[Federal Register Volume 86, Number 164 (Friday, August 27, 2021)]
[Notices]
[Pages 48272-48274]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-18457]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92721; File No. SR-CboeBZX-2021-039]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove a 
Proposed Rule Change To List and Trade Shares of the Wise Origin 
Bitcoin Trust Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares

August 23, 2021.
    On May 10, 2021, Cboe BZX Exchange, Inc. (``BZX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
list and trade shares (``Shares'') of the Wise Origin Bitcoin Trust 
(``Trust'') under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares. 
The proposed rule change was published for comment in the Federal 
Register on June 1, 2021.\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. 91994 (May 25, 
2021), 86 FR 29321 (June 1, 2021) (``Notice''). Comments on the 
proposed rule change can be found at: https://www.sec.gov/comments/sr-cboebzx-2021-039/srcboebzx2021039.htm.
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    On July 13, 2021, 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\ This order institutes proceedings under Section 19(b)(2)(B) 
of the Act \6\ to determine whether to approve or disapprove the 
proposed rule change.
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    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 92388 (July 13, 
2021), 86 FR 38163 (July 19, 2021). The Commission designated August 
30, 2021, as the date by which it should approve, disapprove, or 
institute proceedings to determine whether to disapprove the 
proposed rule change.
    \6\ 15 U.S.C. 78s(b)(2)(B).
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I. Summary of the Proposal

    As described in more detail in the Notice,\7\ the Exchange proposes 
to list and trade the Shares of the Trust under BZX Rule 14.11(e)(4), 
which governs the listing and trading of Commodity-Based Trust Shares 
on the Exchange.
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    \7\ See Notice, supra note 3.
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    The investment objective of the Trust would be to seek to track the 
performance of bitcoin, as measured by the Fidelity Bitcoin Index PR 
(``Index''), adjusted for the Trust's expenses and other 
liabilities.\8\ Each Share will represent a fractional undivided 
beneficial interest in and ownership of the Trust. The Trust's assets 
will consist of bitcoin held by the Custodian on behalf of the Trust. 
The Trust generally does not intend to hold cash or cash equivalents. 
However, there may be situations where the Trust will

[[Page 48273]]

unexpectedly hold cash on a temporary basis.\9\
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    \8\ FD Funds Management LLC (``Sponsor'') is the sponsor of the 
Trust, Delaware Trust Company is the trustee, and Fidelity Service 
Company, Inc. will be the administrator (``Administrator''). A 
third-party transfer agent will facilitate the issuance and 
redemption of Shares of the Trust, respond to correspondence by 
Trust shareholders and others relating to its duties, maintain 
shareholder accounts, and make periodic reports to the Trust. An 
affiliate of the Sponsor, Fidelity Distributors Corporation, will be 
the marketing agent in connection with the creation and redemption 
of ``baskets'' of Shares, and the Sponsor will provide assistance in 
the marketing of the Shares. Fidelity Digital Asset Services, LLC 
will serve as the Trust's custodian (``Custodian''). The Index 
methodology was developed by Fidelity Product Services, LLC and is 
administered by the Fidelity Index Committee. Coin Metrics, Inc. is 
the third-party calculation agent for the Index. The Sponsor's 
affiliates have an ownership interest in Coin Metrics, Inc. See id. 
at 29321, 29327 n.57, 29328-29.
    \9\ See id. at 29328.
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    In seeking to achieve its investment objective, the Trust will hold 
bitcoin and will value its Shares daily as of 4:00 p.m. E.T. using the 
same methodology used to calculate the Index. The Index is designed to 
reflect the performance of bitcoin in U.S. dollars. The Index is 
calculated using bitcoin price feeds from eligible bitcoin spot 
platforms. The current platform composition of the Index is Bitstamp, 
Coinbase, Gemini, itBit and Kraken. The Index market value is the 
volume-weighted median price of bitcoin in U.S. dollars over the 
previous five minutes, which is calculated by (1) ordering all 
individual transactions on eligible spot platforms over the previous 
five minutes by price, and then (2) selecting the price associated with 
the 50th percentile of total volume.\10\
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    \10\ See id. at 29329.
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    The Net Asset Value (``NAV'') of the Trust means the total assets 
of the Trust including, but not limited to, all bitcoin and cash, if 
any, less total liabilities of the Trust, each determined on the basis 
of generally accepted accounting principles. The NAV of the Trust is 
calculated by taking the fair market value of its total assets based on 
the volume-weighted median price of bitcoin used for the calculation of 
the Index, subtracting any liabilities (which include accrued 
expenses), and dividing that total by the total number of outstanding 
Shares. The Administrator calculates the NAV of the Trust once each 
Exchange trading day. The NAV for a normal trading day will be released 
after 4:00 p.m. E.T.\11\
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    \11\ See id. at 29329-30.
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    The Trust will provide information regarding the Trust's bitcoin 
holdings, as well as an Intraday Indicative Value (``IIV'') per Share 
updated every 15 seconds, as calculated by the Exchange or a third-
party financial data provider during the Exchange's Regular Trading 
Hours (9:30 a.m. to 4:00 p.m. E.T.). The IIV will be calculated by 
using the prior day's closing NAV per Share as a base and updating that 
value during Regular Trading Hours to reflect changes in the value of 
the Trust's bitcoin holdings during the trading day.\12\
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    \12\ See id. at 29329.
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    When the Trust sells or redeems its Shares, it will do so in ``in-
kind'' transactions in blocks of Shares. Authorized participants will 
deliver, or facilitate the delivery of, bitcoin to the Trust's account 
with the Custodian in exchange for Shares when they purchase Shares, 
and the Trust, through the Custodian, will deliver bitcoin to such 
authorized participants when they redeem Shares with the Trust.\13\
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    \13\ See id. at 29328-29.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBZX-2021-039 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \14\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of proceedings is 
appropriate at this time in view of the legal and policy issues raised 
by the proposed rule change, as discussed below. Institution of 
proceedings does not indicate that the Commission has reached any 
conclusions with respect to any of the issues involved. Rather, as 
described below, the Commission seeks and encourages interested persons 
to provide comments on the proposed rule change.
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    \14\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\15\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposed rule change's consistency with Section 6(b)(5) 
of the Act, which requires, among other things, that the rules of a 
national securities exchange be ``designed to prevent fraudulent and 
manipulative acts and practices'' and ``to protect investors and the 
public interest.'' \16\
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    \15\ Id.
    \16\ 15 U.S.C. 78f(b)(5).
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    The Commission asks that commenters address the sufficiency of the 
Exchange's statements in support of the proposal, which are set forth 
in the Notice,\17\ in addition to any other comments they may wish to 
submit about the proposed rule change. In particular, the Commission 
seeks comment on the following questions and asks commenters to submit 
data where appropriate to support their views:
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    \17\ See Notice, supra note 3.
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    1. What are commenters' views on whether the proposed Trust and 
Shares would be susceptible to manipulation? What are commenters' views 
generally on whether the Exchange's proposal is designed to prevent 
fraudulent and manipulative acts and practices? What are commenters' 
views generally with respect to the liquidity and transparency of the 
bitcoin markets, the bitcoin markets' susceptibility to manipulation, 
and thus the suitability of bitcoin as an underlying asset for an 
exchange-traded product?
    2. What are commenters' views of the Exchange's assertion that the 
regulatory and financial landscapes relating to bitcoin and other 
digital assets have changed significantly since 2016? \18\ Are the 
changes that the Exchange identifies sufficient to support the 
determination that the proposal to list and trade the Shares is 
designed to protect investors and the public interest and is consistent 
with the other applicable requirements of Section 6(b)(5) of the Act?
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    \18\ See id. at 29322-23.
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    3. The Exchange states that ``approving this proposal . . . [would] 
allow U.S. investors with access to bitcoin in a regulated and 
transparent exchange-traded vehicle that would act to reduce risk'' 
associated with exposure through other means.\19\ Further, the Exchange 
asserts that ``the manipulation concerns previously articulated by the 
Commission are sufficiently mitigated.'' \20\ What are commenters' 
views regarding such assertions?
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    \19\ See id. at 29324.
    \20\ See id. at 29327.
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    4. According to the Exchange, ``[n]early every measurable metric 
related to [Chicago Mercantile Exchange's] Bitcoin Futures has trended 
consistently up since launch and/or accelerated upward in the past 
year.'' \21\ Based on data provided and the academic research cited by 
the Exchange, do commenters agree that the Chicago Mercantile Exchange 
(``CME'')'s bitcoin futures market now represents a regulated market of 
significant size? \22\ What are commenters' views on whether there is a 
reasonable likelihood that a person attempting to manipulate the Shares 
would also have to trade on CME to manipulate the Shares? What are 
commenters' views on the Exchange's assertion that the combination of 
(a) CME bitcoin futures leading price discovery; (b) the overall size 
of the bitcoin market; and (c) the ability for market participants to 
buy or sell large amounts of bitcoin without significant market impact 
helps to prevent the Shares from becoming the predominant force on 
pricing in either the bitcoin spot or CME bitcoin futures markets? \23\
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    \21\ See id. at 29325.
    \22\ See id. at 29322.
    \23\ See id. at 29332.
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    5. What are commenters' views on the Exchange's statement, 
generally, that bitcoin is resistant to price manipulation and that 
other means to prevent fraudulent and manipulative acts and practices 
exist to justify dispensing with the requisite

[[Page 48274]]

surveillance sharing agreement with a regulated market of significant 
size related to bitcoin? \24\ What are commenters' views on the 
Exchange's assertion in support of such statement that significant 
liquidity in the spot market and the impact of market orders on the 
overall price of bitcoin mean that attempting to move the price of 
bitcoin is costly? \25\ What are commenters' views on the assertion 
that offering only in-kind creations and redemptions provides unique 
protections against potential attempts to manipulate the Shares and 
that the price the Sponsor uses to value the Trust's bitcoin ``is not 
particularly important''? \26\
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    \24\ See id. at 29327 n.51.
    \25\ See id. at 29328.
    \26\ See id.
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III. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposal is 
consistent with Section 6(b)(5) or any other provision of the Act, and 
the rules and regulations thereunder. Although there do not appear to 
be any issues relevant to approval or disapproval that would be 
facilitated by an oral presentation of views, data, and arguments, the 
Commission will consider, pursuant to Rule 19b-4, any request for an 
opportunity to make an oral presentation.\27\
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    \27\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal should be approved or 
disapproved by September 17, 2021. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
October 1, 2021.
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CboeBZX-2021-039 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CboeBZX-2021-039. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CboeBZX-2021-039 and should be submitted 
by September 17, 2021. Rebuttal comments should be submitted by October 
1, 2021.
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    \28\ 17 CFR 200.30-3(a)(57).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021-18457 Filed 8-26-21; 8:45 am]
BILLING CODE 8011-01-P