[Federal Register Volume 86, Number 217 (Monday, November 15, 2021)]
[Notices]
[Pages 63082-63085]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-24764]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93534; File No. SR-NYSEArca-2021-53]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting
Proceedings To Determine Whether To Approve or Disapprove a Proposed
Rule Change To List and Trade Shares of the Teucrium Bitcoin Futures
Fund Under NYSE Arca Rule 8.200-E, Commentary .02 (Trust Issued
Receipts)
November 8, 2021.
On July 23, 2021, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
list and trade shares (``Shares'') of the Teucrium Bitcoin Futures Fund
(``Fund'') under NYSE Arca Rule 8.200-E, Commentary .02 (Trust Issued
Receipts). The proposed rule change was published for comment in the
Federal Register on August 11, 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. 92573 (Aug. 5,
2021), 86 FR 44062 (Aug. 11, 2021) (``Notice''). Comments on the
proposed rule change can be found at: https://www.sec.gov/comments/sr-nysearca-2021-53/srnysearca202153.htm.
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On September 15, 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. 92999, 86 FR 52539
(Sept. 21, 2021). The Commission designated November 9, 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 Fund under NYSE Arca Rule 8.200-E,
Commentary .02, which governs the listing and trading of Trust Issued
Receipts on the Exchange.
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\7\ See Notice, supra note 3.
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According to the Exchange, the Chicago Mercantile Exchange, Inc.
(``CME'') currently offers two bitcoin futures contracts, one contract
representing five (5) bitcoin (``BTC Contracts'') and another contract
representing one-tenth of one (0.10) bitcoin (``MBT Contracts'').\8\
Each BTC Contract and MBT Contract settles daily to the BTC Contract
volume-weighted average price (``VWAP'') of all trades that occur
between 2:59 p.m. and 3:00 p.m., Central Time, the settlement period,
rounded to the nearest tradable tick.\9\ BTC Contracts and MBT
Contracts each expire on the last Friday of the contract month and the
final settlement value for each contract is based on the CME CF Bitcoin
Reference Rate (``CME CF BRR'').\10\
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\8\ BTC Contracts began trading on the CME Globex trading
platform on December 15, 2017 and are cash-settled in U.S. dollars.
MBT Contracts began trading on the CME Globex trading platform on
May 3, 2021 under the ticker symbol ``MBT'' and are also cash-
settled in U.S. dollars. See id. at 44062.
\9\ See id. at. 44073.
\10\ See id. The CME CF BRR aggregates the trade flow of major
bitcoin spot exchanges during a specific calculation window into a
once-a-day reference rate of the U.S. dollar price of bitcoin. See
id. at 44067 n.59.
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The investment objective of the Fund is to have the daily changes
in the net asset value (``NAV'') of the Shares reflect the daily
changes in the price of a specified benchmark (``Benchmark'').\11\ The
Benchmark is the average of the closing settlement prices for the first
to expire and second to expire BTC Contracts listed on the CME. In
seeking to achieve the Fund's investment objective, the Sponsor will
employ a ``neutral'' investment strategy that is intended to track the
changes in the Benchmark. Under normal market conditions, the Fund will
invest in the first to expire and second to expire BTC Contracts and
MBT Contracts (``Bitcoin Futures Contracts'') and in cash and cash
equivalents. The Fund will roll its futures positions on a regular
basis in order to track the changing nature of the Benchmark by closing
out first to expire contracts prior to settlement that are no longer
part of the Benchmark and then entering into second to expire
contracts. Accordingly, the Fund will never carry futures positions all
the way to cash settlement. The Fund will endeavor to trade in Bitcoin
Futures Contracts so that the Fund's average daily tracking error
against the Benchmark will be less than 10 percent over any period of
30 trading days.\12\
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\11\ The Fund is a series of Teucrium Commodity Trust
(``Trust''). The Fund is managed and controlled by Teucrium Trading,
LLC (``Sponsor''). See id. at 44062.
\12\ See id. at 44062-63.
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The net asset value (``NAV'') per Share of the Fund will be
calculated by taking the current market value of its
[[Page 63083]]
total assets, subtracting any liabilities, and dividing that total by
the number of Shares. The administrator of the Fund will calculate the
NAV once each trading day, as of the earlier of the close of the New
York Stock Exchange or 4:00 p.m., Eastern Standard Time. To determine
the value of Bitcoin Futures Contracts, the Fund's administrator will
use the Bitcoin Futures Contract settlement price on the exchange on
which the contract is traded, except that the ``fair value'' of Bitcoin
Futures Contracts may be used when Bitcoin Futures Contracts close at
their price fluctuation limit for the day. The Fund's NAV will include
any unrealized profit or loss on open Bitcoin Futures Contracts and any
other credit or debit accruing to the Fund but unpaid or not received
by the Fund.\13\
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\13\ See id. at 44073-74.
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The daily holdings of the Fund will be available on the Fund's
website. ICE Data Indices, LLC will calculate an updated Indicative
Fund Value (``IFV'') for the Fund, which will be disseminated on a per
Share basis every 15 seconds during the Exchange's Core Trading
Session. The IFV will be calculated by using the prior day's closing
NAV per Share of the Fund as a base and will be updated throughout the
Exchange's Core Trading Session to reflect changes in the value of the
Fund's holdings during the trading day. The intraday, closing prices,
and settlement prices of the Bitcoin Futures Contracts, as well as
their specific contract specifications, will be readily available from
the applicable futures exchange websites, automated quotation systems,
published or other public sources, or major market data vendors. Intra-
day price and closing price level information for the Benchmark will be
available from major market data vendors. The Benchmark value will be
disseminated once every 15 seconds.\14\
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\14\ See id. at 44074-75.
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The Fund would create and redeem Shares from time to time, but only
in one or more blocks of 12,500 Shares (``Creation Baskets''). The
purchase and redemption price for Creation Baskets would be the NAV
calculated at the end of the business day when a request for a purchase
or redemption is received by the Fund. By placing a purchase order, an
authorized purchaser would agree to deposit cash with the
custodian.\15\ The redemption distribution from the Fund would consist
of an amount of cash, cash equivalents and/or exchange listed bitcoin
futures that is in the same proportion to the total assets of the Fund
on the date that the order to redeem is properly received as the number
of Shares to be redeemed under the redemption order is in proportion to
the total number of Shares outstanding on the date the order is
received.\16\
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\15\ An authorized purchaser who places a purchase order would
transfer to the custodian the required amount of cash, cash
equivalents and/or bitcoin futures by the end of the next business
day following the purchase order date or by the end of such later
business day, not to exceed three business days after the purchase
order date, as agreed to between the authorized purchaser and the
custodian when the purchase order is placed (``Purchase Settlement
Date''). Upon receipt of the deposit amount, the custodian would
direct DTC to credit the number of Creation Baskets ordered to the
authorized purchaser's DTC account on the Purchase Settlement Date.
See id.
\16\ See id.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEArca-2021-53 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \17\ 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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\17\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\18\ 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.'' \19\
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\18\ Id.
\19\ 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,\20\ 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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\20\ See Notice, supra note 3.
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1. What are commenters' views on whether the proposed Fund 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?
2. What are commenters' views of the Exchange's assertions that the
regulatory and financial landscape relating to bitcoin and other
digital assets have changed significantly since 2016? \21\ 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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\21\ See id. at 44063-66.
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3. The Exchange states that the Fund would provide ``an opportunity
for U.S. investors to gain price exposure to Bitcoin futures contracts
in a regulated and transparent exchange-traded vehicle that limits
risks'' and asserts that concerns regarding potential manipulation of a
bitcoin exchange-traded product ``have been sufficiently mitigated by
the use of futures contracts in the proposed ETP.'' \22\ What are
commenters' views regarding such assertions?
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\22\ See id. at 44066.
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4. According to the Exchange, ``trading in CME Bitcoin futures
contracts has increased significantly, in particular with respect to
BTC Contracts,'' and ``[n]early every measurable metric related to BTC
Contracts has trended consistently up since launch and/or accelerated
upward in the past year.'' \23\ The Exchange also states that it
believes the data provided regarding the recent growth in the bitcoin
futures market ``clearly establishes that the CME Bitcoin futures
markets generally are a market of significant size'' and ``the current
size and volume of the CME Bitcoin futures market is already more than
adequate--and still growing in size--to make its own trading activity
the primary, if not the lone determinant, of its valuation.'' \24\
Based on information provided by the Exchange, do commenters agree with
the Exchange that the CME's bitcoin futures market now represents a
regulated market of significant size? \25\
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\23\ See id. at 44067.
\24\ See id. at 44072.
\25\ See id. at 44071.
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5. The Exchange states it believes that ``the surveillance
agreement already in place between the Exchange and the
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CME is `adequate to monitor' for abuses in the trading of the Fund's
shares, given the significant likelihood that a person attempting to
manipulate the price of the shares of the Fund would have to manipulate
the prices of the Bitcoin Futures Contracts.'' \26\ The Exchange also
states that ``any would-be manipulator of Bitcoin prices would be
reasonably likely to have to do so through the CME Bitcoin futures
market. . . .'' \27\ Do commenters agree with the Exchange's
assertions? Why or why not?
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\26\ See id. at 44072
\27\ See id.
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6. The Exchange states it believes that ``trading in the Shares
would not be the predominant force on prices in the Bitcoin Futures
market'' because of ``the significant volume in and size of the CME
Bitcoin futures market and the significant liquidity available in the
spot market.'' \28\ What are commenters views on the Exchange's
assertion and the data provided by the Exchange to support such
assertion?
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\28\ See id. at 44073. For example, the Exchange states that one
Creation Unit (12,500 Shares) at $50 per share and CME contract
value of $200,000 only prompts buying of a little over 3 contracts;
10 Creation Units = 31 contracts; 100 Creation Units = 310
contracts, compared to YTD average daily trade volume of 8800 first
to expire and 2450 second to expire contracts. See id. at 44073 n.
87
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7. The Exchange states ``due to the unique structure of the Fund,
it is unlikely that price manipulation or fraud on the trading
platforms for Bitcoin will have a measurable impact on the NAV of the
Fund.'' \29\ The Exchange further states ``[b]ecause the Fund
calculates daily NAV based on Bitcoin Futures Contracts' settlement
prices and does not calculate NAV based directly on the underlying spot
Bitcoin market, the Sponsor believes that the only practicable way for
a bad actor to manipulate the NAV of the Fund is through manipulating
the first and second to expire Bitcoin Futures Contracts.'' \30\ In
addition, the Exchange states ``BTC Contracts and MBT Contracts are now
of such size and scale that Bitcoin futures prices are not specifically
materially influenced by other Bitcoin markets.'' \31\ What are
commenters' views on these assertions?
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\29\ See id. at 44071.
\30\ See id.
\31\ See id.
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8. The Sponsor believes that similarities between the operational
characteristics and regulatory requirements applicable to exchange-
traded funds (``ETFs'') that both register the sale of their shares
under the Securities Act of 1933 (``1933 Act'') and are regulated under
the Investment Company Act of 1940 (``1940 Act'') and bitcoin futures-
based ETPs that register the sale of their shares under the 1933 Act
but are not regulated under the 1940 Act like the Fund ``provide
sufficient investor protections'' and that ``there are no investor
protections afforded by the 1940 Act that justify unequal review and
approval processes for [the Fund] as opposed to bitcoin ETFs.'' \32\
The Sponsor further states that ``in addition to ETFs being required to
have a board where ETPs are not, ETFs are also subject to a number of
substantive limitations under the 1940 Act to which ETPs are not--e.g.,
limitations on transactions with affiliates and on leverage'' but that
it ``does not believe [the Fund's] proposed structure or operations
differ substantively from bitcoin ETFs in any manner that should lead
the Commission to require 1940 Act registration.'' \33\ What are
commenters' views of such assertions?
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\32\ See Letter from W. Thomas Conner, Vedder Price, on behalf
of the Sponsor, dated September 1, 2021, at 6, available at https://www.sec.gov/comments/sr-nysearca-2021-53/srnysearca202153-9197848-249688.pdf.
\33\ See id. at 9.
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9. The Exchange states that ``the Commission should also consider
the direct, quantifiable investor protection issue in determining
whether to approve this proposal.'' \34\ In addition, the Exchange
states that exposure to bitcoin through a bitcoin futures-based ETP
like the Fund presents advantages to retail investors compared to
buying spot bitcoin, investing in OTC bitcoin funds, or investing in
operating companies with bitcoin exposure.\35\ What are commenters'
views regarding the Exchange's assertions?
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\34\ See Notice, supra note 3, at 44067.
\35\ See id. at 44066-67.
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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.\36\
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\36\ 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 December 6, 2021. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
December 20, 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-NYSEArca-2021-53 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-2021-53. 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
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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-2021-53 and should
be submitted by December 6, 2021. Rebuttal comments should be submitted
by December 20, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\37\
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\37\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-24764 Filed 11-12-21; 8:45 am]
BILLING CODE 8011-01-P