[Federal Register Volume 89, Number 47 (Friday, March 8, 2024)]
[Notices]
[Pages 16811-16813]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-04928]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99665; File No. SR-NASDAQ-2023-045]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove a 
Proposed Rule Change To List and Trade Shares of the iShares Ethereum 
Trust Under Nasdaq Rule 5711(d), Commodity-Based Trust Shares

March 4, 2024.
    On November 21, 2023, The Nasdaq Stock Market LLC (``Nasdaq'' 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 
iShares Ethereum Trust (``Trust'') under Nasdaq Rule 5711(d), 
Commodity-Based Trust Shares. The proposed rule change was published 
for comment in the Federal Register on December 11, 2023.\3\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 99081 (Dec. 5, 
2023), 88 FR 85945 (``Notice''). The Commission has received no 
comments on the proposal.
---------------------------------------------------------------------------

    On January 24, 2024, 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.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 99419, 89 FR 5970 
(Jan. 30, 2024). The Commission designated March 10, 2024, as the 
date by which the Commission shall approve or disapprove, or 
institute proceedings to determine whether to disapprove, the 
proposed rule change.
    \6\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

I. Summary of the Proposal

    As described in more detail in the Notice,\7\ the Exchange proposes 
to list and trade the Shares of the Trust under Nasdaq Rule 5711(d), 
which governs the listing and trading of Commodity-Based Trust Shares 
on the Exchange.
---------------------------------------------------------------------------

    \7\ See Notice, supra note 3.
---------------------------------------------------------------------------

    According to the Exchange, the investment objective of the Trust is 
to reflect generally the performance of the price of ether, before 
payment of the Trust's expenses and liabilities.\8\ The The assets of 
the Trust consist primarily of ether held by a custodian on behalf of 
the Trust.\9\ On each Business Day, as soon as practicable after 4:00 
p.m. Eastern Time (``ET''), the administrator of the Trust will 
evaluate the ether held by the Trust as reflected by the CF Benchmarks 
Index and determine the net asset value of the Trust.\10\ The Trust 
will issue and redeem baskets of Shares on a continuous basis only in 
exchange for an amount of ether determined by the trustee of the 
Trust.\11\
---------------------------------------------------------------------------

    \8\ See id. at 85946. iShares Delaware Trust Sponsor LLC 
(``Sponsor'') is the sponsor of the Trust and is an indirect 
subsidiary of BlackRock, Inc. See id. at 85945.
    \9\ See id. at 85946.
    \10\ See id.
    \11\ See id. at 85947.
---------------------------------------------------------------------------

II. Proceedings To Determine Whether To Approve or Disapprove SR-
NASDAQ-2023-045 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to section 
19(b)(2)(B) of the Act \12\ 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.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to section 19(b)(2)(B) of the Act,\13\ 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.'' \14\
---------------------------------------------------------------------------

    \13\ Id.
    \14\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    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, 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:
    1. Given the nature of the underlying assets held by the Trust, has 
the Exchange properly filed its proposal to list and trade the Shares 
under Nasdaq Rule 5711(d), Commodity-Based Trust Shares? \15\
---------------------------------------------------------------------------

    \15\ Nasdaq Rule 5711(d)(iv)(A) defines the term ``Commodity-
Based Trust Shares'' as a security (1) that is issued by a trust 
that holds (a) a specified commodity deposited with the trust, or 
(b) a specified commodity and, in addition to such specified 
commodity, cash; (2) that is issued by such trust in a specified 
aggregate minimum number in return for a deposit of a quantity of 
the underlying commodity and/or cash; and (3) that, when aggregated 
in the same specified minimum number, may be redeemed at a holder's 
request by such trust which will deliver to the redeeming holder the 
quantity of the underlying commodity and/or cash.

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

[[Page 16812]]

    2. The Exchange raises substantially similar arguments to support 
the listing and trading of the Shares as those made in proposals to 
list and trade spot bitcoin exchange-traded products (``Bitcoin 
ETPs''). Do commenters agree that arguments to support the listing of 
Bitcoin ETPs apply equally to the Shares? Are there particular features 
related to ether and its ecosystem, including its proof of stake 
consensus mechanism and concentration of control or influence by a few 
individuals or entities, that raise unique concerns about ether's 
susceptibility to fraud and manipulation?
    3. What are commenters' views on whether the proposed Trust and 
Shares would be susceptible to manipulation? What are commenters' views 
generally on whether the Exchange's proposal is designed to prevent 
fraudulent and manipulative acts and practices? What are commenters' 
views generally with respect to the liquidity and transparency of the 
ether markets and the ether markets' susceptibility to manipulation?
    4. Based on data and analysis provided by the Exchange,\16\ do 
commenters agree with the Exchange that the Chicago Mercantile Exchange 
(``CME''), on which CME ether futures trade, represents a regulated 
market of significant size related to spot ether? \17\ What are 
commenters' views on whether there is a reasonable likelihood that a 
person attempting to manipulate the Shares would also have to trade on 
the CME to manipulate the Shares? \18\ Do commenters agree with the 
Exchange that trading in the Shares would not be the predominant 
influence on prices in the CME ether futures market? \19\
---------------------------------------------------------------------------

    \16\ See Notice, 88 FR at 85950-51.
    \17\ See id. at 85950-53.
    \18\ See id. at 85952.
    \19\ See id. at 85952-53.
---------------------------------------------------------------------------

    5. The Exchange states that it will execute a surveillance-sharing 
agreement with Coinbase, Inc. (``Coinbase'') that is intended to 
supplement the Exchange's market surveillance program.\20\ According to 
the Exchange, the agreement is ``expected to have the hallmarks of a 
surveillance-sharing agreement between two members of the [Intermarket 
Surveillance Group], which would give the Exchange supplemental access 
to data regarding spot ether trades on Coinbase where the Exchange 
determines it is necessary as part of its surveillance program for the 
Commodity-Based Trust Shares.'' \21\ Based on the description of the 
surveillance-sharing agreement as provided by the Exchange, what are 
commenters' views of such an agreement if finalized and executed? Do 
commenters agree with the Exchange that such an agreement with Coinbase 
would be ``helpful in detecting, investigating, and deterring fraud and 
market manipulation in the Commodity-Based Trust Shares''? \22\
---------------------------------------------------------------------------

    \20\ See id. at 85953.
    \21\ See id. The Exchange states that ``[t]his means that the 
Exchange expects to receive market data for orders and trades from 
Coinbase, which it will utilize in surveillance of the trading of 
Commodity-Based Trust Shares.'' Id.
    \22\ See id.
---------------------------------------------------------------------------

    6. The Exchange states that the ``daily correlation between the 
spot [ether] and the CME [ether] [f]utures is 0.9993.'' \23\ The 
Exchange further states that this ``high correlation'' indicates that 
there is a reasonable likelihood that a person attempting to manipulate 
the Trust would also have to trade on the CME ether futures market.\24\ 
What are commenters' views on the correlation between the ether spot 
market and the CME ether futures market? What are commenters' views on 
the extent to which a surveillance-sharing agreement with the CME would 
assist in detecting and deterring fraud and manipulation that impacts 
an exchange-traded product (``ETP'') that holds spot ether, and on 
whether the Exchange's daily price correlation analysis provides any 
evidence to this effect? What are commenters' views generally on 
whether an ETP that holds CME ether futures and an ETP that holds spot 
ether are similar products?
---------------------------------------------------------------------------

    \23\ See id. at 85950. The Exchange states that this is based on 
data from October 13, 2022, through October 13, 2023. See id.
    \24\ See id. at 85952.
---------------------------------------------------------------------------

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.\25\
---------------------------------------------------------------------------

    \25\ Section 19(b)(2) of the Act, as amended by the Securities 
Acts 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 Acts Amendments of 1975, Senate Comm. 
on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
---------------------------------------------------------------------------

    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change should be approved 
or disapproved by March 29, 2024. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
April 12, 2024.
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NASDAQ-2023-045 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-NASDAQ-2023-045. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication

[[Page 16813]]

submitted material that is obscene or subject to copyright protection. 
All submissions should refer to file number SR-NASDAQ-2023-045 and 
should be submitted on or before March 29, 2024. Rebuttal comments 
should be submitted by April 12, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
---------------------------------------------------------------------------

    \26\ 17 CFR 200.30-3(a)(57).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-04928 Filed 3-7-24; 8:45 am]
BILLING CODE 8011-01-P