[Federal Register Volume 84, Number 189 (Monday, September 30, 2019)]
[Notices]
[Pages 51646-51649]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-21097]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87071; File No. SR-NYSEArca-2019-39]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting 
Proceedings To Determine Whether To Approve or Disapprove a Proposed 
Rule Change To Amend NYSE Arca Rule 8.201-E (Commodity-Based Trust 
Shares) and To List and Trade Shares of the United States Bitcoin and 
Treasury Investment Trust Under NYSE Arca Rule 8.201-E

September 24, 2019.
    On June 12, 2019, 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 
amend NYSE Arca Rule 8.201-E and to list and trade shares (``Shares'') 
of the United States Bitcoin and Treasury Investment Trust (``Trust'') 
under NYSE Arca Rule 8.201-E, as proposed to be amended. The proposed 
rule change was published for comment in the Federal Register on July 
1, 2019.\3\
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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. 86195 (June 25, 
2019), 84 FR 31373 (July 1, 2019) (``Notice''). Comments on the 
proposed rule change can be found at: https://www.sec.gov/comments/sr-nysearca-2019-39/srnysearca201939.htm.
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    On August 12, 2019, pursuant to Section 19(b)(2) of the Act,\4\ the 
Commission designated a longer period

[[Page 51647]]

within which to approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
disapprove the proposed rule change.\5\ 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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    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 86631 (Aug. 12, 
2019), 84 FR 42028 (Aug. 16, 2019). The Commission designated 
September 29, 2019, as the date by which it should approve, 
disapprove, or institute proceedings to determine whether to 
disapprove the proposed rule change.
    \6\ 15 U.S.C. 78s(b)(2)(B).
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I. Summary of the Proposal

    As described in detail in the Notice,\7\ the Exchange proposes to 
amend NYSE Arca Rule 8.201-E, which governs the listing and trading of 
Commodity-Based Trust Shares on the Exchange,\8\ and to list and trade 
Shares of the Trust under NYSE Arca Rule 8.201-E, as proposed to be 
amended.
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    \7\ See Notice, supra note 3.
    \8\ NYSE Arca Rule 8.201-E(c)(1) defines the term ``Commodity-
Based Trust Shares'' 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.
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Proposed Amendments to NYSE Arca Rule 8.201-E

    NYSE Arca Rule 8.201-E(c)(1) currently states that Commodity-Based 
Trust Shares are issued by a trust in a specified aggregate minimum 
number in return for a deposit of a quantity of the underlying 
commodity, and may be redeemed in the same specified minimum number by 
a holder for the quantity of the underlying commodity. The Exchange 
proposes to amend Rule 8.201-E(c)(1) to provide that Commodity-Based 
Trust Shares may be issued and redeemed for the underlying commodity 
and/or cash. The Exchange further proposes to amend Rule 8.201-E(c)(2) 
to state that the term ``commodity'' is defined in Section 1(a)(9) of 
the Commodity Exchange Act.

Proposal To List and Trade Shares of the Trust

    The Shares would be issued by the Trust, a Delaware statutory 
trust.\9\ The Trust would operate pursuant to a trust agreement between 
Wilshire Phoenix Funds, LLC (``Sponsor'') and Delaware Trust Company. 
UMB Bank N.A. would act as custodian for the Trust's cash and U.S. 
treasury assets (``Cash and Treasury Custodian''), and UMB Fund 
Services, Inc. would act as the transfer agent and administrator of the 
Trust. Coinbase Custody Trust Company, LLC would act as the Bitcoin 
custodian for the Trust (``Bitcoin Custodian'').
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    \9\ On May 21, 2019, the Trust filed Amendment 3 to Form S-1 
under the Securities Act of 1933 (File No. 333-229187).
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    The investment objective of the Trust would be for the Shares to 
closely reflect the Bitcoin Treasury Index (``Index''), less the 
Trust's liabilities and expenses. The Trust would have no assets other 
than (a) bitcoin and (b) short-term U.S. Treasury securities with a 
maturity of less than one year (``T-Bills''). The Trust would also hold 
U.S. dollars for short periods of time in connection with (i) the 
maturity of any T-Bills, (ii) the purchase and sale of bitcoin and/or 
T-Bills, and (iii) the payment of redemptions, if any, and fees and 
expenses of the Trust. Bitcoin would be held by the Bitcoin Custodian 
on behalf of the Trust, and T-Bills and U.S. dollars would be held by 
the Cash and Treasury Custodian on behalf of the Trust. The amount of 
bitcoin and T-Bills held by the Trust would be determined by the 
Index.\10\
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    \10\ See Notice, supra note 3, 84 FR at 31374-76.
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    The Index is calculated and published by Solactive AG (``Index 
Calculation Agent'').\11\ The level of the Index is published on each 
business day at approximately 5:00 p.m. Eastern time and has two 
components: (1) A notional component representing bitcoin (``Bitcoin 
Component''); and (2) a notional component representing T-Bills 
(``Treasury Component''). On a monthly basis, the Index rebalances its 
weighting of the Bitcoin Component and the Treasury Component utilizing 
a mathematically derived passive rules-based methodology that is based 
on the daily volatility of the ``Bitcoin Price.'' The Bitcoin Price, 
which will be the price of bitcoin used to determine the weighting of 
the Bitcoin Component and the Treasury Component of the Index, as well 
as the value of bitcoin held by the Trust, is based on the Chicago 
Mercantile Exchange (``CME'') CF Bitcoin Reference Rate (``CME CF 
BRR''). On a monthly basis, following the calculation of the weighting 
of the components of the Index, the Trust would rebalance its holdings 
in bitcoin and T-Bills in order to closely replicate the Index.\12\
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    \11\ According to the Exchange, the Index is a passive, rules-
based index, and the Index Calculation Agent provides calculation 
services only. The Index Calculation Agent is not affiliated with 
the Sponsor and has represented that it and its employees are 
subject to market abuse laws and that the Index Calculation Agent 
has established and maintains processes and procedures to prevent 
the use and dissemination of material, non-public information 
regarding the Index. See id. at 31375 n.11.
    \12\ See id. at 31375-76.
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    According to the proposal, the Trust may offer and sell Shares from 
time to time through (1) underwriters, placement agents, or 
distributors, or such other means as the Sponsor may determine or (2) 
through subscription agreements. In addition, upon at least five 
business days' prior written notice, a shareholder may redeem all or a 
portion of its Shares on the last business day of each calendar month. 
All redemptions will be based on the net asset value (``NAV'') of 
Shares submitted for redemption, determined as of the last business day 
of the applicable calendar month. In general, redemptions will be 
deemed to occur on a ``first-in first-out'' basis among Shares held by 
a particular shareholder.\13\
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    \13\ See id. at 31377.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEArca-2019-39 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \14\ 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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    \14\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\15\ 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, to promote just and equitable 
principles of trade,'' and ``to protect investors and the public 
interest.'' \16\
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    \15\ Id.
    \16\ 15 U.S.C. 78f(b)(5).
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    The Commission asks that commenters address the sufficiency of the 
Exchange's statements in support of the proposal, which are set forth 
in the

[[Page 51648]]

Notice,\17\ in addition to any other comments they may wish to submit 
about the proposed rule change. In particular, the Commission seeks 
comment on the following questions and asks commenters to submit data 
where appropriate to support their views:
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    \17\ See Notice, supra note 3.
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    1. What are commenters' views of the Exchange's assertion that the 
``proper `market' that one should evaluate to determine whether the 
`market' is inherently resistant to manipulation is the segment of the 
market formed by the Constituent Platforms''? \18\ What are commenters' 
views of the Exchange's conclusion that, while bitcoin is listed and 
traded on a number of markets and platforms, the CME CF BRR exclusively 
utilizes its Constituent Platforms to determine the value of the CME CF 
BRR, and therefore, use of the CME CF BRR would mitigate the effects of 
potential manipulation of the bitcoin market? \19\ Additionally, what 
are commenters' views of the Exchange's assertion that the capital 
necessary to maintain a significant presence on any Constituent 
Platform would make manipulation of the CME CF BRR unlikely? \20\
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    \18\ See id. at 31378.
    \19\ See id. at 31383.
    \20\ See id. at 31379.
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    2. What are commenters' views of the Exchange's assertion that the 
CME CF BRR is not susceptible to manipulation? What are commenters' 
views of the Exchange's assertion that the linkage between the bitcoin 
markets and the presence of arbitrageurs in those markets means that 
the manipulation of the price of bitcoin on any Constituent Platform 
would likely require overcoming the liquidity supply of such 
arbitrageurs who are potentially eliminating any cross-market pricing 
differences? \21\
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    \21\ See id. (``The linkage between the [b]itcoin markets and 
the presence of arbitrageurs . . . in those markets means that the 
manipulation of the price of [b]itcoin on any Constituent Platform 
would likely require overcoming the liquidity supply of such 
arbitrageurs who are potentially eliminating any cross-market 
pricing differences.'').
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    3. What are commenters' views of the Exchange's arguments that 
substantially similar price discovery and degrees of price volatility 
among each of the Constituent Platforms support the conclusion that 
robust arbitrage trading and liquidity provision occurs among the 
Constituent Platforms? \22\
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    \22\ See id. at 31378-79.
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    4. What are commenters' views on whether the Constituent Platforms 
are regulated markets of significant size related to bitcoin? What are 
commenters' views on the Exchange's assertion that, because the CME CF 
BRR is calculated based solely on the price data from the Constituent 
Platforms, manipulating the CME CF BRR must necessarily entail 
manipulating the price data at one or more Constituent Platforms and 
that anyone attempting to manipulate the Trust would need to place 
numerous large sized trades on any of the Constituent Platforms that 
are used to calculate the CME CF BRR? \23\ What are commenters' views 
on the Exchange's argument that, if an attempt were made to manipulate 
the Trust, the administrator for the CME CF BRR and the CME would be 
able to detect the manipulative trading patterns? \24\ What are 
commenters' views on the Exchange's assertion that the CME and the 
Exchange would be able, in the case of any suspicious trades, to share 
surveillance information with the Constituent Platforms and to discover 
all material trade information including the identities of the 
customers placing the trades? \25\
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    \23\ See id. at 31380 & n.50.
    \24\ See id. at 31380 & n.51.
    \25\ See id. at 31380.
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    5. What are commenters' views of the Exchange's assertion that the 
trading volume in CME bitcoin futures makes the CME a regulated market 
of significant size related to bitcoin? \26\ Additionally, what are 
commenters' views of the Exchange's assertions that, in comparison, the 
bitcoin futures market is larger in size as a percentage of bitcoin 
spot trading than the size of the gold futures markets as a percentage 
of OTC gold trading? \27\ What are commenters' views on whether there 
is a reasonable likelihood that a person attempting to manipulate the 
Shares would also have to trade on the CME to manipulate the Shares?
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    \26\ See id.
    \27\ See id.
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    6. What are commenters' views on the trading relationship between 
the CME and the Constituent Platforms or the bitcoin spot market more 
broadly? For example, what is the relative size of these markets, and 
where does bitcoin price formation occur? Does the market, spot or 
futures, in which price formation occurs affect commenters' analysis of 
whether it is reasonably likely that someone attempting to manipulate 
the Shares would have to trade on the CME, or that trading in the 
Shares would be the predominant influence on prices on the CME?
    7. What are commenters' views on the Exchange's representation 
that, ``given the nature of the Trust and the composition of its 
assets, trading in the Trust would not be the predominant influence on 
prices (i) that make up the CME CF BRR, (ii) in the [b]itcoin futures 
market on the CME, or (iii) in the USD/BTC spot market on the 
Constituent Platforms?'' \28\ In addition, what are commenters' views 
on the Exchange's conclusion that, because the Trust will only purchase 
bitcoin if (1) required to as a result of the monthly rebalancing of 
its assets or (2) if it sells Shares to new investors, and will only 
sell bitcoin if required to as a result of the monthly rebalancing of 
its assets, ``trading in the Shares will not cause the Trust to 
purchase or sell [b]itcoin and will therefore not influence the price 
of [b]itcoin?'' \29\
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    \28\ See id. at 31381.
    \29\ See id.
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    8. According to the Exchange, (a) the level of the Index is 
published on each business day at approximately 5:00 p.m. Eastern time 
(U.S.), (b) the CME CF BRR aggregates the trade flow of the Constituent 
Platforms during a calculation window into the U.S. dollar price of one 
bitcoin as of 4:00 p.m. London time, (c) the Trust's NAV will be 
determined daily as of 4:00 p.m. Eastern time (U.S.), and (d) the Trust 
will determine the price of the Trust's bitcoin by reference to the 
Bitcoin Reference Rate, which is published between 4:00 p.m. and 4:30 
p.m. London time. What are commenters' views on whether (and if so, 
how) the variation in timing with respect to the calculation and price 
determination of the underlying bitcoin price, Index level, and NAV 
would affect the susceptibility of the Shares to fraudulent and 
manipulative acts and practices? What are commenters' views on whether 
this variation in timing would affect the ability of arbitrage to keep 
the price of the Shares aligned with the value of the portfolio at all 
times during the trading day?
    9. What are commenters' views on the requirement that shareholders 
may redeem all or a portion of its Shares only on the last business day 
of each calendar month? \30\ What are commenters' views on whether this 
restriction on redemptions would affect the ability of arbitrage to 
keep the price of the Shares aligned with the value of the portfolio 
continuously during the trading day over each monthly period? What are 
commenters' views on whether this restriction on redemptions would 
affect the resistance of the Shares to manipulation?
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    \30\ See supra note 13 and accompanying text.

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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, and 
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.\31\
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    \31\ 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 October 21, 2019. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
November 4, 2019.
    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-2019-39 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2019-39. 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 (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 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 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSEArca-2019-39 and should be submitted 
by October 21, 2019. Rebuttal comments should be submitted by November 
4, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
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    \32\ 17 CFR 200.30-3(a)(57).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-21097 Filed 9-27-19; 8:45 am]
BILLING CODE 8011-01-P