[Federal Register Volume 84, Number 203 (Monday, October 21, 2019)]
[Notices]
[Pages 56219-56231]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22884]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87301; File No. SR-NYSEArca-2019-39]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Amendment No. 1 to 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

October 15, 2019.
    On June 12, 2019, NYSE Arca, Inc. (``NYSE Arca'' or the 
``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 of the United States Bitcoin and Treasury Investment Trust 
under NYSE Arca Rule 8.201-E. The proposed rule change was

[[Page 56220]]

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).
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    On August 12, 2019, 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 disapprove the proposed rule 
change.\5\ On September 24, 2019, the Commission instituted proceedings 
under Section 19(b)(2)(B) of the Act \6\ to determine whether to 
approve or disapprove the proposed rule change.\7\ On October 4, 2019, 
the Exchange filed Amendment No. 1 to the proposed rule change, which 
replaced and superseded the proposed rule change as originally 
filed.\8\ As of October 10, 2019, the Commission has received nine 
comment letters on the proposal.\9\
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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).
    \7\ See Securities Exchange Act Release No. 87071 (Sept. 24, 
2019), 84 FR 51646 (Sept. 30, 2019) (``Order Instituting 
Proceedings'').
    \8\ Amendment No. 1 is available at: https://www.sec.gov/comments/sr-nysearca-2019-39/srnysearca201939-6255643-192909.pdf.
    \9\ 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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    The Commission is publishing this notice to solicit comments from 
interested persons on the proposed rule change, as modified by 
Amendment No. 1, and as described in Items I and II below, which Items 
have been prepared by the Exchange.

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes (1) to amend NYSE Arca Rule 8.201-E 
(Commodity-Based Trust Shares) to provide for issuance and redemption 
of such securities for the underlying commodity and/or cash, and (2) to 
list and trade the shares of the United States Bitcoin and Treasury 
Investment Trust under NYSE Arca Rule 8.201-E, as proposed to be 
amended. This Amendment No. 1 to SR-NYSEArca-2019-39 replaces SR-
NYSEArca-2019-39 as originally filed and supersedes such filing in its 
entirety. The proposed change is available on the Exchange's website at 
www.nyse.com, at the principal office of the Exchange, and at the 
Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes (1) amend NYSE Arca Rule 8.201-E (Commodity-
Based Trust Shares) to provide for issuance and redemption of such 
securities for the underlying commodity and/or cash, and (2) to list 
and trade shares (``Shares'') of the United States Bitcoin and Treasury 
Investment Trust (the ``Trust'') under NYSE Arca Rule 8.201-E, which 
governs the listing and trading of Commodity-Based Trust Shares.
Proposed Amendment to NYSE Arca Rule 8.201-E
    Under NYSE Arca Rule 8.201-E, the Exchange may propose to list and/
or trade pursuant to unlisted trading privileges (``UTP'') ``Commodity-
Based Trust Shares.'' \10\ Rule 8.201-E(c)(1) currently states that 
such securities 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.
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    \10\ Commodity-Based Trust Shares are securities issued by a 
trust that represents investors' discrete identifiable and undivided 
beneficial ownership interest in the commodities deposited into the 
Trust. Rule 8.201-E (c)(1) defines the term ``Commodity-Based Trust 
Shares'' as follows: ``The term ``Commodity-Based Trust Shares'' 
means a security (a) that is issued by a trust (``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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    The Commission has previously approved listing and trading on the 
Exchange of Commodity-Based Trust Shares that permit issuance and 
redemption of shares for cash in whole or part.\11\ The Exchange 
believes the proposed change will provide a trust issuing Commodity-
Based Trust Shares and holding a specified commodity with the 
flexibility to issue or redeem shares partially or wholly for cash. 
Such alternative would allow a trust to structure the procedures for 
issuance and redemption of shares in manner that as determined by the 
issuer, may provide operational efficiencies and accommodate investors 
who may wish to deliver or receive cash rather than the underlying 
commodity upon requesting the issuance or redemption of shares. The 
Exchange, therefore, believes the proposed change will facilitate the 
listing and trading of additional types of exchange-traded derivative 
securities products that will enhance competition among market 
participants, to the benefit of investors and the marketplace.\12\
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    \11\ See, e.g., Securities Exchange Act Release Nos. 61496 
(February 4, 2010), 75 FR 6758 (February 10, 2010) (SR-NYSEArca-
2009-113) (approving listing on the Exchange of Sprott Physical Gold 
Trust); 63043 (October 5, 2010), 75 FR 62615 (October 12, 2010) (SR-
NYSEArca-2010-84) (approving listing on the Exchange of the Sprott 
Physical Silver Trust); 68430 (December 13, 2012) (SR-NYSEArca-2012-
111) (Order Approving a Proposed Rule Change, as Modified by 
Amendment No. 1, to List and Trade Units of the Sprott Physical 
Platinum and Palladium Trust Pursuant to NYSE Arca Equities Rule 
8.201; 82448 (January 5, 2018) (SR-NYSEArca-2017-131) (Notice of 
Filing of Amendment No. 2 and Order Approving on an Accelerated 
Basis a Proposed Rule Change, as Modified by Amendment No. 2, to 
List and Trade Shares of the Sprott Physical Gold and Silver Trust 
under NYSE Arca Rule 8.201-E); 66930 (May 7, 2012), 77 FR 27817 (May 
11, 2012) (SR-NYSEArca-2012-18) (order approving listing and trading 
shares of the APMEX Physical-1 oz. Gold Redeemable Trust); 50603 
October 28, 2004 (SR-NYSE-2004-22) (Order Granting Approval of 
Proposed Rule Change and Notice of Filing and Order Granting 
Accelerated Approval to Amendments No. 1 and No. 2 Thereto to the 
Proposed Rule Change by the New York Stock Exchange, Inc. Regarding 
Listing and Trading of streetTRACKS[supreg] Gold Shares).
    \12\ The Commodity Futures Trading Commission (``CFTC'') has 
stated that bitcoin and other virtual currencies are encompassed in 
the definition of commodities under the Commodity Exchange Act 
(``CEA'') (17 U.S.C. 1). See ``In the Matter of Coinflip, Inc.'' 
(CFTC Docket 15-29 (September 17, 2015)) (order instituting 
proceedings pursuant to Sections 6(c) and 6(d) of the CEA, making 
findings and imposing remedial sanctions) (``Coinflip''), in which 
the CFTC stated the following:
    ``Section 1a(9) of the CEA defines `commodity' to include, among 
other things, `all services, rights, and interests in which 
contracts for future delivery are presently or in the future dealt 
in.' 7 U.S.C. 1a(9). The definition of a `commodity' is broad. See, 
e.g., Board of Trade of City of Chicago v. SEC, 677 F. 2d 1137, 1142 
(7th Cir. 1982). Bitcoin and other virtual currencies are 
encompassed in the definition and properly defined as commodities.''
    In Coinflip, the CFTC further concluded that Bitcoin is a 
virtual currency that is a commodity, ``distinct from `real' 
currencies, which are the coin and paper money of the United States 
or another country that are designated as legal tender, circulate, 
and are customarily used and accepted as a medium of exchange in the 
country of issuance.'' See CFTC No. 15-29 (2015), 2015 CFTC LEXIS 
20, at *1 n.2.

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[[Page 56221]]

    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 (rather than Section 1(a)(4) as currently stated 
in Rule 8.201-E(c)(2)) to reflect an amendment to the Commodity 
Exchange Act included in the Dodd-Frank Wall Street Reform and Consumer 
Protection Act of 2010.\13\
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    \13\ Public Law 111-203, 124 Stat. 1900 (2010).
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United States Bitcoin and Treasury Investment Trust (the ``Trust'')
Description of the Trust
    The Shares will be issued by the Trust, a Delaware statutory trust. 
The Trust will operate pursuant to a trust agreement (the ``Trust 
Agreement'') between Wilshire Phoenix Funds, LLC (the ``Sponsor'') and 
Delaware Trust Company, as the Trust's trustee (the ``Trustee'').\14\ 
UMB Bank N.A. will act as custodian for the Trust's cash and U.S. 
treasury assets (the ``Cash and Treasury Custodian'') and UMB Fund 
Services, Inc. will act as the administrator of the Trust (the 
``Administrator'') to perform various administrative, accounting and 
recordkeeping functions on behalf of the Trust. Broadridge Corporate 
Issuer Solutions, Inc., will act as the transfer agent for the Trust's 
Shares. Coinbase Custody Trust Company, LLC will act as the Bitcoin 
custodian for the Trust (the ``Bitcoin Custodian'') to maintain custody 
of the Trust's Bitcoin assets in cold storage.
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    \14\ On May 21, 2019, the Trust filed Amendment 3 to Form S-1 
under the Securities Act of 1933 (File No. 333-229187) (the 
``Registration Statement''). The description of the operation of the 
Trust herein is based, in part, on the Registration Statement.
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    According to the Registration Statement, the investment objective 
of the Trust is for the Shares to closely reflect the Bitcoin Treasury 
Index (the ``BTI'' or ``Index''), less the Trust's liabilities and 
expenses. The Shares will provide investors with exposure to Bitcoin in 
a manner that is efficient and convenient while also reducing the 
volatility typically associated with Bitcoin without the use of 
derivatives or leverage methods.
    The Trust will 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 will 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.
    Calculated on a daily basis, the ``Bitcoin Price'' (as defined 
below) is used to determine the Index's monthly weighting between the 
``Bitcoin Component'' and the ``Treasury Component'' (as described 
below). The amount of Bitcoin and T-Bills held by the Trust will be 
determined by the Index. On a monthly basis, following the calculation 
of the weighting of the components of the Index, the Trust will 
rebalance its holdings in Bitcoin and T-Bills in order to closely 
replicate the Index.
    Upon the maturity of any T-Bill, the Trust will receive U.S. 
dollars representing principal and interest. The portion of the cash 
that represents interest on the T-Bills will be used to pay, in full or 
in part, the sponsor's fee, redemptions and any additional fees and 
expenses of the Trust.
Assets of the Trust
    According to the Registration Statement, Bitcoin will be held by 
the Bitcoin Custodian on behalf of the Trust, and T-Bills and U.S. 
dollars will be held by the Cash and Treasury Custodian on behalf of 
the Trust. The amount of Bitcoin and T-Bills held by the Trust will be 
determined by the Index. The Trust's assets, other than Bitcoin, will 
consist of T-Bills to be purchased by the Cash and Treasury Custodian. 
The Trust will 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.
Custody of the Trust's Bitcoin
    The Bitcoin Custodian is a New York-state chartered trust company 
operating under the direct supervision of the New York State Department 
of Financial Services and is subject to the anti-money laundering 
requirements of the Financial Crimes Enforcement Network (``FinCEN''). 
In addition, the Bitcoin Custodian is a qualified custodian under the 
Investment Advisers Act of 1940. The Bitcoin Custodian will operate 
pursuant to the terms and provisions of the custody agreement between 
the Trust and the Bitcoin Custodian (the ``Bitcoin Custodian 
Agreement''). Under the Bitcoin Custodian Agreement, the Bitcoin 
Custodian will be responsible for the safety and security of the 
Trust's Bitcoin as well as overseeing the process of deposit, 
withdrawal, sale and purchase of the Trust's Bitcoin. The Sponsor 
expects that the Bitcoin Custodian's custodial operations will maintain 
custody and access of the private keys associated with the Trust's 
Bitcoin.\15\ The Bitcoin Custodian will custody the Bitcoin in 
accordance with the terms of the Bitcoin Custodian Agreement. The 
Bitcoin Custodian will maintain a secured and segregated custody 
account in the name of the Trust (the ``Bitcoin Custody Account''). The 
Trust's auditor will have daily read-only access to the Bitcoin Custody 
Account, and the Bitcoin Custodian will, within five (5) Business Days 
after the Trust's monthly rebalancing of its assets, provide the 
Sponsor and the Administrator with an attestation, executed by an 
executive officer of the Bitcoin Custodian, verifying the amount of 
Bitcoin that the Bitcoin Custodian is holding in the Bitcoin Custody 
Account on behalf of the Trust. The Trust's Bitcoin will be stored in 
the Bitcoin Custody Account on behalf of the Trust. The Bitcoin 
Custodian will utilize certain ``Security Procedures'' when the Trust 
is required to deposit or withdraw Bitcoin to or from the Bitcoin 
Custody Account. This deposit and withdrawal process provides 
additional levels of security including, but not limited to, passwords, 
encryption of private keys, multi-factor authentication process, multi-
signature wallets and telephone call-backs during the administration 
and operation of the Bitcoin Custody Account.
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    \15\ According to the Registration Statement, the term ``cold 
storage'' refers to a safeguarding method by which the private keys 
corresponding to Bitcoin stored on a digital wallet are removed from 
any computers actively connected to the internet. Cold storage of 
private keys may involve keeping such wallet on a non-networked 
computer or electronic device or storing the public key and private 
keys relating to the digital wallet on a storage device (for 
example, a USB thumb drive) or printed medium (for example, papyrus 
or paper) and deleting the digital wallet from all computers.
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    According to the Registration Statement, the Trust has obtained 
insurance for the Bitcoin held by the Trust, through the Bitcoin 
Custodian. Currently, the Bitcoin Custodian, either directly or through 
an affiliate, procures fidelity (also known as crime) insurance to 
protect the organization from risks such as theft of funds. 
Specifically, the fidelity insurance coverage program provides coverage 
for the theft of funds held in hot or cold storage and provides a limit 
in excess of $200,000,000. The Bitcoin Custodian's insurance coverage 
program is provided by a syndicate of industry-leading insurers that 
are highly

[[Page 56222]]

rated by AM Best.\16\ To the extent the value of the Trust's Bitcoin 
holdings exceeds the total insurance coverage provided by the Bitcoin 
Custodian's insurance coverage program, the Sponsor will use 
commercially reasonable efforts to procure additional insurance 
coverage with the goal of maintaining insurance coverage at a one-to-
one ratio with the Trust's Bitcoin holdings such that for every dollar 
of Bitcoin held by the Trust there is an equal amount of insurance 
coverage.
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    \16\ AM Best is a global credit rating agency with a unique 
focus on the insurance industry. Credit ratings issued by AM Best 
are a recognized indicator of insurer financial strength and 
creditworthiness.
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Custody of U.S. Dollars and T-Bills
    The Cash and Treasury Custodian will operate pursuant to the terms 
and provisions of the custody agreement between the Trust and the Cash 
and Treasury Custodian (the ``Cash and Treasury Custodian Agreement'').
    According to the Registration Statement, under the Cash and 
Treasury Custodian Agreement, the Cash and Treasury Custodian will be 
responsible for maintaining an account that holds T-Bills and U.S. 
dollars (the ``Cash Account''). Pursuant to a request from the Trust, 
the Cash and Treasury Custodian will establish and maintain the Cash 
Account in the name of the Trust that will hold U.S. dollars and T-
Bills. The Cash and Treasury Custodian deposits and withdraws U.S. 
dollars to and from the Trust's Cash Account at the instruction of the 
Trust's Administrator or Sponsor, as applicable. The Cash and Treasury 
Custodian is responsible for administering the Cash Account.
The Bitcoin Treasury Index
    The Index is based on a pairing of notional components and is not 
an investment product. The Index is calculated and published by 
Solactive AG (the ``Index Calculation Agent'').\17\ The level of the 
Index is published on each Business Day at approximately 5:00 p.m. 
Eastern time and will be available through various market data vendors, 
and is currently available on Bloomberg L.P. and Thompson Reuters 
Company under the ticker ``UBTX''. ``Business Day'' means any day other 
than a Saturday or Sunday on which the New York Stock Exchange is 
scheduled to be open for business. The Index has two components: (1) A 
notional component representing Bitcoin (the ``Bitcoin Component'') and 
(2) a notional component representing T-Bills (the ``Treasury 
Component'').
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    \17\ 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 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.
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    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 (as defined below). 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, will be based on the Chicago Mercantile Exchange 
(``CME'') CF Bitcoin Reference Rate (``CME CF BRR'') (the ``Bitcoin 
Reference Rate,'' and the price of Bitcoin based on the Bitcoin 
Reference Rate (the ``Bitcoin Price'')).
    Following the calculation of the weighting of the components of the 
Index, the Trust will rebalance its holdings in Bitcoin and T-Bills in 
order to closely replicate the Index.
Bitcoin Component of the Index
    According to the Registration Statement, Bitcoin is a digital asset 
that is decentralized and issued by, and transmitted using 
cryptographic security through, an open source digital protocol 
platform known as the ``Bitcoin Network.'' The Bitcoin Network is an 
online end-user to end-user network that hosts the public transaction 
ledger, known as the ``Bitcoin Blockchain,'' and the source coding 
comprising the basis for the cryptographic and algorithmic protocols 
governing the Bitcoin Network. No single entity owns or operates the 
Bitcoin Network, and its infrastructure is collectively maintained by a 
decentralized user base. Bitcoin may be converted into U.S. dollars, 
other fiat currencies, or other crypto assets, at rates determined in 
individual end-user-to-end-user transactions under a barter system, or 
on Bitcoin exchanges. They can also be used to pay for certain goods 
and services. The Bitcoin Network does not rely on either governmental 
authorities or financial institutions to create, transmit or determine 
the value of Bitcoin. Rather, Bitcoin is created and allocated by the 
Bitcoin Network protocol through a ``mining'' process subject to a 
strict issuance schedule. The value of Bitcoin is determined by the 
supply of and demand for Bitcoin on Bitcoin exchanges (and in private 
end-user-to-end-user transactions), as well as the number of merchants 
that accept them. Third-party service providers such as Bitcoin 
exchanges and third-party payment processing services may charge 
significant fees for processing transactions and for converting, or 
facilitating the conversion of, Bitcoin to or from fiat currency.
    The Bitcoin Blockchain is the digital transaction ledger on which 
Bitcoin is ``stored'' and reflected. The Bitcoin Blockchain is a 
decentralized digital file stored on the computers of each user of the 
Bitcoin Network. It records the transaction history of all Bitcoin in 
existence and allows the Bitcoin Network to verify the association of 
each Bitcoin with the ``digital wallet'' that owns them through 
transparent transaction reporting. The Bitcoin Network and Bitcoin 
software programs can interpret the Bitcoin Blockchain to determine the 
exact Bitcoin balance of any digital wallet listed in the Bitcoin 
Blockchain as having taken part in a transaction on the Bitcoin 
Network.
    Additionally, the Bitcoin Blockchain is made up of a digital file 
that is downloaded and stored, in whole or in part, on the software 
programs of all Bitcoin users. The file includes all blocks that have 
been solved by validators and it is updated to include new blocks as 
they are solved. As each newly solved block refers back to and 
``connects'' with the solved block immediately prior to it, the 
addition of a new block adds to the Bitcoin Blockchain in a manner akin 
to a new link being added to a chain. The Bitcoin Blockchain represents 
a complete, transparent and unbroken history of all transactions on the 
Bitcoin Network.
    According to the Registration Statement, generally, every Bitcoin 
transaction is broadcast to the Bitcoin Network and recorded in the 
Bitcoin Blockchain. However, there are certain ``Off-Blockchain 
transactions.'' These transactions involve the transfer of control or 
ownership of a specific digital wallet holding Bitcoin, or of the 
reallocation of ownership of certain Bitcoin in a pooled-ownership 
digital wallet. Generally, information and data regarding Off-
Blockchain transactions is not publicly available. This is unlike true 
Bitcoin transactions, which are publicly recorded and available on the 
Bitcoin Blockchain. Thus, according to the Registration Statement, Off-
Blockchain transactions are not truly Bitcoin transactions, as they do 
not involve the transfer of transaction data on the Bitcoin Network and 
do not reflect a movement of Bitcoin between addresses recorded in the 
Bitcoin Blockchain. Off-Blockchain transactions may include 
transactions on centralized exchanges.

[[Page 56223]]

Bitcoin Exchange Market
    According to the Registration Statement, online Bitcoin exchanges 
represent a substantial percentage of Bitcoin transactional activity 
and thus offer the most data with respect to prevailing Bitcoin 
valuations. There are currently several Bitcoin exchanges operating 
globally. These include established trading platforms such as itBit, 
Coinbase Pro, Bitstamp, Kraken and Gemini. These Bitcoin trading 
platforms provide various options for buying and selling Bitcoin. In 
parallel to the open Bitcoin exchanges, informal ``over-the-counter'' 
or ``OTC markets'' for Bitcoin trading also exist as a result of the 
peer-to-peer nature of the Bitcoin Network, which allows direct 
transactions between any seller and buyer.
    Bitcoin futures contracts are traded on the CME and ICE Futures US. 
However, the Trust will not hold or trade in commodity futures 
contracts or other derivative contracts regulated by the Commodities 
Exchange Act,\18\ as administered by the Commodity Futures Trading 
Commission.
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    \18\ 7 U.S.C. 1.
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The Bitcoin Price (i.e., the Bitcoin Reference Rate)
    The CME CF BRR was created to facilitate financial products based 
on Bitcoin.\19\ It serves as a once-a-day reference rate of the U.S. 
dollar price of Bitcoin (USD/BTC). The CME CF BRR is the rate on which 
bitcoin futures contracts are cash-settled in U.S. dollars at the CME 
\20\ and serves as a reference rate in the settlement of financial 
derivatives based on the price of Bitcoin. The CME CF BRR may also 
serve as a reference rate in the net asset value (``NAV'') calculation 
of exchange traded products (``ETPs'').\21\ According to the 
Registration Statement, the Administrator of the Trust will utilize the 
CME CF BRR when valuing the Bitcoin held by the Trust.
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    \19\ Andrew Paine and William J. Knottenbelt, Analysis of the 
CME CF Bitcoin Reference Rate and Real Time Index, Oct. 2016, 
available at https://www.cmegroup.com/trading/files/bitcoin-white-paper.pdf, Section 2 (``Paine & Knottenbelt'').
    \20\ While the Trust uses the CME CF BRR to calculate the value 
of its bitcoin assets, in no event will the Trust be trading in 
Bitcoin futures contracts.
    \21\ See https://www.cmegroup.com/trading/files/bitcoin-white-paper.pdf.
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    The CME CF BRR, which has been calculated and published since 
November 2016, aggregates the trade flow of several Bitcoin spot 
exchanges (the ``Constituent Platforms''), during a calculation window 
into the U.S. dollar price of one Bitcoin as of 4:00 p.m. London time. 
Specifically, the CME CF BRR is calculated based on the ``Relevant 
Transactions'' (as defined below) of all Constituent Platforms, as 
follows: \22\
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    \22\ For a description of the CME CF BRR methodology, see 
https://www.cmegroup.com/education/bitcoin/cme-cf-cryptocurrency-reference-rate-methodology.html#2-overview (``BRR Methodology'').
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    1. All Relevant Transactions are added to a joint list, recording 
the trade price and size for each transaction.
    2. The list is partitioned into a number of equally-sized time 
intervals.
    3. For each partition separately, the volume-weighted median trade 
price is calculated from the trade prices and sizes of all Relevant 
Transactions, i.e. across all Constituent Platforms. A volume-weighted 
median differs from a standard median in that a weighting factor, in 
this case trade size, is factored into the calculation.\23\
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    \23\ See Paine & Knottenbelt, Section 2.2.2 (``Volume-weighting 
of medians filters out high numbers of small trades that may 
otherwise dominate a non-volume-weighted median.''). This assists in 
mitigating any series of small, frequent trades placed on any of the 
Constituent Platforms that could be used to manipulate the price of 
Bitcoin. See BRR Methodology, Section 7.
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4. The CME CF BRR is then determined by the equally-weighted average of 
the volume-weighted medians of all partitions.
    The CME CF BRR does not include any futures prices in its 
methodology. A ``Relevant Transaction'' is any ``cryptocurrency versus 
legal tender spot trade that occurs during the ``Time Weighted Average 
Price (``TWAP'') Period'' on a Constituent Platform in the BTC/USD pair 
that is reported and disseminated by the calculation agent for the CME 
CF BRR (the ``BRR Calculation Agent''). The CME CF BRR is administered 
by the administrator for the CME CF BRR (the ``BRR Administrator''). 
The mathematical representation of the CME CF BRR Methodology is 
attached as Exhibit 3A.
Calculation of Net Asset Value
    The Trust's NAV will be determined daily by the Administrator at 
4:00 p.m., E.T. on any Business Day or as soon thereafter as 
practicable. The NAV of the Trust will equal the value of the total 
assets of the Trust, including Bitcoin, T-Bills and U.S. dollars, less 
the liabilities and expenses of the Trust. The NAV per Share will be 
equal to the Trust's NAV divided by the number of outstanding Shares. 
The NAV for the Trust's Shares will be disseminated daily to all market 
participants at the same time.
    In accordance with the Trust's valuation policy and procedures, the 
Administrator will determine the price of the Trust's Bitcoin by 
reference to the Bitcoin Reference Rate (as described below), which is 
published between 4:00 p.m. and 4:30 p.m., London time, on every day of 
the year, including weekends. Similarly, the Administrator will 
determine the fair value of T-Bills based on the price of each T-Bill 
held by the Trust plus any cash, which will be held in U.S. dollars, as 
of 4:00 p.m., E.T., on any Business Day. The Trust's NAV will be 
determined by the Administrator on a GAAP basis. Because the Trust 
rebalances monthly, in the periods between such monthly rebalancing, as 
a result of changes in the value of Bitcoin, among other factors, the 
value of Bitcoin relative to the value of the other assets of the Trust 
may diverge from the Index. Accordingly, the Trust's NAV and NAV per 
Share are tracked, in part, by reference to the Bitcoin Reference Rate.
Indicative Fund Value
    In order to provide updated information relating to the Trust for 
use by investors and market professionals, an updated ``Indicative Fund 
Value'' (``IFV'') will be calculated by using the prior day's closing 
net assets of the Trust as a base and updating throughout the 
Exchange's Core Trading Session of 9:30 a.m. E.T. to 4:00 p.m. E.T. to 
reflect changes in the value of the assets of the Trust.
    For purposes of IFV, the value of the Bitcoin assets of the Trust 
will be based on the CME CF Bitcoin Real Time Index (the ``CME CF 
BRTI''). The CME CF BRTI is calculated in real time based on the 
Relevant Order Books of all Constituent Platforms.\24\ A ``Relevant 
Order Book'' is the universe of the currently unmatched limit orders to 
buy or sell in the BTC/USD pair that is reported and disseminated by 
the BRR Calculation Agent. Like the CME CF BRR, the CME CF BRTI is 
administered by the BRR Administrator.
---------------------------------------------------------------------------

    \24\ For a description of the CME CF BRTI methodology, see 
https://www.cryptofacilities.com/cms/storage/resources/cme-cf-real-time-index-methodology.pdf.
---------------------------------------------------------------------------

    The IFV will be disseminated on a per Share basis every 15 seconds 
during the Exchange's Core Trading Session and be widely disseminated 
by one or more major market data vendors during the NYSE Arca Core 
Trading Session.\25\
---------------------------------------------------------------------------

    \25\ Several major market data vendors display and/or make 
widely available IFVs taken from the Consolidated Tape Association 
(``CTA'') or other data feeds.
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Creation of Shares
    The Shares shall represent beneficial interests in, and ownership 
of, the

[[Page 56224]]

Trust. The Sponsor shall have the power and authority, in its sole 
discretion, without action or approval by the Shareholders, to cause 
the Trust to issue Shares from time to time. The Trust shall issue 
Shares solely in exchange for cash in U.S. Dollars.
    The Trust may offer and sell Shares of the Trust from time to time 
through underwriters, placement agents or distributors (each, a ``Share 
Placement'') or such other means as the Sponsor may determine. The 
Sponsor also reserves the right to issue Shares of the Trust from time 
to time through direct placements. The Trust may not issue additional 
Shares unless the net proceeds per Share to be received by the Trust 
are not less than 100% of the most recently calculated NAV per Share 
immediately prior to, or upon, the determination of the pricing of such 
issuance.
    Any net proceeds received in connection with the offer and sale of 
Shares shall be used to purchase Bitcoin and/or T-Bills, as applicable, 
in proportions consistent with the allocation of the Bitcoin Holdings 
and the Treasury and Cash Holdings of the Trust, as of the applicable 
date of sale. For this purpose, ``Bitcoin Holdings'' shall mean the sum 
of the value of the Bitcoin held by the Trust, and ``Treasury and Cash 
Holdings'' shall mean the value of the T-Bills and U.S. dollars held by 
the Trust. In the event that the Trust has no assets at the time of the 
sale of the initial Shares under the Registration Statement, then any 
net proceeds received in connection with the offer and sale of such 
initial Shares shall be used to purchase Bitcoin and/or T-Bills, as 
applicable, in proportions consistent with the weighting of the Bitcoin 
Component and the Treasury Component of the Index as of the date of 
such sale.
Redemption of Shares
    According to the Registration Statement, upon at least five (5) 
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 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. A 
redemption notice is irrevocable unless otherwise agreed by the Sponsor 
in writing.
    In general, the final redemption of Shares will be paid in cash 
within five (5) Business Days after the applicable redemption date. 
Shareholders will be entitled to receive their applicable redemption 
amount in cash, which is the NAV of the Shares, determined as of the 
applicable redemption date. The Administrator shall calculate the 
applicable redemption amount and instruct the Cash and Treasury 
Custodian to pay from the Cash Account the applicable redemption amount 
to each redeeming Shareholder.
Potential Manipulation in the Bitcoin Market
    In prior orders relating to the listing of certain ETPs on U.S. 
exchanges, the Commission Staff expressed its concern that the world-
wide market for Bitcoin may be subject to potential manipulation.\26\
---------------------------------------------------------------------------

    \26\ See Securities Exchange Act Release No. 80206 (Mar. 10, 
2017), 82 FR 14076 (Mar. 16, 2017) (SR-BatsBZX-2016-30) (Order 
Disapproving a Proposed Rule Change, as Modified by Amendments No. 1 
and 2, to BZX Rule 14.11(e)(4), Commodity-Based Trust Shares, To 
List and Trade Shares Issued by the Winklevoss Bitcoin Trust) 
(``Winklevoss I''); and Securities Exchange Act Release No. 83723 
(July 26, 2018), 83 FR 37579 (August 1, 2018) (SR-BatsBZX-2016-30) 
(Order Setting Aside Action by Delegated Authority and Disapproving 
a Proposed Rule Change, as Modified by Amendments No. 1 and 2, To 
List and Trade Shares of the Winklevoss Bitcoin Trust) (``Winklevoss 
II''); see also Securities Exchange Act Release No. 83912 (August 
22, 2018), 83 FR 43912 (August 28, 2018) (SR-NYSEArca-2018-02) 
(Order Disapproving a Proposed Rule Change Relating to Listing and 
Trading of the Direxion Daily Bitcoin Bear 1X Shares, Direxion Daily 
Bitcoin 1.25X Bull Shares, Direxion Daily Bitcoin 1.5X Bull Shares, 
Direxion Daily Bitcoin 2X Bull Shares, and Direxion Daily Bitcoin 2X 
Bear Shares Under NYSE Arca Rule 8.200-E).
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    The Sponsor acknowledges that, numerous markets, commodity or 
otherwise, have historically been subject to manipulation.\27\ 
According to the Registration Statement, the Trust's structure, 
together with the use of the CME CF BRR will provide investors with 
exposure to the Bitcoin market without a number of the risks from which 
other Bitcoin related products previously submitted for registration 
have suffered, and particularly mitigate the effects of potential 
manipulation of the Bitcoin market.
---------------------------------------------------------------------------

    \27\ Spot and futures markets for other well-established 
commodities have previously been subject to manipulation concerns. 
See CFTC v. Amaranth Advisors, LLC, et al., 07-cv-6682 (S.D.N.Y. 
2007); see also CFTC Press Release 5692-09, August 12, 2009 
(available at: www.cftc.gov/PressRoom/PressReleases/pr5692-09) 
(Amaranth Advisors, LLC, and Amaranth Advisors (Calgary) ULC, 
entered into a consent order settling charges for attempting to 
manipulate the price of natural gas futures contracts traded on the 
New York Mercantile Exchange (NYMEX) on February 24, and April 26, 
2006); see CFTC Press Release 7000-14, September 15, 2014 (available 
at: www.cftc.gov/PressRoom/PressReleases/pr7000-14) (Consent order 
settling charges for attempting to manipulate the price of natural 
gas futures contracts traded on the NYMEX on February 24, and April 
26, 2006); see Craig Pirrong, The Economics of Commodity Market 
Manipulation: A Survey, 5 J. Commodity Mkts. 1, 13 (2017) 
(explaining that ``[t]he subject of market manipulation has 
bedeviled commodity markets since the dawn of futures trading'') 
(``Pirrong'').
---------------------------------------------------------------------------

    In order for this proposed rule change to be approved, the 
Commission must determine that the proposal is consistent with the 
requirements of Section 6(b)(5) of the Act and that the Exchange's 
rules are designed to prevent fraudulent and manipulative acts and 
practices.\28\ The Commission has previously stated that such a 
proposed rule change must offer evidence to demonstrate that either (i) 
the Bitcoin market is inherently resistant to fraud and manipulation, 
or (ii) the Exchange must have surveillance-sharing agreements with 
significant markets for trading the underlying commodity or derivatives 
on that commodity and those markets must be regulated.\29\
---------------------------------------------------------------------------

    \28\ 15 U.S.C.S. 78f (LEXIS through Pub. L. No. 116-8); 17 CFR 
240.6a-1.
    \29\ See Winklevoss II, at 37580 and 37581 (noting that ``. . . 
if BZX had demonstrated that Bitcoin and Bitcoin markets are 
inherently resistant to fraud and manipulation, comprehensive 
surveillance-sharing agreements with significant, regulated markets 
would not be required, as the function of such agreements is to 
detect and deter fraud and manipulation.''). See Craig Pirrong, The 
Economics of Commodity Market Manipulation: A Survey, 5 J. Commodity 
Mkts. 1, 13 (2017), generally, for a discussion of the economics of 
commodity market manipulation. For a discussion of commodity market 
manipulation in the U.S. historical context, see Philip M. Johnson, 
Commodity Market Manipulation, 38 Wash. & Lee L. Rev. 725 (1981).
---------------------------------------------------------------------------

    As discussed in more detail below, the Sponsor believes that the 
CME CF BRR is inherently resistant to manipulation. In addition, as 
discussed below, significant regulated markets for trading Bitcoin 
derivatives are members of the Intermarket Surveillance Group (``ISG'') 
and the Exchange or the Financial Industry Regulatory Authority 
(``FINRA''), on behalf of the Exchange, may communicate with such 
markets as necessary in conducting market surveillance.
    As the Commission has previously acknowledged, trading in a 
Bitcoin-based ETP on a national securities exchange may provide 
additional protection to investors,\30\ as opposed to

[[Page 56225]]

trading in an unregulated Bitcoin spot market. The Sponsor also 
believes that listing of the Trust's Shares on the Exchange will 
provide investors with such an opportunity to obtain exposure to 
Bitcoin within a regulated environment.
---------------------------------------------------------------------------

    \30\ See Securities Exchange Act Release No. 83913 (August 22, 
2018), 83 FR 43923 (August 28, 2018) (SR-CboeBZX-2018-001) (Order 
Disapproving a Proposed Rule Change to List and Trade the Shares of 
the GraniteShares Bitcoin ETF and the GraniteShares Short Bitcoin 
ETF). See also, Hester M. Pierce, U.S. Sec. Exch. Comm'n, Dissent of 
Commissioner Hester M. Pierce to Release No. 34-83723 (July 26, 
2018), https://www.sec.gov/news/public-statement/peirce-dissent-34-83723 (``An ETP based on bitcoin would offer investors indirect 
exposure to bitcoin through a product that trades on a regulated 
securities market and in a manner that eliminates some of the 
frictions and worries of buying and holding bitcoin directly. If we 
were to approve the ETP at issue here, investors could choose 
whether to buy it or avoid it.'').
---------------------------------------------------------------------------

    The Resistance of the CME CF BRR to Market Manipulation
    As noted above, one of the ways that the requirements of Section 
6(b)(5) of the Exchange Act can be met is by demonstrating that the 
applicable market is inherently resistant to fraud and 
manipulation.\31\
---------------------------------------------------------------------------

    \31\ See Winklevoss II, at 37580.
---------------------------------------------------------------------------

    The Sponsor notes that, in connection with the Commission's 
analysis of whether a market is inherently resistant to manipulation, 
the Commission has in certain circumstances focused not on the market 
as a whole but instead on the significant subset of the market that has 
a meaningful impact on the particular ETP. For instance, orders 
approving listing applications of ETPs that invest in gold bullion 
focused on the spot and futures market,\32\ even though gold is traded 
on a number of different market segments. Focusing on the spot market 
is appropriate because the spot market is the market to which the 
particular ETP would look to determine its NAV. Using the example of 
gold, it would not be proper to use the price of gold in the jewelry 
market or gold coin market to value the NAV of a gold bullion ETP, even 
though by volume gold bought in such markets equals or surpasses gold 
purchased in all other segments of the market, including investment and 
``Central Banks,'' which are more likely to purchase gold at the spot 
market.\33\
---------------------------------------------------------------------------

    \32\ See, e.g., Securities Exchange Act Release No. 51058 
(January 19, 2005) 70 FR 3749 (January 26, 2005) (SR-Amex-2004-38) 
(iShares COMEX Gold Trust I).
    \33\ See World Gold Council, Goldhub, Gold supply and demand 
statistics, available at https://www.gold.org/goldhub/data/gold-supply-and-demand-statistics.
---------------------------------------------------------------------------

    The Trust utilizes the CME CF BRR to determine the NAV of the 
Bitcoin held by the Trust. 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. 
Since (i) the Trust uses the CME CF BRR to determine its NAV, (ii) the 
CME CF BRR is what determines the ratio of Bitcoin to Treasuries held 
by the Trust, and (iii) the CME CF BRR is determined based on the price 
of Bitcoin on the Constituent Platform and no other exchanges, the 
Sponsor maintains 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.
    The Sponsor found that price discovery is substantially similar 
among each of the Constituent Platforms.\34\ As shown in the chart 
included as Exhibit 3B to this proposed rule change, none of the 
Constituent Platforms exhibit a statistically significant average 
difference from the CME CF BRR. During the 3:00 p.m. to 4:00 p.m. 
London time CME CF BRR observation window, volume of Bitcoin trading 
among the five Constituent Platforms was split as follows: 10.7% was on 
Gemini, 11.9% of was on itBit, 18.9% was on Kraken, 25.4% was on 
Bitstamp and 33.1% was on Coinbase.\35\ The Constituent Platforms also 
show a substantially similar degree of price volatility, with the 
standard deviation of the difference of 4:00 p.m. London time exchange 
prices from the CME CF BRR being 1.12-1.13%.\36\ When the 4:00 p.m. 
London time snapshot prices do deviate from the CME CF BRR, they are 
generally in the same direction (occurring 86.5% of the time).\37\ The 
Sponsor maintains that the foregoing data also supports the conclusion 
that robust arbitrage trading and liquidity provision occurs among the 
Constituent Platforms.
---------------------------------------------------------------------------

    \34\ All statistical analysis provided herein was performed 
solely by the Sponsor. The Sponsor did not engage any third-parties 
in connection with such statistical analysis in an effort to insure 
quality and integrity. Any data utilized for any statistical 
analysis provided in this proposal will be made available to the 
Commission upon request.
    \35\ Analysis performed by the Sponsor using data provided by 
Kaiko/Challenger Deep.
    \36\ Analysis performed by the Sponsor using data provided by 
Kaiko/Challenger Deep.
    \37\ Analysis performed by the Sponsor using data provided by 
Kaiko/Challenger Deep.
---------------------------------------------------------------------------

    An independent examination of the methodology (Paine & Knottenbelt) 
of the CME CF BRR, supports the Sponsor's assertion that the CME CF BRR 
is not susceptible to manipulation.\38\ The use of a volume-weighted 
average median price determined over twelve five-minute windows in a 
specific 60-minute period over any Constituent Platform makes any 
attempt to manipulate the CME CF BRR unlikely. Further, the capital 
necessary to maintain a significant presence on any Constituent 
Platform makes manipulation of the CME CF BRR unlikely. The linkage 
between the Bitcoin markets and the presence of arbitrageurs (as 
evidenced in the data set forth above) 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.
---------------------------------------------------------------------------

    \38\ ``The chosen specification makes the BRR highly resistant 
against manipulation. The use of medians likely reduces the effect 
of outlier prices on one or more exchanges. Volume-weighting of 
medians filters [out high numbers of small trades] that may 
otherwise dominate a non-volume-weighted median. The use of 12 non-
weighted partitions assures that price information is sourced 
equally over the entire observation period. Influencing the BRR 
would therefore require price manipulation . . . over an extended 
period of time.'' Paine & Knottenbelt, Section 2.2.2.
---------------------------------------------------------------------------

The Presence of Surveillance Sharing Agreements
    In previous orders rejecting the listing of Bitcoin ETFs, the 
Commission noted its concerns that the Bitcoin market could be subject 
to manipulation.\39\ In these orders, the Commission cited numerous 
precedents \40\ in which 19b-4 listing applications were approved based 
on findings that the particular market was either inherently resistant 
to manipulation or that the listing exchange had entered into a 
surveillance sharing agreement with a market of significant size.\41\ 
The Commission noted that, for commodity-trust ETPs ``there has been in 
every case at least one significant, regulated market for trading 
futures in the underlying commodity--whether gold, silver, platinum, 
palladium or copper--and the ETP listing exchange has entered into 
surveillance-sharing agreements with, or held Intermarket Surveillance 
Group

[[Page 56226]]

(``ISG'') membership in common with, that market.'' \42\
---------------------------------------------------------------------------

    \39\ See Winklevoss I and Winklevoss II, supra note 20. The 
Sponsor represents that some of the concerns raised are that a 
significant portion of Bitcoin trading occurs on unregulated 
platforms and that there is a concentration of a significant number 
of Bitcoin in the hands of a small number of holders. However, these 
aspects are not unique to Bitcoin and are present in a number of 
commodity and other markets. For instance, some gold bullion trading 
takes place on unregulated OTC markets and a significant percentage 
of gold is held by a relative few (according to estimates of the 
World Gold Council, approximately 21.3% of total above-ground gold 
stocks are held by private investors and 17.2% are held by foreign 
governments; by comparison, 15.7% of Bitcoin are held by the 100 
largest Bitcoin addresses, some of which are known to be cold 
storage addresses of large centralized cryptocurrency trading 
platforms). See https://www.gold.org/goldhub/data/above-ground-stocks for gold data cited in this note and https://bitinfocharts.com/top-100-richest-bitcoin-addresses.html for Bitcoin 
data.
    \40\ For an extensive listing of such precedents, see Winklevoss 
I, at 14083 n.96.
    \41\ The Exchange to date has not entered into surveillance 
sharing agreements with any cryptocurrency platform. However, the 
CME, which calculates the CME CF BRR, and which has offered 
contracts for Bitcoin futures products since 2017, is, as noted 
below, a member of the ISG. In addition, each Constituent Platform 
has entered into a data sharing agreement with CME. See https://www.cmegroup.com/education/constituent-exchanges-criteria.html.
    \42\ See Winklevoss II, at 37594.
---------------------------------------------------------------------------

    The CME \43\ is a member of the ISG, the purpose of which is ``to 
provide a framework for the sharing of information and the coordination 
of regulatory efforts among exchanges trading securities and related 
products to address potential intermarket manipulations and trading 
abuses.'' \44\ Membership of a relevant futures exchange in ISG is 
sufficient to meet the surveillance-sharing requirement.\45\
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    \43\ The CME is regulated by the CFTC, which has broad reaching 
anti-fraud and anti-manipulation authority including with respect to 
the Bitcoin market since Bitcoin has been designated as a commodity 
by the CFTC. See A CFTC Primer on Virtual Currencies (October 17, 
2017), available at https://www.cftc.gov/sites/default/files/idc/groups/public/documents/file/labcftc_primercurrencies100417.pdf (the 
``CFTC Primer on Virtual Currencies'') (``The CFTC's jurisdiction is 
implicated when a virtual currency is used in a derivatives contract 
or if there is fraud or manipulation involving a virtual currency 
traded in interstate commerce.''). See also 7 U.S.C. Sec. 7(d)(3) 
(``The board of trade shall list on the contract market only 
contracts that are not readily susceptible to manipulation.'').
    \44\ https://www.isgportal.org/isgPortal/public/overview.htm.
    \45\ See, e.g., Winklevoss II, at 37594.
---------------------------------------------------------------------------

    The Commission has previously noted that the existence of a 
surveillance-sharing agreement by itself is not sufficient for purposes 
of meeting the requirements of Section 6(b)(5); the surveillance-
sharing agreement must be with a market of significant size.\46\ The 
Commission has provided an example of how it interprets the terms 
``significant market'' and ``market of significant size,'' though that 
definition is meant to be illustrative and not exclusive: ``The terms 
`significant market' and `market of significant size' . . . include a 
market (or group of markets) as to which (a) there is a reasonable 
likelihood that a person attempting to manipulate the ETP would also 
have to trade on that market to successfully manipulate the ETP so that 
a surveillance sharing agreement would assist the ETP listing market in 
detecting and deterring misconduct and (b) it is unlikely that trading 
in the ETP would be the predominant influence on prices in that 
market.'' \47\
---------------------------------------------------------------------------

    \46\ See, e.g., Winklevoss II, at 37589-90.
    \47\ See, e.g., Winklevoss II, at 37594 and see Securities 
Exchange Act Release No. 83913 (August 22, 2018), 83 FR 43923 (Aug. 
28, 2018) (SR-CboeBZX-2018-001) (GraniteShares Bitcoin ETF and 
GraniteShares Short Bitcoin ETF), n. 85 and accompanying text.
---------------------------------------------------------------------------

    As discussed below, the Sponsor maintains that the CME, either 
alone as the main market for bitcoin futures or as a group of markets 
together with the Constituent Platforms, is a ``market of significant 
size'' as it satisfies both elements of the example provided by the 
Commission.
Reasonable Likelihood That a Person Manipulating the ETP Would Have To 
Trade on the Market
    The first element of what constitutes a ``significant market'' or 
``market of significant size'' is that there is a reasonable likelihood 
that a person attempting to manipulate the ETP would also have to trade 
on a market (or group of markets) to successfully manipulate the ETP so 
that a surveillance sharing agreement would assist the ETP listing 
market in detecting and deterring misconduct.
    The Sponsor concludes that the CME meets this element in two ways. 
First, it is the main market for Bitcoin futures, and compares 
favorably with other markets that were deemed to be markets of 
significant size in precedents.\48\ One particularly salient group of 
precedents are prior orders approving the listing of ETPs that invest 
in gold bullion, since the gold market exhibits a number of 
similarities with the market for Bitcoin. The Sponsor maintains that, 
like Bitcoin, the primary markets for gold bullion are unstructured OTC 
markets \49\ and the futures market.
---------------------------------------------------------------------------

    \48\ On September 12, 2019, the CME notified the CFTC of its 
increase of spot month position limits (in net futures equivalents) 
for the Bitcoin Futures contracts from 1,000 to 2,000 net contracts. 
``The increased spot-month position limit certified herein--2,000 
net contracts, ie, a notionally deliverable quantity of 10,000 
bitcoins--represents one tenth of one percent of this estimate of 
the notionally deliverable supply. The [CME] deems this to be 
adequately stringent to discourage attempted manipulation of the BRR 
benchmark in connection with final settlements of expiring 
contracts. . . Additionally, with the applicable reportable position 
level remaining at one (1) contract, the amended spot-month position 
limit certified herein will not in any way weaken the [CME's] 
ability to conduct effective market surveillance.'' Letter from Mr. 
Christopher Bowen, managing director and chief regulatory counsel, 
CME to Mr. Christopher J. Kirkpatrick, Office of the Secretariat, 
CFTC, Notification Regarding Increase of Spot Month Position Limits 
for the Bitcoin Futures Contract, CME Submission No. 19-334 
(September 12, 2019).
    \49\ ``The OTC market has no formal structure and no open-outcry 
meeting place.'' Securities Exchange Act Release No 50603 (October 
28, 2004), 69 FR 64614 (November 5, 2004) (SR-NYSE-2004-22) 
(streetTRACKS Gold Shares) (``streetTRACKS'').
---------------------------------------------------------------------------

    As with the OTC gold market, it is not possible to enter into an 
information sharing agreement with the OTC Bitcoin market.\50\ When the 
Commission approved the listing of gold ETPs and other commodity-trust 
ETPs, rather than surveillance sharing agreements with the relevant OTC 
markets, there have been surveillance sharing agreements between the 
listing exchange and ``regulated markets for trading futures on the 
underlying commodity.'' \51\ It has been widely discussed that 
manipulating the market for a commodity often involves the futures 
market for that commodity.\52\
---------------------------------------------------------------------------

    \50\ ``It is not possible, however, to enter into an information 
sharing agreement with the OTC gold market.'' streetTRACKS, at 
64619. See also iShares COMEX Gold Trust, Securities Exchange Act 
Release No. 51058 (January 19, 2005), 70 FR 3749 (January 26, 2005) 
(SR-Amex-2004-38); and Securities Exchange Act Release No. 60971 
(November 9, 2009), 74 FR 59283 (November 17, 2009) (SR-NYSEArca-
2009-94) (ETFS Palladium Trust).
    \51\ See Winklevoss II, at 37591.
    \52\ See, e.g., Frank Easterbrook, Monopoly, Manipulation, and 
the Regulation of Futures Markets, 59 J. of Bus. S103, S103-S127 
(1986); William D. Harrington, The Manipulation of Commodity Futures 
Prices, 55 St. Johns L. Rev. 240, 240-275 (2012); Robert C. Lower, 
Disruptions of the Futures Market: A Comment on Dealing With Market 
Manipulation, 8 Yale J. on Reg. 391, 391-402 (1991).
---------------------------------------------------------------------------

    The CME is a member of ISG, is regulated by the CFTC, and is 
situated very much like the COMEX division of NYMEX is with respect to 
gold ETPs.\53\ The CME is subject to a surveillance-sharing agreement 
arrangement pursuant to which the Exchange can obtain data from the 
CME.
---------------------------------------------------------------------------

    \53\ Other applicants have made similar arguments in their 
respective 19b-4 applications. See VanEck SolidX Bitcoin Trust, 
Securities Exchange Act Release No. 34-85119 (February 13, 2019), 84 
FR 5140 (February 20, 2019) (SR-CboeBZX-2019-004), n. 11 
(``VanEck'').
---------------------------------------------------------------------------

    Additionally, the Sponsor found that the Bitcoin futures market is 
larger in size (as a percentage of spot trading) than the size of the 
gold futures markets are in relation to the gold OTC market (expressed 
as a percentage).\54\ Using the most recent data cited by the World 
Gold Council, an affiliate of the SPDR Gold Shares (GLD), for 2016, the 
ratio of daily trading volume of Gold futures on COMEX ($28.9 billion) 
to daily trading volume on gold OTC markets ($167.9 billion, which is 
the midpoint of the estimated high and low points by the World Gold 
Council) is approximately 17.2%.\55\ In comparison, using data from the 
CME and the five CME CF BRR Constituent Platforms over the 6-month 
period of October 1, 2018 to March 31, 2019, the ratio of daily trading 
volume of BTC futures on the CME ($90.4 million) to the daily trading 
volume of BTC/USD spot ($149.5 million) is approximately 60.5%.\56\
---------------------------------------------------------------------------

    \54\ Analysis performed by the Sponsor using data available from 
(i) CME with respect to the CME futures, and (ii) Kaiko/Challenger 
Deep with respect to BTC/USD spot.
    \55\ Data available at https://www.gold.org/goldhub/data.
    \56\ Analysis performed by the Sponsor using data available from 
(i) CME with respect to the CME futures, and (ii) Kaiko/Challenger 
Deep with respect to BTC/USD spot. The Sponsor represents that the 
volume of the bitcoin futures market is also comparable with volumes 
on other markets deemed to be markets of significant size in a 
previous Commission approval order. See VanEck, at 5143 (comparing 
the bitcoin futures market favorably with the freight futures 
market).

---------------------------------------------------------------------------

[[Page 56227]]

    The Sponsor maintains that another way that the CME meets the first 
element arises from the fact that the value of the Bitcoin assets held 
by the Trust is based on the CME CF BRR. 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,\57\ and if such an attempt was made the BRR Administrator and the 
CME would be able to detect such manipulative trading patterns.\58\ In 
addition, any platform that is accepted by the CME to become part of 
the constituent trading platforms that are used to calculate the CME CF 
BRR, including the Constituent Platforms, (1) must enter into a data 
sharing agreement with the CME, (2) must cooperate with inquiries and 
investigations of regulators and the BRR Administrator and (3) must 
submit each of its clients to its Know-Your-Customer (``KYC'') 
procedures; \59\ therefore, the CME and the Exchange would be able, in 
the case of any suspicious trades, to discover all material trade 
information including the identities of the customers placing the 
trades.
---------------------------------------------------------------------------

    \57\ 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.
    \58\ The BRR Calculation Agent receives trading data from the 
Constituent Platforms through its Automatic Programming Interface 
(``API''). See https://www.cmegroup.com/education/bitcoin/pricing-products-practice-standards.html (``The [BRR] Administrator will 
have primary responsibility for all of the following in respect of 
Bitcoin Pricing Products: . . . Establishing appropriate monitoring 
processes and procedures designed to identify any breaches of these 
Practice Standards and any attempted manipulation or manipulative 
behavior and reporting any such incidents to the Oversight Committee 
in a timely manner.'')
    \59\ See https://www.cmegroup.com/education/constituent-exchanges-criteria.html.
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The CME Has Rigorous Criteria for Constituent Platforms Which It 
Monitors Regularly
    The Sponsor notes that the CME's criteria for each of the 
Constituent Platforms requires that the platform facilitates spot 
trading of the relevant cryptocurrency against the corresponding fiat 
currency (the ``Relevant Pair'') and makes trade data and order data 
available through an API with sufficient reliability, detail and 
timeliness. In addition, (1) the platform's Relevant Pair spot trading 
volume must meet the minimum thresholds as detailed in the CME CF 
Cryptocurrency Indices Methodology Guide; (2) the platform must publish 
policies to ensure fair and transparent market conditions at all times 
and have processes in place to identify and impede illegal, unfair or 
manipulative trading practices; (3) the platform must not impose undue 
barriers to entry or restrictions on market participants, and utilizing 
the platform must not expose market participants to undue credit risk, 
operational risk, legal risk or other risks; (4) the platform must 
comply with applicable law and regulation, including, but not limited 
to capital markets regulations, money transmission regulations, client 
money custody regulations, KYC regulations and anti-money-laundering 
(AML) regulations; and (5) the platform must cooperate with inquiries 
and investigations of regulators and the BRR Administrator upon request 
and must execute data sharing agreements with CME.\60\
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    \60\ See https://www.cmegroup.com/education/constituent-exchanges-criteria.html. The CME monitors the Constituent Platforms 
to ensure compliance with its criteria and removed two platforms in 
April 2017 for failing to meet its criteria. See Minutes of the CME 
CF BRR and BRTI Oversight Committee Meeting for BRR and BRTI held 
via conference call on 7th June 2017, available at https://www.cmegroup.com/education/bitcoin/cme-cf-brr-and-brti-oversight-meeting-minutes-2017-06.html.
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Each of the Constituent Platforms Is Subject to Oversight by Federal 
and State Financial Regulators
    Each of the Constituent Platforms are (i) registered with, and 
licensed by, the relevant financial authorities, (ii) subject to 
compliance with the rigorous requirements of the U.S. Bank Secrecy Act 
(``BSA'') and implementing AML regulations, and (iii) subject to the 
examination and enforcement authority of both federal and state 
regulators.\61\
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    \61\ All of the Constituent Platforms are registered with FinCEN 
as a money services business. Additionally, three of the five 
Constituent Platforms have obtained state money transmitter 
licenses, as applicable, and the other two Constituent Platforms are 
operated by trust companies chartered by the state of New York, 
which subjects it to New York AML requirements and enables it to 
operate in other states without a separate money transmitter 
license. See 3 NYCRR 504.
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    Under applicable FinCEN guidance, virtual currency exchanges such 
as the Constituent Platforms are considered ``money transmitters'' for 
the purposes of federal AML law and must be registered with FinCEN.\62\ 
As a result, the Constituent Platforms must fully comply with BSA and 
AML requirements, which include developing, implementing, and 
maintaining an effective AML program.\63\ In general, an effective AML 
program requires the Constituent Platforms to, among other things:
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    \62\ FinCEN, Application of FinCEN's Regulations to Persons 
Administering, Exchanging, or Using Virtual Currencies, FIN-2013-
G0001, (Mar. 18, 2013), https://www.fincen.gov/sites/default/files/shared/FIN-2013-G001.pdf. FinCEN has prosecuted entities that omit 
to register with it as a Money Services Business (``MSB'') or fail 
to comply with its regulations aggressively. See, e.g., Release by 
Office of Public Affairs, Department of Justice, Ripple Labs Inc. 
Resolves Criminal Investigation, available at https://www.justice.gov/opa/pr/ripple-labs-inc-resolves-criminal-investigation; see also Consent to the Assessment of a Civil Money 
Penalty, In the Matter of Eric Powers, U.S. Dep't of Treas., No. 
2019-01 (Apr. 18, 2019) (enforcement action against a peer-to-peer 
cryptocurrency exchanger by FinCEN).
    \63\ See 31 CFR part 1022. The effectiveness of AML procedures 
was noted by FinCEN Director Kenneth A. Blanco. See Prepared Remarks 
of FinCEN Director Kenneth A. Blanco, delivered at the 2018 Chicago-
Kent Block (Legal) Tech Conference, Aug. 09, 2018, available at 
https://www.fincen.gov/news/speeches/prepared-remarks-fincen-director-kenneth-blanco-delivered-2018-chicago-kent-block (reporting 
that FinCEN now receives over 1,500 SARs per month describing 
suspicious activity involving virtual currency, with reports coming 
from both MSBs in the virtual currency industry itself and other 
financial institutions).
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     Perform a comprehensive money laundering risk assessment;
     Designate a qualified AML compliance officer with 
reporting lines to the board of directors;
     Implement AML procedures, such as a customer 
identification program to identify customers and the source of virtual 
currency;
     Perform customer due diligence or enhanced due diligence;
     Monitor transactions and file suspicious activity reports;
     File currency transaction reports and reports of foreign 
bank and financial accounts;
     Keep records of transactions for inspection by 
authorities;
     Screen transactions to ensure that they do not violate 
sanctions imposed by the Treasury Department;
     Perform independent testing of the AML compliance program; 
and
     Conduct continuing employee education and training.
    Further, most states require money transmitters to obtain a license 
before offering money transmission services in that state. In order to 
obtain such state licenses, a money transmitter must implement an AML 
policy and comply with applicable state AML laws.\64\
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    \64\ The Sponsor concludes that the presence of robust AML and 
KYC policies and procedures, among other things, should lead to 
robust trading data and may inhibit trades placed with the intent of 
facilitating manipulation of the Bitcoin Price.
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    Since each Constituent Platform must have AML and KYC procedures in 
place, and anyone intending to trade on that platform must complete the 
KYC on-boarding process, each of the Constituent Platforms has 
information

[[Page 56228]]

that identifies anyone who makes a trade on that platform, meaning that 
no trades are anonymous or ``pseudonymous.'' \65\ As a result of such 
AML and KYC procedures, together with the data sharing agreements that 
each of the Constituent Platforms enters into with CME, the CME and the 
Exchange will be able to ascertain all necessary information about any 
suspicious trades on each of the Constituent Platforms, including the 
identity of the customer(s) placing such trades.
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    \65\ The Sponsor notes that all Bitcoin trades are visible 
publicly, but because trades are made from and to electronic 
wallets, only the electronic ``addresses'' of these wallets are 
available publicly. This form of trading has been called 
``pseudonymous'', meaning that while the wallet addresses are 
discernable, the identity of the wallet owners is not. Because each 
Constituent Platform knows the identity of its customers and the 
wallet addresses they use to trade on the platform, the Constituent 
Platform can ascertain the identity of the customer making each 
trade on that platform.
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Trading in the ETP Will Not Be the Predominant Influence on Prices in 
That Market
    The second element to determine whether a market or group of 
markets is of ``significant size'' requires that it is unlikely that 
trading in the ETP would be the predominant influence on prices in that 
market. As discussed in more detail below, the Sponsor concludes 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 Bitcoin futures market on 
the CME, or (iii) in the USD/BTC spot market on the Constituent 
Platforms.
    Due to the structure of the Trust, 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. Conversely, the 
Trust will only sell Bitcoin if required to as a result of the monthly 
rebalancing of its assets. This means that trading in the Shares will 
not cause the Trust to purchase or sell Bitcoin and will therefore not 
influence the price of Bitcoin.
    Even though the Trust may purchase Bitcoin from one or more of the 
Constituent Platforms \66\ in connection with the issuance of Shares or 
a monthly rebalancing of its assets, such purchases will take place 
only on limited occasions and will not be the ``predominant influence'' 
on the market. As noted previously, in no event will the Trust be 
trading in Bitcoin futures contracts and therefore the purchase or sale 
of Bitcoin by the Trust will not be the predominant influence on prices 
in the Bitcoin futures market.
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    \66\ None of the transaction documents relating to the Trust, 
nor the Trust's or the Sponsor's internal policies, require the 
Trust to purchase Bitcoin from any of the Constituent Platforms.
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    In addition, the Trust's assets consist of (a) Bitcoin and (b) T-
Bills in proportions that seek to closely replicate the Index. The 
Sponsor notes that, because Bitcoin is not the sole asset of the Trust, 
even if it were possible to influence the price of Bitcoin or the CME 
CF BRR through trading shares of the Trust, the influence of such 
trades would be muted by the presence of the T-Bills held by the Trust, 
and therefore such trading would not be the predominant influence on 
Bitcoin prices in such market.
Unique Aspects of the Trust Enhancing the Trust's Resistance to Market 
Manipulation and Volatility
    According to the registration statement, the Trust was created as a 
way for market participants to gain reasonable exposure to Bitcoin 
through a vehicle that mitigates the volatility that has historically 
been associated with Bitcoin.\67\ According to the registration 
statement, the Trust is designed to utilize a passive rules-based 
methodology without the use of derivatives or leverage in order to 
avoid complexity and confusion (often associated with those methods) 
and to provide for increased transparency to shareholders.
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    \67\ See, e.g., Statement on Cryptocurrencies and Initial Coin 
Offerings by Chairman Jay Clayton, Dec. 11, 2017, n. 7; and CFTC 
Primer on Virtual Currencies pp. 7 and 19 (noting that trading in 
virtual currencies may involve significant speculation and 
volatility risk and that the virtual currency marketplace has been 
subject to substantial volatility and price swings).
---------------------------------------------------------------------------

    According to the Registration Statement, the Trust will have no 
assets other than (a) Bitcoin and (b) T-Bills in proportions that seek 
to closely replicate the Index, which is calculated and published by 
Solactive AG.
    T-Bills are among the most liquid and widely traded assets in the 
world and are deemed to be risk free. The Sponsor believes that its 
selection of T-Bills as a constituent of the Trust will dampen the 
volatility of Bitcoin as it relates to the Trust, and consequently the 
Shares.
    In addition, based on the passive rules-based methodology noted 
above, as the CME CF BRR becomes more volatile, the Index, and thus the 
Trust, will have less exposure to Bitcoin and more exposure to T-Bills, 
and conversely, when the CME CF BRR becomes less volatile, the Index, 
and thus the Trust, will have more exposure to Bitcoin and less 
exposure to T-Bills. Therefore, the monthly rebalancing of the Trust's 
assets will also reduce the effects of Bitcoin volatility on the Trust 
and the Shares.
    The Sponsor maintains that, in contrast to other Bitcoin-related 
ETP Rule 19b-4 filings previously submitted, because Bitcoin is not the 
only constituent of the Trust (with the other constituent, T-Bills, 
being historically stable and risk-free), any potential manipulation of 
the Trust and the Shares would be extremely difficult and therefore 
unlikely.
Availability of Information
    Quotation and last-sale information regarding the Shares will be 
disseminated through the facilities of the CTA. The IFV will be 
available through on-line information services.
    In addition, the Trust's website will display the applicable end of 
day closing NAV. The daily holdings of the Trust will be available on 
the Trust's website before 9:30 a.m. E.T. The Trust's total portfolio 
composition will be disclosed each Business Day that NYSE Arca is open 
for trading, on the Trust's website. The Trust's website will also 
include a form of the prospectus for the Trust that may be downloaded. 
The website will include the Shares' ticker and CUSIP information, 
along with additional quantitative information updated on a daily basis 
for the Trust. The Trust's website will include (1) the prior business 
day's trading volume, the prior business day's reported NAV and closing 
price, and a calculation of the premium and discount of the closing 
price or mid-point of the bid/ask spread at the time of NAV calculation 
(``Bid/Ask Price'') against the NAV; and (2) data in chart format 
displaying the frequency distribution of discounts and premiums of the 
daily closing price or Bid/Ask Price against the NAV, within 
appropriate ranges, for at least each of the four previous calendar 
quarters. The Trust's website will be publicly available prior to the 
public offering of Shares and accessible at no charge.
    The Index value and price information for T-Bills is available from 
major market data vendors. The CME CF BRR and CME CF BRTI values are 
available on the CME website and from major market data vendors. The 
spot price of Bitcoin also is available on a 24-hour basis from major 
market data vendors.
Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of

[[Page 56229]]

the Trust.\68\ Trading in Shares of the Trust will be halted if the 
circuit breaker parameters in NYSE Arca Rule 7.12-E have been reached. 
Trading also may be halted because of market conditions or for reasons 
that, in the view of the Exchange, make trading in the Shares 
inadvisable.
---------------------------------------------------------------------------

    \68\ See NYSE Arca Rule 7.12-E.
---------------------------------------------------------------------------

    The Exchange may halt trading during the day in which an 
interruption to the dissemination of the IFV or the value of the Index 
occurs. If the interruption to the dissemination of the IFV or the 
value of the Index persists past the trading day in which it occurred, 
the Exchange will halt trading no later than the beginning of the 
trading day following the interruption. In addition, if the Exchange 
becomes aware that the NAV with respect to the Shares is not 
disseminated to all market participants at the same time, it will halt 
trading in the Shares until such time as the NAV is available to all 
market participants.
Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. Shares will trade on 
the NYSE Arca Marketplace from 4 a.m. to 8 p.m. E.T. in accordance with 
NYSE Arca Rule 7.34-E (Early, Core, and Late Trading Sessions). The 
Exchange has appropriate rules to facilitate transactions in the Shares 
during all trading sessions. As provided in NYSE Arca Rule 7.6-E, the 
minimum price variation (``MPV'') for quoting and entry of orders in 
equity securities traded on the NYSE Arca Marketplace is $0.01, with 
the exception of securities that are priced less than $1.00 for which 
the MPV for order entry is $0.0001.
    The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Rule 8.201-E. The trading of the Shares will 
be subject to NYSE Arca Rule 8.201-E(g), which sets forth certain 
restrictions on Equity Trading Permit (``ETP'') Holders acting as 
registered Market Makers in Commodity-Based Trust Shares to facilitate 
surveillance. The Exchange represents that, for initial and continued 
listing, the Trust will be in compliance with Rule 10A-3 \69\ under the 
Act, as provided by NYSE Arca Rule 5.3-E. A minimum of 100,000 Shares 
of the Trust will be outstanding at the commencement of trading on the 
Exchange.
---------------------------------------------------------------------------

    \69\ 17 CFR 240.10A-3.
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Surveillance
    The Exchange represents that trading in the Shares of the Trust 
will be subject to the existing trading surveillances administered by 
the Exchange, as well as cross-market surveillances administered by 
FINRA on behalf of the Exchange, which are designed to detect 
violations of Exchange rules and applicable federal securities 
laws.\70\ The Exchange represents that these procedures are adequate to 
properly monitor Exchange trading of the Shares in all trading sessions 
and to deter and detect violations of Exchange rules and federal 
securities laws applicable to trading on the Exchange.
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    \70\ FINRA conducts cross-market surveillances on behalf of the 
Exchange pursuant to a regulatory services agreement. The Exchange 
is responsible for FINRA's performance under this regulatory 
services agreement.
---------------------------------------------------------------------------

    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations.
    The Exchange or FINRA, on behalf of the Exchange, or both, will 
communicate as needed regarding trading in the Shares with other 
markets and other entities that are members of the ISG, and the 
Exchange or FINRA, on behalf of the Exchange, or both, may obtain 
trading information regarding trading in the Shares from such markets 
and other entities. In addition, the Exchange may obtain information 
regarding trading in the Shares from markets and other entities that 
are members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement (``CSSA'').\71\ The 
Exchange is also able to obtain information regarding trading in the 
Shares in connection with such ETP Holders' proprietary or customer 
trades which they effect through ETP Holders on any relevant market.
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    \71\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Trust may trade on markets that are members of ISG or with which the 
Exchange has in place a CSSA.
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    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
    All statements and representations made in this filing regarding 
(a) the description of the portfolios of the Trust, (b) limitations on 
portfolio holdings or reference assets, or (c) the applicability of 
Exchange listing rules specified in this rule filing shall constitute 
continued listing requirements for listing the Shares on the Exchange.
    The issuer has represented to the Exchange that it will advise the 
Exchange of any failure by the Trust to comply with the continued 
listing requirements, and, pursuant to its obligations under Section 
19(g)(1) of the Act, the Exchange will monitor for compliance with the 
continued listing requirements. If the Trust is not in compliance with 
the applicable listing requirements, the Exchange will commence 
delisting procedures under NYSE Arca Rule 5.5-E(m).
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
ETP Holders in an Information Bulletin of the special characteristics 
and risks associated with trading the Shares. Specifically, the 
Information Bulletin will discuss the following: (1) The risks involved 
in trading the Shares during the Early and Late Trading Sessions when 
an updated IFV will not be calculated or publicly disseminated; (2) the 
procedures for purchases and redemptions of Shares; (3) NYSE Arca Rule 
9.2-E(a), which imposes a duty of due diligence on its ETP Holders to 
learn the essential facts relating to every customer prior to trading 
the Shares; (4) how information regarding the IFV is disseminated; (5) 
how information regarding portfolio holdings is disseminated; (6) the 
requirement that ETP Holders deliver a prospectus to investors 
purchasing newly issued Shares prior to or concurrently with the 
confirmation of a transaction; and (7) trading information.
    Prior to the commencement of trading, the Exchange will inform its 
ETP Holders of the suitability requirements of NYSE Arca Rule 9.2-E(a) 
in an Information Bulletin. Specifically, ETP Holders will be reminded 
in the Information Bulletin that, in recommending transactions in the 
Shares, they must have a reasonable basis to believe that (1) the 
recommendation is suitable for a customer given reasonable inquiry 
concerning the customer's investment objectives, financial situation, 
needs, and any other information known by such ETP Holder, and (2) the 
customer can evaluate the special characteristics, and is able to bear 
the financial risks, of an investment in the Shares. In connection with 
the suitability obligation, the Information Bulletin will also provide 
that ETP Holders must make reasonable efforts to obtain the following 
information: (1) The customer's financial status; (2) the customer's 
tax status; (3) the customer's

[[Page 56230]]

investment objectives; and (4) such other information used or 
considered to be reasonable by such ETP Holder or registered 
representative in making recommendations to the customer.
    In addition, the Information Bulletin will advise ETP Holders, 
prior to the commencement of trading, of the prospectus delivery 
requirements applicable to the Trust. The Information Bulletin will 
also discuss any exemptive, no-action, and interpretive relief granted 
by the Commission from any rules under the Act. In addition, the 
Information Bulletin will reference that the Trust is subject to 
various fees and expenses described in the Registration Statement.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \72\ that an exchange have rules that 
are designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to remove 
impediments to, and perfect the mechanism of a free and open market 
and, in general, to protect investors and the public interest.
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    \72\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices and to protect 
investors and the public interest in that the Shares will be listed and 
traded on the Exchange pursuant to the initial and continued listing 
criteria in NYSE Arca Rule 8.201-E.
    Investing in the Trust will provide investors with exposure to 
Bitcoin in a manner that is efficient and convenient, while also 
reducing the volatility typically associated with Bitcoin. The Trust 
uses the CME CF BRR to determine the value of its Bitcoin assets, its 
NAV and the ratio of Bitcoin to T-Bills held by the Trust. 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. Therefore, use of the CME CF BRR would 
mitigate the effects of potential manipulation of the Bitcoin market. 
Additionally, the capital necessary to maintain a significant presence 
on any Constituent Platform would make manipulation of the CME CF BRR 
unlikely. Bitcoin trades in a well-arbitraged and distributed market. 
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.
    In addition, the Exchange has in place surveillance procedures that 
are adequate to properly monitor trading in the Shares in all trading 
sessions and to deter and detect violations of Exchange rules and 
applicable federal securities laws. The Exchange or FINRA, on behalf of 
the Exchange, or both, will communicate as needed regarding trading in 
the Shares with other markets and other entities that are members of 
the ISG, and the Exchange or FINRA, on behalf of the Exchange, or both, 
may obtain trading information regarding trading in the Shares from 
such markets and other entities. In addition, the Exchange may obtain 
information regarding trading in the Shares from markets and other 
entities that are members of ISG or with which the Exchange has in 
place a CSSA. The Exchange is also able to obtain information regarding 
trading in the Shares through ETP Holders, in connection with such ETP 
Holders' proprietary or customer trades which they effect through ETP 
Holders on any relevant market.
    Quotation and last-sale information regarding the Shares will be 
disseminated through the facilities of the CTA. The IFV will be 
available through on-line information services. In addition, the 
Trust's website will display the applicable end of day closing NAV. The 
daily holdings of the Trust will be available on the Trust's website 
before 9:30 a.m. E.T. The Trust's total portfolio composition will be 
disclosed each Business Day that NYSE Arca is open for trading, on the 
Trust's website. The Trust's website will also include a form of the 
prospectus for the Trust that may be downloaded. The website will 
include the Shares' ticker and CUSIP information, along with additional 
quantitative information updated on a daily basis for the Trust. The 
website will include the Shares' ticker and CUSIP information, along 
with additional quantitative information updated on a daily basis for 
the Trust. The Trust's website will include (1) the prior business 
day's trading volume, the prior business day's reported NAV and closing 
price, and a calculation of the premium and discount of the Bid/Ask 
Price against the NAV; and (2) data in chart format displaying the 
frequency distribution of discounts and premiums of the daily closing 
price or Bid/Ask Price against the NAV, within appropriate ranges, for 
at least each of the four previous calendar quarters.
    Moreover, prior to the commencement of trading, the Exchange will 
inform its ETP Holders in an Information Bulletin of the special 
characteristics and risks associated with trading the Shares and of the 
suitability requirements of NYSE Arca Rule 9.2-E(a). The Information 
Bulletin will advise ETP Holders, prior to the commencement of trading, 
of the prospectus delivery requirements applicable to the Trust. The 
Information Bulletin will also discuss any exemptive, no-action, and 
interpretive relief granted by the Commission from any rules under the 
Act. In addition, the Information Bulletin will reference that the 
Trust is subject to various fees and expenses described in the 
Registration Statement. The Information Bulletin will disclose that 
information about the Shares will be publicly available on the Trust's 
website.
    Trading in Shares of the Trust will be halted if the circuit 
breaker parameters in NYSE Arca Rule 7.12-E have been reached or 
because of market conditions or for reasons that, in the view of the 
Exchange, make trading in the Shares inadvisable
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of a 
new type of Commodity-Based Trust Share based in part on the price of 
Bitcoin that will enhance competition among market participants, to the 
benefit of investors and the marketplace. As noted above, the Exchange 
has in place surveillance procedures that are adequate to properly 
monitor trading in the Shares in all trading sessions and to deter and 
detect violations of Exchange rules and applicable federal securities 
laws.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Act. The Exchange notes that the 
proposed rule change will facilitate the listing and trading of a new 
type of Commodity-Based Trust Share based in part on the price of 
Bitcoin and that will enhance competition among market participants, to 
the benefit of investors and the marketplace.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

[[Page 56231]]

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as modified by Amendment No. 1, is consistent with the Act. In 
particular, the Commission seeks comment on the questions posed in the 
Order Instituting Proceedings previously issued by the Commission with 
respect to this proposed rule change.\73\ Comments may be submitted by 
any of the following methods:
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    \73\ See Order Instituting Proceedings, supra note 7, 84 FR at 
51648.
---------------------------------------------------------------------------

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 such 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 on or before November 12, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\74\
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    \74\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-22884 Filed 10-18-19; 8:45 am]
BILLING CODE 8011-01-P