[Federal Register Volume 87, Number 70 (Tuesday, April 12, 2022)]
[Notices]
[Pages 21676-21684]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-07748]



[[Page 21676]]

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94620; File No. SR-NYSEArca-2021-53]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of a Proposed Rule Change, as Modified by Amendment No. 2, To 
List and Trade Shares of the Teucrium Bitcoin Futures Fund Under NYSE 
Arca Rule 8.200-E, Commentary .02 (Trust Issued Receipts)

April 6, 2022.

I. Introduction

    On July 23, 2021, NYSE Arca, Inc. (``Arca'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission''), pursuant 
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Exchange 
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\
---------------------------------------------------------------------------

    \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 (``Notice''). Comments on the proposed rule 
change can be found at: https://www.sec.gov/comments/sr-nysearca-2021-53/srnysearca202153.htm.
---------------------------------------------------------------------------

    On September 15, 2021, pursuant to Section 19(b)(2) of the Exchange 
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 November 8, 2021, the Commission instituted 
proceedings under Section 19(b)(2)(B) of the Exchange Act \6\ to 
determine whether to approve or disapprove the proposed rule change.\7\ 
On January 25, 2022, the Commission designated a longer period for 
Commission action on the proposed rule change.\8\ On March 7, 2022, the 
Exchange filed partial Amendment No. 2 to the proposed rule change.\9\
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 92999, 86 FR 52539 
(Sept. 21, 2021).
    \6\ 15 U.S.C. 78s(b)(2)(B).
    \7\ See Securities Exchange Act Release No. 93534, 86 FR 63082 
(Nov. 15, 2021).
    \8\ See Securities Exchange Act Release No. 94054, 87 FR 4974 
(Jan. 31, 2022).
    \9\ The Exchange filed partial Amendment No. 1 to the proposed 
rule change on March 4, 2022, and withdrew partial Amendment No. 1 
on March 7, 2022. In Amendment No. 2, the Exchange clarified, among 
others things, that under no circumstances will the Fund hold and/or 
invest in any assets other than BTC Contracts and MBT Contracts 
(each as defined below), cash, and cash equivalents; and provided 
additional representations that are commonly made by and/or required 
for futures-based exchange-traded products listed under NYSE Arca 
Rule 8.200-E, Commentary .02 (Trust Issued Receipts). Because 
Amendment No. 2 does not materially alter the substance of the 
proposed rule change, Amendment No. 2 is not subject to notice and 
comment. The full text of Amendment No. 2 is available on the 
Commission's website at: https://www.sec.gov/comments/sr-nysearca-2021-53/srnysearca202153-20118884-271701.pdf (``Amendment No. 2'').
---------------------------------------------------------------------------

    When an exchange files a proposed rule change,\10\ the Commission 
must determine whether the proposed rule change is consistent with the 
statutory provisions, and the rules and regulations, that apply to 
national securities exchanges.\11\ As discussed further below, the 
Commission is approving the proposed rule change, as modified by 
Amendment No. 2. In approving this proposed rule change, however, the 
Commission emphasizes--as it has with previous disapprovals of bitcoin-
related ETPs \12\--that its action does not rest on an evaluation of 
whether bitcoin, or blockchain technology more generally, has utility 
or value as an innovation or an investment.
---------------------------------------------------------------------------

    \10\ Such filings are made under Section 19(b)(1) of the 
Exchange Act, 15 U.S.C. 78s(b)(1), and Exchange Act Rule 19b-4, 17 
CFR 240.19b-4.
    \11\ See Exchange Act Section 19(b)(2)(C), 15 U.S.C. 
78s(b)(2)(C).
    \12\ See, e.g., Order Disapproving a Proposed Rule Change, as 
Modified by Amendment No. 1, 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, Securities Exchange Act Release No. 88284 (Feb. 26, 
2020), 85 FR 12595, 12597 (Mar. 3, 2020) (SR-NYSEArca-2019-39) 
(``USBT Order''); Order Disapproving a Proposed Rule Change To List 
and Trade Shares of the NYDIG Bitcoin ETF Under NYSE Arca Rule 
8.201-E (Commodity-Based Trust Shares), Securities Exchange Act 
Release No. 94395 (Mar. 10, 2022), 87 FR 14932, 14934 (Mar. 16, 
2022) (SR-NYSEArca-2021-57) (``NYDIG Order'').
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 2

    As described in more detail in the Notice and Amendment No. 2,\13\ 
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.
---------------------------------------------------------------------------

    \13\ See Notice, supra note 3; Amendment No. 2, supra note 9.
---------------------------------------------------------------------------

    According to the Exchange, the Chicago Mercantile Exchange, Inc. 
(``CME'') currently offers two bitcoin futures contracts, one contract 
representing five (5) bitcoins \14\ (``BTC Contract'') and another 
contract representing one-tenth of one (0.10) bitcoin (``MBT 
Contract'').\15\ 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.\16\ 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'').\17\
---------------------------------------------------------------------------

    \14\ Bitcoins are digital assets that are issued and transferred 
via a decentralized, open-source protocol used by a peer-to-peer 
computer network through which transactions are recorded on a public 
transaction ledger known as the ``bitcoin blockchain.'' The bitcoin 
protocol governs the creation of new bitcoins and the cryptographic 
system that secures and verifies bitcoin transactions. See, e.g., 
Notice, 86 FR at 44063.
    \15\ 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.
    \16\ See id. at 44073.
    \17\ See id. The CME CF BRR aggregates the trade flow of major 
bitcoin spot platforms 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.
---------------------------------------------------------------------------

    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'').\18\ The 
Benchmark will be calculated using the closing settlement prices of 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.\19\ 
The Fund will only invest in BTC Contracts and MBT Contracts (``Bitcoin 
Futures Contracts'') and in cash and cash equivalents.\20\ The Fund 
will roll its futures positions on a regular basis and will never carry 
futures positions all the way to cash settlement.\21\
---------------------------------------------------------------------------

    \18\ 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.
    \19\ See id. at 44062-63.
    \20\ See Amendment No. 2, supra note 9, at 3.
    \21\ See Notice, 86 FR at 44062.
---------------------------------------------------------------------------

    The NAV per Share of the Fund will be calculated by taking the 
current market value of its 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 Time.\22\
---------------------------------------------------------------------------

    \22\ See id. at 44073-74.

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

[[Page 21677]]

    The Fund will 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 will be based on the 
NAV calculated at the end of the business day when a request for a 
purchase or redemption is received by the Fund.\23\ Shares will 
generally be created and redeemed in cash.\24\
---------------------------------------------------------------------------

    \23\ See id. at 44074.
    \24\ See Amendment No. 2, supra note 9, at 3.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 2, is consistent with the Exchange 
Act and rules and regulations thereunder applicable to a national 
securities exchange.\25\ In particular, the Commission finds that the 
proposed rule change, as modified by Amendment No. 2, is consistent 
with Section 6(b)(5) of the Exchange Act,\26\ which requires, among 
other things, that the Exchange's rules be 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 a national market system,'' 
and, ``in general, to protect investors and the public interest.'' The 
Commission also finds, with respect to the dissemination of quotation 
and last-trade information for the proposed ETP, that the proposed rule 
change, as modified by Amendment No. 2, is consistent with Section 
11A(a)(1)(C)(iii) of the Exchange Act,\27\ which sets forth Congress' 
finding that it is in the public interest and appropriate for the 
protection of investors and the maintenance of fair and orderly markets 
to assure the availability to brokers, dealers, and investors of 
information with respect to quotations for and transactions in 
securities.
---------------------------------------------------------------------------

    \25\ In approving this proposed rule change, as modified by 
Amendment No. 2, the Commission notes that it has considered the 
proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \26\ 15 U.S.C. 78f(b)(5).
    \27\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
---------------------------------------------------------------------------

    When considering whether Arca's proposal to list and trade the 
Shares is designed to prevent fraudulent and manipulative acts and 
practices, the Commission applies the same standard it used in orders 
considering previous proposals to list bitcoin-based commodity trusts 
and bitcoin-based trust issued receipts.\28\ As the Commission has 
explained, an exchange that lists bitcoin-based exchange-traded 
products (``ETPs'') can meet its obligations under Exchange Act Section 
6(b)(5) by demonstrating that the exchange has a comprehensive 
surveillance-sharing agreement with a regulated market of significant 
size related to the underlying or reference bitcoin assets.\29\ The 
Winklevoss Order applied this standard to a commodity-trust ETP based 
on spot bitcoin, and the Commission has found that this standard is 
also appropriate for, and has applied the standard to, proposed ETPs 
based on bitcoin futures.\30\
---------------------------------------------------------------------------

    \28\ See 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, 
Securities Exchange Act Release No. 83723 (July 26, 2018), 83 FR 
37579 (Aug. 1, 2018) (SR-BatsBZX-2016-30) (``Winklevoss Order''); 
USBT Order, 85 FR 12595; Order Disapproving a Proposed Rule Change 
To List and Trade Shares of the WisdomTree Bitcoin Trust Under BZX 
Rule 14.11(e)(4), Commodity-Based Trust Shares, Securities Exchange 
Act Release No. 93700 (Dec. 1, 2021), 86 FR 69322 (Dec. 7, 2021) 
(SR-CboeBZX-2021-024) (``WisdomTree Order''); Order Disapproving a 
Proposed Rule Change To List and Trade Shares of the Kryptoin 
Bitcoin ETF Trust Under BZX Rule 14.11(e)(4), Commodity-Based Trust 
Shares, Securities Exchange Act Release No. 93860 (Dec. 22, 2021), 
86 FR 74166 (Dec. 29, 2021) (SR-CboeBZX-2021-029) (``Kryptoin 
Order''); Order Disapproving a Proposed Rule Change To List and 
Trade Shares of the Valkyrie Bitcoin Fund Under NYSE Arca Rule 
8.201-E (Commodity-Based Trust Shares), Securities Exchange Act 
Release No. 93859 (Dec. 22, 2021), 86 FR 74156 (Dec. 29, 2021) (SR-
NYSEArca-2021-31) (``Valkyrie Order''); Order Disapproving a 
Proposed Rule Change To List and Trade Shares of the First Trust 
SkyBridge Bitcoin ETF Trust Under NYSE Arca Rule 8.201-E, Securities 
Exchange Act Release No. 94006 (Jan. 20, 2022), 87 FR 3869 (Jan. 25, 
2022) (SR-NYSEArca-2021-37) (``Skybridge Order''); Order 
Disapproving 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, Securities Exchange Act Release No. 94080 (Jan. 
27, 2022), 87 FR 5527 (Feb. 1, 2022) (SR-CboeBZX-2021-029) (``Wise 
Origin Order''); NYDIG Order, 87 FR 14932; Order Disapproving a 
Proposed Rule Change To List and Trade Shares of the Global X 
Bitcoin Trust Under BZX Rule 14.11(e)(4), Commodity-Based Trust 
Shares, Securities Exchange Act Release No. 94396 (Mar. 10, 2022), 
87 FR 14912 (Mar. 16, 2022) (SR-CboeBZX-2021-052) (``Global X 
Order''); Order Disapproving a Proposed Rule Change, as Modified by 
Amendment No. 1, To List and Trade Shares of the ARK 21Shares 
Bitcoin ETF Under BZX Rule 14.11(e)(4), Commodity-Based Trust 
Shares, Securities Exchange Act Release No. 94571 (Mar. 31, 2022), 
87 FR 20014 (Apr. 6, 2022) (SR-CboeBZX-2021-051). See also Order 
Disapproving a Proposed Rule Change, as Modified by Amendment No. 1, 
Relating to the Listing and Trading of Shares of the SolidX Bitcoin 
Trust Under NYSE Arca Equities Rule 8.201, Securities Exchange Act 
Release No. 80319 (Mar. 28, 2017), 82 FR 16247 (Apr. 3, 2017) (SR-
NYSEArca-2016-101) (``SolidX Order''). The Commission also notes 
that orders were issued by delegated authority on the following 
matters: Order Disapproving a Proposed Rule Change To List and Trade 
the Shares of the ProShares Bitcoin ETF and the ProShares Short 
Bitcoin ETF, Securities Exchange Act Release No. 83904 (Aug. 22, 
2018), 83 FR 43934 (Aug. 28, 2018) (SR-NYSEArca-2017-139) 
(``ProShares Order''); Order Disapproving a Proposed Rule Change To 
List and Trade the Shares of the GraniteShares Bitcoin ETF and the 
GraniteShares Short Bitcoin ETF, Securities Exchange Act Release No. 
83913 (Aug. 22, 2018), 83 FR 43923 (Aug. 28, 2018) (SR-CboeBZX-2018-
001) (``GraniteShares Order''); Order Disapproving a Proposed Rule 
Change To List and Trade Shares of the VanEck Bitcoin Trust Under 
BZX Rule 14.11(e)(4), Commodity-Based Trust Shares, Securities 
Exchange Act Release No. 93559 (Nov. 12, 2021), 86 FR 64539 (Nov. 
18, 2021) (SR-CboeBZX-2021-019) (``VanEck Order'').
    \29\ See USBT Order, 85 FR at 12596. In the context of 
derivative securities products such as commodity-trust ETPs, the 
Commission has long recognized the importance of comprehensive 
surveillance-sharing agreements to detect and deter fraudulent and 
manipulative activity. See, e.g., streetTRACKS Gold Shares, 
Securities Exchange Act Release No. 50603 (Oct. 28, 2004), 69 FR 
64614, 64618-19 (Nov. 5, 2004) (SR-NYSE-2004-22); iShares Silver 
Trust, Securities Exchange Act Release No. 53521 (Mar. 20, 2006), 71 
FR 14967, 14968, 14973-74 (Jan 26, 2005) (SR-Amex-2004-38); JPM XF 
Physical Copper Trust, Securities Exchange Act Release No. 68440 
(Dec. 14, 2012), 77 FR 75468, 75469-70, 75272, 75485-86 (Dec. 20, 
2012) (SR-NYSEArca-2012-28). See also Winklevoss Order, 83 FR at 
37592 n.202 and accompanying text (discussing previous Commission 
approvals of commodity-trust ETPs). And the Commission's approval 
orders for commodity-futures ETPs consistently note the ability of 
an ETP listing exchange to share surveillance information either 
through surveillance-sharing agreements or through membership by the 
listing exchange and the relevant futures exchange in the 
Intermarket Surveillance Group. See, e.g., Securities Exchange Act 
Release No. 53105 (Jan. 11 2006), 71 FR 3129, 3136 (Jan. 19, 2006) 
(SR-Amex-2005-059); Securities Exchange Act Release No. 53582 (Mar. 
31, 2006), 71 FR 17510, 17518 (Apr. 6, 2006) (SR-Amex-2005-127); 
Securities Exchange Act Release No. 54013 (June 16, 2006), 71 FR 
36372, 36378-79 (June 26, 2006) (SR-NYSE-2006-17). See also 
GraniteShares Order, 83 FR at 43925-27 nn.35-39 and accompanying 
text (discussing previous Commission approvals of commodity-futures 
ETPs). Listing exchanges have also attempted to demonstrate that 
other means besides surveillance-sharing agreements will be 
sufficient to prevent fraudulent and manipulative acts and 
practices, including that the bitcoin market as a whole or the 
relevant underlying bitcoin market is ``uniquely'' and 
``inherently'' resistant to fraud and manipulation. See USBT Order, 
85 FR at 12597. The Exchange, however, does not make any such 
arguments with respect to this proposal.
    \30\ See ProShares Order, 83 FR at 43936; GraniteShares Order, 
83 FR at 43925.
---------------------------------------------------------------------------

    In the analysis below, the Commission examines whether the proposed 
rule change, as modified by Amendment No. 2, is consistent with Section 
6(b)(5) of the Exchange Act by addressing: In Section III.A whether 
Arca has entered into a comprehensive surveillance-sharing agreement 
with a regulated market of significant size related to the underlying 
bitcoin assets (here, CME bitcoin futures contracts); in Section III.B 
assertions that allowing investors to obtain exposure to bitcoin 
futures contracts through a bitcoin futures-based ETP would be 
beneficial; in Section III.C other assertions rasied by commenters; and 
in Section III.D whether the proposed ETP is consistent with other 
standards for commodity-futures ETPs. Based on its analysis, the

[[Page 21678]]

Commission concludes that the proposed rule change, as modified by 
Amendment No. 2, is consistent with the statutory requirements of 
Exchange Act Sections 6(b)(5) and 11A(a)(1)(C)(iii).
    As discussed in more detail below, the approval is based on a 
finding that the CME is a ``significant market'' related to CME bitcoin 
futures contracts, which would be the exclusive non-cash holdings of 
the proposed ETP. The Commission emphasizes that its approval of this 
proposal is based on the specific facts and circumstances of the 
proposal.\31\
---------------------------------------------------------------------------

    \31\ The Commission is not suggesting that either the 
development of the CME bitcoin futures market or the approval of 
this proposal would require the Commission to approve a proposed 
rule change seeking to list and trade shares of an ETP holding spot 
bitcoin as an asset or ETPs related to other digital assets. See, 
e.g., GraniteShares Order, 83 FR at 43931. Other proposed ETPs will 
continue to be assessed on their particular facts and circumstances 
and on whether those proposals are consistent with the requirements 
of the Exchange Act.
---------------------------------------------------------------------------

A. Comprehensive Surveillance-Sharing Agreement With a Regulated Market 
of Significant Size Related to CME Bitcoin Futures Contracts

    As stated above, an exchange that lists a bitcoin-based ETP can 
meet its obligations under Exchange Act Section 6(b)(5) by 
demonstrating that the exchange has a comprehensive surveillance-
sharing agreement with a regulated market of significant size related 
to the underlying bitcoin assets.\32\ When disapproving the earliest 
proposals for bitcoin-based ETPs, the Commission recognized that 
``regulated bitcoin-related markets are in the early stages of their 
development,'' but that ``[o]ver time, regulated bitcoin-related 
markets may continue to grow and develop'' in a way that would make it 
possible for a bitcoin-based ETP to satisfy the requirements of the 
Exchange Act.\33\ The Commission previously stated that, for example, 
``existing or newly created bitcoin futures markets'' that are 
regulated may achieve significant size, and an ETP listing exchange may 
be able to demonstrate in a proposed rule change that it will be able 
to address the risk of fraud and manipulation by entering into a 
surveillance-sharing agreement with a regulated market of significant 
size.\34\ Since the early stages of bitcoin futures trading on a 
regulated market, however, the Commission has not had the opportunity 
to consider whether a proposal for a bitcoin futures-based ETP is 
consistent with the Exchange Act.\35\
---------------------------------------------------------------------------

    \32\ See supra note 29 and accompanying text.
    \33\ See Winklevoss Order, 83 FR at 37580.
    \34\ See id.; USBT Order, 85 FR at 12598.
    \35\ See ProShares Order, 83 FR at 43941; GraniteShares Order, 
83 FR at 43931.
---------------------------------------------------------------------------

    With respect to the proposed ETP, the underlying bitcoin assets are 
CME bitcoin futures contracts. The relevant analysis, therefore, is 
whether Arca has a comprehensive surveillance-sharing agreement with a 
regulated market of significant size related to CME bitcoin futures 
contracts. As discussed below, taking into consideration the direct 
relationship between the regulated market with which Arca has a 
surveillance-sharing agreement and the assets held by the proposed ETP, 
as well as developments with respect to the CME bitcoin futures 
market--including the launch of exchange-traded funds registered under 
the Investment Company Act of 1940 (``1940 Act'') that hold CME bitcoin 
futures (``Bitcoin Futures ETFs'')--the Commission concludes that the 
Exchange has the requisite surveillance-sharing agreement.
Comprehensive Surveillance-Sharing Agreements With the CME, a Regulated 
Market
    The Commission has emphasized that it is essential for an exchange 
listing a derivative securities product to enter into a surveillance-
sharing agreement with markets trading the underlying assets for the 
listing exchange to have the ability to obtain information necessary to 
detect, investigate, and deter fraud and market manipulation, as well 
as violations of exchange rules and applicable federal securities laws 
and rules.\36\ Comprehensive surveillance-sharing agreements ``provide 
a necessary deterrent to manipulation because they facilitate the 
availability of information needed to fully investigate a manipulation 
if it were to occur.'' \37\ The hallmarks of a surveillance-sharing 
agreement are that the agreement provides for the sharing of 
information about market trading activity, clearing activity, and 
customer identity; that the parties to the agreement have reasonable 
ability to obtain access to and produce requested information; and that 
no existing rules, laws, or practices would impede one party to the 
agreement from obtaining this information from, or producing it to, the 
other party.\38\
---------------------------------------------------------------------------

    \36\ See Amendment to Rule Filing Requirements for Self-
Regulatory Organizations Regarding New Derivative Securities 
Products, Securities Exchange Act Release No. 40761 (Dec. 8, 1998), 
63 FR 70952, 70959 (Dec. 22, 1998).
    \37\ Id. See also Winklevoss Order, 83 FR at 37594; ProShares 
Order, 83 FR at 43936; GraniteShares Order, 83 FR at 43924; USBT 
Order, 85 FR at 12596.
    \38\ See Winklevoss Order, 83 FR at 37592-93 (discussing Letter 
from Brandon Becker, Director, Division of Market Regulation, 
Commission, to Gerard D. O'Connell, Chairman, Intermarket 
Surveillance Group (June 3, 1994), available at https://www.sec.gov/divisions/marketreg/mr-noaction/isg060394.htm).
---------------------------------------------------------------------------

    As the Commission has stated, it considers two markets to have a 
comprehensive surveillance-sharing agreement with one another if they 
are both members of the Intermarket Surveillance Group (``ISG''), even 
if they do not have a separate bilateral surveillance-sharing 
agreement.\39\ Accordingly, based on the common membership of Arca and 
the CME in the ISG,\40\ Arca has the equivalent of a comprehensive 
surveillance-sharing agreement with the CME. Moreover, as the 
Commission has previously recognized, the Commodity Futures Trading 
Commission (``CFTC'') regulates the CME futures market, including the 
CME bitcoin futures market, and thus that market is ``regulated.'' \41\
---------------------------------------------------------------------------

    \39\ See id. at 37580 n.19.
    \40\ See Notice, 86 FR at 44070-71.
    \41\ See, e.g., WisdomTree Order, 86 FR at 69330; Wise Origin 
Order, 87 FR at 5534.
---------------------------------------------------------------------------

Whether the CME Is a Market of Significant Size Related to CME Bitcoin 
Futures Contracts
    In the Winklevoss Order, the Commission stated that the term 
``significant market'' or ``market of significant size'' includes a 
market (or group of markets) as to which (1) 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 in detecting and 
deterring misconduct, and (2) it is unlikely that trading in the ETP 
would be the predominant influence on prices in that market.\42\ The 
Commission explained that this definition is illustrative and not 
exclusive, and that there could be other types of ``significant 
markets'' and ``markets of significant size.'' \43\
---------------------------------------------------------------------------

    \42\ See Winklevoss Order, 83 FR at 37594.
    \43\ See id.
---------------------------------------------------------------------------

(1) Prong 1
    The first prong of the analysis addresses whether the surveillance-
sharing agreement on which the ETP-listing exchange proposes to rely 
would assist in detecting and deterring fraudulent or manipulative 
misconduct related to the assets held by the ETP.
    In the present proposal, the proposed ETP's only non-cash holdings 
will be CME bitcoin futures contracts. Moreover, the proposed 
``significant'' regulated market (i.e., the CME) with which the listing 
exchange has a surveillance-sharing agreement is the

[[Page 21679]]

same market on which these assets trade. The Commission agrees with 
Arca that the CME, as a CFTC-regulated futures exchange, has ``the 
requisite oversight, controls, and regulatory scrutiny necessary to 
maintain, promote, and effectuate fair and transparent trading of its 
listed products, including the BTC Contracts and MBT Contracts.'' \44\ 
As Arca states, as a Designated Contracts Market (``DCM''), the CME 
``comprehensively surveils futures market conditions and price 
movements on a real-time and ongoing basis in order to detect and 
prevent price distortions, including price distortions caused by 
manipulative efforts.'' \45\ Thus the CME's surveillance can reasonably 
be relied upon to capture the effects on the CME bitcoin futures market 
caused by a person attempting to manipulate the proposed futures ETP by 
manipulating the price of CME bitcoin futures contracts, whether that 
attempt is made by directly trading on the CME bitcoin futures market 
or indirectly by trading outside of the CME bitcoin futures market. As 
such, when the CME shares its surveillance information with Arca, the 
information would assist in detecting and deterring fraudulent or 
manipulative misconduct related to the non-cash assets held by the 
proposed ETP.\46\ Accordingly, for the present proposal, it is 
unnecessary for Arca to establish a reasonable likelihood that the 
would-be manipulator would have to trade on the CME itself to 
manipulate the proposed ETP.\47\
---------------------------------------------------------------------------

    \44\ Notice, 86 FR at 44063.
    \45\ Id. at 44072 & n.85.
    \46\ This reasoning, however, does not extend to spot bitcoin 
ETPs. Spot bitcoin markets are not currently ``regulated.'' See, 
e.g., USBT Order, 85 FR at 12604; NYDIG Order, 87 FR at 14936 nn.65-
67. If an exchange seeking to list a spot bitcoin ETP relies on the 
CME as the regulated market with which it has a comprehensive 
surveillance-sharing agreement, because the assets held by a spot 
bitcoin ETP would not be traded on the CME, that proposal would be 
significantly different from the current proposal. Because of this 
important difference, with respect to a spot bitcoin ETP, there 
would be reason to question whether a surveillance-sharing agreement 
with the CME would, in fact, assist in detecting and deterring 
fraudulent and manipulative misconduct affecting the price of the 
spot bitcoin held by that ETP. If, however, an exchange proposing to 
list and trade a spot bitcoin ETP identifies the CME as the 
regulated market with which it has a comprehensive surveillance-
sharing agreement, the exchange could overcome the Commission's 
concern by demonstrating that there is a reasonable likelihood that 
a person attempting to manipulate the spot bitcoin ETP would have to 
trade on the CME in order to manipulate the ETP, because such 
demonstration would help establish that the exchange's surveillance-
sharing agreement with the CME would have the intended effect of 
aiding in the detection and deterrence of fraudulent and 
manipulative misconduct related to the spot bitcoin held by the ETP.
    \47\ In addition, when considering past proposals for spot 
bitcoin ETPs, the Commission has discussed whether there is a lead-
lag relationship between the regulated market (e.g., the CME) and 
the market on which the assets held by the ETP would have traded 
(i.e., spot bitcoin platforms), as part of an analysis of whether a 
would-be manipulator of the spot bitcoin ETP would need to trade on 
the regulated market to effect such manipulation. See, e.g., USBT 
Order, 85 FR at 12612. For the present proposal, because of the 
direct relationship between the regulated market (i.e., the CME) and 
the only non-cash assets held by the proposed ETP (i.e., CME bitcoin 
futures contracts), establishing a ``lead-lag'' relationship between 
the CME and non-CME markets is also unnecessary.
---------------------------------------------------------------------------

    Arca makes several arguments in support of its assertion that a 
person manipulating the proposed ETP would be reasonably likely to 
trade on the CME bitcoin futures market.\48\ First, Arca argues that 
the CME bitcoin futures market is the ``primary [b]itcoin price 
discovery'' market.\49\ Second, Arca asserts that the CME bitcoin 
futures market ``compares favorably with other markets that were deemed 
to be markets of significant size'' in various prior Commission 
approval orders for the listing of commodity and commodity futures-
based ETPs.\50\ Arca asserts that, like gold, wheat, and other futures, 
bitcoin futures have grown in size to such a degree that they cannot be 
effectively or precisely manipulated by trading in other bitcoin 
interests.\51\ Third, Arca argues that, ``due to the unique structure 
of the Fund,'' it is unlikely that price manipulation or fraud on spot 
bitcoin trading platforms will have a measurable impact on the NAV of 
the Fund.\52\ Arca reasons that, ``[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 [b]itcoin market . 
. . 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; there is simply no material connection between those 
two futures contracts and the underlying [b]itcoin spot market.'' \53\ 
Arca further states that ``the market for BTC Contracts and MBT 
Contracts stands alone within the overall global [b]itcoin ecosphere,'' 
and is now of such size and scale that ``[b]itcoin futures prices are 
not specifically materially influenced by other [b]itcoin markets.'' 
\54\ Fourth, Arca asserts that because of this ``lack of connection'' 
between the CME bitcoin futures contracts and spot bitcoin trading 
platforms, establishing a ``lead-lag'' relationship between the two is 
``unnecessary and irrelevant.'' \55\ Fifth, Arca states that recent--
and continuing--growth in the CME bitcoin futures market (discussed 
further below) establishes that CME is a market of significant size and 
``the primary, if not the lone determinant, of its valuation.'' \56\ 
Sixth, Arca asserts that a would-be manipulator of bitcoin prices would 
be reasonably likely to do so through the CME bitcoin futures market, 
rather than any spot market, in order to take advantage of the 
``inherent leverage'' in bitcoin futures; and that a would-be 
manipulator would be much more likely to attempt to manipulate a 
``limited number of futures markets'' rather than attempt simultaneous 
executions on ``potentially dozens'' of different platforms.\57\ 
Finally, Arca states that, based on an analysis of past Commission 
orders, the Sponsor believes that the relevant standard for a 
surveillance-sharing argreement should be whether it is ``adequate to 
monitor'' for abuses in the trading of the Fund's Shares, and Arca 
emphasizes that the Commission's two-pronged definition for a 
``significant'' market in the Winklevoss Order was illustrative and not 
exclusive.\58\
---------------------------------------------------------------------------

    \48\ See Notice, 86 FR at 44071-73.
    \49\ See id. at 44071.
    \50\ See id.
    \51\ See id. at 44072.
    \52\ See id. at 44071.
    \53\ Id.
    \54\ Id.
    \55\ See id. at 44072.
    \56\ See id.
    \57\ See id. at 44072-73.
    \58\ See id. at 44072.
---------------------------------------------------------------------------

    The Commission disagrees with much of Arca's reasoning. The 
evidence in the record does not support a finding that the CME leads 
bitcoin price discovery.\59\ Rather, the Commission has found that the 
``mixed results'' of price discovery analyses, including the two 
studies cited by Arca in its filing,\60\ fail to demonstrate that the 
CME bitcoin futures market constitutes a market of significant size 
vis-[agrave]-vis the bitcoin spot market.\61\ As the Commission has 
also

[[Page 21680]]

previously stated, citations to academic studies about the 
interrelationship of spot and futures markets for other asset classes 
(such as gold) are not persuasive, and do not help the Exchange to meet 
its burden with respect to a bitcoin-based ETP.\62\ In addition, the 
Commission is not persuaded that the market for CME bitcoin futures 
contracts ``stands alone;'' has a ``lack of connection'' with, and is 
``not specifically materially influenced'' by, other bitcoin markets; 
nor that it is ``the primary, if not the lone determinant, of its 
valuation.'' Nor is the Commission persuaded that the Fund's 
calculation of NAV based on the daily settlement price insulates the 
NAV from activity in other bitcoin markets, given that there is nothing 
that prevents the trade prices that contribute to the daily settlement 
price \63\ from themselves being influenced by activity in other 
bitcoin markets. Moreover, while it may be plausible that a would-be 
manipulator may attempt their scheme through a leveraged position on a 
``limited number of futures markets,'' it is not clear from the record 
why, as Arca asserts, such a would-be manipulator would choose to use a 
regulated futures market with limited leverage, such as the CME, to 
perpetrate its fraud or manipulation, rather than unregulated futures 
platforms that permit higher leverage.\64\
---------------------------------------------------------------------------

    \59\ See also USBT Order, 85 FR at 12612; WisdomTree Order, 86 
FR at 69331; Wise Origin Order, 87 FR at 5535.
    \60\ See Notice, 86 FR at 44071 n.76. The Exchange includes 
weblinks to papers by: B. Kapar & J. Olmo, An analysis of price 
discovery between Bitcoin futures and spot markets, 174 Econ. 
Letters 62 (2019) (``Kapar & Olmo''); and A. Chang, W. Herrmann & W. 
Cai, Efficient Price Discovery in the Bitcoin Markets, Wilshire 
Phoenix, Oct. 14, 2020 (``Wilshire Phoenix'').
    \61\ See, e.g., USBT Order, 85 FR at 12613 n. 244 (discussing 
that studies such as Kapar & Olmo that use daily price data, as 
opposed to intraday prices, may not be able to distinguish which 
market incorporates new information faster); WisdomTree Order, 86 FR 
at 69331 n.143 (concluding that the papers cited by a commenter, 
including the Wilshire Phoenix working paper, evidence the unsettled 
nature of the academic literature).
    \62\ See USBT Order, 85 FR at 12613; Wise Origin Order, 87 FR at 
5540.
    \63\ See supra note 16 and accompanying text.
    \64\ See NYDIG Order, 87 FR at 14939 n.105.
---------------------------------------------------------------------------

    However, none of these deficiencies in Arca's arguments concerning 
whether there is a reasonable likelihood that a would-be manipulator of 
the proposed ETP would have to trade on the CME conflicts with the 
Commission's determination that, because the only non-cash assets held 
by the proposed ETP (i.e., CME bitcoin futures contracts) are traded on 
the CME itself, Arca's surveillance-sharing agreement with the CME can 
reasonably be relied upon to assist in detecting and deterring 
fraudulent or manipulative misconduct related to those assets. Thus the 
first prong of the standard for ``market of significant size'' has been 
established.
(2) Prong 2
    As discussed above, in determining whether the CME bitcoin futures 
market constitutes a ``market of significant size'' related to CME 
bitcoin futures contracts, the Commission has also considered as a 
second prong of the analysis whether trading in the proposed ETP would 
be unlikely to be the predominant influence on prices in the CME 
bitcoin futures market.\65\ Based on the facts and circumstances here, 
the Commission finds that this second prong has been satisfied.
---------------------------------------------------------------------------

    \65\ See Winklevoss Order, 83 FR at 37594; USBT Order, 85 FR at 
12596-97.
---------------------------------------------------------------------------

    Arca asserts that trading in the Shares would not be the 
predominant force on prices in the CME bitcoin futures market (or spot 
market) because of the significant volume in and size of the CME 
bitcoin futures market, and the significant liquidity available in the 
spot market.\66\ Arca states that, since the USBT Order was issued, 
there has been significant growth in CME bitcoin futures across each of 
trading volumes ($433 million on February 26, 2020, compared to $4.321 
billion on April 7, 2021) and open interest ($238 million on February 
26, 2020, compared to $2.582 billion on April 7, 2021).\67\
---------------------------------------------------------------------------

    \66\ See Notice, 86 FR at 44073.
    \67\ See id.
---------------------------------------------------------------------------

    Arca also states that the growth of the CME bitcoin futures market 
has coincided with similar growth in the bitcoin spot market, and that 
the market for bitcoin futures is rapidly approaching the size of 
markets for other commodity interests.\68\ Arca states that, as the 
bitcoin futures market continues to develop and more closely resemble 
other commodity futures markets, it can be reasonably expected that 
``the relationship between the [b]itcoin futures market and [b]itcoin 
spot market will behave similarly to other future/spot market 
relationships, where the spot market may have no relationship to the 
futures market.'' \69\
---------------------------------------------------------------------------

    \68\ See id.
    \69\ Id.
---------------------------------------------------------------------------

    Arca also argues that the significant liquidity in the bitcoin spot 
market and the impact of market orders on the overall price of bitcoin 
have made attempts to move the price of bitcoin increasingly expensive 
over the past year.\70\ According to Arca, in January 2020, for 
example, the cost to buy or sell $5 million worth of bitcoin averaged 
roughly 30 basis points (compared to 10 basis points in February 2021) 
with a market impact of 50 basis points (compared to 30 basis points in 
February 2021). For a $10 million market order, the cost to buy or sell 
was roughly 50 basis points (compared to 20 basis points in February 
2021) with a market impact of 80 basis points (compared to 50 basis 
points in February 2021). Arca contends that as the liquidity in the 
bitcoin spot market increases, it follows that the impact of $5 million 
and $10 million orders will continue to decrease.\71\ Arca concludes 
that, to the extent that the bitcoin spot market can be used to move 
the CME bitcoin futures market (which it does not believe is the case), 
this would make it even more likely that a person attempting to 
manipulate the price of the Shares would have to do so by manipulating 
the CME bitcoin futures market.\72\
---------------------------------------------------------------------------

    \70\ See id.
    \71\ See id.
    \72\ See id.
---------------------------------------------------------------------------

    The Commission has considered and rejected nearly identical 
arguments in past disapproval orders of spot bitcoin ETPs.\73\ 
Moreover, the Commission finds arguments centered around the 
relationship between the bitcoin spot market and the CME bitcoin 
futures market to be inapposite where, as here, the proposed 
``significant'' market (i.e., the CME bitcoin futures market) is the 
same as the market on which the proposed ETP's only non-cash assets 
(i.e., CME bitcoin futures contracts) trade.
---------------------------------------------------------------------------

    \73\ See VanEck Order, 86 FR at 64548-49; WisdomTree Order, 86 
FR at 69332-33; Kryptoin Order, 86 FR at 74177; Skybridge Order, 87 
FR at 3878-79; Wise Origin Order, 87 FR at 5536-37; NYDIG Order, 87 
FR at 14939-40; Global X Order, 87 FR at 14920-21.
---------------------------------------------------------------------------

    Nonetheless, for the reasons discussed below, the Commission 
concludes that it is unlikely that trading in the proposed ETP would be 
the predominant influence on prices in the CME bitcoin futures market. 
In past orders approving commodity-futures ETPs, the Commission relied 
on the proposing exchanges' representations regarding the trading 
volume of the underlying futures markets, and the Commission was in 
each of those cases dealing with a large futures market that had been 
trading for a number of years before an exchange proposed an ETP based 
on those futures.\74\
---------------------------------------------------------------------------

    \74\ See, e.g., GraniteShares Order, 83 FR at 43925-27 & nn.36-
37. And where the Commission has considered a proposed ETP based on 
futures that had only recently begun trading, the Commission 
specifically addressed whether the futures on which the ETP was 
based--which were futures on an index of well-established commodity 
futures--were illiquid or susceptible to manipulation. See id. at 
43927 & nn.38-39.
---------------------------------------------------------------------------

    With respect to the present proposal, the Commission observes that 
the CME bitcoin futures market has ``progressed and matured 
significantly.'' \75\ CME began offering trading in BTC Contracts in 
2017 and in MBT Contracts in 2021.\76\ As Arca states, nearly every 
measurable metric related to BTC Contracts has trended consistently up 
since launch and/or accelerated upward in the past year.\77\ As Arca 
notes, trading in BTC Contracts has increased from $737 million in 
December 2017, to $1.4

[[Page 21681]]

billion in December 2018, $3.9 billion in December 2019, and $28 
billion in December 2020.\78\ In December 2021, trading in BTC 
Contracts was $44.6 billion.\79\ Arca also notes that the BTC Contracts 
and MBT Contracts are highly liquid,\80\ and that BTC Contracts traded 
more than $1.2 billion per day in December 2020 and represented $1.6 
billion in open interest, compared to $115 million in December 
2019.\81\ Arca states that there is a ``clear trend in year-over-year 
growth'' in the CME bitcoin futures market, which is ``still growing in 
size.'' \82\
---------------------------------------------------------------------------

    \75\ See Notice, 86 FR at 44064.
    \76\ See id. at 44067.
    \77\ See id.
    \78\ See id.
    \79\ In March 2022, trading in BTC Contracts was $38.9 billion. 
Source: Bloomberg. At the time the Commission last considered 
bitcoin-futures based ETPs (August 2018), publicly available data 
showed that the median daily notional trading volume, from inception 
of the CME bitcoin futures market through August 10, 2018, had been 
14,185 bitcoins; and that the median daily notional value of open 
interest in CME during the same period had been 10,145 bitcoins. 
See, e.g., GraniteShares Order, 83 FR at 43930 & n.88. In addition, 
the CFTC Chairman at that time characterized the volume of the 
bitcoin futures markets as ``quite small.'' See id. at 43930 & n.90.
    \80\ See Notice, 86 FR at 44063.
    \81\ See id. at 44067.
    \82\ See id. at 44072. The Commission notes that Arca provided 
only data showing absolute growth in the size of the CME bitcoin 
futures market, but provides no data relative to the concomitant 
growth in either the bitcoin spot markets or other bitcoin 
derivative markets (including unregulated futures markets). However, 
given the direct relationship between the CME and the proposed ETP's 
bitcoin-related holdings (CME bitcoin futures contracts), such 
comparisons are unnecessary.
---------------------------------------------------------------------------

    Significantly, evidence from the recent introduction of 1940 Act-
registered Bitcoin Futures ETFs also supports the Commission's 
conclusion that it is unlikely that trading in the proposed ETP would 
be the predominant influence on prices in the CME bitcoin futures 
market. Since October 2021, three such ETFs have launched holding 
exclusively CME bitcoin futures contracts: ProShares Bitcoin Strategy 
ETF (``BITO''), Valkyrie Bitcoin Strategy ETF (``BTF''), and VanEck 
Bitcoin Strategy ETF (``XBTF''). BITO, which launched first on October 
19, 2021, obtained $1.21 billion in assets under management (``AUM'') 
within three days of launch.\83\ As of March 31, 2022, BITO had AUM of 
approximately $1.31 billion, constituting approximately 49.6 percent of 
open interest in the front two month BTC Contracts.\84\ BTF and XBTF, 
which launched second and third, had AUM as of March 31, 2022, of 
approximately $47.8 million and $29.1 million, respectively.\85\
---------------------------------------------------------------------------

    \83\ Source: Bloomberg.
    \84\ Source: Bloomberg.
    \85\ Source: Bloomberg.
---------------------------------------------------------------------------

    Since the launch of Bitcoin Futures ETFs, the Commission has 
neither observed any disruption to the CME bitcoin futures market, nor 
any evidence that the Bitcoin Futures ETFs have exerted a dominant 
influence on CME bitcoin futures prices. For example, based on CME 
data,\86\ the Commission has not observed any disruption to, or 
dominant influence from the Bitcoin Futures ETFs on, settlement prices, 
spreads, or roll costs of CME bitcoin futures contracts. The Commission 
thus concludes that the CME bitcoin futures market has sufficiently 
developed to support ETPs seeking exposure to bitcoin by holding CME 
bitcoin futures contracts.\87\
---------------------------------------------------------------------------

    \86\ Source: CME Globex MDP 3.0 (Market Data Platform).
    \87\ By contrast, at the time the Commission last considered 
bitcoin-futures based ETPs (August 2018), the President and COO of 
Cboe Global Markets had acknowledged in a letter to Commission staff 
that ``the current bitcoin futures trading volumes on Cboe Futures 
Exchange and CME may not currently be sufficient to support ETPs 
seeking 100% long or short exposure to bitcoin.'' See, e.g., 
GraniteShares Order, 83 FR at 43930 & n.91.
---------------------------------------------------------------------------

    Taken together, the maturation of the CME bitcoin futures market 
since its inception in 2017--including, but not limited to, the overall 
size, volume, liquidity, and number of years of trading in the CME 
bitcoin futures market--and evidence from the 1940 Act-registered 
Bitcoin Futures ETFs persuade the Commission that trading in the 
proposed ETP is not likely to be the predominant influence on prices in 
the CME bitcoin futures market. Thus the second prong of the standard 
for ``market of significant size'' has been established.
    Therefore, the Commission concludes that the CME is a ``significant 
market'' related to CME bitcoin futures contracts, and thus that the 
Exchange has entered into the requisite surveillance-sharing agreement.

B. Exposure to Bitcoin Futures Contracts Through a Bitcoin Futures-
Based ETP

    Arca contends that, if approved, the proposed ETP would protect 
investors and the public interest. Arca asserts that, with the growth 
of U.S. investor exposure to bitcoin through over-the-counter (``OTC'') 
bitcoin funds, so too has grown the potential risk to U.S. 
investors.\88\ Specifically, Arca argues that premium and discount 
volatility, high fees, insufficient disclosures, and technical hurdles 
are exposing U.S. investors to risks that could potentially be 
eliminated through access to a bitcoin futures-based ETP.\89\ The 
Exchange believes that the Fund represents 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 by: 
(i) Reducing premium and discount volatility; (ii) reducing management 
fees through meaningful competition; (iii) reducing risks associated 
with investing in operating companies that are imperfect proxies for 
bitcoin exposure; and (iv) avoiding regulatory concerns regarding 
custody and valuation posed by ETFs and ETPs that invest directly in 
bitcoin rather than in bitcoin futures contracts.\90\
---------------------------------------------------------------------------

    \88\ See Notice, 86 FR at 44066.
    \89\ See id. Arca states that while it understands the 
Commission's previous focus in prior disapproval orders on potential 
manipulation of a bitcoin ETP holding actual bitcoin, Arca believes 
that ``such concerns have been sufficiently mitigated by the use of 
futures contracts in the proposed ETP.'' Id.
    \90\ See id.
---------------------------------------------------------------------------

    According to Arca, OTC bitcoin funds are generally designed to 
provide exposure to bitcoin in a manner similar to the Shares. However, 
unlike the Shares, Arca states that OTC bitcoin funds are unable to 
freely offer creation and redemption in a way that incentivizes market 
participants to keep their shares trading in line with their NAV and, 
as such, frequently trade at a price that is out-of-line with the value 
of their assets held.\91\ Arca represents that, historically, OTC 
bitcoin funds have traded at a significant premium to NAV.\92\ Although 
the Exchange concedes that trading at a premium or a discount is not 
unique to OTC bitcoin funds and not itself problematic, Arca believes 
that it raises certain investor protections issues. First, according to 
Arca, investors may be buying shares of a fund for a price that is not 
reflective of the per share value of the fund's underlying assets.\93\ 
Second, according to Arca, because only accredited investors, 
generally, are able to purchase shares from the issuing fund and can 
buy such shares directly from the fund at NAV (in exchange for either 
cash or

[[Page 21682]]

bitcoin) without having to pay the premium or sell into the discount, 
these investors that are able to hedge their bitcoin exposure as needed 
to satisfy holding requirements and collect on the premium or discount 
opportunity. Arca argues, therefore, that the premium in OTC bitcoin 
funds essentially creates a transfer of value from retail investors to 
more sophisticated investors.\94\
---------------------------------------------------------------------------

    \91\ See id. Arca also states that, unlike the Shares, because 
OTC bitcoin funds are not listed on an exchange, they are not 
subject to the same transparency and regulatory oversight by a 
listing exchange. Arca further asserts that the existence of a 
surveillance-sharing agreement between Arca and the CME results in 
increased investor protections for the Shares compared to OTC 
bitcoin funds. See id. at 44066 n.47.
    \92\ See id. at 44066. Arca further represents that the 
inability to trade in line with NAV may at some point result in OTC 
bitcoin funds trading at a discount to their NAV. According to Arca, 
while that has not historically been the case, prolonged, 
significant trading at a discount would give rise to nearly 
identical potential issues related to trading at a premium. See id. 
at 44066 n.48.
    \93\ See id. at 44066.
    \94\ See id.
---------------------------------------------------------------------------

    Arca also asserts that a number of operating companies engaged in 
unrelated businesses have announced investments as large as $1.5 
billion in bitcoin.\95\ Arca argues that, without access to bitcoin 
ETPs, retail investors seeking investment exposure to bitcoin may 
purchase shares in these companies in order to gain the exposure to 
bitcoin that they seek.\96\ Arca contends that such operating 
companies, however, are imperfect bitcoin proxies and provide investors 
with partial bitcoin exposure paired with additional risks associated 
with whichever operating company they decide to purchase. Arca 
concludes that investors seeking bitcoin exposure through publicly 
traded companies are gaining only partial exposure to bitcoin and are 
not fully benefitting from the risk disclosures and associated investor 
protections that come from the securities registration process.\97\
---------------------------------------------------------------------------

    \95\ See id. at 44067.
    \96\ See id.
    \97\ See id.
---------------------------------------------------------------------------

    Arca also states that investors in many other countries, including 
Canada, are able to use more traditional exchange-listed and traded 
products to gain exposure to bitcoin.\98\
---------------------------------------------------------------------------

    \98\ See id. at 44065. Arca represents that the Purpose Bitcoin 
ETF, a retail bitcoin-based ETP launched in Canada, reportedly 
reached $421.8 million in AUM in two days, and $993 million in AUM 
as of April 2021, demonstrating the demand for a North American 
market-listed bitcoin ETP. Arca contends that the Purpose Bitcoin 
ETF also offers a class of units that is U.S. dollar bitcoin 
denominated, which could appeal to U.S. investors. Arca also argues 
that without an approved bitcoin ETP in the U.S. as a viable 
alternative, U.S. investors will seek to purchase these shares in 
order to get access to bitcoin exposure, leaving them without the 
protections of U.S. securities laws. Arca believes that, given the 
separate regulatory regime and the potential difficulties associated 
with any international litigation, such an arrangement would create 
more risk exposure for U.S. investors than they would otherwise have 
with a U.S. exchange-listed ETP. See id. Arca also states that 
regulators in other countries have either approved or otherwise 
allowed the listing and trading of bitcoin-based ETPs. See id. at 
44065 n.42. Arca further asserts that, with the addition of more 
bitcoin ETPs in non-U.S. jurisdictions expected to grow, such risks 
will only continue to grow. See id. at 44065.
---------------------------------------------------------------------------

    Arca further asserts that exposure to bitcoin through a bitcoin 
futures-based ETP like the Fund also presents advantages for retail 
investors compared to buying spot bitcoin directly.\99\ Arca asserts 
that the most notable advantage is that the BTC Contracts and MBT 
Contracts in which the Fund will invest do not require special, 
potentially complex and untested, custody procedures. Arca states that 
the Fund will have no ownership interests of any kind in actual bitcoin 
\100\ and, unlike physical bitcoin ETPs, the Fund will not be required 
to use a bitcoin custodian because it will not be holding bitcoin.\101\ 
Arca asserts that an ETP whose holdings consist exclusively of BTC 
Contracts and MBT Contracts would have all the benefits enjoyed by 
investors currently holding approved and listed futures-based ETPs 
without the risks associated with ETPs that hold actual bitcoin.\102\ 
Arca asserts that, by contrast, an individual retail investor holding 
bitcoin through a cryptocurrency exchange lacks these protections; and 
that a retail investor holding spot bitcoin directly in a self-hosted 
wallet may suffer from inexperience in private key management (e.g., 
insufficient password protection, lost key, etc.), which could cause 
them to lose some or all of their bitcoin holdings. Arca states that, 
in addition, retail investors will be able to hold the Shares in 
traditional brokerage accounts which provide SIPC protection if the 
brokerage firm fails.\103\
---------------------------------------------------------------------------

    \99\ See id. at 44067.
    \100\ See id. at 44063.
    \101\ See id. at 44067.
    \102\ See id. at 44063.
    \103\ See id. at 44067.
---------------------------------------------------------------------------

    In essence, Arca asserts that the risky nature of direct investment 
in spot bitcoin or a spot bitcoin ETP and the unregulated markets on 
which bitcoin and OTC bitcoin funds trade compels approval of the 
proposed ETP. The Commission disagrees.\104\ Pursuant to Section 
19(b)(2) of the Exchange Act, the Commission must approve a proposed 
rule change filed by a national securities exchange if it finds that 
the proposed rule change is consistent with the applicable requirements 
of the Exchange Act, and it must disapprove the filing if it does not 
make such a finding.\105\ Thus, even if a proposed rule change purports 
to protect investors from a particular type of investment risk--such as 
the susceptibility of an asset to loss or theft--the proposed rule 
change may still fail to meet the requirements under the Exchange 
Act.\106\
---------------------------------------------------------------------------

    \104\ The Commission has disagreed with similar arguments made 
in the context of spot bitcoin ETPs. See, e.g., WisdomTree Order, 86 
FR at 69333-34; Wise Origin Order, 87 FR at 5537-38.
    \105\ See Exchange Act Section 19(b)(2)(C), 15 U.S.C. 
78s(b)(2)(C).
    \106\ See SolidX Order, 82 FR at 16259; WisdomTree Order, 86 FR 
at 69334; Wise Origin Order, 87 FR at 5538.
---------------------------------------------------------------------------

    Regardless of Arca's assertions and for the reasons discussed 
herein--including that Arca has demonstrated that it has a 
comprehensive surveillance-sharing agreement with a regulated market of 
significant size related to CME bitcoin futures contracts that will 
help prevent fraudulent and manipulative acts and practices,\107\ and 
that core aspects of the proposed ETP will be consistent with other 
commodity-futures ETPs that the Commission has approved, including with 
respect to the availability of pricing information, transparency of 
portfolio holdings, and types of surveillance procedures \108\--the 
Commission finds that the proposal is also consistent with the 
requirement under Section 6(b)(5) that the Exchange's rules be designed 
to protect investors and the public interest.\109\
---------------------------------------------------------------------------

    \107\ See supra Section III.A.
    \108\ See infra Section III.D.
    \109\ The Commission acknowledges that, compared to trading in 
unregulated spot bitcoin markets, trading a CME bitcoin futures-
based ETP on a national securities exchange may provide some 
additional protection to investors. See GraniteShares Order, 83 FR 
at 43931; USBT Order, 85 FR at 12615.
---------------------------------------------------------------------------

C. Other Comments Related to Bitcoin ETPs

    Counsel for the Sponsor submitted a letter that argues that the 
Commission should be equally receptive to 1940 Act-registered Bitcoin 
Futures ETFs and the proposed ETP.\110\ The Sponsor Letter also argues 
that there are ``compelling equitable bases'' to put the review and 
approval process for the proposed ETP ``on parity'' with Bitcoin 
Futures ETFs.\111\ The Commission has considered and, for the reasons 
discussed above, is approving the proposed rule change, as modified by 
Amendment No. 2, on its own merits and under the standards applicable 
to it; namely, the standards provided by Section 6(b)(5) and Section 
11A(a)(1)(C)(iii) of the Exchange Act.\112\
---------------------------------------------------------------------------

    \110\ See letter from W. Thomas Conner, Shareholder, 
VedderPrice, dated September 1, 2021 (``Sponsor Letter''), at 6-9.
    \111\ See Sponsor Letter at 4-6.
    \112\ 15 U.S.C. 78f(b)(5); 15 U.S.C. 78k-1(a)(1)(C)(iii).
---------------------------------------------------------------------------

    One comment letter also mentions risks of bitcoin adoption and the 
bitcoin network's effect on the environment.\113\ Ultimately, however, 
additional discussion of these topics is unnecessary, as they do not 
bear on the basis for the Commission's decision to approve the 
proposal.
---------------------------------------------------------------------------

    \113\ See letter from Donna Jean Ryder, dated November 8, 2021.

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

[[Page 21683]]

D. Other Standards for Commodity-Futures ETPs

    Arca's proposal sets forth aspects of the proposed ETP, including 
the availability of pricing information, transparency of portfolio 
holdings, and types of surveillance procedures, that are consistent 
with the other commodity-futures ETPs that the Commission has 
approved.\114\
---------------------------------------------------------------------------

    \114\ See, e.g., ProShares UltraPro 3X Natural Gas ETF and 
ProShares UltraPro 3X Short Natural Gas ETF, Securities Exchange Act 
Release No. 86532 (July 31, 2019), 84 FR 38312 (Aug. 6, 2019) (SR-
NYSEArca-2019-02).
---------------------------------------------------------------------------

    According to Arca,\115\ quotation and last-sale information 
regarding the Shares will be disseminated through the facilities of the 
Consolidated Tape Association. Quotation information for cash 
equivalents and the Bitcoin Futures Contracts may be obtained from 
brokers and dealers who make markets in such instruments. The intra-
day, closing, and settlement prices of the Bitcoin Futures Contracts 
will be readily available from the applicable futures exchange 
websites, automatic quotation systems, published or other public 
sources, or major market data vendors. Complete real-time data for the 
Bitcoin Futures Contracts will be available by subscription through 
online information services. ICE Futures U.S. and the CME also provide 
delayed futures and options on futures information on current and past 
trading sessions and market news free of charge on their respective 
websites. The specific contract specifications for Bitcoin Futures 
Contracts will also be available on such websites, as well as other 
financial information sources. 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.
---------------------------------------------------------------------------

    \115\ See Notice, 86 FR at 44075.
---------------------------------------------------------------------------

    The Fund's website will display the applicable end of day closing 
NAV. The daily holdings of the Fund will be available on the Fund's 
website. The Fund's website will also include a form of the Fund's 
prospectus that may be downloaded. The website will include the Shares' 
ticker and CUSIP information, along with additional quantitative 
information updated on a daily basis.\116\ The website disclosure of 
portfolio holdings will be made daily and will include, as applicable, 
(i) the name, quantity, price, and market value of the Fund's holdings; 
(ii) the counterparty to and value of forward contracts and any other 
financial instruments tracking the Benchmark; and (iii) the total cash 
and cash equivalents held in the Fund's portfolio, if applicable. The 
Fund's website will be publicy available at the time of the public 
offering of the Shares and accessible at no charge.
---------------------------------------------------------------------------

    \116\ The Fund's website will include: (1) 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 the 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. 
See id.
---------------------------------------------------------------------------

    The Fund's NAV will be calculated once each trading day, as of the 
earlier of the close of the New York Stock Exchange or 4:00 p.m. 
Eastern Time (``ET''). In order to provide updated information relating 
to the Fund for use by investors and market professionals, ICE Data 
Indices, LLC will calculate an updated indicative fund value (``IFV''), 
which will be calculated by using the prior day's closing NAV per Share 
of the Fund as a base and updated throughout the Core Trading Session 
of 9:30 a.m. ET to 4:00 p.m. ET to reflect changes in the value of the 
Fund's holdings during the trading day. During the Exchange's Core 
Trading Session, the IFV will be disseminated on a per Share basis 
every 15 seconds and will be widely disseminated by one or more major 
market data vendors. The NAV for the Shares will be disseminated daily 
to all market participants at the same time.\117\
---------------------------------------------------------------------------

    \117\ See id. at 44074-75.
---------------------------------------------------------------------------

    The proposal also is reasonably designed to promote fair disclosure 
of information that may be necessary to price the Shares appropriately 
and to prevent trading in the Shares when a reasonable degree of 
transparency cannot be assured. 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. Further, 
the Exchange may halt trading during the day in which an interruption 
to the dissemination of the IFV or the value of the Benchmark occurs. 
If the interruption to the dissemination of the IFV, or to the value of 
the Benchmark, 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. Trading in Shares of the Fund 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.\118\ The Exchange states that it has a general 
policy prohibiting the distribution of material, non-public information 
by its employees.\119\ Moreover, trading of the Shares will be subject 
to NYSE Arca Rule 8.200-E, Commentary .02(e), which sets forth certain 
restrictions on Equity Trading Permit Holders (``ETP Holders'') acting 
as registered Market Makers in Trust Issued Receipts to facilitate 
surveillance.\120\
---------------------------------------------------------------------------

    \118\ See id. at 44075.
    \119\ See id. at 44076.
    \120\ See id. at 44075.
---------------------------------------------------------------------------

    The Commission notes that the Exchange or the Financial Industry 
Regulatory Authority (``FINRA''), on behalf of the Exchange, or both, 
will communicate as needed regarding trading in the Shares and the 
Fund's holdings with other markets and 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 and the 
Fund's holdings from such markets and entities. In addition, the 
Exchange may obtain information regarding trading in the Shares and the 
Fund's holdings from markets and entities that are members of the ISG 
or with which the Exchange has in place a comprehensive surveillance-
sharing agreement (``CSSA'').\121\ The Exchange is also able to obtain 
information regarding trading in the Shares and the physical 
commodities underlying the futures contracts through ETP Holders, in 
connection with such ETP Holders' proprietary or customer trades which 
they effect through ETP Holders on any relevant market. The Exchange 
can obtain market surveillance information, including customer identity 
information, with respect to transactions (including transactions in 
futures contracts) occurring on U.S. futures exchanges, which are 
members of the ISG.\122\
---------------------------------------------------------------------------

    \121\ For a list of the current members of ISG, see 
www.isgportal.org. According to the Exchange, not all components of 
the Fund may trade on markets that are members of the ISG or with 
which the Exchange has in place a CSSA. See Notice, 86 FR at 44076 
n.95.
    \122\ See id. at 44076. For additional discussion of the CME 
bitcoin futures market and how surveillance-sharing between the 
Exchange and the CME via common membership in the ISG would assist 
in detecting and deterring manipulative conduct related to the 
Shares, see Section III.A above.
---------------------------------------------------------------------------

    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.\123\ In support of 
this

[[Page 21684]]

proposal, the Exchange represented that:\124\
---------------------------------------------------------------------------

    \123\ See Notice, 86 FR at 44075.
    \124\ See id. at 44075-76 and Amendment No. 2.
---------------------------------------------------------------------------

    (1) The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Rule 8.200-E.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) Trading in the Shares 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, and 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 the Exchange.
    (4) Prior to the commencement of trading, the Exchange will inform 
its ETP Holders in an information bulletin (``Information Bulletin'') 
of the special characteristics and risks associated with trading in the 
Shares. Specifically, the Information Bulletin will discuss the 
following: (a) 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; (b) the procedures for purchases 
and redemptions of Shares in Creation Baskets and Redemption Baskets 
(and that Shares are not individually redeemable); (c) 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; (d) how information regarding the IFV is disseminated; (e) 
how information regarding portfolio holdings is disseminated; (f) 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 (g) trading information.
    (5) For initial and continued listing, the Fund will be in 
compliance with Rule 10A-3 under the Exchange Act,\125\ and the Trust 
will rely on the exception contained in Rule 10A-3(c)(7).
---------------------------------------------------------------------------

    \125\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

    (6) Under no circumstances will the Fund hold and/or invest in any 
assets other than BTC Contracts and MBT Contracts, cash and cash 
equivalents. The Fund will not invest in or hold spot bitcoin. Cash 
equivalents only include short-term Treasury bills, money market funds, 
demand deposit accounts and commercial paper.
    (7) The Fund's investments will be consistent with the Fund's 
investment objective and will not be used to enhance leverage, and 
therefore the Fund's investments will not be used to seek performance 
that is the multiple or inverse multiple (e.g., 2Xs, 3Xs, -2Xs, and -
3Xs) of the Fund's Benchmark.
    (8) The Fund will only hold Bitcoin Futures Contracts that are 
listed on an exchange that is a member of the ISG or is a market with 
which the Exchange has a CSSA.
    (9) A minimum of 50,000 Shares of the Fund will be outstanding at 
the commencement of trading on the Exchange.
    (10) The Exchange represents that all statements and 
representations made in the filing regarding (a) the description of the 
Benchmark, portfolio, or reference asset; (b) limitations on Benchmark 
or portfolio holdings or reference assets; or (c) applicablilty of 
Exchange listing rules specified in the filing will constitute 
continued listing requirements for the Shares. The issuer has 
represented to the Exchange that it will advise the Exchange of any 
failure by the Fund to comply with the continued listing requirements, 
and, pursuant to its obligations under Section 19(g)(1) of the Exchange 
Act, the Exchange will monitor for compliance with the continued 
listing requirements.\126\ If the Fund is not in compliance with the 
applicable listing requirements, the Exchange will commence delisting 
procedures under NYSE Arca Rule 5.5-E(m).
---------------------------------------------------------------------------

    \126\ The Commission notes that certain other proposals for the 
listing and trading of exchange-traded products include a 
representation that the exchange will ``surveil'' for compliance 
with the continued listing requirements. See, e.g., Securities 
Exchange Act Release No. 77499 (Apr. 1, 2016), 81 FR 20428 (Apr. 7, 
2016) (Notice of Filing of Amendment No. 2 and Order Granting 
Accelerated Approval of a Proposed Rule Change, as Modified by 
Amendment No. 2, to List and Trade Shares of the SPDR DoubleLine 
Short Duration Total Return Tactical ETF of the SSgA Active Trust). 
In the context of this representation, it is the Commission's view 
that ``monitor'' and ``surveil'' both mean ongoing oversight of the 
Fund's compliance with the continued listing requirements. 
Therefore, the Commission does not view ``monitor'' as a more or 
less stringent obligation than ``surveil'' with respect to the 
continued listing requirements.
---------------------------------------------------------------------------

IV. Conclusion

    This approval order is based on all of the Exchange's 
representations and description of the Fund, including those set forth 
above and in Amendment No. 2. The Commission notes that the Shares must 
comply with the requirements of NYSE Arca Rule 8.200-E and Commentary 
.02 thereto to be listed and traded on the Exchange on an initial and 
continuing basis.
    For the reasons set forth above, the Commission finds, pursuant to 
Section 19(b)(2) of the Exchange Act,\127\ that the proposed rule 
change, as modified by Amendment No. 2, is consistent with the 
requirements of the Exchange Act and the rules and regulations 
thereunder applicable to a national securities exchange, and in 
particular, with Section 6(b)(5) and Section 11A(a)(1)(C)(iii) of the 
Exchange Act.\128\
---------------------------------------------------------------------------

    \127\ 15 U.S.C. 78f(b)(2).
    \128\ 15 U.S.C. 78f(b)(5); 15 U.S.C. 78k-1(a)(1)(C)(iii).
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\129\ that proposed rule change SR-NYSEArca-2021-53, as 
modified by Amendment No. 2, be, and hereby is, approved.
---------------------------------------------------------------------------

    \129\ 15 U.S.C. 78f(b)(2).
---------------------------------------------------------------------------

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\130\
---------------------------------------------------------------------------

    \130\ 17 CFR 200.30-3(a)(12).

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-07748 Filed 4-11-22; 8:45 am]
BILLING CODE 8011-01-P