more Creation Baskets mirror the
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procedures for the creation of Creation
Baskets.
The Sponsor will maintain ownership
and control of XRP in a manner
consistent with good delivery
requirements for spot commodity
transactions.
Rule 14.11(e)(4)—Commodity-Based
Trust Shares
The Shares will be subject to BZX
Rule 14.11(e)(4), which sets forth the
initial and continued listing criteria
applicable to Commodity-Based Trust
Shares. The Exchange represents that,
for initial and continued listing, the
Trust must be in compliance with Rule
10A–3 under the Act. A minimum of
100,000 Shares will be outstanding at
the commencement of listing on the
Exchange. The Exchange will obtain a
representation that the NAV will be
calculated daily and that the NAV and
information about the assets of the Trust
will be made available to all market
participants at the same time. The
Exchange notes that, as defined in Rule
14.11(e)(4)(C)(i), the Shares will be: (a)
issued by a trust that holds (1) a
specified commodity 20 deposited with
the trust, or (2) a specified commodity
and, in addition to such specified
commodity, cash; (b) issued by such
trust in a specified aggregate minimum
number in return for a deposit of a
quantity of the underlying commodity
and/or cash; and (c) when aggregated in
the same specified minimum number,
may be redeemed at a holder’s request
by such trust which will deliver to the
redeeming holder the quantity of the
underlying commodity and/or cash.
Upon termination of the Trust, the
Shares will be removed from listing.
The Trustee, CSC Delaware Trust
Company, is a trust company having
substantial capital and surplus and the
experience and facilities for handling
corporate trust business, as required
under Rule 14.11(e)(4)(E)(iv)(a) and that
no change will be made to the trustee
without prior notice to and approval of
the Exchange. The Exchange also notes
that, pursuant to Rule 14.11(e)(4)(F),
neither the Exchange nor any agent of
the Exchange shall have any liability for
damages, claims, losses or expenses
caused by any errors, omissions or
delays in calculating or disseminating
any underlying commodity value, the
current value of the underlying
commodity required to be deposited to
the Trust in connection with issuance of
Commodity-Based Trust Shares;
resulting from any negligent act or
20 For purposes of Rule 14.11(e)(4), the term
commodity takes on the definition of the term as
provided in the Commodity Exchange Act.
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omission by the Exchange, or any agent
of the Exchange, or any act, condition or
cause beyond the reasonable control of
the Exchange, its agent, including, but
not limited to, an act of God; fire; flood;
extraordinary weather conditions; war;
insurrection; riot; strike; accident;
action of government; communications
or power failure; equipment or software
malfunction; or any error, omission or
delay in the reports of transactions in an
underlying commodity. Finally, as
required in Rule 14.11(e)(4)(G), the
Exchange notes that any registered
market maker (‘‘Market Maker’’) in the
Shares must file with the Exchange in
a manner prescribed by the Exchange
and keep current a list identifying all
accounts for trading in an underlying
commodity, related commodity futures
or options on commodity futures, or any
other related commodity derivatives,
which the registered Market Maker may
have or over which it may exercise
investment discretion. No registered
Market Maker shall trade in an
underlying commodity, related
commodity futures or options on
commodity futures, or any other related
commodity derivatives, in an account in
which a registered Market Maker,
directly or indirectly, controls trading
activities, or has a direct interest in the
profits or losses thereof, which has not
been reported to the Exchange as
required by this Rule. In addition to the
existing obligations under Exchange
rules regarding the production of books
and records (see, e.g., Rule 4.2), the
registered Market Maker in CommodityBased Trust Shares shall make available
to the Exchange such books, records or
other information pertaining to
transactions by such entity or registered
or non-registered employee affiliated
with such entity for its or their own
accounts for trading the underlying
physical commodity, related commodity
futures or options on commodity
futures, or any other related commodity
derivatives, as may be requested by the
Exchange.
The Exchange is able to obtain
information regarding trading in the
Shares and the underlying XRP or any
other XRP derivative through members
acting as registered Market Makers, in
connection with their proprietary or
customer trades.
As a general matter, the Exchange has
regulatory jurisdiction over its Members
and their associated persons, which
include any person or entity controlling
a Member. To the extent the Exchange
may be found to lack jurisdiction over
a subsidiary or affiliate of a Member that
does business only in commodities or
futures contracts, the Exchange could
obtain information regarding the
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activities of such subsidiary or affiliate
through surveillance sharing agreements
with regulatory organizations of which
such subsidiary or affiliate is a member.
Trading Halts
With respect to trading halts, the
Exchange may consider all relevant
factors in exercising its discretion to
halt or suspend trading in the Shares.
The Exchange will halt trading in the
Shares under the conditions specified in
BZX Rule 11.18. Trading may be halted
because of market conditions or for
reasons that, in the view of the
Exchange, make trading in the Shares
inadvisable. These may include: (1) the
extent to which trading is not occurring
in the XRP underlying the Shares; or (2)
whether other unusual conditions or
circumstances detrimental to the
maintenance of a fair and orderly
market are present. Trading in the
Shares also will be subject to Rule
14.11(e)(4)(E)(ii), which sets forth
circumstances under which trading in
the Shares may be halted.
If the IIV or the value of the Pricing
Benchmark is not being disseminated as
required, the Exchange may halt trading
during the day in which the
interruption to the dissemination of the
IIV or the value of the Pricing
Benchmark occurs. If the interruption to
the dissemination of the IIV or the value
of the Pricing Benchmark persists past
the trading day in which it occurred, the
Exchange will halt trading no later than
the beginning of the trading day
following the interruption.
In addition, if the Exchange becomes
aware that the NAV with respect to the
Shares is not disseminated to all market
participants at the same time, it will halt
trading in the Shares until such time as
the NAV is available to all market
participants.
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Trading Rules
The Exchange deems the Shares to be
equity securities, thus rendering trading
in the Shares subject to the Exchange’s
existing rules governing the trading of
equity securities. BZX will allow trading
in the Shares during all trading sessions
on the Exchange. The Exchange has
appropriate rules to facilitate
transactions in the Shares during all
trading sessions. As provided in BZX
Rule 11.11(a) the minimum price
variation for quoting and entry of orders
in securities traded on the Exchange is
$0.01 where the price is greater than
$1.00 per share or $0.0001 where the
price is less than $1.00 per share. The
Shares of the Trust will conform to the
initial and continued listing criteria set
forth in BZX Rule 14.11(e)(4).
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Surveillance
The Exchange represents that its
surveillance procedures are adequate to
properly monitor the trading of the
Shares on the Exchange during all
trading sessions and to deter and detect
violations of Exchange rules and the
applicable federal securities laws.
Trading of the Shares through the
Exchange will be subject to the
Exchange’s surveillance procedures for
derivative products, including
Commodity-Based Trust Shares. FINRA
conducts certain cross-market
surveillances on behalf of the Exchange
pursuant to a regulatory services
agreement. The Exchange is responsible
for FINRA’s performance under this
regulatory services agreement.
The Exchange or FINRA, on behalf of
the Exchange, or both, will
communicate as needed regarding
trading in the Shares or any other XRP
derivative with other markets and other
entities that are members of the ISG, and
the Exchange, or FINRA, on behalf of
the Exchange, or both, may obtain
trading information regarding trading in
the Shares or any other XRP derivative
from such markets and other entities.21
The Exchange may obtain information
regarding trading in the Shares or any
other XRP derivative via ISG, from other
exchanges who are members or affiliates
of the ISG, or with which the Exchange
has entered into a comprehensive
surveillance sharing agreement.
In addition, the Exchange also has a
general policy prohibiting the
distribution of material, non-public
information by its employees.
The Sponsor has represented to the
Exchange that it will advise the
Exchange of any failure by the Trust or
the Shares to comply with the
continued listing requirements, and,
pursuant to its obligations under
Section 19(g)(1) of the Exchange Act, the
Exchange will surveil for compliance
with the continued listing requirements.
If the Trust or the Shares are not in
compliance with the applicable listing
requirements, the Exchange will
commence delisting procedures under
Exchange Rule 14.12.
Information Circular
Prior to the commencement of
trading, the Exchange will inform its
members in an Information Circular of
the special characteristics and risks
associated with trading the Shares.
Specifically, the Information Circular
will discuss the following: (i) the
procedures for the creation and
redemption of Creation Baskets (and
21 For a list of the current members and affiliate
members of ISG, see www.isgportal.com.
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10653
that the Shares are not individually
redeemable); (ii) BZX Rule 3.7, which
imposes suitability obligations on
Exchange members with respect to
recommending transactions in the
Shares to customers; (iii) how
information regarding the IIV and the
Trust’s NAV are disseminated; (iv) the
risks involved in trading the Shares
outside of Regular Trading Hours 22
when an updated IIV will not be
calculated or publicly disseminated; (v)
the requirement that members deliver a
prospectus to investors purchasing
newly issued Shares prior to or
concurrently with the confirmation of a
transaction; and (vi) trading
information. The Information Circular
will also reference the fact that there is
no regulated source of last sale
information regarding XRP, and that the
Commission has no jurisdiction over the
trading of XRP as a commodity.
In addition, the Information Circular
will advise members, prior to the
commencement of trading, of the
prospectus delivery requirements
applicable to the Shares. Members
purchasing the Shares for resale to
investors will deliver a prospectus to
such investors. The Information Circular
will also discuss any exemptive, noaction and interpretive relief granted by
the Commission from any rules under
the Act.
2. Statutory Basis
The Exchange believes that the
proposal is consistent with Section 6(b)
of the Act 23 in general and Section
6(b)(5) of the Act 24 in particular in that
it is designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system and, in
general, to protect investors and the
public interest.
The Commission has approved
numerous series of Trust Issued
Receipts,25 including Commodity-Based
Trust Shares,26 to be listed on U.S.
national securities exchanges. In order
for any proposed rule change from an
exchange to be approved, the
Commission must determine that,
among other things, the proposal is
22 Regular Trading Hours is the time between 9:30
a.m. and 4:00 p.m. Eastern Time.
23 15 U.S.C. 78f.
24 15 U.S.C. 78f(b)(5).
25 See Exchange Rule 14.11(f).
26 Commodity-Based Trust Shares, as described in
Exchange Rule 14.11(e)(4), are a type of Trust
Issued Receipt.
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consistent with the requirements of
Section 6(b)(5) of the Act, specifically
including: (i) the requirement that a
national securities exchange’s rules are
designed to prevent fraudulent and
manipulative acts and practices; 27 and
(ii) the requirement that an exchange
proposal be designed, in general, to
protect investors and the public interest.
The Exchange believes that this
proposal is consistent with the
requirements of Section 6(b)(5) of the
Act and that this filing sufficiently
demonstrates that potential policy
concerns under the Act are sufficiently
mitigated to the point that they are
outweighed by quantifiable investor
protection issues that would be resolved
by approving this proposal.
More recently, the Commission has
applied the Winklevoss Test while also
recognizing that the ‘‘regulated market
of significant size’’ standard is not the
only means for satisfying Section 6(b)(5)
of the Act. In the specifically providing
that a listing exchange could
demonstrate that ‘‘other means to
prevent fraudulent and manipulative
acts and practices’’ are sufficient to
justify dispensing with the requisite
surveillance-sharing agreement.28 While
27 Much like bitcoin and ETH, the Exchange
believes that XRP is resistant to price manipulation
and that ‘‘other means to prevent fraudulent and
manipulative acts and practices’’ exist to justify
dispensing with the requisite surveillance sharing
agreement. The geographically diverse and
continuous nature of XRP trading render it difficult
and prohibitively costly to manipulate the price of
XRP. The fragmentation across platforms and the
capital necessary to maintain a significant presence
on each trading platform make manipulation of XRP
prices through continuous trading activity
challenging. To the extent that there are trading
platforms engaged in or allowing wash trading or
other activity intended to manipulate the price of
XRP on other markets, such pricing does not
normally impact prices on other trading platforms
because participants will generally ignore markets
with quotes that they deem non-executable.
Moreover, the linkage between XRP markets and the
presence of arbitrageurs in those markets means
that the manipulation of the price of XRP on any
single venue would require manipulation of the
global XRP price in order to be effective.
Arbitrageurs must have funds distributed across
multiple trading platforms in order to take
advantage of temporary price dislocations, thereby
making it unlikely that there will be strong
concentration of funds on any particular trading
platforms or OTC platform. Further, the speed and
relatively inexpensive nature of transactions on the
Ripple network allow arbitrageurs to quickly move
capital between trading platforms where price
dislocations may occur. As a result, the potential for
manipulation on a trading platform would require
overcoming the liquidity supply of such
arbitrageurs who are effectively eliminating any
cross-market pricing differences.
28 See Winklevoss Order at 37580. The
Commission has also specifically noted that it ‘‘is
not applying a ‘cannot be manipulated’ standard;
instead, the Commission is examining whether the
proposal meets the requirements of the Exchange
Act and, pursuant to its Rules of Practice, places the
burden on the listing exchange to demonstrate the
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there is currently no futures market for
XRP, in the Spot Bitcoin ETF Approval
Order and Spot ETH ETF Approval
Order the Commission determined that
the CME bitcoin futures market and
CME ETH futures market, respectively,
were not of ‘‘significant size’’ related to
the spot market. Instead, the
Commission found that sufficient ‘‘other
means’’ of preventing fraud and
manipulation had been demonstrated
that justified dispensing with a
surveillance-sharing agreement of
significant size. The Exchange and
Sponsor believe that this proposal
provides for other means of preventing
fraud and manipulation justify
dispensing with a surveillance-sharing
agreement of significant size.
The Exchange believes that the
proposal is designed to protect investors
and the public interest. Over the past
several years, U.S. investor exposure to
XRP, through OTC XRP Funds and
digital asset trading platforms, has
grown into billions of dollars with a
fully diluted market cap of greater than
$300 billion. The Exchange believes that
approving this proposal (and
comparable proposals) provides the
Commission with the opportunity to
allow U.S. investors with access to XRP
in a regulated and transparent exchangetraded vehicle that would act to limit
risk to U.S. investors by: (i) reducing
premium and discount volatility; (ii)
reducing management fees through
meaningful competition; and (iii)
providing an alternative to custodying
spot XRP.
The Exchange believes that the policy
concerns are mitigated by the fact that
the size of the market for the underlying
reference asset ($300+ billion fully
diluted value) and the nature of the XRP
ecosystem reduces its susceptibility to
manipulation. The geographically
diverse and continuous nature of XRP
trading makes it difficult and
prohibitively costly to manipulate the
price of XRP and, in many instances, the
XRP market can be less susceptible to
manipulation than the equity, fixed
income, and commodity futures
markets. There are a number of reasons
this is the case, including that there is
not inside information about revenue,
earnings, corporate activities, or sources
of supply; manipulation of the price on
any single venue would require
manipulation of the global XRP price in
order to be effective; a substantial overthe-counter market provides liquidity
and shock-absorbing capacity; XRP’s 24/
7/365 nature provides constant arbitrage
validity of its contentions and to establish that the
requirements of the Exchange Act have been met.’’
Id. at 37582.
PO 00000
Frm 00032
Fmt 4703
Sfmt 4703
opportunities across all trading venues;
and it is unlikely that any one actor
could obtain a dominant market share.
Further, XRP is arguably less
susceptible to manipulation than other
commodities that underlie ETPs; there
may be inside information relating to
the supply of the physical commodity
such as the discovery of new sources of
supply or significant disruptions at
mining facilities that supply the
commodity that simply are inapplicable
as it relates to certain cryptoassets,
including XRP. Further, the Exchange
believes that the fragmentation across
XRP trading platforms and increased
adoption of XRP, as displayed through
increased user engagement and trading
volumes, and the XRP network make
manipulation of XRP prices through
continuous trading activity more
difficult. Moreover, the linkage between
the XRP markets and the presence of
arbitrageurs in those markets means that
the manipulation of the price of XRP
price on any single venue would require
manipulation of the global XRP price in
order to be effective. Arbitrageurs must
have funds distributed across multiple
XRP trading platforms in order to take
advantage of temporary price
dislocations, thereby making it unlikely
that there will be strong concentration
of funds on any particular XRP trading
platform. As a result, the potential for
manipulation on a particular XRP
trading platform would require
overcoming the liquidity supply of such
arbitrageurs who are effectively
eliminating any cross-market pricing
differences. For all of these reasons,
XRP is not particularly susceptible to
manipulation, especially as compared to
other approved ETP reference assets.
Commodity-Based Trust Shares
The Exchange believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices in that the Shares will
be listed on the Exchange pursuant to
the initial and continued listing criteria
in Exchange Rule 14.11(e)(4). The
Exchange believes that its surveillance
procedures are adequate to properly
monitor the trading of the Shares on the
Exchange during all trading sessions
and to deter and detect violations of
Exchange rules and the applicable
federal securities laws. Trading of the
Shares through the Exchange will be
subject to the Exchange’s surveillance
procedures for derivative products,
including Commodity-Based Trust
Shares. The issuer has represented to
the Exchange that it will advise the
Exchange of any failure by the Trust or
the Shares to comply with the
continued listing requirements, and,
E:\FR\FM\25FEN1.SGM
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Federal Register / Vol. 90, No. 36 / Tuesday, February 25, 2025 / Notices
pursuant to its obligations under
Section 19(g)(1) of the Exchange Act, the
Exchange will surveil for compliance
with the continued listing requirements.
If the Trust or the Shares are not in
compliance with the applicable listing
requirements, the Exchange will
commence delisting procedures under
Exchange Rule 14.12. The Exchange
may obtain information regarding
trading in the Shares and listed XRP
derivatives via the ISG, from other
exchanges who are members or affiliates
of the ISG, or with which the Exchange
has entered into a comprehensive
surveillance sharing agreement.
lotter on DSK11XQN23PROD with NOTICES1
Availability of Information
In addition to the price transparency
of the Pricing Benchmark, the Trust will
provide information regarding the
Trust’s XRP holdings as well as
additional data regarding the Trust. The
website for the Trust, which will be
publicly accessible at no charge, will
contain the following information: (a)
the current NAV per Share daily and the
prior business day’s NAV per Share and
the reported BZX Official Closing
Price; 29 (b) the BZX Official Closing
Price in relation to the NAV per Share
as of the time the NAV is calculated and
a calculation of the premium or
discount of such price against such
NAV per Share; (c) data in chart form
displaying the frequency distribution of
discounts and premiums of the BZX
Official Closing Price against the NAV
per Share, within appropriate ranges for
each of the four previous calendar
quarters (or for the life of the Trust, if
shorter); (d) the prospectus; and (e)
other applicable quantitative
information. The aforementioned
information will be published as of the
close of business and available on the
Sponsor’s website at
www.canary.capital, or any successor
thereto. The NAV for the Trust will be
calculated by the Administrator once a
day and will be disseminated daily to
all market participants at the same time.
Quotation and last-sale information
regarding the Shares will be
disseminated through the facilities of
the CTA. The Trust will also
disseminate its holdings on a daily basis
on its website.
The Intraday Indicative Value (‘‘IIV’’)
will be updated during Regular Trading
Hours to reflect changes in the value of
the Trust’s XRP holdings during the
trading day. The IIV may differ from the
NAV because NAV is calculated, using
29 As defined in Rule 11.23(a)(3), the term ‘‘BZX
Official Closing Price’’ shall mean the price
disseminated to the consolidated tape as the market
center closing trade.
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17:40 Feb 24, 2025
Jkt 265001
the closing value of the Pricing
Benchmark, once a day at 4:00 p.m.
Eastern time whereas the IIV draws
prices from the last trade on each
constituent platform to produce a
relevant, real-time price. The IIV
disseminated during Regular Trading
Hours should not be viewed as an actual
real-time update of the NAV, which will
be calculated only once at the end of
each trading day. The Trust will provide
an IIV per Share updated every 15
seconds, as calculated by the Exchange
or a third-party financial data provider
during the Exchange’s Regular Trading
Hours (9:30 a.m. to 4:00 p.m. E.T.). The
IIV will be widely disseminated on a per
Share basis every 15 seconds during the
Exchange’s Regular Trading Hours
through the facilities of the CTA and
CQS high speed lines. In addition, the
IIV will be available through on-line
information services such as Bloomberg
and Reuters.
The price of XRP will be made
available by one or more major market
data vendors, updated at least every 15
seconds during Regular Trading Hours.
As noted above, the Pricing
Benchmark is calculated every 15
seconds and information about the
Pricing Benchmark and Pricing
Benchmark value, including index data
and key elements of how the Pricing
Benchmark is calculated, will be
publicly available at a website
maintained by the provider of the
Pricing Benchmark.
Quotation and last sale information
for XRP is widely disseminated through
a variety of major market data vendors,
including Bloomberg and Reuters.
Information relating to trading,
including price and volume
information, in XRP is available from
major market data vendors and from the
trading platforms on which XRP are
traded. Depth of book information is
also available from XRP trading
platforms. The normal trading hours for
XRP trading platforms are 24 hours per
day, 365 days per year.
Information regarding market price
and trading volume of the Shares will be
continually available on a real-time
basis throughout the day on brokers’
computer screens and other electronic
services. Information regarding the
previous day’s BZX Official Closing
Price and trading volume information
for the Shares will be published daily in
the financial section of newspapers.
Quotation and last-sale information
regarding the Shares will be
disseminated through the facilities of
the CTA.
In sum, the Exchange believes that
this proposal is consistent with the
requirements of Section 6(b)(5) of the
PO 00000
Frm 00033
Fmt 4703
Sfmt 4703
10655
Act, that on the whole the manipulation
concerns previously articulated by the
Commission are sufficiently mitigated to
the point that they are outweighed by
investor protection issues that would be
resolved by approving this proposal.
The Exchange believes that the
proposal is, in particular, designed to
protect investors and the public interest.
The investor protection issues for U.S.
investors has grown significantly over
the last several years, through premium/
discount volatility and management fees
for OTC XRP Funds. As discussed
throughout, this growth investor
protection concerns need to be reevaluated and rebalanced with the
prevention of fraudulent and
manipulative acts and practices
concerns that previous disapproval
orders have relied upon.
For the above reasons, the Exchange
believes that the proposed rule change
is consistent with the requirements of
Section 6(b)(5) of the Act.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purpose of the Act. The Exchange
notes that the proposed rule change,
rather will facilitate the listing and
trading of an additional exchange-traded
product that will enhance competition
among both market participants and
listing venues, to the benefit of investors
and the marketplace.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the Exchange consents, the Commission
will:
A. by order approve or disapprove
such proposed rule change, or
B. institute proceedings to determine
whether the proposed rule change
should be disapproved.
E:\FR\FM\25FEN1.SGM
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10656
Federal Register / Vol. 90, No. 36 / Tuesday, February 25, 2025 / Notices
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change, is consistent with the Act.
Comments may be submitted by any of
the following methods:
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
[FR Doc. 2025–03029 Filed 2–24–25; 8:45 am]
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
CboeBZX–2025–022 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.
lotter on DSK11XQN23PROD with NOTICES1
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.30
Sherry R. Haywood,
Assistant Secretary.
All submissions should refer to file
number SR–CboeBZX–2025–022. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–CboeBZX–2025–022 and should be
submitted on or before March 18, 2025.
[Release No. 34–102444; File No. SR–
NASDAQ–2025–013]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing of Proposed Rule Change To
List and Trade Shares of the
CoinShares Litecoin ETF Under
Nasdaq Rule 5711(d)
February 19, 2025.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on February
7, 2025, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade shares of the CoinShares Litecoin
ETF (the ‘‘Trust’’) under Nasdaq Rule
5711(d) (‘‘Commodity-Based Trust
Shares’’). The shares of the Trust are
referred to herein as the ‘‘Shares.’’
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/nasdaq/rulefilings, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
17 CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
30
1 15
VerDate Sep<11>2014
17:40 Feb 24, 2025
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PO 00000
Frm 00034
Fmt 4703
Sfmt 4703
1. Purpose
The Exchange proposes to list and
trade the Shares under Nasdaq Rule
5711(d), which governs the listing and
trading of Commodity-Based Trust
Shares on the Exchange.3 CoinShares
Co. is the sponsor of the Trust (the
‘‘Sponsor’’).4 Any statements or
representations included in this
proposal regarding: (a) the description
of the reference assets or trust holdings;
(b) limitations on the reference assets or
trust holdings; (c) dissemination and
availability of the reference asset or
intraday indicative value; or (d) the
applicability of Nasdaq listing rules
specified in this proposal shall
constitute continued listing standards
for the Shares listed on the Exchange.
Overview of the Trust and the Shares
According to the Registration
Statement, the Trust is a Delaware
Statutory Trust that was formed on
December 10, 2024. The Trust will
operate pursuant to a trust agreement
(the ‘‘Trust Agreement’’), as amended
and/or restated from time to time. CSC
Delaware Trust Company, a Delaware
corporation, is the trustee of the Trust
(the ‘‘Trustee’’). A third party will be the
transfer agent of the Trust (in such
capacity, the ‘‘Transfer Agent’’) and the
administrator of the Trust (in such
capacity, the ‘‘Administrator’’). A thirdparty custodian (the ‘‘Custodian’’) will
be responsible for custody of the Trust’s
Litecoin.
According to the Registration
Statement, each Share will represent a
fractional undivided beneficial interest
in and ownership of the Trust. The
Trust holds only Litecoin (‘‘LTC’’) and
cash. The investment objective of the
Trust is for the Shares to reflect the
performance of the value of LTC as
represented by the Compass Crypto
3 The Commission approved Nasdaq Rule 5711 in
Securities Exchange Act Release No. 66648 (March
23, 2012), 77 FR 19428 (March 30, 2012) (SR–
NASDAQ–2012–013).
4 See Registration Statement on Form S–1, dated
January 24, 2025 filed with the Commission on
behalf of the Trust. The descriptions of the Trust,
the Shares, the Index (as defined below), and
Litecoin contained herein are based, in part on
information in the Registration Statement. The
Registration Statement in not yet effective and the
Shares will not trade on the Exchange until such
time that the Registration Statement is effective.
E:\FR\FM\25FEN1.SGM
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]]>Agencies
[Federal Register Volume 90, Number 36 (Tuesday, February 25, 2025)]
[Notices]
[Pages 10647-10656]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-03029]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102449; File No. SR-CboeBZX-2025-022]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To List and Trade Shares of the Canary
XRP Trust Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares
February 19, 2025.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on February 6, 2025, Cboe BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') 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 Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (``Commission'' or ``SEC'')
a proposed rule change to list and trade shares of the Canary XRP Trust
(the ``Trust''),\3\ under BZX Rule 14.11(e)(4), Commodity-Based Trust
Shares. The text of the proposed rule change is also
[[Page 10648]]
available on the Exchange's website (https://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the
Secretary, and at the Commission's Public Reference Room.
---------------------------------------------------------------------------
\3\ The Trust was formed as a Delaware statutory trust on June
3, 2024, and is operated as a grantor trust for U.S. federal tax
purposes. The Trust has no fixed termination date.
---------------------------------------------------------------------------
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade the Shares under BZX Rule
14.11(e)(4),\4\ which governs the listing and trading of Commodity-
Based Trust Shares on the Exchange.\5\ Canary Capital Group LLC is the
sponsor of the Trust (the ``Sponsor''). The Shares will be registered
with the Commission by means of the Trust's registration statement on
Form S-1 (the ``Registration Statement'').\6\ According to the
Registration Statement, the Trust is neither an investment company
registered under the Investment Company Act of 1940, as amended,\7\ nor
a commodity pool for purposes of the Commodity Exchange Act (``CEA''),
and neither the Trust nor the Sponsor is subject to regulation as a
commodity pool operator or a commodity trading adviser in connection
with the Shares.
---------------------------------------------------------------------------
\4\ The Commission approved BZX Rule 14.11(e)(4) in Securities
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148
(September 6, 2011) (SR-BATS-2011-018).
\5\ Any of the statements or representations regarding the index
composition, the description of the portfolio or reference assets,
limitations on portfolio holdings or reference assets, dissemination
and availability of index, reference asset, and intraday indicative
values, or the applicability of Exchange listing rules specified in
this filing to list a series of Other Securities (collectively,
``Continued Listing Representations'') shall constitute continued
listing requirements for the Shares listed on the Exchange.
\6\ See the Registration Statement on Form S-1, dated October 8,
2024, submitted by the Sponsor on behalf of the Trust. The
descriptions of the Trust, the Shares, and the Pricing Benchmark (as
defined below) contained herein are based, in part, on information
in the Registration Statement. The Registration Statement is not yet
effective, and the Shares will not trade on the Exchange until such
time that the Registration Statement is effective.
\7\ 15 U.S.C. 80a-1.
---------------------------------------------------------------------------
Since 2017, the Commission has approved or disapproved exchange
filings to list and trade series of Trust Issued Receipts, including
spot-based Commodity-Based Trust Shares, on the basis of whether the
listing exchange has in place a comprehensive surveillance sharing
agreement with a regulated market of significant size related to the
underlying commodity to be held (the ``Winklevoss Test'').\8\ The
Commission has also consistently recognized that this not the exclusive
means by which an ETP listing exchange can meet this statutory
obligation.\9\ A listing exchange could, alternatively, demonstrate
that ``other means to prevent fraudulent and manipulative acts and
practices will be sufficient'' to justify dispensing with a
surveillance-sharing agreement with a regulated market of significant
size.\10\
---------------------------------------------------------------------------
\8\ See Securities Exchange Act Release Nos. 78262 (July 8,
2016), 81 FR 78262 (July 14. 2016) (the ``Winklevoss Proposal'').
The Winklevoss Proposal was the first exchange rule filing proposing
to list and trade shares of an ETP that would hold spot bitcoin (a
``Spot Bitcoin ETP''). It was subsequently disapproved by the
Commission. See Securities Exchange Act Release No. 83723 (July 26,
2018), 83 FR 37579 (August 1, 2018) (the ``Winklevoss Order'');
99306 (January 10, 2024), 89 FR 3008 (January 17, 2024) (Self-
Regulatory Organizations; NYSE Arca, Inc.; The Nasdaq Stock Market
LLC; Cboe BZX Exchange, Inc.; Order Granting Accelerated Approval of
Proposed Rule Changes, as Modified by Amendments Thereto, To List
and Trade Bitcoin-Based Commodity-Based Trust Shares and Trust
Units) (the ``Spot Bitcoin ETP Approval Order''); 100224 (May 23,
2024), 89 FR 46937 (May 30, 2024) (Self-Regulatory Organizations;
NYSE Arca, Inc.; The Nasdaq Stock Market LLC; Cboe BZX Exchange,
Inc.; Order Granting Accelerated Approval of Proposed Rule Changes,
as Modified by Amendments Thereto, To List and Trade Shares of
Ether-Based Exchange-Traded Products) (the ``Spot ETH ETP Approval
Order'').
\9\ See Winklevoss Order, 83 FR at 37580; see Spot Bitcoin ETP
Approval Order, 89 FR at 3009; see Spot ETH ETP Approval Order 89 FR
at 46938.
\10\ The Exchange notes that that the Winklevoss Test was first
applied in 2017 in the Winklevoss Order, which was the first
disapproval order related to an exchange proposal to list and trade
a Spot Bitcoin ETP. All prior approval orders issued by the
Commission approving the listing and trading of series of Trust
Issued Receipts included no specific analysis related to a
``regulated market of significant size.'' In the Winklevoss Order
and the Commission's prior orders approving the listing and trading
of series of Trust Issued Receipts have noted that the spot
commodities and currency markets for which it has previously
approved spot ETPs are generally unregulated and that the Commission
relied on the underlying futures market as the regulated market of
significant size that formed the basis for approving the series of
Currency and Commodity-Based Trust Shares, including gold, silver,
platinum, palladium, copper, and other commodities and currencies.
The Commission specifically noted in the Winklevoss Order that the
approval order issued related to the first spot gold ETP ``was based
on an assumption that the currency market and the spot gold market
were largely unregulated.'' See Winklevoss Order at 37592. As such,
the regulated market of significant size test does not require that
the spot market be regulated in order for the Commission to approve
this proposal, and precedent makes clear that an underlying market
for a spot commodity or currency being a regulated market would
actually be an exception to the norm. These largely unregulated
currency and commodity markets do not provide the same protections
as the markets that are subject to the Commission's oversight, but
the Commission has consistently looked to surveillance sharing
agreements with the underlying futures market in order to determine
whether such products were consistent with the Act.
---------------------------------------------------------------------------
The Commission recently issued orders granting approval for
proposals to list bitcoin- and ether-based commodity trust shares and
bitcoin-based, ether-based, and a combination of bitcoin- and ether-
based trust issued receipts (these proposed funds are nearly identical
to the Trust, but proposed to hold bitcoin and/or ether, respectively,
instead of XRP) (``Spot Bitcoin ETPs'' and ``Spot ETH ETPs''). In both
the Spot Bitcoin ETP Approval Order and Spot ETH ETP Approval Order,
the Commission found that sufficient ``other means'' of preventing
fraud and manipulation had been demonstrated that justified dispensing
with a surveillance-sharing agreement of significant size.
Specifically, the Commission found that while the Chicago Mercantile
Exchange (``CME'') futures market for both bitcoin and ether were not
of ``significant size'' related to the spot market, the Exchange
demonstrated that other means could be reasonably expected to assist in
surveilling for fraudulent and manipulative acts and practices in the
specific context of the proposals.
As further discussed below, both the Exchange and the Sponsor
believe that this proposal and the included analysis are sufficient to
establish that the proposal is consistent with the Act itself and,
additionally, that there are sufficient ``other means'' of preventing
fraud and manipulation that warrant dispensing of the surveillance-
sharing agreement with a regulated market of significant size, as was
done with both Spot Bitcoin ETPs and Spot ETH ETPs, and that this
proposal should be approved.
Background
XRP is a digital asset that is created and transmitted through the
operations of the XRP Ledger, a decentralized ledger upon which XRP
transactions are processed and settled. XRP can be used to pay for
goods and services, or it can be converted to fiat currencies, such as
the U.S. dollar. The XRP Ledger is based on a shared public ledger
similar to the Bitcoin network. However, the XRP Ledger differentiates
itself from other
[[Page 10649]]
digital asset networks in that its stated primary function is
transactional utility, not store of value. The XRP Ledger is designed
to be a global real-time payment and settlement system. As a result,
the XRP Ledger and XRP aim to improve the speed at which parties on the
network may transfer value while also reducing the fees and delays
associated with the traditional methods of interbank payments.
Unlike a centralized system, no single entity controls the XRP
Ledger. Instead, a network of independent nodes validates transactions
pursuant to a consensus-based algorithm. It is this mechanism, as
opposed to the proof-of-work mechanism utilized by the Bitcoin
blockchain, that allows the XRP Ledger to be fast, energy-efficient and
scalable, and therefore suitable for its most prominent use case, the
facilitation of cross-border financial transactions. Unlike proof-of-
work systems, which require massive computational power to secure the
network, the consensus-based algorithm utilized by the XRP Ledger is
extremely lightweight in terms of energy usage, as it relies on trusted
validators rather than mining. The XRP Ledger can handle up to 1,500
transactions per second, far more than the Bitcoin or Ethereum
blockchain. This makes the XRP Ledger suitable for high-volume use
cases, such as cross-border payments. Lastly, because validators do not
need to spend resources on mining, transaction fees are extremely low
(typically a fraction of a cent per transaction).
Transactions are validated on the XRP Ledger by a network of
independent validator nodes. These nodes do not mine new blocks but
participate in a consensus process to ensure that transactions are
valid and correctly ordered on the ledger. Any node can be a validator,
but for practical purposes, the XRP Ledger depends on a list of trusted
validators known as the Unique Node List or ``UNL.'' Validators are
entities (which can be individuals, institutions or other
organizations) that run nodes to participate in the consensus process.
These validators ensure the integrity and accuracy of the ledger. Each
node in the network maintains a Unique Node List--a list of other
validators that the node trusts to reliably validate transactions. The
XRP Ledger's decentralized architecture means that different nodes may
maintain different UNLs, but there needs to be some overlap in the UNLs
for consensus to work effectively.
Unlike other digital assets such as bitcoin or ether, XRP was not
and is not mined gradually over time. Instead, all 100 billion XRP
tokens were created at the time of the XRP Ledger's launch in 2012.
This means that every XRP token that exists today was generated from
the outset, without the need for a mining process. Of the 100 billion
XRP generated by the XRP Ledger's code, the founders of Ripple Labs
retained 20 billion XRP and the rest, nearly 80 billion XRP, was
provided to Ripple Labs Inc. (``Ripple Labs'').
As noted above, this proposal is to list and trade shares of the
Trust that would hold spot XRP. Neither the Trust nor the Sponsor are
affiliates of Ripple Labs or any of its affiliates.
In light of these factors and consistent with applicable legal
precedent, particularly as applied in SEC v. Ripple Labs, the Sponsor
believes that it is applying the proper legal standards in making a
good faith determination that it believes that XRP is not under these
circumstances a security under federal law in light of the
uncertainties inherent in applying the Howey and Reves tests.\11\
---------------------------------------------------------------------------
\11\ See SEC v. Ripple Labs, 2023 WL 4507900 at 15, (S.D.N.Y.
July 13, 2023) (``(XRP, as a digital token, is not in and of itself
a `contract, transaction[,] or scheme' that embodies the Howey
requirements of an investment contract.)'') and 23 ``Ripple's
Programmatic Sales were blind bid/ask transactions, and Programmatic
Buyers could not have known if their payments of money went to
Ripple, or any other seller of XRP. Since 2017, Ripple's
Programmatic Sales represented less than 1% of the global XRP
trading volume. Therefore, the vast majority of individuals who
purchased XRP from digital asset exchanges did not invest their
money in Ripple at all. An Institutional Buyer knowingly purchased
XRP directly from Ripple pursuant to a contract, but the economic
reality is that a Programmatic Buyer stood in the same shoes as a
secondary market purchaser who did not know to whom or what it was
paying its money.'' The Court specifically notes that the question
of whether secondary market sales of XRP constitute offers and sales
of investment contracts because it was not before the Court and
therefore was not addressed. However, the general logic applied
above in the Court's finding that an investment contract did not
exist seems to similarly indicate that purchases and sales on the
secondary market where the purchaser ``did not know to whom or what
it was paying its money'' would also not constitute an investment
contract.
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Section 6(b)(5) and the Applicable Standards
The Commission has approved numerous series of Trust Issued
Receipts,\12\ including Commodity-Based Trust Shares,\13\ to be listed
on U.S. national securities exchanges. In order for any proposed rule
change from an exchange to be approved, the Commission must determine
that, among other things, the proposal is consistent with the
requirements of Section 6(b)(5) of the Act, specifically including: (i)
the requirement that a national securities exchange's rules are
designed to prevent fraudulent and manipulative acts and practices;
\14\ and (ii) the requirement that an exchange proposal be designed, in
general, to protect investors and the public interest. The Exchange
believes that this proposal is consistent with the requirements of
Section 6(b)(5) of the Act and that this filing sufficiently
demonstrates that potential policy concerns under the Act are
sufficiently mitigated to the point that they are outweighed by
quantifiable investor protection issues that would be resolved by
approving this proposal.
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\12\ See Exchange Rule 14.11(f).
\13\ Commodity-Based Trust Shares, as described in Exchange Rule
14.11(e)(4), are a type of Trust Issued Receipt.
\14\ Much like bitcoin and ETH, the Exchange believes that XRP
is resistant to price manipulation and that ``other means to prevent
fraudulent and manipulative acts and practices'' exist to justify
dispensing with the requisite surveillance sharing agreement. The
geographically diverse and continuous nature of XRP trading render
it difficult and prohibitively costly to manipulate the price of
XRP. The fragmentation across platforms and the capital necessary to
maintain a significant presence on each trading platform make
manipulation of XRP prices through continuous trading activity
challenging. To the extent that there are trading platforms engaged
in or allowing wash trading or other activity intended to manipulate
the price of XRP on other markets, such pricing does not normally
impact prices on other trading platforms because participants will
generally ignore markets with quotes that they deem non-executable.
Moreover, the linkage between XRP markets and the presence of
arbitrageurs in those markets means that the manipulation of the
price of XRP on any single venue would require manipulation of the
global XRP price in order to be effective. Arbitrageurs must have
funds distributed across multiple trading platforms in order to take
advantage of temporary price dislocations, thereby making it
unlikely that there will be strong concentration of funds on any
particular trading platforms or OTC platform. Further, the speed and
relatively inexpensive nature of transactions on the Ripple network
allow arbitrageurs to quickly move capital between trading platforms
where price dislocations may occur. As a result, the potential for
manipulation on a trading platform would require overcoming the
liquidity supply of such arbitrageurs who are effectively
eliminating any cross-market pricing differences.
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More recently, the Commission has applied the Winklevoss Test while
also recognizing that the ``regulated market of significant size''
standard is not the only means for satisfying Section 6(b)(5) of the
Act. In the specifically providing that a listing exchange could
demonstrate that ``other means to prevent fraudulent and manipulative
acts and practices'' are sufficient to justify dispensing with the
requisite surveillance-sharing agreement.\15\ While
[[Page 10650]]
there is currently no futures market for XRP, in the Spot Bitcoin ETF
Approval Order and Spot ETH ETF Approval Order the Commission
determined that the CME bitcoin futures market and CME ETH futures
market, respectively, were not of ``significant size'' related to the
spot market. Instead, the Commission found that sufficient ``other
means'' of preventing fraud and manipulation had been demonstrated that
justified dispensing with a surveillance-sharing agreement of
significant size. The Exchange and Sponsor believe that this proposal
provides for other means of preventing fraud and manipulation justify
dispensing with a surveillance-sharing agreement of significant size.
---------------------------------------------------------------------------
\15\ See Winklevoss Order at 37580. The Commission has also
specifically noted that it ``is not applying a `cannot be
manipulated' standard; instead, the Commission is examining whether
the proposal meets the requirements of the Exchange Act and,
pursuant to its Rules of Practice, places the burden on the listing
exchange to demonstrate the validity of its contentions and to
establish that the requirements of the Exchange Act have been met.''
Id. at 37582.
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Over the past several years, U.S. investor exposure to XRP, through
OTC XRP Funds and digital asset trading platforms, has grown into
billions of dollars with a fully diluted market cap of greater than
$300 billion. The Exchange believes that approving this proposal (and
comparable proposals) provides the Commission with the opportunity to
allow U.S. investors with access to XRP in a regulated and transparent
exchange-traded vehicle that would act to limit risk to U.S. investors
by: (i) reducing premium and discount volatility; (ii) reducing
management fees through meaningful competition; and (iii) providing an
alternative to custodying spot XRP.
The policy concerns that the Exchange Act is designed to address
are also otherwise mitigated by the fact that the size of the market
for the underlying reference asset ($300+ billion fully diluted value)
and the nature of the XRP ecosystem reduces its susceptibility to
manipulation. The geographically diverse and continuous nature of XRP
trading makes it difficult and prohibitively costly to manipulate the
price of XRP and, in many instances, the XRP market can be less
susceptible to manipulation than the equity, fixed income, and
commodity futures markets. There are a number of reasons this is the
case, including that there is not inside information about revenue,
earnings, corporate activities, or sources of supply; manipulation of
the price on any single venue would require manipulation of the global
XRP price in order to be effective; a substantial over-the-counter
market provides liquidity and shock-absorbing capacity; XRP's 24/7/365
nature provides constant arbitrage opportunities across all trading
venues; and it is unlikely that any one actor could obtain a dominant
market share.
Further, XRP is arguably less susceptible to manipulation than
other commodities that underlie ETPs; there may be inside information
relating to the supply of the physical commodity such as the discovery
of new sources of supply or significant disruptions at mining
facilities that supply the commodity that simply are inapplicable as it
relates to certain cryptoassets, including XRP. Further, the Exchange
believes that the fragmentation across XRP trading platforms and
increased adoption of XRP, as displayed through increased user
engagement and trading volumes, and the XRP network make manipulation
of XRP prices through continuous trading activity more difficult.
Moreover, the linkage between the XRP markets and the presence of
arbitrageurs in those markets means that the manipulation of the price
of XRP price on any single venue would require manipulation of the
global XRP price in order to be effective. Arbitrageurs must have funds
distributed across multiple XRP trading platforms in order to take
advantage of temporary price dislocations, thereby making it unlikely
that there will be strong concentration of funds on any particular XRP
trading platform. As a result, the potential for manipulation on a
particular XRP trading platform would require overcoming the liquidity
supply of such arbitrageurs who are effectively eliminating any cross-
market pricing differences. For all of these reasons, XRP is not
particularly susceptible to manipulation, especially as compared to
other approved ETP reference assets.
Canary XRP ETF
CSC Delaware Trust Company is the trustee (``Trustee''). A third
party will be the administrator (``Administrator'') and transfer agent
(``Transfer Agent'') and will be responsible for the custody of the
Trust's cash and cash equivalents \16\ (the ``Cash Custodian''). A
third-party custodian (the ``Custodian'') will be responsible for
custody of the Trust's XRP.
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\16\ Cash equivalents are short-term instruments with maturities
of less than 3 months.
---------------------------------------------------------------------------
According to the Registration Statement, each Share will represent
a fractional undivided beneficial interest in and ownership of the
Trust. The Trust's assets will only consist of XRP, cash, or cash and
cash equivalents.
According to the Registration Statement, the Trust will be neither
an investment company registered under the Investment Company Act of
1940, as amended,\17\ nor a commodity pool for purposes of the CEA, and
neither the Trust nor the Sponsor is subject to regulation as a
commodity pool operator or a commodity trading adviser in connection
with the Shares.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 80a-1.
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The Trust will not acquire and will disclaim any incidental right
(``IR''), or IR asset received, for example as a result of forks or
airdrops, and such assets will not be taken into account for purposes
of determining NAV.
When the Trust sells or redeems its Shares, it will do so in cash
transactions in blocks of 10,000 Shares (a ``Creation Basket'') at the
Trust's net asset value (``NAV''). For creations, authorized
participants will deliver cash to the Trust's account with the Cash
Custodian in exchange for Shares. Upon receipt of an approved creation
order, the Sponsor, on behalf of the Trust, will submit an order to buy
the amount of XRP represented by a Creation Basket. Based off XRP
executions, the Cash Custodian will request the required cash from the
authorized participant; the Transfer Agent will only issue Shares when
the authorized participant has made delivery of the cash. Following
receipt by the Cash Custodian of the cash from an authorized
participant, the Sponsor, on behalf of the Trust, will approve an order
with one or more previously onboarded trading partners to purchase the
amount of XRP represented by the Creation Basket. This purchase of XRP
will normally be cleared through an affiliate of the Custodian
(although the purchase may also occur directly with the trading
partner) and the XRP will settle directly into the Trust's account at
the Custodian.\18\ Authorized participants may then offer Shares to the
public at prices that depend on various factors, including the supply
and demand for Shares, the value of the Trust's assets, and market
conditions at the time of a transaction. Shareholders who buy or sell
Shares during the day from their broker may do so at a premium or
discount relative to the NAV of the Shares of the Trust.
---------------------------------------------------------------------------
\18\ For redemptions, the process will occur in the reverse
order. Upon receipt of an approved redemption order, the Sponsor, on
behalf of the Trust, will submit an order to sell the amount of XRP
represented by a Creation Basket and the cash proceeds will be
remitted to the authorized participant when the 10,000 Shares are
received by the Transfer Agent.
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Investment Objective
According to the Registration Statement and as further described
below, the Trust's investment objective is to seek to track the
performance of XRP, as measured by the CoinDesk XRP USD CCIX 30min NY
Rate (``Pricing Benchmark''), adjusted for the Trust's expenses and
other liabilities. In seeking to achieve its investment objective, the
[[Page 10651]]
Trust will hold XRP and will value its Shares daily as of 4:00 p.m. ET
using the same methodology used to calculate the Pricing Benchmark. All
of the Trust's XRP will be held by the Custodian.
The Pricing Benchmark
As described in the Registration Statement, The Trust will use the
Pricing Benchmark to calculate the Trust's NAV. The Trust will
determine the XRP Pricing Benchmark price and value its Shares daily
based on the value of XRP as reflected by the Pricing Benchmark. The
Pricing Benchmark will be calculated daily and aggregates the notional
value of XRP trading across major XRP spot trading platforms, as
determined by the provider.
Net Asset Value
NAV means the total assets of the Trust (which includes all XRP and
cash and cash equivalents) less total liabilities of the Trust. The
Administrator determines the NAV of the Trust on each day that the
Exchange is open for regular trading, as promptly as practical after
4:00 p.m. ET based on the closing value of the Pricing Benchmark. The
NAV of the Trust is the aggregate value of the Trust's assets less its
estimated accrued but unpaid liabilities (which include accrued
expenses). In determining the NAV, the Administrator values the XRP
held by the Trust based on the closing value of the Pricing Benchmark
as of 4:00 p.m. ET. The Administrator also determines the NAV per
Share. The NAV for the Trust will be calculated by the Administrator
once a day and will be disseminated daily to all market participants at
the same time.
Availability of Information
In addition to the price transparency of the Pricing Benchmark, the
Trust will provide information regarding the Trust's XRP holdings as
well as additional data regarding the Trust. The website for the Trust,
which will be publicly accessible at no charge, will contain the
following information: (a) the current NAV per Share daily and the
prior business day's NAV per Share and the reported BZX Official
Closing Price; \19\ (b) the BZX Official Closing Price in relation to
the NAV per Share as of the time the NAV is calculated and a
calculation of the premium or discount of such price against such NAV
per Share; (c) data in chart form displaying the frequency distribution
of discounts and premiums of the BZX Official Closing Price against the
NAV per Share, within appropriate ranges for each of the four previous
calendar quarters (or for the life of the Trust, if shorter); (d) the
prospectus; and (e) other applicable quantitative information. The
aforementioned information will be published as of the close of
business and available on the Sponsor's website at https://canary.capital, or any successor thereto. The NAV for the Trust will be
calculated by the Administrator once a day and will be disseminated
daily to all market participants at the same time. Quotation and last-
sale information regarding the Shares will be disseminated through the
facilities of the Consolidated Tape Association (``CTA''). The Trust
will also disseminate its holdings on a daily basis on its website.
---------------------------------------------------------------------------
\19\ As defined in Rule 11.23(a)(3), the term ``BZX Official
Closing Price'' shall mean the price disseminated to the
consolidated tape as the market center closing trade.
---------------------------------------------------------------------------
The Intraday Indicative Value (``IIV'') will be updated during
Regular Trading Hours to reflect changes in the value of the Trust's
XRP holdings during the trading day. The IIV disseminated during
Regular Trading Hours should not be viewed as an actual real-time
update of the NAV, which will be calculated only once at the end of
each trading day. The IIV may differ from the NAV because NAV is
calculated, using the closing value of the Pricing Benchmark, once a
day at 4 p.m. ET, whereas the IIV draws prices from the last trade on
each constituent platform in an effort to produce a relevant, real-time
price). The Trust will provide an IIV per Share updated every 15
seconds, as calculated by the Exchange or a third-party financial data
provider during the Exchange's Regular Trading Hours (9:30 a.m. to 4:00
p.m. E.T.). The IIV will be widely disseminated on a per Share basis
every 15 seconds during the Exchange's Regular Trading Hours through
the facilities of the CTA and Consolidated Quotation System (CQS) high
speed lines. In addition, the IIV will be available through on-line
information services, such as Bloomberg and Reuters.
The price of XRP will be made available by one or more major market
data vendors, updated at least every 15 seconds during Regular Trading
Hours.
As noted above, the Pricing Benchmark is calculated every 15
seconds and information about the Pricing Benchmark and Pricing
Benchmark value, including index data and key elements of how the
Pricing Benchmark is calculated, will be publicly available at a
website maintained by the provider of the Pricing Benchmark.
Quotation and last sale information for XRP is widely disseminated
through a variety of major market data vendors, including Bloomberg and
Reuters. Information relating to trading, including price and volume
information, in XRP is available from major market data vendors and
from the trading platforms on which XRP are traded. Depth of book
information is also available from XRP trading platforms. The normal
trading hours for XRP trading platforms are 24 hours per day, 365 days
per year.
Information regarding market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. Information
regarding the previous day's BZX Official Closing Price and trading
volume information for the Shares will be published daily in the
financial section of newspapers. Quotation and last-sale information
regarding the Shares will be disseminated through the facilities of the
CTA.
The Custodian
The Custodian's services (i) allow XRP to be deposited from a
public blockchain address to the Trust's XRP account and (ii) allow XRP
to be withdrawn from the XRP account to a public blockchain address as
instructed by the Trust. The custody agreement requires the Custodian
to hold the Trust's XRP in cold storage, unless required to facilitate
withdrawals as a temporary measure. The Custodian will use segregated
cold storage XRP addresses for the Trust which are separate from the
XRP addresses that the Custodian uses for its other customers and which
are directly verifiable via the XRP blockchain. The Custodian will
safeguard the private keys to the XRP associated with the Trust's XRP
account. The Custodian will at all times record and identify in its
books and records that such XRP constitutes the property of the Trust.
The Custodian will not withdraw the Trust's XRP from the Trust's
account with the Custodian, or loan, hypothecate, pledge or otherwise
encumber the Trust's XRP, without the Trust's instruction. If the
custody agreement terminates, the Sponsor may appoint another
custodian, and the Trust may enter into a custodian agreement with such
custodian.
Creation and Redemption of Shares
When the Trust sells or redeems its Shares, it will do so in cash
transactions in 10,000 Share increments (a Creation Basket) that are
based on the amount of XRP held by the Trust on a per Creation Basket
basis. According to the
[[Page 10652]]
Registration Statement, on any business day, an authorized participant
may place an order to create one or more Creation Baskets. Purchase
orders must be placed by 4:00 p.m. ET, or the close of regular trading
on the Exchange, whichever is earlier. The day on which an order is
received is considered the purchase order date. The total deposit of
cash required is based on the combined NAV of the number of Shares
included in the Creation Baskets being created determined as of 4:00
p.m. ET on the date the order to purchase is properly received. The
Administrator determines the quantity of XRP associated with a Creation
Basket for a given day by dividing the number of XRP held by the Trust
as of the opening of business on that business day, adjusted for the
amount of XRP constituting estimated accrued but unpaid fees and
expenses of the Trust as of the opening of business on that business
day, by the quotient of the number of Shares outstanding at the opening
of business divided by the number of Shares in a Creation Basket.
The 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 XRP 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 XRP as part of the creation or
redemption process.
The Trust will create Shares by receiving XRP from a third party
that is not the authorized participant and the Trust--not the
authorized participant--is responsible for selecting the third party to
facilitate the delivery of XRP. Further, the third party will not be
acting as an agent of the authorized participant with respect to the
delivery of the XRP to the Trust or acting at the direction of the
authorized participant with respect to the delivery of the XRP to the
Trust. When fulfilling a redemption request, the Trust will redeem
shares by delivering XRP to a third party that is not the authorized
participant and the Trust--not the authorized participant--is
responsible for selecting such third party to receive the XRP. Further,
the third party will not be acting as an agent of the authorized
participant with respect to the receipt of the XRP from the Trust or
acting at the direction of the authorized participant with respect to
the receipt of the XRP from the Trust.
The procedures by which an authorized participant can redeem one or
more Creation Baskets mirror the procedures for the creation of
Creation Baskets.
The Sponsor will maintain ownership and control of XRP in a manner
consistent with good delivery requirements for spot commodity
transactions.
Rule 14.11(e)(4)--Commodity-Based Trust Shares
The Shares will be subject to BZX Rule 14.11(e)(4), which sets
forth the initial and continued listing criteria applicable to
Commodity-Based Trust Shares. The Exchange represents that, for initial
and continued listing, the Trust must be in compliance with Rule 10A-3
under the Act. A minimum of 100,000 Shares will be outstanding at the
commencement of listing on the Exchange. The Exchange will obtain a
representation that the NAV will be calculated daily and that the NAV
and information about the assets of the Trust will be made available to
all market participants at the same time. The Exchange notes that, as
defined in Rule 14.11(e)(4)(C)(i), the Shares will be: (a) issued by a
trust that holds (1) a specified commodity \20\ deposited with the
trust, or (2) a specified commodity and, in addition to such specified
commodity, cash; (b) issued by such trust in a specified aggregate
minimum number in return for a deposit of a quantity of the underlying
commodity and/or cash; and (c) when aggregated in the same specified
minimum number, may be redeemed at a holder's request by such trust
which will deliver to the redeeming holder the quantity of the
underlying commodity and/or cash.
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\20\ For purposes of Rule 14.11(e)(4), the term commodity takes
on the definition of the term as provided in the Commodity Exchange
Act.
---------------------------------------------------------------------------
Upon termination of the Trust, the Shares will be removed from
listing. The Trustee, CSC Delaware Trust Company, is a trust company
having substantial capital and surplus and the experience and
facilities for handling corporate trust business, as required under
Rule 14.11(e)(4)(E)(iv)(a) and that no change will be made to the
trustee without prior notice to and approval of the Exchange. The
Exchange also notes that, pursuant to Rule 14.11(e)(4)(F), neither the
Exchange nor any agent of the Exchange shall have any liability for
damages, claims, losses or expenses caused by any errors, omissions or
delays in calculating or disseminating any underlying commodity value,
the current value of the underlying commodity required to be deposited
to the Trust in connection with issuance of Commodity-Based Trust
Shares; resulting from any negligent act or omission by the Exchange,
or any agent of the Exchange, or any act, condition or cause beyond the
reasonable control of the Exchange, its agent, including, but not
limited to, an act of God; fire; flood; extraordinary weather
conditions; war; insurrection; riot; strike; accident; action of
government; communications or power failure; equipment or software
malfunction; or any error, omission or delay in the reports of
transactions in an underlying commodity. Finally, as required in Rule
14.11(e)(4)(G), the Exchange notes that any registered market maker
(``Market Maker'') in the Shares must file with the Exchange in a
manner prescribed by the Exchange and keep current a list identifying
all accounts for trading in an underlying commodity, related commodity
futures or options on commodity futures, or any other related commodity
derivatives, which the registered Market Maker may have or over which
it may exercise investment discretion. No registered Market Maker shall
trade in an underlying commodity, related commodity futures or options
on commodity futures, or any other related commodity derivatives, in an
account in which a registered Market Maker, directly or indirectly,
controls trading activities, or has a direct interest in the profits or
losses thereof, which has not been reported to the Exchange as required
by this Rule. In addition to the existing obligations under Exchange
rules regarding the production of books and records (see, e.g., Rule
4.2), the registered Market Maker in Commodity-Based Trust Shares shall
make available to the Exchange such books, records or other information
pertaining to transactions by such entity or registered or non-
registered employee affiliated with such entity for its or their own
accounts for trading the underlying physical commodity, related
commodity futures or options on commodity futures, or any other related
commodity derivatives, as may be requested by the Exchange.
The Exchange is able to obtain information regarding trading in the
Shares and the underlying XRP or any other XRP derivative through
members acting as registered Market Makers, in connection with their
proprietary or customer trades.
As a general matter, the Exchange has regulatory jurisdiction over
its Members and their associated persons, which include any person or
entity controlling a Member. To the extent the Exchange may be found to
lack jurisdiction over a subsidiary or affiliate of a Member that does
business only in commodities or futures contracts, the Exchange could
obtain information regarding the
[[Page 10653]]
activities of such subsidiary or affiliate through surveillance sharing
agreements with regulatory organizations of which such subsidiary or
affiliate is a member.
Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares. The Exchange will halt trading in the Shares
under the conditions specified in BZX Rule 11.18. Trading may be halted
because of market conditions or for reasons that, in the view of the
Exchange, make trading in the Shares inadvisable. These may include:
(1) the extent to which trading is not occurring in the XRP underlying
the Shares; or (2) whether other unusual conditions or circumstances
detrimental to the maintenance of a fair and orderly market are
present. Trading in the Shares also will be subject to Rule
14.11(e)(4)(E)(ii), which sets forth circumstances under which trading
in the Shares may be halted.
If the IIV or the value of the Pricing Benchmark is not being
disseminated as required, the Exchange may halt trading during the day
in which the interruption to the dissemination of the IIV or the value
of the Pricing Benchmark occurs. If the interruption to the
dissemination of the IIV or the value of the Pricing Benchmark persists
past the trading day in which it occurred, the Exchange will halt
trading no later than the beginning of the trading day following the
interruption.
In addition, if the Exchange becomes aware that the NAV with
respect to the Shares is not disseminated to all market participants at
the same time, it will halt trading in the Shares until such time as
the NAV is available to all market participants.
Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. BZX will allow
trading in the Shares during all trading sessions on the Exchange. The
Exchange has appropriate rules to facilitate transactions in the Shares
during all trading sessions. As provided in BZX Rule 11.11(a) the
minimum price variation for quoting and entry of orders in securities
traded on the Exchange is $0.01 where the price is greater than $1.00
per share or $0.0001 where the price is less than $1.00 per share. The
Shares of the Trust will conform to the initial and continued listing
criteria set forth in BZX Rule 14.11(e)(4).
Surveillance
The Exchange represents that its surveillance procedures are
adequate to properly monitor the trading of the Shares on the Exchange
during all trading sessions and to deter and detect violations of
Exchange rules and the applicable federal securities laws. Trading of
the Shares through the Exchange will be subject to the Exchange's
surveillance procedures for derivative products, including Commodity-
Based Trust Shares. FINRA conducts certain cross-market surveillances
on behalf of the Exchange pursuant to a regulatory services agreement.
The Exchange is responsible for FINRA's performance under this
regulatory services agreement.
The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares or any other XRP
derivative with other markets and other entities that are members of
the ISG, and the Exchange, or FINRA, on behalf of the Exchange, or
both, may obtain trading information regarding trading in the Shares or
any other XRP derivative from such markets and other entities.\21\ The
Exchange may obtain information regarding trading in the Shares or any
other XRP derivative via ISG, from other exchanges who are members or
affiliates of the ISG, or with which the Exchange has entered into a
comprehensive surveillance sharing agreement.
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\21\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com.
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In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
The Sponsor has represented to the Exchange that it will advise the
Exchange of any failure by the Trust or the Shares to comply with the
continued listing requirements, and, pursuant to its obligations under
Section 19(g)(1) of the Exchange Act, the Exchange will surveil for
compliance with the continued listing requirements. If the Trust or the
Shares are not in compliance with the applicable listing requirements,
the Exchange will commence delisting procedures under Exchange Rule
14.12.
Information Circular
Prior to the commencement of trading, the Exchange will inform its
members in an Information Circular of the special characteristics and
risks associated with trading the Shares. Specifically, the Information
Circular will discuss the following: (i) the procedures for the
creation and redemption of Creation Baskets (and that the Shares are
not individually redeemable); (ii) BZX Rule 3.7, which imposes
suitability obligations on Exchange members with respect to
recommending transactions in the Shares to customers; (iii) how
information regarding the IIV and the Trust's NAV are disseminated;
(iv) the risks involved in trading the Shares outside of Regular
Trading Hours \22\ when an updated IIV will not be calculated or
publicly disseminated; (v) the requirement that members deliver a
prospectus to investors purchasing newly issued Shares prior to or
concurrently with the confirmation of a transaction; and (vi) trading
information. The Information Circular will also reference the fact that
there is no regulated source of last sale information regarding XRP,
and that the Commission has no jurisdiction over the trading of XRP as
a commodity.
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\22\ Regular Trading Hours is the time between 9:30 a.m. and
4:00 p.m. Eastern Time.
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In addition, the Information Circular will advise members, prior to
the commencement of trading, of the prospectus delivery requirements
applicable to the Shares. Members purchasing the Shares for resale to
investors will deliver a prospectus to such investors. The Information
Circular will also discuss any exemptive, no-action and interpretive
relief granted by the Commission from any rules under the Act.
2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act \23\ in general and Section 6(b)(5) of the Act \24\ in
particular in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system and, in general, to protect investors and the
public interest.
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\23\ 15 U.S.C. 78f.
\24\ 15 U.S.C. 78f(b)(5).
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The Commission has approved numerous series of Trust Issued
Receipts,\25\ including Commodity-Based Trust Shares,\26\ to be listed
on U.S. national securities exchanges. In order for any proposed rule
change from an exchange to be approved, the Commission must determine
that, among other things, the proposal is
[[Page 10654]]
consistent with the requirements of Section 6(b)(5) of the Act,
specifically including: (i) the requirement that a national securities
exchange's rules are designed to prevent fraudulent and manipulative
acts and practices; \27\ and (ii) the requirement that an exchange
proposal be designed, in general, to protect investors and the public
interest. The Exchange believes that this proposal is consistent with
the requirements of Section 6(b)(5) of the Act and that this filing
sufficiently demonstrates that potential policy concerns under the Act
are sufficiently mitigated to the point that they are outweighed by
quantifiable investor protection issues that would be resolved by
approving this proposal.
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\25\ See Exchange Rule 14.11(f).
\26\ Commodity-Based Trust Shares, as described in Exchange Rule
14.11(e)(4), are a type of Trust Issued Receipt.
\27\ Much like bitcoin and ETH, the Exchange believes that XRP
is resistant to price manipulation and that ``other means to prevent
fraudulent and manipulative acts and practices'' exist to justify
dispensing with the requisite surveillance sharing agreement. The
geographically diverse and continuous nature of XRP trading render
it difficult and prohibitively costly to manipulate the price of
XRP. The fragmentation across platforms and the capital necessary to
maintain a significant presence on each trading platform make
manipulation of XRP prices through continuous trading activity
challenging. To the extent that there are trading platforms engaged
in or allowing wash trading or other activity intended to manipulate
the price of XRP on other markets, such pricing does not normally
impact prices on other trading platforms because participants will
generally ignore markets with quotes that they deem non-executable.
Moreover, the linkage between XRP markets and the presence of
arbitrageurs in those markets means that the manipulation of the
price of XRP on any single venue would require manipulation of the
global XRP price in order to be effective. Arbitrageurs must have
funds distributed across multiple trading platforms in order to take
advantage of temporary price dislocations, thereby making it
unlikely that there will be strong concentration of funds on any
particular trading platforms or OTC platform. Further, the speed and
relatively inexpensive nature of transactions on the Ripple network
allow arbitrageurs to quickly move capital between trading platforms
where price dislocations may occur. As a result, the potential for
manipulation on a trading platform would require overcoming the
liquidity supply of such arbitrageurs who are effectively
eliminating any cross-market pricing differences.
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More recently, the Commission has applied the Winklevoss Test while
also recognizing that the ``regulated market of significant size''
standard is not the only means for satisfying Section 6(b)(5) of the
Act. In the specifically providing that a listing exchange could
demonstrate that ``other means to prevent fraudulent and manipulative
acts and practices'' are sufficient to justify dispensing with the
requisite surveillance-sharing agreement.\28\ While there is currently
no futures market for XRP, in the Spot Bitcoin ETF Approval Order and
Spot ETH ETF Approval Order the Commission determined that the CME
bitcoin futures market and CME ETH futures market, respectively, were
not of ``significant size'' related to the spot market. Instead, the
Commission found that sufficient ``other means'' of preventing fraud
and manipulation had been demonstrated that justified dispensing with a
surveillance-sharing agreement of significant size. The Exchange and
Sponsor believe that this proposal provides for other means of
preventing fraud and manipulation justify dispensing with a
surveillance-sharing agreement of significant size.
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\28\ See Winklevoss Order at 37580. The Commission has also
specifically noted that it ``is not applying a `cannot be
manipulated' standard; instead, the Commission is examining whether
the proposal meets the requirements of the Exchange Act and,
pursuant to its Rules of Practice, places the burden on the listing
exchange to demonstrate the validity of its contentions and to
establish that the requirements of the Exchange Act have been met.''
Id. at 37582.
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The Exchange believes that the proposal is designed to protect
investors and the public interest. Over the past several years, U.S.
investor exposure to XRP, through OTC XRP Funds and digital asset
trading platforms, has grown into billions of dollars with a fully
diluted market cap of greater than $300 billion. The Exchange believes
that approving this proposal (and comparable proposals) provides the
Commission with the opportunity to allow U.S. investors with access to
XRP in a regulated and transparent exchange-traded vehicle that would
act to limit risk to U.S. investors by: (i) reducing premium and
discount volatility; (ii) reducing management fees through meaningful
competition; and (iii) providing an alternative to custodying spot XRP.
The Exchange believes that the policy concerns are mitigated by the
fact that the size of the market for the underlying reference asset
($300+ billion fully diluted value) and the nature of the XRP ecosystem
reduces its susceptibility to manipulation. The geographically diverse
and continuous nature of XRP trading makes it difficult and
prohibitively costly to manipulate the price of XRP and, in many
instances, the XRP market can be less susceptible to manipulation than
the equity, fixed income, and commodity futures markets. There are a
number of reasons this is the case, including that there is not inside
information about revenue, earnings, corporate activities, or sources
of supply; manipulation of the price on any single venue would require
manipulation of the global XRP price in order to be effective; a
substantial over-the-counter market provides liquidity and shock-
absorbing capacity; XRP's 24/7/365 nature provides constant arbitrage
opportunities across all trading venues; and it is unlikely that any
one actor could obtain a dominant market share.
Further, XRP is arguably less susceptible to manipulation than
other commodities that underlie ETPs; there may be inside information
relating to the supply of the physical commodity such as the discovery
of new sources of supply or significant disruptions at mining
facilities that supply the commodity that simply are inapplicable as it
relates to certain cryptoassets, including XRP. Further, the Exchange
believes that the fragmentation across XRP trading platforms and
increased adoption of XRP, as displayed through increased user
engagement and trading volumes, and the XRP network make manipulation
of XRP prices through continuous trading activity more difficult.
Moreover, the linkage between the XRP markets and the presence of
arbitrageurs in those markets means that the manipulation of the price
of XRP price on any single venue would require manipulation of the
global XRP price in order to be effective. Arbitrageurs must have funds
distributed across multiple XRP trading platforms in order to take
advantage of temporary price dislocations, thereby making it unlikely
that there will be strong concentration of funds on any particular XRP
trading platform. As a result, the potential for manipulation on a
particular XRP trading platform would require overcoming the liquidity
supply of such arbitrageurs who are effectively eliminating any cross-
market pricing differences. For all of these reasons, XRP is not
particularly susceptible to manipulation, especially as compared to
other approved ETP reference assets.
Commodity-Based Trust Shares
The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed on the Exchange pursuant to the initial and
continued listing criteria in Exchange Rule 14.11(e)(4). The Exchange
believes that its surveillance procedures are adequate to properly
monitor the trading of the Shares on the Exchange during all trading
sessions and to deter and detect violations of Exchange rules and the
applicable federal securities laws. Trading of the Shares through the
Exchange will be subject to the Exchange's surveillance procedures for
derivative products, including Commodity-Based Trust Shares. The issuer
has represented to the Exchange that it will advise the Exchange of any
failure by the Trust or the Shares to comply with the continued listing
requirements, and,
[[Page 10655]]
pursuant to its obligations under Section 19(g)(1) of the Exchange Act,
the Exchange will surveil for compliance with the continued listing
requirements. If the Trust or the Shares are not in compliance with the
applicable listing requirements, the Exchange will commence delisting
procedures under Exchange Rule 14.12. The Exchange may obtain
information regarding trading in the Shares and listed XRP derivatives
via the ISG, from other exchanges who are members or affiliates of the
ISG, or with which the Exchange has entered into a comprehensive
surveillance sharing agreement.
Availability of Information
In addition to the price transparency of the Pricing Benchmark, the
Trust will provide information regarding the Trust's XRP holdings as
well as additional data regarding the Trust. The website for the Trust,
which will be publicly accessible at no charge, will contain the
following information: (a) the current NAV per Share daily and the
prior business day's NAV per Share and the reported BZX Official
Closing Price; \29\ (b) the BZX Official Closing Price in relation to
the NAV per Share as of the time the NAV is calculated and a
calculation of the premium or discount of such price against such NAV
per Share; (c) data in chart form displaying the frequency distribution
of discounts and premiums of the BZX Official Closing Price against the
NAV per Share, within appropriate ranges for each of the four previous
calendar quarters (or for the life of the Trust, if shorter); (d) the
prospectus; and (e) other applicable quantitative information. The
aforementioned information will be published as of the close of
business and available on the Sponsor's website at www.canary.capital,
or any successor thereto. The NAV for the Trust will be calculated by
the Administrator once a day and will be disseminated daily to all
market participants at the same time. Quotation and last-sale
information regarding the Shares will be disseminated through the
facilities of the CTA. The Trust will also disseminate its holdings on
a daily basis on its website.
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\29\ As defined in Rule 11.23(a)(3), the term ``BZX Official
Closing Price'' shall mean the price disseminated to the
consolidated tape as the market center closing trade.
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The Intraday Indicative Value (``IIV'') will be updated during
Regular Trading Hours to reflect changes in the value of the Trust's
XRP holdings during the trading day. The IIV may differ from the NAV
because NAV is calculated, using the closing value of the Pricing
Benchmark, once a day at 4:00 p.m. Eastern time whereas the IIV draws
prices from the last trade on each constituent platform to produce a
relevant, real-time price. The IIV disseminated during Regular Trading
Hours should not be viewed as an actual real-time update of the NAV,
which will be calculated only once at the end of each trading day. The
Trust will provide an IIV per Share updated every 15 seconds, as
calculated by the Exchange or a third-party financial data provider
during the Exchange's Regular Trading Hours (9:30 a.m. to 4:00 p.m.
E.T.). The IIV will be widely disseminated on a per Share basis every
15 seconds during the Exchange's Regular Trading Hours through the
facilities of the CTA and CQS high speed lines. In addition, the IIV
will be available through on-line information services such as
Bloomberg and Reuters.
The price of XRP will be made available by one or more major market
data vendors, updated at least every 15 seconds during Regular Trading
Hours.
As noted above, the Pricing Benchmark is calculated every 15
seconds and information about the Pricing Benchmark and Pricing
Benchmark value, including index data and key elements of how the
Pricing Benchmark is calculated, will be publicly available at a
website maintained by the provider of the Pricing Benchmark.
Quotation and last sale information for XRP is widely disseminated
through a variety of major market data vendors, including Bloomberg and
Reuters. Information relating to trading, including price and volume
information, in XRP is available from major market data vendors and
from the trading platforms on which XRP are traded. Depth of book
information is also available from XRP trading platforms. The normal
trading hours for XRP trading platforms are 24 hours per day, 365 days
per year.
Information regarding market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. Information
regarding the previous day's BZX Official Closing Price and trading
volume information for the Shares will be published daily in the
financial section of newspapers. Quotation and last-sale information
regarding the Shares will be disseminated through the facilities of the
CTA.
In sum, the Exchange believes that this proposal is consistent with
the requirements of Section 6(b)(5) of the Act, that on the whole the
manipulation concerns previously articulated by the Commission are
sufficiently mitigated to the point that they are outweighed by
investor protection issues that would be resolved by approving this
proposal.
The Exchange believes that the proposal is, in particular, designed
to protect investors and the public interest. The investor protection
issues for U.S. investors has grown significantly over the last several
years, through premium/discount volatility and management fees for OTC
XRP Funds. As discussed throughout, this growth investor protection
concerns need to be re-evaluated and rebalanced with the prevention of
fraudulent and manipulative acts and practices concerns that previous
disapproval orders have relied upon.
For the above reasons, the Exchange believes that the proposed rule
change is consistent with the requirements of Section 6(b)(5) of the
Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. The Exchange notes that the
proposed rule change, rather will facilitate the listing and trading of
an additional exchange-traded product that will enhance competition
among both market participants and listing venues, to the benefit of
investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
A. by order approve or disapprove such proposed rule change, or
B. institute proceedings to determine whether the proposed rule
change should be disapproved.
[[Page 10656]]
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change, is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-CboeBZX-2025-022 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-CboeBZX-2025-022. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-CboeBZX-2025-022 and should
be submitted on or before March 18, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-03029 Filed 2-24-25; 8:45 am]
BILLING CODE 8011-01-P
