[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