[Federal Register Volume 82, Number 80 (Thursday, April 27, 2017)]
[Notices]
[Pages 19397-19398]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-08461]



[[Page 19397]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80501; File No. SR-NYSEArca-2016-176]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting 
Proceedings To Determine Whether To Approve or Disapprove a Proposed 
Rule Change Relating to the Listing and Trading of Shares of the 
EtherIndex Ether Trust Under NYSE Arca Equities Rule 8.201

April 21, 2017.
    On December 30, 2016, NYSE Arca, Inc. (``NYSE Arca'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade shares (``Shares'') of the 
EtherIndex Ether Trust (``Trust'') under NYSE Arca Equities Rule 8.201. 
The proposed rule change was published for comment in the Federal 
Register on January 23, 2017.\3\ On February 23, 2017, pursuant to 
Section 19(b)(2) of the Act,\4\ the Commission designated a longer 
period within which to approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
approve or disapprove the proposed rule change.\5\ The Commission has 
received no comments on the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 79792 (Jan. 13, 
2017), 82 FR 7891 (Jan. 23, 2017) (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 80094 (Feb. 23, 
2017), 82 FR 12268 (Mar. 1, 2017). The Commission designated April 
23, 2017, as the date by which it should approve, disapprove, or 
institute proceedings to determine whether to approve or disapprove 
the proposed rule change.
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    This order institutes proceedings under Section 19(b)(2)(B) of the 
Act \6\ to determine whether to approve or disapprove the proposed rule 
change.
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    \6\ 15 U.S.C. 78s(b)(2)(B).
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I. Summary of the Proposal \7\
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    \7\ The Commission notes that additional information regarding 
the Trust and the Shares can be found in the Notice, see supra note 
3, and the Registration Statement, which was filed by the Trust on 
Form S-1 under the Securities Act of 1933 on July 15, 2016, and 
amended on November 28, 2016. This additional information addresses 
the Trust's investment objectives, risks, creation and redemption 
procedures, fees, portfolio holdings disclosure policies, 
calculation of the net asset value (``NAV''), distributions, and 
taxes, as well as additional background information about ether and 
the Ethereum Network, including information relating to, among other 
things, Ethereum Network operations, ether transfers and 
transactions, cryptographic security used in the Ethereum Network, 
ether mining and creation of new ether, the supply of ether, and 
modifications to the ether protocol.
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    The Exchange proposes to list and trade the Shares under NYSE Arca 
Equities Rule 8.201, which governs the listing and trading of 
Commodity-Based Trust Shares on the Exchange.\8\ Each Share would 
represent a fractional undivided beneficial interest in the Trust's net 
assets. According to the Exchange, the Trust's assets primarily would 
consist of ether,\9\ which would be held in the custody of, and secured 
by, the Trust's ether custodian, Coinbase (``Custodian'').\10\ The 
Trust would create and redeem the Shares only in ``Baskets'' of 10,000 
Shares, and orders to create and redeem Baskets may be placed only by 
Authorized Participants. The creation and redemption transactions would 
be conducted for cash or, at the discretion of the sponsor of the 
Trust, EtherIndex LLC, ``in-kind'' for ether, and the NAV of the 
Baskets being created or redeemed would be based on the aggregate 
number of ether represented by the Shares included in the Baskets as of 
the day the order to create or redeem was properly received.
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    \8\ See NYSE Arca Equities Rule 8.201 (permitting the listing 
and trading of ``Commodity-Based Trust Shares,'' defined as a 
security ``(a) that is issued by a trust that holds a specified 
commodity deposited with the Trust; (b) that is issued by such Trust 
in a specified aggregate minimum number in return for a deposit of a 
quantity of the underlying commodity; and (c) that, 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'').
    \9\ The Exchange represents that ether is a digital asset 
similar to bitcoin and is not issued by any government, bank, or 
central organization, but rather is issued by, and is transmitted 
through, the decentralized, open-source protocol of the peer-to-peer 
Ethereum Network. The Exchange represents that unlike bitcoin, ether 
was not designed to function purely as a store of value. Instead, 
ether was meant to pay for specific actions on the Ethereum Network. 
However, according to the Exchange, ether's market is currently 
supported by many of the same online exchanges and the same 
infrastructure that has developed around the bitcoin network.
    \10\ According to the Exchange, the private keys that control 
the Trust's ether would be secured by the Custodian and stored 
completely offline in a ``cold storage'' system. The Exchange 
represents that the Custodian's cold storage system is founded on 
the principles of (i) building defense-in-depth against external 
threats, (ii) protecting against human error, and (iii) guarding 
against misuse of insider access. The Custodian's cold storage 
mechanism involves generating private keys on an ``air-gapped'' 
computer (i.e., a computer that has never been connected to the 
Internet), then splitting these keys into segments using a special 
algorithm to ensure that no one individual knows how the key was 
fragmented, and finally distributing these fragments geographically 
so that no one entity can access the cold storage without the other 
individuals contributing their fragment of the key. According to the 
Exchange, the Custodian maintains insurance against theft and 
electronic compromise in an amount that exceeds the average value of 
ether that it holds online at any one time. The Exchange also 
represents that the Trust may hold cash for short periods in 
connection with the creation and redemption process and to pay 
certain fees, expenses, and liabilities.
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    The investment objective of the Trust would be for the Shares to 
track the price of ether as measured by the price of ether in U.S. 
dollars reported by the Global Digital Asset Exchange (``GDAX'') as of 
4:00 p.m., Eastern Time (``GDAX Price''). The NAV of the Trust would be 
calculated each business day based on the GDAX Price. The Trust's Web 
site would provide an intra-day indicative value (``IIV'') per Share 
updated every 15 seconds, as calculated by the Exchange or a third-
party financial data provider during the Exchange's Core Trading 
Session (i.e., 9:30 a.m. ET to 4:00 p.m. Eastern Time). The IIV would 
be calculated by using the prior day's closing NAV per Share as a base 
and updating that value during the NYSE Arca Core Trading Session to 
reflect changes in the value of the Trust's ether holdings during the 
trading day.

II. Proceedings to Determine Whether To Approve or Disapprove SR-
NYSEArca-2016-176 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \11\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change. Institution of proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved. Rather, as described below, the 
Commission seeks and encourages interested persons to provide comments 
on the proposed rule change.
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    \11\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\12\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposed rule change's consistency with Section 6(b)(5) 
of the Act, which requires, among other things, that the rules of a 
national securities exchange be ``designed to prevent fraudulent and 
manipulative acts and practices'' and ``to protect investors and the 
public interest.'' \13\
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    \12\ Id.
    \13\ 15 U.S.C. 78f(b)(5).

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[[Page 19398]]

III. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposal is 
consistent with Section 6(b)(5) or any other provision of the Act, or 
the rules and regulations thereunder. Although there do not appear to 
be any issues relevant to approval or disapproval that would be 
facilitated by an oral presentation of views, data, and arguments, the 
Commission will consider, pursuant to Rule 19b-4, any request for an 
opportunity to make an oral presentation.\14\
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    \14\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal should be approved or 
disapproved by May 18, 2017. Any person who wishes to file a rebuttal 
to any other person's submission must file that rebuttal by June 1, 
2017. The Commission asks that commenters address the sufficiency of 
the Exchange's statements in support of the proposal, which are set 
forth in the Notice.\15\ In addition to any other comments commenters 
may wish to submit about the proposed rule change, the Commission 
invites commenters' views concerning any features that distinguish the 
Exchange's proposal from other proposals to list and trade shares of 
commodity-trust ETPs.
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    \15\ See supra note 3.
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    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEArca-2016-176 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 Numbers SR-NYSEArca-2016-176. 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 Web site (http://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 Web site 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 
10:00 a.m. and 3:00 p.m. Copies of these filings also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2016-176 and should 
be submitted on or before May 18, 2017. Rebuttal comments should be 
submitted by June 1, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(57).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-08461 Filed 4-26-17; 8:45 am]
BILLING CODE 8011-01-P