[Federal Register Volume 89, Number 58 (Monday, March 25, 2024)]
[Notices]
[Pages 20721-20734]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-06174]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99772; File No. SR-CboeBZX-2023-070]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of Amendment No.1 to, and Designation of a Longer Period for 
Commission Action on Proceedings To Determine Whether To Approve or 
Disapprove, a Proposed Rule Change to List and Trade Shares of the ARK 
21Shares Ethereum ETF Under BZX Rule 14.11(e)(4), Commodity-Based Trust 
Shares

March 19, 2024.
    On September 6, 2023, Cboe BZX Exchange, Inc. (``BZX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade shares (``Shares'') of the ARK 
21Shares Ethereum ETF (``Trust'') under BZX Rule 14.11(e)(4), 
Commodity-Based Trust Shares. The proposed rule change was published 
for comment in the Federal Register on September 27, 2023.\3\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 98467 (Sept. 21, 
2023), 88 FR 66515 (``Notice''). Comments on the proposed rule 
change are available at: https://www.sec.gov/comments/sr-cboebzx-2023-070/srcboebzx2023070.htm.
---------------------------------------------------------------------------

    On September 27, 2023, 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\ On December 18, 2023, the Commission instituted proceedings 
under Section 19(b)(2)(B) of the Act \6\ to determine whether to 
approve or disapprove the proposed rule change.\7\ On February 14, 
2024, the Exchange filed Amendment No. 1 to the proposed rule change as 
described in Items I and II below, which Items have been prepared by 
the Exchange. Amendment No. 1 amended and replaced in its entirety the 
proposed rule change as originally submitted. The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as modified by Amendment No. 1, from interested persons and to extend 
the time period for approving or disapproving the proposed rule change, 
as modified by Amendment No. 1.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 98565, 88 FR 68187 
(Oct. 3, 2023).
    \6\ 15 U.S.C. 78s(b)(2)(B).
    \7\ See Securities Exchange Act Release No. 99196, 88 FR 88685 
(Dec. 22, 2023).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing 
with the Securities and Exchange Commission (``Commission'' or ``SEC'') 
a proposed rule change to list and trade shares of the ARK 21Shares 
Ethereum ETF (the ``Trust''),\8\ under BZX Rule 14.11(e)(4), Commodity-
Based Trust Shares.
---------------------------------------------------------------------------

    \8\ The Trust was formed as a Delaware statutory trust on 
September 5, 2023, and is operated as a grantor trust for U.S. 
federal tax purposes. The Trust has no fixed termination date.
---------------------------------------------------------------------------

    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    This Amendment No. 1 to SR-CboeBZX-2023-070 amends and replaces in 
its entirety the proposal as originally submitted on September 6, 2023. 
The Exchange submits this

[[Page 20722]]

Amendment No. 1 in order to clarify certain points and add additional 
details to the proposal.
    The Exchange proposes to list and trade the Shares under BZX Rule 
14.11(e)(4),\9\ which governs the listing and trading of Commodity-
Based Trust Shares on the Exchange.\10\ 21Shares US LLC is the sponsor 
of the Trust (the ``Sponsor''). The Shares will be registered with the 
Commission by means of the Trust's registration statement on Form S-1 
(the ``Registration Statement'').\11\ According to the Registration 
Statement, the Trust is neither an investment company registered under 
the Investment Company Act of 1940, as amended,\12\ nor a commodity 
pool for purposes of the Commodity Exchange Act (``CEA''), and neither 
the Trust nor the Sponsor is subject to regulation as a commodity pool 
operator or a commodity trading adviser in connection with the Shares.
---------------------------------------------------------------------------

    \9\ The Commission approved BZX Rule 14.11(e)(4) in Securities 
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148 
(September 6, 2011) (SR-BATS-2011-018).
    \10\ Any of the statements or representations regarding the 
index composition, the description of the portfolio or reference 
assets, limitations on portfolio holdings or reference assets, 
dissemination and availability of index, reference asset, and 
intraday indicative values, or the applicability of Exchange listing 
rules specified in this filing to list a series of Other Securities 
(collectively, ``Continued Listing Representations'') shall 
constitute continued listing requirements for the Shares listed on 
the Exchange.
    \11\ See the Registration Statement on Form S-1, dated September 
6, 2023, submitted by the Sponsor on behalf of the Trust. The 
descriptions of the Trust, the Shares, and the Index (as defined 
below) contained herein are based, in part, on information in the 
Registration Statement. The Registration Statement is not yet 
effective, and the Shares will not trade on the Exchange until such 
time that the Registration Statement is effective.
    \12\ 15 U.S.C. 80a-1.
---------------------------------------------------------------------------

    The Commission has historically approved or disapproved exchange 
filings to list and trade series of Trust Issued Receipts, including 
spot-based Commodity-Based Trust Shares, on the basis of whether the 
listing exchange has in place a comprehensive surveillance sharing 
agreement with a regulated market of significant size related to the 
underlying commodity to be held.\13\ With this in mind, the CME Ether 
Futures market, which launched in February 2021, is the proper market 
to consider in determining whether there is a related regulated market 
of significant size.
---------------------------------------------------------------------------

    \13\ See Securities Exchange Act Release No. 83723 (July 26, 
2018), 83 FR 37579 (August 1, 2018). This proposal was subsequently 
disapproved by the Commission. See Securities Exchange Act Release 
No. 83723 (July 26, 2018), 83 FR 37579 (August 1, 2018) (the 
``Winklevoss Order''). Prior orders from the Commission have pointed 
out that in every prior approval order for Commodity-Based Trust 
Shares, there has been a derivatives market that represents the 
regulated market of significant size, generally a Commodity Futures 
Trading Commission (the ``CFTC'') regulated futures market. Further 
to this point, the Commission's prior orders have noted that the 
spot commodities and currency markets for which it has previously 
approved spot ETPs are generally unregulated and that the Commission 
relied on the underlying futures market as the regulated market of 
significant size that formed the basis for approving the series of 
Currency and Commodity-Based Trust Shares, including gold, silver, 
platinum, palladium, copper, and other commodities and currencies. 
The Commission specifically noted in the Winklevoss Order that the 
approval order issued related to the first spot gold ETP ``was based 
on an assumption that the currency market and the spot gold market 
were largely unregulated.'' See Winklevoss Order at 37592. As such, 
the regulated market of significant size test does not require that 
the spot bitcoin market be regulated in order for the Commission to 
approve this proposal, and precedent makes clear that an underlying 
market for a spot commodity or currency being a regulated market 
would actually be an exception to the norm. These largely 
unregulated currency and commodity markets do not provide the same 
protections as the markets that are subject to the Commission's 
oversight, but the Commission has consistently looked to 
surveillance sharing agreements with the underlying futures market 
in order to determine whether such products were consistent with the 
Act.
---------------------------------------------------------------------------

    Recently, the Commission issued an order granting approval for 
proposals to list bitcoin-based commodity trust and bitcoin-based trust 
issued receipts (these proposed funds are nearly identical to the 
Trust, but proposed to hold bitcoin instead of ETH) (``Spot Bitcoin 
ETPs'').\14\ By way of background, in 2022 the Commission disapproved 
proposals \15\ to list Spot Bitcoin ETPs, including the Grayscale 
Order.\16\ Grayscale appealed the decision with the U.S. Court of 
Appeals for the D.C. Circuit, which held that the Commission had failed 
to adequately explain its reasoning that the proposing exchange had not 
established that the CME bitcoin futures market was a market of 
significant size related to spot bitcoin, or that the ``other means'' 
asserted were sufficient to satisfy the statutory standard. As a 
result, the court vacated the Grayscale Order and remanded the matter 
to the Commission.\17\ In considering the remand of the Grayscale Order 
and the Spot Bitcoin ETPs, the Commission determined in the Spot 
Bitcoin ETP Approval Order that the CME Bitcoin Futures market is a 
regulated market of significant size. Specifically, the Commission 
stated:
---------------------------------------------------------------------------

    \14\ See Exchange Act Release No. 99306 (January 10, 2024), 89 
FR 3008 (January 17, 2024) (Self-Regulatory Organizations; NYSE 
Arca, Inc.; The Nasdaq Stock Market LLC; Cboe BZX Exchange, Inc.; 
Order Granting Accelerated Approval of Proposed Rule Changes, as 
Modified by Amendments Thereto, To List and Trade Bitcoin-Based 
Commodity-Based Trust Shares and Trust Units) (the ``Spot Bitcoin 
ETP Approval Order'').
    \15\ See 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. 
97102 (Mar. 10, 2023), 88 FR 16055 (Mar. 15, 2023) (SR-CboeBZX-2022-
035) (``VanEck Order II'') and n.11 therein for the complete list of 
previous proposals.
    \16\ See Securities Exchange Act Release No. 95180 (June 29, 
2022) 87 FR 40299 (July 6, 2022) (SR-NYSEArca-2021-90) (Order 
Disapproving a Proposed Rule Change, as Modified by Amendment No. 1, 
to List and Trade Shares of Grayscale Bitcoin Trust Under NYSE Arca 
Rule 8.201-E (Commodity-Based Trust Shares) (the ``Grayscale 
Order'').
    \17\ See Grayscale Investments, LLC v. SEC, 82 F.4th 1239 (D.C. 
Cir. 2023).

    [B]ased on the record before the Commission and the improved 
quality of the correlation analysis in the record . . . the 
Commission is able to conclude that fraud or manipulation that 
impacts prices in spot bitcoin markets would likely similarly impact 
CME bitcoin futures prices. And because the CME's surveillance can 
assist in detecting those impacts on CME bitcoin futures prices, the 
Exchanges' comprehensive surveillance-sharing agreement with the 
CME-a U.S. regulated market whose bitcoin futures market is 
consistently highly correlated to spot bitcoin, albeit not of 
``significant size'' related to spot bitcoin-can be reasonably 
expected to assist in surveilling for fraudulent and manipulative 
acts and practices in the specific context of the [p]roposals.\18\
---------------------------------------------------------------------------

    \18\ See the Spot Bitcoin ETP Approval Order at 3011-3012.

    As further discussed below, both the Exchange and the Sponsor 
believe that this proposal and the included analysis are sufficient to 
establish that the CME Ether Futures market represents a regulated 
market of significant size as it relates to the CME Ether Futures 
market and that this proposal should be approved.
Background
    Ethereum (also referred to as ``ETH'' or ``ether'') is a 
decentralized smart contract platform that revolutionized the world of 
blockchain technology beyond its initial use case of peer-to-peer 
payments. It introduced the idea of ``smart contracts,'' self-executing 
agreements with predefined rules, enabling developers and entrepreneurs 
worldwide to code and deploy decentralized applications on top of the 
Ethereum network. Ether (ETH), the native crypto asset of the network, 
is the fuel that allows Ethereum to operate in the same way that we use 
oil to propel vehicles, heat buildings, and produce electricity in the 
physical world. Users must pay a ``gas fee'' or a transaction tax in 
ether for every transaction they perform on the network. The term 
``gas'' refers to the unit that measures the computational effort 
required to execute specific operations on the Ethereum blockchain. 
Thus, ether is analogous to a digital commodity powering the

[[Page 20723]]

Ethereum network. For instance, an entire virtual economy has emerged 
with ether as the unit of account and medium of exchange. This 
phenomenon is similar to the spontaneous adoption of commodities like 
coffee and, most notably, precious metals like gold as money by various 
civilizations throughout history, except this time, in a digital-native 
realm.
    With more than 5,946 monthly active developers as of June 2023, 
Ethereum is the world's largest developer ecosystem. Moreover, the 
platform is explored and experimented with by various private banks and 
central banks globally. Since its launch in 2015, Ethereum has driven 
the evolution of the blockchain space with innovations, ranging from 
decentralized finance (DeFi), non-fungible tokens (NFTs), digital 
identity solutions, and the tokenizations of off-chain, or as it's 
commonly referred to, ``real-world'' assets. Some of the most important 
innovations that have come out of DeFi include `stablecoins,' 
decentralized exchanges (DEXs), and automated lending protocols. 
Stablecoins maintain price parity with a target asset, such as the U.S. 
dollar. Decentralized exchanges (DEXs), such as Uniswap, allow users to 
trade assets without the need for an intermediary against an 
``automated market-maker'' (AMM), settling trillions of dollars of 
value since their inception. As a final example, overcollateralized 
lending protocols like MakerDAO, Aave, or Compound have taken 
traditional credit risk out of the equation, relying instead on smart 
contract automation and operators to liquidate loans when the 
collateralization ratio falls below a predetermined threshold. These 
and many other DeFi innovations reveal one of the core value 
propositions of Ethereum--the ability to act as a credibly neutral 
settlement layer where developers can automate away the need for 
centralized intermediaries.
    Much like bitcoin, access for U.S. retail investors to gain 
exposure to ether via a transparent and U.S. regulated, U.S. exchange-
traded vehicle remains limited. Instead, current options include: (i) 
facing the counter-party risk, legal uncertainty, technical risk, and 
complexity associated with accessing spot ether; or (ii) over-the-
counter ether funds (``OTC Ether Funds'') with high management fees and 
potentially volatile premiums and discounts. Meanwhile, investors in 
other countries are able to use more traditional exchange listed and 
traded products (including exchange-traded funds holding physical ETH) 
to gain exposure to ether. Similarly, investors across Europe have 
access to products which trade on regulated exchanges and provide 
exposure to a broad array of spot crypto assets. U.S. investors, by 
contrast, are left with fewer and more risky means of getting ether 
exposure.
    To this point, the lack of an ETP that holds spot ETH (a ``Spot 
Ether ETP'') exposes U.S. investor assets to significant risk because 
investors that would otherwise seek cryptoasset exposure through a Spot 
Ether ETP are forced to find alternative exposure through fewer and 
more risky means. For example, investors in OTC Ether Funds are not 
afforded the benefits and protections of regulated Spot Ether ETPs, 
resulting in retail investors suffering losses due to drastic movements 
in the premium/discount of OTC Ether Funds. Many retail investors 
likely suffered losses due to this premium/discount in OTC Ether Fund 
trading; all such losses could have been avoided if a Spot Ether ETP 
had been available. Additionally, many U.S. investors that held their 
digital assets in accounts at FTX,\19\ Celsius Network LLC,\20\ BlockFi 
Inc.\21\ and Voyager Digital Holdings, Inc.\22\ have become unsecured 
creditors in the insolvencies of those entities. If a Spot Ether ETP 
was available, it is likely that at least a portion of the billions of 
dollars tied up in those proceedings would still reside in the 
brokerage accounts of U.S. investors, having instead been invested in a 
transparent, regulated, and well-understood structure--a Spot Ether 
ETP. To this point, approval of a Spot Ether ETP would represent a 
major win for the protection of U.S. investors in the cryptoasset 
space. The Trust, like all other series of Commodity-Based Trust 
Shares, is designed to protect investors against the risk of losses 
through fraud and insolvency that arise by holding digital assets, 
including ether, on centralized platforms.
---------------------------------------------------------------------------

    \19\ See FTX Trading Ltd., et al., Case No. 22-11068.
    \20\ See Celsius Network LLC, et al., Case No. 22-10964.
    \21\ See BlockFi Inc., Case No. 22-19361.
    \22\ See Voyager Digital Holdings, Inc., et al., Case No. 22-
10943.
---------------------------------------------------------------------------

Ether Futures ETFs
    The Exchange and Sponsor applaud the Commission for allowing the 
launch of ETFs registered under the Investment Company Act of 1940, as 
amended (the ``1940 Act'') that provide exposure to ether primarily 
through CME Ether Futures (``Ether Futures ETFs''). Allowing such 
products to list and trade is a productive first step in providing U.S. 
investors and traders with transparent, exchange-listed tools for 
expressing a view on ether.
    The structure of Ether Futures ETFs provides negative outcomes for 
buy and hold investors as compared to a Spot Ether ETP. Specifically, 
the cost of rolling CME Ether Futures contracts will cause the Ether 
Futures ETFs to lag the performance of ether itself and, at over a 
billion dollars in assets under management, would cost U.S. investors 
significant amounts of money on an annual basis compared to Spot Ether 
ETPs. Such rolling costs would not be required for Spot Ether ETPs that 
hold ether. Further, Ether Futures ETFs could potentially hit CME 
position limits, which would force an Ether Futures ETF to invest in 
non-futures assets for ether exposure and cause potential investor 
confusion and lack of certainty about what such Ether Futures ETFs are 
actually holding to try to get exposure to ether, not to mention 
completely changing the risk profile associated with such an ETF. While 
Ether Futures ETFs represent a useful trading tool, they are clearly a 
sub-optimal structure for U.S. investors that are looking for long-term 
exposure to ether that will unnecessarily cost U.S. investors 
significant amounts of money every year compared to Spot Ether ETPs and 
the Exchange believes that any proposal to list and trade a Spot Ether 
ETP should be reviewed by the Commission with this important investor 
protection context in mind.
    To the extent the Commission may view differential treatment of 
Ether Futures ETFs and Spot Ether ETPs as warranted based on the 
Commission's concerns about the custody of physical ether that a Spot 
Ether ETP would hold (compared to cash-settled futures contracts),\23\ 
the Sponsor believes this concern is mitigated to a significant degree 
by the custodial arrangements that the Trust has contracted with the 
Custodian to provide, as further outlined below. In the Custody 
Statement, the Commission stated that the fourth step that a broker-
dealer could take to shield traditional securities customers and others 
from the risks and consequences of digital asset security fraud, theft, 
or loss is to establish, maintain, and enforce reasonably designed 
written policies, procedures, and controls for safekeeping and 
demonstrating the broker-dealer has exclusive possession or control 
over digital asset securities that are

[[Page 20724]]

consistent with industry best practices to protect against the theft, 
loss, and unauthorized and accidental use of the private keys necessary 
to access and transfer the digital asset securities the broker-dealer 
holds in custody. While ether is not a security and the Custodian is 
not a broker-dealer, the Sponsor believes that similar considerations 
apply to the Custodian's holding of the Trust's ether. After diligent 
investigation, the Sponsor believes that the Custodian's policies, 
procedures, and controls for safekeeping, exclusively possessing, and 
controlling the Trust's ether holdings are consistent with industry 
best practices to protect against the theft, loss, and unauthorized and 
accidental use of the private keys. As a trust company chartered by the 
NYDFS, the Sponsor notes that the Custodian is subject to extensive 
regulation and has among longest track records in the industry of 
providing custodial services for digital asset private keys. Under the 
circumstances, therefore, to the extent the Commission believes that 
its concerns about the risks of spot ether custody justifies 
differential treatment of a Ether Futures ETF versus a Spot Ether ETP, 
the Sponsor believes that the fact that the Custodian employs the same 
types of policies, procedures, and safeguards in handling spot ether 
that the Commission has stated that broker-dealers should implement 
with respect to digital asset securities would appear to weaken the 
justification for treating a Ether Futures ETF compared to a Spot Ether 
ETP differently due to spot ether custody concerns.
---------------------------------------------------------------------------

    \23\ See, e.g., Division of Investment Management Staff, Staff 
Statement on Funds Registered Under the Investment Company Act 
Investing in the Bitcoin Futures Market, May 11, 2021 (``The Bitcoin 
Futures market also has not presented the custody challenges 
associated with some cryptocurrency-based investing because the 
futures are cash-settled'').
---------------------------------------------------------------------------

    Based on the foregoing, the Exchange and Sponsor believe that any 
objective review of the proposals to list Spot Ether ETPs compared to 
the Ether Futures ETFs would lead to the conclusion that Spot Ether 
ETPs should be available to U.S. investors and, as such, this proposal 
and other comparable proposals to list and trade Spot Ether ETPs should 
be approved by the Commission. Stated simply, U.S. investors would 
benefit immensely from holding Spot Ether ETPs. Additionally, any 
concerns related to preventing fraudulent and manipulative acts and 
practices related to Spot Ether ETPs would apply equally to the spot 
markets underlying the futures contracts held by an Ether Futures ETF. 
Both the Exchange and Sponsor believe that the CME Ether Futures market 
is a regulated market of significant size and that such manipulation 
concerns are mitigated, as described extensively below. After allowing 
the listing and trading of Ether Futures ETFs that hold primarily CME 
Ether Futures, however, the only consistent outcome would be approving 
Spot Ether ETPs on the basis that the CME Ether Futures market is a 
regulated market of significant size.
    Given the current landscape, approving this proposal (and others 
like it) and allowing Spot Ether ETPs to be listed and traded alongside 
Ether Futures ETFs and Spot Bitcoin ETPs would establish a consistent 
regulatory approach, provide U.S. investors with choice in product 
structures for ether exposure, and offer flexibility in the means of 
gaining exposure to ether through transparent, regulated, U.S. 
exchange-listed vehicles.
CME Ether Futures \24\
---------------------------------------------------------------------------

    \24\ Unless otherwise noted, all data and analysis presented in 
this section and referenced elsewhere in the filing has been 
provided by the Sponsor.
---------------------------------------------------------------------------

    CME began offering trading in ether futures (``CME Ether Futures'') 
in February 2021. Each contract represents 50 ether and is based on the 
CME CF Ether-Dollar Reference Rate.\25\ The contracts trade and settle 
like other cash-settled commodity futures contracts. Most measurable 
metrics related to CME Ether Futures have generally trended up since 
launch, although some metrics have slowed recently. For example, there 
were 138,692 CME ETH Futures contracts traded in January 2024 
(approximately $16.7 billion) compared to 99,496 ($14.6 billion) and 
96,621 ($7.1 billion) contracts traded in January 2022, and January 
2023 respectively.\26\
---------------------------------------------------------------------------

    \25\ The CME CF Ether-Dollar Reference Rate is based on a 
publicly available calculation methodology based on pricing sourced 
from several crypto exchanges and trading platforms, including 
Bitstamp, Coinbase, Gemini, itBit, Kraken, and LMAX Digital.
    \26\ Source: CME, February 2024.
---------------------------------------------------------------------------

    In addition, according to Sponsor's research, trading volume for 
CME Ether Futures amounts to a total volume of $16,655,693,654 for 
January 2024, up from $6,123,830,768.67 for August 2023. This January 
2024 trading volume represents 125,356 in open interest for CME Ether 
Futures, with an average value of $309,838,188.62, compared to 3,646.26 
in open interest for CME Ether Futures, with an average value of 
$319,051,613.52 for August 2023. For January 2024, there were a total 
of 138,692 contracts for CME Ether Futures (equivalent to 6,934,600 
ETH), compared to a total of 72,223 contracts for CME Ether Futures 
(equivalent to 3,611,150 ETH) in August 2023.
    Sponsor's analyses further demonstrate that the correlation in 
pricing between CME Ether Futures and Spot ETH is significantly 
correlated. Notably, the Sponsor performed a pairwise correlation of 
ether daily returns across top centralized spot cryptocurrency trading 
platforms and the CME from January 1, 2022 to February 1, 2024. The 
Sponsor's research indicates that daily correlation between the Spot 
ETH and the CME ETH Futures during this time period was over 99.89%.

[[Page 20725]]

[GRAPHIC] [TIFF OMITTED] TN25MR24.000

Section 6(b)(5) and the Applicable Standards
    The Commission has approved numerous series of Trust Issued 
Receipts,\27\ including Commodity-Based Trust Shares,\28\ to be listed 
on U.S. national securities exchanges. In order for any proposed rule 
change from an exchange to be approved, the Commission must determine 
that, among other things, the proposal is consistent with the 
requirements of Section 6(b)(5) of the Act, specifically including: (i) 
the requirement that a national securities exchange's rules are 
designed to prevent fraudulent and manipulative acts and practices; 
\29\ and (ii) the requirement that an exchange proposal be designed, in 
general, to protect investors and the public interest. The Exchange 
believes that this proposal is consistent with the requirements of 
Section 6(b)(5) of the Act and that this filing sufficiently 
demonstrates that the CME Ether Futures market represents a regulated 
market of significant size and that, on the whole, the manipulation 
concerns previously articulated by the Commission are sufficiently 
mitigated to the point that they are outweighed by quantifiable 
investor protection issues that would be resolved by approving this 
proposal.
---------------------------------------------------------------------------

    \27\ See Exchange Rule 14.11(f).
    \28\ Commodity-Based Trust Shares, as described in Exchange Rule 
14.11(e)(4), are a type of Trust Issued Receipt.
    \29\ Much like bitcoin, the Exchange believes that ether is 
resistant to price manipulation and that ``other means to prevent 
fraudulent and manipulative acts and practices'' exist to justify 
dispensing with the requisite surveillance sharing agreement. The 
geographically diverse and continuous nature of ether trading render 
it difficult and prohibitively costly to manipulate the price of 
ETH. The fragmentation across ether platforms, the relatively slow 
speed of transactions, and the capital necessary to maintain a 
significant presence on each trading platform make manipulation of 
ether prices through continuous trading activity challenging. To the 
extent that there are ether exchangestrading platforms engaged in or 
allowing wash trading or other activity intended to manipulate the 
price of ether on other markets, such pricing does not normally 
impact prices on other exchangetrading platforms because 
participants will generally ignore markets with quotes that they 
deem non-executable. Moreover, the linkage between the ether markets 
and the presence of arbitrageurs in those markets means that the 
manipulation of the price of ether price on any single venue would 
require manipulation of the global ether price in order to be 
effective. Arbitrageurs must have funds distributed across multiple 
trading platforms in order to take advantage of temporary price 
dislocations, thereby making it unlikely that there will be strong 
concentration of funds on any particular ether exchangetrading 
platforms or OTC platform. As a result, the potential for 
manipulation on a trading platform would require overcoming the 
liquidity supply of such arbitrageurs who are effectively 
eliminating any cross-market pricing differences.
---------------------------------------------------------------------------

(i) Designed To Prevent Fraudulent and Manipulative Acts and Practices
    In order to meet this standard in a proposal to list and trade a 
series of Commodity-Based Trust Shares, the Commission requires that an 
exchange demonstrate that there is a comprehensive surveillance-sharing 
agreement in place \30\ with a regulated market of significant size. 
Both the Exchange and CME are members of ISG. The only remaining issue 
to be addressed is whether the ether futures market constitutes a 
market of significant size, which both the Exchange and the Sponsor 
believe that it does. The terms ``significant market'' and ``market of 
significant size'' include a market (or group of markets) as to which: 
(a) there is a reasonable likelihood that a person attempting to 
manipulate the ETP would also have to trade on that market to 
manipulate the ETP, so that a surveillance-sharing agreement would 
assist the listing exchange in detecting and deterring misconduct; and 
(b) it is unlikely that trading in the ETP would be the predominant 
influence on prices in that market.\31\
---------------------------------------------------------------------------

    \30\ As previously articulated by the Commission, ``The standard 
requires such surveillance-sharing agreements since ``they provide a 
necessary deterrent to manipulation because they facilitate the 
availability of information needed to fully investigate a 
manipulation if it were to occur.'' 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 underlying securities 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. 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.'' The 
Commission has historically held that joint membership in the ISG 
constitutes such a surveillance sharing agreement. See Wilshire 
Phoenix Disapproval.
    \31\ See Wilshire Phoenix Disapproval.
---------------------------------------------------------------------------

    The Commission has also recognized that the ``regulated market of 
significant size'' standard is not the only means for satisfying 
Section 6(b)(5) of the act, specifically providing that a listing 
exchange could demonstrate that ``other means to prevent fraudulent and 
manipulative acts and practices'' are sufficient to justify dispensing 
with the

[[Page 20726]]

requisite surveillance-sharing agreement.32 33
---------------------------------------------------------------------------

    \32\ See Winklevoss Order at 37580. The Commission has also 
specifically noted that it ``is not applying a `cannot be 
manipulated' standard; instead, the Commission is examining whether 
the proposal meets the requirements of the Exchange Act and, 
pursuant to its Rules of Practice, places the burden on the listing 
exchange to demonstrate the validity of its contentions and to 
establish that the requirements of the Exchange Act have been met.'' 
Id. at 37582.
    \33\ According to reports, the Commission is poised to allow the 
launch of ETFs registered under the Investment Company Act of 1940, 
as amended (the ``1940 Act''), that provide exposure to ether 
primarily through CME Ether Futures (``ETH Futures ETFs'') as early 
as October 2023. Allowing such products to list and trade is a 
productive first step in providing U.S. investors and traders with 
transparent, exchange-listed tools for expressing a view on ETH. 
https://www.bloomberg.com/news/articles/2023-08-17/sec-said-to-be-poised-to-allow-us-debut-of-ether-futures-etfs-eth#xj4y7vzkg.
---------------------------------------------------------------------------

(a) Manipulation of the ETP
    The significant market test requires that there is a reasonable 
likelihood that a person attempting to manipulate the ETP would also 
have to trade on that market to manipulate the ETP, so that a 
surveillance-sharing agreement would assist the listing exchange in 
detecting and deterring misconduct. In light of the similarly high 
correlation between spot ETH/CME Ether Futures and spot bitcoin/CME 
Bitcoin Futures, applying the same rationale that the Commission 
applied to a Spot Bitcoin ETP in the Spot Bitcoin ETP Approval Order 
\34\ also indicates that this test is satisfied for this proposal. As 
noted above, in the Spot Bitcoin ETP Approval Order, the SEC concluded 
that:
---------------------------------------------------------------------------

    \34\ See Exchange Act Release No. 99306 (January 10, 2024), 89 
FR 3008 (January 17, 2024) (Self-Regulatory Organizations; NYSE 
Arca, Inc.; The Nasdaq Stock Market LLC; Cboe BZX Exchange, Inc.; 
Order Granting Accelerated Approval of Proposed Rule Changes, as 
Modified by Amendments Thereto, To List and Trade Bitcoin-Based 
Commodity-Based Trust Shares and Trust Units) (the ``Spot Bitcoin 
ETP Approval Order'').

. . . fraud or manipulation that impacts prices in spot bitcoin 
markets would likely similarly impact CME bitcoin futures prices. 
And because the CME's surveillance can assist in detecting those 
impacts on CME bitcoin futures prices, the Exchanges' comprehensive 
surveillance-sharing agreement with the CME . . . can be reasonably 
expected to assist in surveilling for fraudulent and manipulative 
acts and practices in the specific context of the [p]roposals.\35\
---------------------------------------------------------------------------

    \35\ See the Spot Bitcoin ETP Approval Order at 3011-3012.

    The assumptions from this statement are also true for CME Ether 
Futures. CME Ether Futures pricing is based on pricing from spot ether 
markets. The statement from the Spot Bitcoin ETP Approval Order that 
the surveillance-sharing agreement with the CME ``can be reasonably 
expected to assist in surveilling for fraudulent and manipulative acts 
and practices in the specific context of the [p]roposals'' makes clear 
that the Commission believes that CME's surveillance can capture the 
effects of trading on the relevant spot markets on the pricing of CME 
Bitcoin Futures. This same logic would extend to CME Ether Futures 
markets where CME's surveillance would be able to capture the effects 
of trading on the relevant spot markets on the pricing of CME Ether 
Futures.
(b) Predominant Influence on Prices in Spot and Ether Futures
    The Exchange and Sponsor also believe that trading in the Shares 
would not be the predominant force on prices in the CME Ether Futures 
market for a number of reasons. First, because the Trust would not hold 
CME Ether Futures contracts, the only way that it could be the 
predominant force on prices in that market is through the spot markets 
that CME Ether Futures contracts use for pricing.\36\ The Sponsor notes 
that ether total 24-hour spot trading volume has averaged $15.82 
billion over the year ending February 1, 2024.\37\ The Sponsor expects 
that the Trust would represent a very small percentage of this daily 
trading volume in the spot ether market even in its most aggressive 
projections for the Trust's assets and, thus, the Trust would not have 
an impact on the spot market and therefore could not be the predominant 
force on prices in the CME Ether Futures market. Second, much like the 
CME Bitcoin Futures market, the CME Ether Futures market has progressed 
and matured significantly. As the court found in the Grayscale Order, 
``Because the spot market is deeper and more liquid than the futures 
market, manipulation should be more difficult, not less.'' The Exchange 
and sponsor agree with this sentiment and believe it applies equally to 
the spot ether and CME Ether Futures markets.
---------------------------------------------------------------------------

    \36\ This logic is reflected by the court in the Grayscale Order 
at 17-18. Specifically, the court found that ``Because Grayscale 
owns no futures contracts, trading in Grayscale can affect the 
futures market only through the spot market . . . But Grayscale 
holds just 3.4 percent of outstanding bitcoin, and the Commission 
did not suggest Grayscale can dominate the price of bitcoin.''
    \37\ Source: CryptoCompare.
---------------------------------------------------------------------------

(c) Other Means To Prevent Fraudulent and Manipulative Acts and 
Practices
    As noted above, the Commission also permits a listing exchange to 
demonstrate that ``other means to prevent fraudulent and manipulative 
acts and practices'' are sufficient to justify dispensing with the 
requisite surveillance-sharing agreement. The Exchange and Sponsor 
believe that such conditions are present.
    The Exchange believes that the proposal is designed to protect 
investors and the public interest. Over the past several years, U.S. 
investor exposure to ether through OTC Ether Funds has grown into the 
tens of billions of dollars and more than a billion dollars of exposure 
through Ether Futures ETFs. With that growth, so too has grown the 
quantifiable investor protection issues to U.S. investors through roll 
costs for Ether Futures ETFs and premium/discount volatility and 
management fees for OTC Ether Funds. The Exchange believes that the 
concerns related to the prevention of fraudulent and manipulative acts 
and practices have been sufficiently addressed to be consistent with 
the Act and, to the extent that the Commission disagrees with that 
assertion, also believes that such concerns are now outweighed by these 
investor protection concerns. As such, the Exchange believes that 
approving this proposal (and comparable proposals) provides the 
Commission with the opportunity to allow U.S. investors with access to 
ether in a regulated and transparent exchange-traded vehicle that would 
act to limit risk to U.S. investors by: (i) reducing premium and 
discount volatility; (ii) reducing management fees through meaningful 
competition; (iii) reducing risks and costs associated with investing 
in Ether Futures ETFs and operating companies that are imperfect 
proxies for ether exposure; and (iv) providing an alternative to 
custodying spot ether.
ARK 21Shares Ethereum Trust
    Delaware Trust Company is the trustee (``Trustee''). The Bank of 
New York Mellon will be the administrator (``Administrator'') and 
transfer agent (``Transfer Agent''). Foreside Global Services, LLC will 
be the marketing agent (``Marketing Agent'') in connection with the 
creation and redemption of ``Baskets'' of Shares. ARK Investment 
Management LLC (the ``Subadvisor'') is the sub-adviser of the Trust and 
will provide data, research, and as needed, operational support to the 
Trust including with respect to assistance in the marketing of the 
Shares. As noted above, Coinbase Custody Trust Company, LLC, a third-
party regulated custodian (the ``Custodian''), will be responsible for 
custody of the Trust's ether. The Bank of New York Mellon (the ``Cash 
Custodian'') will act as custodian of the Trust's cash and cash 
equivalents.

[[Page 20727]]

    According to the Registration Statement, each Share will represent 
a fractional undivided beneficial interest in the Trust. The Trust's 
assets will only consist of ether, cash, or cash and cash 
equivalents.\38\
---------------------------------------------------------------------------

    \38\ Cash equivalents are short-term instruments with maturities 
of less than 3 months.
---------------------------------------------------------------------------

    According to the Registration Statement, the Trust will be neither 
an investment company registered under the Investment Company Act of 
1940, as amended,\39\ nor a commodity pool for purposes of the 
Commodity Exchange Act (``CEA''), and neither the Trust nor the Sponsor 
is subject to regulation as a commodity pool operator or a commodity 
trading adviser in connection with the Shares.
---------------------------------------------------------------------------

    \39\ 15 U.S.C. 80a-1.
---------------------------------------------------------------------------

    When the Trust creates or redeems its Shares, it will do so in cash 
transactions in blocks of 5,000 Shares (a ``Creation Basket'') at the 
Trust's net asset value (``NAV''). Authorized participants will 
deliver, or facilitate the delivery of, cash to the Trust's account 
with the Cash Custodian in exchange for Shares when they create Shares, 
and the Trust, through the Custodian, will deliver cash to such 
authorized participants when they redeem Shares with the Trust. 
Authorized participants may then offer Shares to the public at prices 
that depend on various factors, including the supply and demand for 
Shares, the value of the Trust's assets, and market conditions at the 
time of a transaction.
    As noted above, the Trust is designed to protect investors against 
the risk of losses through fraud and insolvency that arise by holding 
ether on centralized platforms. Specifically, the Trust is designed to 
protect investors as follows:
(i) Assets of the Trust Protected From Insolvency
    The Trust's ether will be held by its Custodian,\40\ which is a New 
York chartered trust company overseen by the NYDFS and a qualified 
custodian under Rule 206-4 of the Investment Adviser Act. The Custodian 
will custody the Trust's ether pursuant to a custody agreement, which 
requires the Custodian to maintain the Trust's ether in segregated 
accounts that clearly identify the Trust as owner of the accounts and 
assets held on those accounts; the segregation will be both from the 
proprietary property of the Custodian and the assets of any other 
customer. Such an arrangement is generally deemed to be ``bankruptcy 
remote,'' that is, in the event of an insolvency of the Custodian, 
assets held in such segregated accounts would not become property of 
the Custodian's estate and would not be available to satisfy claims of 
creditors of the Custodian. In addition, according to the Registration 
Statement, the Custodian carries fidelity insurance, which covers 
assets held by the Custodian in custody from risks such as theft of 
funds. These arrangements provide significant protections to investors 
and could have mitigated the type of losses incurred by investors in 
the numerous crypto-related insolvencies, including Celsius, Voyager, 
BlockFi and FTX.
---------------------------------------------------------------------------

    \40\ According to the Registration Statement, the Trust's cash 
will be held at The Bank of New York Mellon pursuant to a cash 
custody agreement.
---------------------------------------------------------------------------

(ii) Trust's Transfer Agent Will Instruct Disposition of Trust's Ether
    According to the Registration Statement, except with respect to 
sale of ether from time to time to cover expenses of the Trust, the 
only time ether will move into or out from the Trust will be with 
respect to creations or redemptions of Shares of the Trust. In such 
cases, a third party will use cash to buy and deliver ether to create 
Shares or withdraw and sell ether for cash to redeem Shares, on behalf 
of the Trust. Authorized Participants will deliver cash to the Trust's 
account with the Cash Custodian in exchange for Shares of the Trust, 
and the Trust, through the Cash Custodian, will deliver cash to 
authorized participants when those authorized participants redeem 
Shares of the Trust. The Transfer Agent will facilitate the settlement 
of Shares in response to the placement of creation orders and 
redemption orders from authorized participants. The creation and 
redemption procedures are administered by the Transfer Agent, an 
independent third party. Specifically, Shares are issued in registered 
form in accordance with the Trust agreement.\41\ The Transfer Agent has 
been appointed registrar and transfer agent for the purpose of 
transferring Shares in certificated form. The Transfer Agent keeps a 
record of all shareholders and holder of the Shares in certified form 
in the registry. The Sponsor recognizes transfers of Shares in 
certified form only if done in accordance with the Trust agreement. In 
other words, according to the Registration Statement, with very limited 
exceptions, the Sponsor will not give instructions with respect to the 
transfer or disposition of the Trust's ether. Ether owned by the Trust 
will at all times be held by, and in the control of, the Custodian, and 
transfer of such ether to or from the Custodian will occur only in 
connection with creation and redemptions of Shares. This will provide 
safeguards against the movement of ether owned by the Trust by or to 
the Sponsor or affiliates of the Sponsor.
---------------------------------------------------------------------------

    \41\ The Trust agreement refers to the ``Amended and Restated 
Trust Agreement of Ark 21Shares Ethereum ETF.''
---------------------------------------------------------------------------

(iii) Trust's Assets Are Subject to Regular Audit
    According to the Registration Statement, audit trails exist for all 
movement of ether within Custodian-controlled ether wallets and are 
audited annually for accuracy and completeness by an independent 
external audit firm. In addition, the Trust will be audited by an 
independent registered public accounting firm on a regular basis.
(iv) Trust Is Subject to the Exchange's Obligations of Companies Listed 
on the Exchange and Applicable Corporate Governance Requirements
    The Trust will be subject to the obligations of companies listed on 
the Exchange set forth in BZX Rule 14.6, which require the listed 
companies to make public disclosure of material events and any 
notifications of deficiency by the Exchange, file and distribute period 
financial reports, engage independent public accountants registered 
with the Exchange, among other things. Such disclosures serve a key 
investor protection role. In addition, the Trust will be subject to the 
corporate governance requirements for companies listed on the Exchange 
set forth in BZX Rule 14.10.
Investment Objective
    According to the Registration Statement and as further described 
below, the investment objective of the Trust will be to seek to track 
the performance of ether, as measured by the performance of the CME CF 
Ether-Dollar Reference Rate--New York Variant (the ``Index''), adjusted 
for the Trust's expenses and other liabilities. In seeking to achieve 
its investment objective, the Trust will hold ether and will value the 
Shares daily based on the Index. The Trust will process all creations 
and redemptions in cash transactions with authorized participants. The 
Trust is not actively managed.
The Index
    The Fund will use the Index to calculate the Trust's NAV. The Trust 
will determine the ether Index price and value its shares daily based 
on the value of ether as reflected by the Index. The Index is 
calculated daily and aggregates the notional value of ether trading 
across major ether spot trading platforms. The Index currently uses 
substantially the same methodology as

[[Page 20728]]

the CME CF Ether Dollar Reference Rate (``ERR''), including utilizing 
the same six ether trading platforms, which is the underlying rate to 
determine settlement of CME Ether Futures contracts, except that the 
Index is calculated as of 4:00 p.m. ET, whereas the ERR is calculated 
as of 4:00 p.m. London time. The administrator of the Index is CF 
Benchmarks Ltd. (the ``Index Provider'').
    The Index, which was introduced on November 14, 2016, is based on 
materially the same methodology (except calculation time) as the Index 
Provider's ERR, which was first introduced on May 14, 2018, and is the 
rate on which ether futures contracts are cash-settled in U.S. dollars 
at the CME. The Index is designed based on the IOSCO Principals for 
Financial Benchmarks. The administrator of the Index is the Index 
Provider. The Index is calculated daily and aggregates the notional 
value of ether trading activity across major ether spot trading 
platforms.
    The Sponsor believes that the use of the Index is reflective of a 
reasonable valuation of the average spot price of ether and that 
resistance to manipulation is a priority aim of its design methodology. 
The methodology: (i) takes an observation period and divides it into 
equal partitions of time; (ii) then calculates the volume-weighted 
median of all transactions within each partition; and (iii) the value 
is determined from the arithmetic mean of the volume-weighted medians, 
equally weighted. By employing the foregoing steps, the Index thereby 
seeks to ensure that transactions in ether conducted at outlying prices 
do not have an undue effect on the value of a specific partition, large 
trades or clusters of trades transacted over a short period of time 
will not have an undue influence on the index level, and the effect of 
large trades at prices that deviate from the prevailing price are 
mitigated from having an undue influence on the benchmark level.
    In addition, the Sponsor notes that an oversight function is 
implemented by the Index Provider in seeking to ensure that the Index 
is administered through codified policies for Index integrity. The 
Trust will determine the value its Shares daily based on the value of 
ether as reflected by the Index. The Index is calculated daily and 
aggregates the notional value of ether trading activity across major 
ether spot trading platforms. The Index is designed based on the IOSCO 
Principals for Financial Benchmarks. The Trust also uses the ether 
price determined by the Index to calculate its ``Ether Holdings,'' 
which is the aggregate U.S. Dollar value of ether in the Trust, based 
on the ether price determined by the Index, less its liabilities and 
expenses. ``Ether Holdings per Share'' is calculated by dividing Ether 
Holdings by the number of Shares currently outstanding. Ether Holdings 
and Ether Holdings per Share are not measures calculated in accordance 
with GAAP. Ether Holdings is not intended to be a substitute for the 
Trust's NAV calculated in accordance with GAAP, and Ether Holdings per 
Share is not intended to be a substitute for the Trust's NAV per Share 
calculated in accordance with GAAP.
    The Index was created to facilitate financial products based on 
ether. It serves as a once-a-day benchmark rate of the U.S. dollar 
price of ether (USD/ETH), calculated as of 4:00 p.m. ET. The Index 
aggregates the trade flow of several ether trading platforms, during an 
observation window between 3:00 p.m. and 4:00 p.m. ET into the U.S. 
dollar price of one ether at 4:00 p.m. ET. Specifically, the Index is 
calculated based on the ``Relevant Transactions'' (as defined below) of 
all of its constituent ether trading platforms, which are currently 
Coinbase, Bitstamp, Kraken, itBit, LMAX Digital and Gemini (the 
``Constituent Platforms''), as follows:
     All Relevant Transactions are added to a joint list, 
recording the time of execution, trade price and size for each 
transaction.
     The list is partitioned by timestamp into 12 equally sized 
time intervals of five-minute length.
     For each partition separately, the volume-weighted median 
trade price is calculated from the trade prices and sizes of all 
Relevant Transactions, i.e., across all Constituent Platforms. A 
volume-weighted median differs from a standard median in that a 
weighting factor, in this case trade size, is factored into the 
calculation.
     The Index is then determined by the equally weighted 
average of the volume medians of all partitions.
    The Index does not include any futures prices in its methodology. A 
``Relevant Transaction'' is any cryptocurrency versus U.S. dollar spot 
trade that occurs during the observation window between 3:00 p.m. and 
4:00 p.m. Eastern time on a Constituent Platform in the ETH/USD pair 
that is reported and disseminated by a Constituent Platform through its 
publicly available API and observed by the Index Provider. An oversight 
function is implemented by the Index Provider in seeking to ensure that 
the Index is administered through the Index Provider's codified 
policies for Index integrity.
    The Sponsor believes that the use of the Index is reflective of a 
reasonable valuation of the average spot price of ether and that 
resistance to manipulation is a priority aim of its design methodology. 
The methodology: (i) takes an observation period and divides it into 
equal partitions of time; (ii) then calculates the volume-weighted 
median of all transactions within each partition; and (iii) the value 
is determined from the arithmetic mean of the volume-weighted medians, 
equally weighted. By employing the foregoing steps, the Index thereby 
seeks to ensure that transactions in ether conducted at outlying prices 
do not have an undue effect on the value of a specific partition, large 
trades or clusters of trades transacted over a short period of time 
will not have an undue influence on the index level, and the effect of 
large trades at prices that deviate from the prevailing price are 
mitigated from having an undue influence on the benchmark level.
    Index data and the description of the Index are based on 
information made publicly available by the Index Provider on its 
website at https://www.cfbenchmarks.com.
Net Asset Value
    NAV means the total assets of the Trust (which includes all ether 
and cash and cash equivalents) less total liabilities of the Trust. The 
Administrator determines the NAV of the Trust on each day that the 
Exchange is open for regular trading, as promptly as practical after 
4:00 p.m. EST. The NAV of the Trust is the aggregate value of the 
Trust's assets less its estimated accrued but unpaid liabilities (which 
include accrued expenses). In determining the Trust's NAV, the 
Administrator values the ether held by the Trust based on the price set 
by the Index as of 4:00 p.m. EST. The Administrator also determines the 
NAV per Share.
    The NAV for the Trust will be calculated by the Administrator once 
a day and will be disseminated daily to all market participants at the 
same time.
    If the Index is not available, or if the Sponsor determines in good 
faith that the Index does not reflect an accurate ether price, then the 
Administrator will employ an alternative method to determine the fair 
value of the Trust's assets.\42\
---------------------------------------------------------------------------

    \42\ Such alternative method will only be employed on an ad hoc 
basis. Any permanent change to the calculation of the NAV would 
require a proposed rule change under Rule 19b-4.

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

[[Page 20729]]

Availability of Information
    In addition to the price transparency of the Index, the Trust will 
provide information regarding the Trust's ether holdings as well as 
additional data regarding the Trust. The website for the Trust, which 
will be publicly accessible at no charge, will contain the following 
information: (a) the current NAV per Share daily and the prior business 
day's NAV and the reported closing price; (b) the BZX Official Closing 
Price \43\ in relation to the NAV as of the time the NAV is calculated 
and a calculation of the premium or discount of such price against such 
NAV; (c) data in chart form displaying the frequency distribution of 
discounts and premiums of the Official Closing Price against the NAV, 
within appropriate ranges for each of the four previous calendar 
quarters (or for the life of the Trust, if shorter); (d) the 
prospectus; and (e) other applicable quantitative information. The 
aforementioned information will be published as of the close of 
business and available on the Sponsor's website at www.21shares.com, or 
any successor thereto.
---------------------------------------------------------------------------

    \43\ As defined in Rule 11.23(a)(3), the term ``BZX Official 
Closing Price'' shall mean the price disseminated to the 
consolidated tape as the market center closing trade.
---------------------------------------------------------------------------

    The Intraday Indicative Value (``IIV'') will be calculated by using 
the prior day's closing NAV per Share as a base and updating that value 
during Regular Trading Hours to reflect changes in the value of the 
Trust's ether during the trading day. The IIV disseminated during 
Regular Trading Hours to reflect changes in the value of the Trust's 
ether holdings during the trading day. The IIV disseminated during 
Regular Trading Hours should not be viewed as an actual real-time 
update of the NAV, which will be calculated only once at the end of 
each trading day. The IIV may differ from the NAV due to the 
differences in the time window of trades used to calculate each price 
(the NAV uses the Index price as of 4 p.m. ET, whereas the IIV draws 
prices from the last trade on each Constituent Platform in an effort to 
produce a relevant, real-time price). The Trust will provide an IIV per 
Share updated every 15 seconds, as calculated by the Exchange or a 
third-party financial data provider during the Exchange's Regular 
Trading Hours (9:30 a.m. to 4:00 p.m. E.T.). The IIV will be widely 
disseminated on a per Share basis every 15 seconds during the 
Exchange's Regular Trading Hours through the facilities of the 
consolidated tape association (CTA) and Consolidated Quotation System 
(CQS) high speed lines. In addition, the IIV will be available through 
on-line information services.
    The price of ether will be made available by one or more major 
market data vendors, updated at least every 15 seconds during Regular 
Trading Hours.
    As noted above, the Index is calculated daily and aggregates the 
notional value of ether trading activity across major ether spot 
trading platforms. Index data, value, and the description of the Index 
are based on information made publicly available by the Index Provider 
on its website at https://www.cfbenchmarks.com.
    Quotation and last sale information for ether is widely 
disseminated through a variety of major market data vendors, including 
Bloomberg and Reuters. Information relating to trading, including price 
and volume information, in ether is available from major market data 
vendors and from the trading platforms on which ether are traded. Depth 
of book information is also available from ether trading platforms. The 
normal trading hours for ether trading platforms are 24 hours per day, 
365 days per year.
    Information regarding market price and trading volume of the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume 
information for the Shares will be published daily in the financial 
section of newspapers.
The Ether Custodian
    The Custodian carefully considers the design of the physical, 
operational, and cryptographic systems for secure storage of the 
Trust's private keys in an effort to lower the risk of loss or theft. 
The Custodian utilizes a variety of security measures to ensure that 
private keys necessary to transfer digital assets remain uncompromised 
and that the Trust maintains exclusive ownership of its assets. The 
operational procedures of the Custodian are reviewed by third-party 
advisors with specific expertise in physical security. The devices that 
store the keys will never be connected to the internet or any other 
public or private distributed network--this is colloquially known as 
``cold storage.'' Only specific individuals are authorized to 
participate in the custody process, and no individual acting alone will 
be able to access or use any of the private keys. In addition, no 
combination of the executive officers of the Sponsor or the investment 
professionals managing the Trust, acting alone or together, will be 
able to access or use any of the private keys that hold the Trust's 
ether.
Creation and Redemption of Shares
    When the Trust creates or redeems its Shares, it will do so in cash 
transactions in blocks of 5,000 Shares that are based on the quantity 
of ether attributable to each Share of the Trust (e.g., a Creation 
Basket) at the Trust's NAV. The authorized participants will deliver 
only cash to create shares and will receive only cash when redeeming 
shares. Further, authorized participants will not directly or 
indirectly purchase, hold, deliver, or receive ether as part of the 
creation or redemption process or otherwise direct the Trust or a third 
party with respect to purchasing, holding, delivering, or receiving 
ether as part of the creation or redemption process. The Trust will 
create shares by receiving ether from a third party that is not the 
authorized participant and the Trust--not the authorized participant--
is responsible for selecting the third party to deliver the ether. 
Further, the third party will not be acting as an agent of the 
authorized participant with respect to the delivery of the ether to the 
Trust or acting at the direction of the authorized participant with 
respect to the delivery of the ether to the Trust. The Trust will 
redeem shares by delivering ether to a third party that is not the 
authorized participant and the Trust--not the authorized participant--
is responsible for selecting the third party to receive the ether. 
Further, the third party will not be acting as an agent of the 
authorized participant with respect to the receipt of the ether from 
the Trust or acting at the direction of the authorized participant with 
respect to the receipt of the ether from the Trust.
    According to the Registration Statement, on any business day, an 
authorized participant may place an order to create one or more 
Creation Basket. Purchase orders must be placed by 12:00 p.m. Eastern 
Time, the close of regular trading on the Exchange, or another time 
determined by the Sponsor. The day on which an order is received is 
considered the purchase order date. The total deposit of ether required 
is an amount of ether that is in the same proportion to the total 
assets of the Trust, net of accrued expenses and other liabilities, on 
the date the order to purchase is properly received, as the number of 
Shares to be created under the purchase order is in proportion to the 
total number of Shares outstanding on the date the order is received. 
Each night, the Sponsor will publish the amount of ether that will be 
required in exchange for each creation order. The Administrator 
determines the required deposit for a given day by dividing the number 
of ether held by the

[[Page 20730]]

Trust as of the opening of business on that business day, adjusted for 
the amount of ether constituting estimated accrued but unpaid fees and 
expenses of the Trust as of the opening of business on that business 
day, by the quotient of the number of Shares outstanding at the opening 
of business divided by the number of Shares in a Creation Unit.
    The procedures by which an authorized participant can redeem one or 
more Creation Baskets mirror the procedures for the creation of 
Creation Baskets. A third party, that is unaffiliated with the Trust 
and the Sponsor, will use cash to buy and deliver ether to create 
Shares or withdraw and sell ether for cash to redeem Shares, on behalf 
of the Trust.
    The Sponsor will maintain ownership and control of ether in a 
manner consistent with good delivery requirements for spot commodity 
transactions.
Rule 14.11(e)(4)--Commodity-Based Trust Shares
    The Shares will be subject to BZX Rule 14.11(e)(4), which sets 
forth the initial and continued listing criteria applicable to 
Commodity-Based Trust Shares. The Exchange represents that, for initial 
and continued listing, the Trust must be in compliance with Rule 10A-3 
under the Act. A minimum of 10,000 Shares will be outstanding at the 
commencement of listing on the Exchange. The Exchange will obtain a 
representation that the NAV will be calculated daily and information 
about the NAV and the assets of the Trust will be made available to all 
market participants at the same time. The Exchange notes that, as 
defined in Rule 14.11(e)(4)(C)(i), the Shares will be: (a) issued by a 
trust that holds (1) a specified commodity \44\ deposited with the 
trust, or (2) a specified commodity and, in addition to such specified 
commodity, cash; (b) 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 (c) 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.
---------------------------------------------------------------------------

    \44\ For purposes of Rule 14.11(e)(4), the term commodity takes 
on the definition of the term as provided in the Commodity Exchange 
Act. As noted above, the CFTC has opined that bitcoin is a commodity 
as defined in Section 1a(9) of the Commodity Exchange Act. See 
Coinflip.
---------------------------------------------------------------------------

    Upon termination of the Trust, the Shares will be removed from 
listing. The Trustee, Delaware Trust Company, is a trust company having 
substantial capital and surplus and the experience and facilities for 
handling corporate trust business, as required under Rule 
14.11(e)(4)(E)(iv)(a) and that no change will be made to the trustee 
without prior notice to and approval of the Exchange. The Exchange also 
notes that, pursuant to Rule 14.11(e)(4)(F), neither the Exchange nor 
any agent of the Exchange shall have any liability for damages, claims, 
losses or expenses caused by any errors, omissions or delays in 
calculating or disseminating any underlying commodity value, the 
current value of the underlying commodity required to be deposited to 
the Trust in connection with issuance of Commodity-Based Trust Shares; 
resulting from any negligent act or omission by the Exchange, or any 
agent of the Exchange, or any act, condition or cause beyond the 
reasonable control of the Exchange, its agent, including, but not 
limited to, an act of God; fire; flood; extraordinary weather 
conditions; war; insurrection; riot; strike; accident; action of 
government; communications or power failure; equipment or software 
malfunction; or any error, omission or delay in the reports of 
transactions in an underlying commodity. Finally, as required in Rule 
14.11(e)(4)(G), the Exchange notes that any registered market maker 
(``Market Maker'') in the Shares must file with the Exchange in a 
manner prescribed by the Exchange and keep current a list identifying 
all accounts for trading in an underlying commodity, related commodity 
futures or options on commodity futures, or any other related commodity 
derivatives, which the registered Market Maker may have or over which 
it may exercise investment discretion. No registered Market Maker shall 
trade in an underlying commodity, related commodity futures or options 
on commodity futures, or any other related commodity derivatives, in an 
account in which a registered Market Maker, directly or indirectly, 
controls trading activities, or has a direct interest in the profits or 
losses thereof, which has not been reported to the Exchange as required 
by this Rule. In addition to the existing obligations under Exchange 
rules regarding the production of books and records (see, e.g., Rule 
4.2), the registered Market Maker in Commodity-Based Trust Shares shall 
make available to the Exchange such books, records or other information 
pertaining to transactions by such entity or registered or non-
registered employee affiliated with such entity for its or their own 
accounts for trading the underlying physical commodity, related 
commodity futures or options on commodity futures, or any other related 
commodity derivatives, as may be requested by the Exchange.
    The Exchange is able to obtain information regarding trading in the 
Shares and the underlying ether, Ether Futures contracts, options on 
Ether Futures, or any other ether derivative through members acting as 
registered Market Makers, in connection with their proprietary or 
customer trades.
    As a general matter, the Exchange has regulatory jurisdiction over 
its Members and their associated persons, which include any person or 
entity controlling a Member. To the extent the Exchange may be found to 
lack jurisdiction over a subsidiary or affiliate of a Member that does 
business only in commodities or futures contracts, the Exchange could 
obtain information regarding the activities of such subsidiary or 
affiliate through surveillance sharing agreements with regulatory 
organizations of which such subsidiary or affiliate is a member.
Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares. The Exchange will halt trading in the Shares 
under the conditions specified in BZX Rule 11.18. Trading may be halted 
because of market conditions or for reasons that, in the view of the 
Exchange, make trading in the Shares inadvisable. These may include: 
(1) the extent to which trading is not occurring in the ether 
underlying the Shares; or (2) whether other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market are present. Trading in the Shares also will be subject to Rule 
14.11(e)(4)(E)(ii), which sets forth circumstances under which trading 
in the Shares may be halted.
    If the IIV or the value of the Index is not being disseminated as 
required, the Exchange may halt trading during the day in which the 
interruption to the dissemination of the IIV or the value of the Index 
occurs. If the interruption to the dissemination of the IIV or the 
value of the Index 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.
    In addition, 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.

[[Page 20731]]

Trading Rules
    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. BZX will allow 
trading in the Shares during all trading sessions on the Exchange. The 
Exchange has appropriate rules to facilitate transactions in the Shares 
during all trading sessions. As provided in BZX Rule 11.11(a) the 
minimum price variation for quoting and entry of orders in securities 
traded on the Exchange is $0.01 where the price is greater than $1.00 
per share or $0.0001 where the price is less than $1.00 per share. The 
Shares of the Trust will conform to the initial and continued listing 
criteria set forth in BZX Rule 14.11(e)(4).
Surveillance
    The Exchange represents that its surveillance procedures are 
adequate to properly monitor the trading of the Shares on the Exchange 
during all trading sessions and to deter and detect violations of 
Exchange rules and the applicable federal securities laws. Trading of 
the Shares through the Exchange will be subject to the Exchange's 
surveillance procedures for derivative products, including Commodity-
Based Trust Shares. FINRA conducts certain cross-market surveillances 
on behalf of the Exchange pursuant to a regulatory services agreement. 
The Exchange is responsible for FINRA's performance under this 
regulatory services agreement.
    The Exchange or FINRA, on behalf of the Exchange, or both, will 
communicate as needed regarding trading in the Shares and Ether Futures 
with other markets and other 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 Ether Futures 
from such markets and other entities.\45\ The Exchange may obtain 
information regarding trading in the Shares and Ether Futures via ISG, 
from other exchanges who are members or affiliates of the ISG, or with 
which the Exchange has entered into a comprehensive surveillance 
sharing agreement.
---------------------------------------------------------------------------

    \45\ For a list of the current members and affiliate members of 
ISG, see www.isgportal.com.
---------------------------------------------------------------------------

    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
    The issuer has represented to the Exchange that it will advise the 
Exchange of any failure by the Trust or the Shares to comply with the 
continued listing requirements, and, pursuant to its obligations under 
Section 19(g)(1) of the Exchange Act, the Exchange will surveil for 
compliance with the continued listing requirements. If the Trust or the 
Shares are not in compliance with the applicable listing requirements, 
the Exchange will commence delisting procedures under Exchange Rule 
14.12.
Information Circular
    Prior to the commencement of trading, the Exchange will inform its 
members in an Information Circular of the special characteristics and 
risks associated with trading the Shares. Specifically, the Information 
Circular will discuss the following: (i) the procedures for the 
creation and redemption of Baskets (and that the Shares are not 
individually redeemable); (ii) BZX Rule 3.7, which imposes suitability 
obligations on Exchange members with respect to recommending 
transactions in the Shares to customers; (iii) how information 
regarding the IIV and the Trust's NAV are disseminated; (iv) the risks 
involved in trading the Shares outside of Regular Trading Hours \46\ 
when an updated IIV will not be calculated or publicly disseminated; 
(v) the requirement that members deliver a prospectus to investors 
purchasing newly issued Shares prior to or concurrently with the 
confirmation of a transaction; and (vi) trading information. The 
Information Circular will also reference the fact that there is no 
regulated source of last sale information regarding ether, that the 
Commission has no jurisdiction over the trading of ether as a 
commodity, and that the CFTC has regulatory jurisdiction over the 
trading of Ether Futures contracts and options on Ether Futures 
contracts.
---------------------------------------------------------------------------

    \46\ Regular Trading Hours is the time between 9:30 a.m. and 
4:00 p.m. Eastern Time.
---------------------------------------------------------------------------

    In addition, the Information Circular will advise members, prior to 
the commencement of trading, of the prospectus delivery requirements 
applicable to the Shares. Members purchasing the Shares for resale to 
investors will deliver a prospectus to such investors. The Information 
Circular will also discuss any exemptive, no-action and interpretive 
relief granted by the Commission from any rules under the Act.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \47\ in general and Section 6(b)(5) of the Act \48\ in 
particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, 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.
---------------------------------------------------------------------------

    \47\ 15 U.S.C. 78f.
    \48\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission has approved numerous series of Trust Issued 
Receipts,\49\ including Commodity-Based Trust Shares,\50\ to be listed 
on U.S. national securities exchanges. In order for any proposed rule 
change from an exchange to be approved, the Commission must determine 
that, among other things, the proposal is consistent with the 
requirements of Section 6(b)(5) of the Act, specifically including: (i) 
the requirement that a national securities exchange's rules are 
designed to prevent fraudulent and manipulative acts and practices; 
\51\ and (ii) the requirement that an exchange proposal be designed, in 
general, to protect investors and the public interest. The Exchange 
believes that this proposal is consistent with the requirements of 
Section 6(b)(5) of the Act and that this filing sufficiently

[[Page 20732]]

demonstrates that the CME Ether Futures market represents a regulated 
market of significant size and that, on the whole, the manipulation 
concerns previously articulated by the Commission are sufficiently 
mitigated to the point that they are outweighed by quantifiable 
investor protection issues that would be resolved by approving this 
proposal.
---------------------------------------------------------------------------

    \49\ See Exchange Rule 14.11(f).
    \50\ Commodity-Based Trust Shares, as described in Exchange Rule 
14.11(e)(4), are a type of Trust Issued Receipt.
    \51\ Much like bitcoin, the Exchange believes that ether is 
resistant to price manipulation and that ``other means to prevent 
fraudulent and manipulative acts and practices'' exist to justify 
dispensing with the requisite surveillance sharing agreement. The 
geographically diverse and continuous nature of ether trading render 
it difficult and prohibitively costly to manipulate the price of 
ETH. The fragmentation across ether platforms, the relatively slow 
speed of transactions, and the capital necessary to maintain a 
significant presence on each trading platform make manipulation of 
ether prices through continuous trading activity challenging. To the 
extent that there are ether trading platforms engaged in or allowing 
wash trading or other activity intended to manipulate the price of 
ether on other markets, such pricing does not normally impact prices 
on other trading platforms because participants will generally 
ignore markets with quotes that they deem non-executable. Moreover, 
the linkage between the ether markets and the presence of 
arbitrageurs in those markets means that the manipulation of the 
price of ether price on any single venue would require manipulation 
of the global ether price in order to be effective. Arbitrageurs 
must have funds distributed across multiple trading platforms in 
order to take advantage of temporary price dislocations, thereby 
making it unlikely that there will be strong concentration of funds 
on any particular ether trading platforms or OTC platforms. As a 
result, the potential for manipulation on a trading platform would 
require overcoming the liquidity supply of such arbitrageurs who are 
effectively eliminating any cross-market pricing differences.
---------------------------------------------------------------------------

(i) Designed To Prevent Fraudulent and Manipulative Acts and Practices
    In order to meet this standard in a proposal to list and trade a 
series of Commodity-Based Trust Shares, the Commission requires that an 
exchange demonstrate that there is a comprehensive surveillance-sharing 
agreement in place \52\ with a regulated market of significant size. 
Both the Exchange and CME are members of ISG. The only remaining issue 
to be addressed is whether the ether Futures market constitutes a 
market of significant size, which both the Exchange and the Sponsor 
believe that it does. The terms ``significant market'' and ``market of 
significant size'' include a market (or group of markets) as to which: 
(a) there is a reasonable likelihood that a person attempting to 
manipulate the ETP would also have to trade on that market to 
manipulate the ETP, so that a surveillance-sharing agreement would 
assist the listing exchange in detecting and deterring misconduct; and 
(b) it is unlikely that trading in the ETP would be the predominant 
influence on prices in that market.\53\
---------------------------------------------------------------------------

    \52\ As previously articulated by the Commission, ``The standard 
requires such surveillance-sharing agreements since ``they provide a 
necessary deterrent to manipulation because they facilitate the 
availability of information needed to fully investigate a 
manipulation if it were to occur.'' 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 underlying securities 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. 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.'' The 
Commission has historically held that joint membership in the ISG 
constitutes such a surveillance sharing agreement. See Wilshire 
Phoenix Disapproval.
    \53\ See Wilshire Phoenix Disapproval.
---------------------------------------------------------------------------

    The Commission has also recognized that the ``regulated market of 
significant size'' standard is not the only means for satisfying 
Section 6(b)(5) of the act, specifically providing that a listing 
exchange could demonstrate that ``other means to prevent fraudulent and 
manipulative acts and practices'' are sufficient to justify dispensing 
with the requisite surveillance-sharing agreement.54 55
---------------------------------------------------------------------------

    \54\ See Winklevoss Order at 37580. The Commission has also 
specifically noted that it ``is not applying a `cannot be 
manipulated' standard; instead, the Commission is examining whether 
the proposal meets the requirements of the Exchange Act and, 
pursuant to its Rules of Practice, places the burden on the listing 
exchange to demonstrate the validity of its contentions and to 
establish that the requirements of the Exchange Act have been met.'' 
Id. at 37582.
    \55\ According to reports, the Commission is poised to allow the 
launch of ETFs registered under the Investment Company Act of 1940, 
as amended (the ``1940 Act''), that provide exposure to ether 
primarily through CME Ether Futures (``ETH Futures ETFs'') as early 
as October 2023. Allowing such products to list and trade is a 
productive first step in providing U.S. investors and traders with 
transparent, exchange-listed tools for expressing a view on ETH. 
https://www.bloomberg.com/news/articles/2023-08-17/sec-said-to-be-poised-to-allow-us-debut-of-ether-futures-etfs-eth#xj4y7vzkg.
---------------------------------------------------------------------------

(a) Manipulation of the ETP
    The significant market test requires that there is a reasonable 
likelihood that a person attempting to manipulate the ETP would also 
have to trade on that market to manipulate the ETP, so that a 
surveillance-sharing agreement would assist the listing exchange in 
detecting and deterring misconduct. In light of the similarly high 
correlation between spot ETH/CME Ether Futures and spot bitcoin/CME 
Bitcoin Futures, applying the same rationale that the Commission 
applied to the Bitcoin Futures ETF and in the Spot Bitcoin ETP Approval 
Order \56\ also indicates that this test is satisfied for this 
proposal. As noted above, in the Spot Bitcoin ETP Approval Order, the 
SEC concluded that:
---------------------------------------------------------------------------

    \56\ See Exchange Act Release No. 99306 (January 10, 2024), 89 
FR 3008 (January 17, 2024) (Self-Regulatory Organizations; NYSE 
Arca, Inc.; The Nasdaq Stock Market LLC; Cboe BZX Exchange, Inc.; 
Order Granting Accelerated Approval of Proposed Rule Changes, as 
Modified by Amendments Thereto, To List and Trade Bitcoin-Based 
Commodity-Based Trust Shares and Trust Units) (the ``Spot Bitcoin 
ETP Approval Order'').

. . . fraud or manipulation that impacts prices in spot bitcoin 
markets would likely similarly impact CME bitcoin futures prices. 
And because the CME's surveillance can assist in detecting those 
impacts on CME bitcoin futures prices, the Exchanges' comprehensive 
surveillance-sharing agreement with the CME . . . can be reasonably 
expected to assist in surveilling for fraudulent and manipulative 
acts and practices in the specific context of the [p]roposals.\57\
---------------------------------------------------------------------------

    \57\ See the Spot Bitcoin ETP Approval Order at 3011-3012.

    The assumptions from this statement are also true for CME Ether 
Futures. CME Ether Futures pricing is based on pricing from spot ether 
markets. The statement from the Spot Bitcoin ETP Approval Order that 
the surveillance-sharing agreement with the CME ``can be reasonably 
expected to assist in surveilling for fraudulent and manipulative acts 
and practices in the specific context of the [p]roposals'' makes clear 
that the Commission believes that CME's surveillance can capture the 
effects of trading on the relevant spot markets on the pricing of CME 
Bitcoin Futures. This same logic would extend to CME Ether Futures 
markets where CME's surveillance would be able to capture the effects 
of trading on the relevant spot markets on the pricing of CME Ether 
Futures.
(b) Predominant Influence on Prices in Spot and Ether Futures
    The Exchange and Sponsor also believe that trading in the Shares 
would not be the predominant force on prices in the Ether Futures 
market or spot market for a number of reasons, including the 
significant volume in the Ether Futures market, the size of ether's 
market cap, and the significant liquidity available in the spot market. 
In addition to the Ether Futures market data points cited above, the 
spot market for ether is also very liquid.
(c) Other Means To Prevent Fraudulent and Manipulative Acts and 
Practices
    As noted above, the Commission also permits a listing exchange to 
demonstrate that ``other means to prevent fraudulent and manipulative 
acts and practices'' are sufficient to justify dispensing with the 
requisite surveillance-sharing agreement. The Exchange and Sponsor 
believe that such conditions are present.
    The Exchange believes that the proposal is designed to protect 
investors and the public interest. Over the past several years, U.S. 
investor exposure to ether through OTC Ether Funds has grown into the 
tens of billions of dollars and more than a billion dollars of exposure 
through Ether Futures ETFs. With that growth, so too has grown the 
quantifiable investor protection issues to U.S. investors through roll 
costs for Ether Futures ETFs and premium/discount volatility and 
management fees for OTC Ether Funds. The Exchange believes that the 
concerns related to the prevention of fraudulent and manipulative acts 
and practices have been sufficiently addressed to be consistent with 
the Act and, to the extent that the Commission disagrees with that 
assertion, also believes that such concerns are now outweighed by these 
investor protection concerns. As

[[Page 20733]]

such, the Exchange believes that approving this proposal (and 
comparable proposals) provides the Commission with the opportunity to 
allow U.S. investors with access to ether in a regulated and 
transparent exchange-traded vehicle that would act to limit risk to 
U.S. investors by: (i) reducing premium and discount volatility; (ii) 
reducing management fees through meaningful competition; (iii) reducing 
risks and costs associated with investing in Ether Futures ETFs and 
operating companies that are imperfect proxies for ether exposure; and 
(iv) providing an alternative to custodying spot ether.
Commodity-Based Trust Shares
    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed on the Exchange pursuant to the initial and 
continued listing criteria in Exchange Rule 14.11(e)(4). The Exchange 
believes that its surveillance procedures are adequate to properly 
monitor the trading of the Shares on the Exchange during all trading 
sessions and to deter and detect violations of Exchange rules and the 
applicable federal securities laws. Trading of the Shares through the 
Exchange will be subject to the Exchange's surveillance procedures for 
derivative products, including Commodity-Based Trust Shares. The issuer 
has represented to the Exchange that it will advise the Exchange of any 
failure by the Trust or the Shares to comply with the continued listing 
requirements, and, pursuant to its obligations under Section 19(g)(1) 
of the Exchange Act, the Exchange will surveil for compliance with the 
continued listing requirements. If the Trust or the Shares are not in 
compliance with the applicable listing requirements, the Exchange will 
commence delisting procedures under Exchange Rule 14.12. The Exchange 
may obtain information regarding trading in the Shares and listed ether 
derivatives via the ISG, from other exchanges who are members or 
affiliates of the ISG, or with which the Exchange has entered into a 
comprehensive surveillance sharing agreement.
Availability of Information
    In addition to the price transparency of the Index, the Trust will 
provide information regarding the Trust's ether holdings as well as 
additional data regarding the Trust. The website for the Trust, which 
will be publicly accessible at no charge, will contain the following 
information: (a) the current NAV per Share daily and the prior business 
day's NAV and the reported closing price; (b) the BZX Official Closing 
Price \58\ in relation to the NAV as of the time the NAV is calculated 
and a calculation of the premium or discount of such price against such 
NAV; (c) data in chart form displaying the frequency distribution of 
discounts and premiums of the Official Closing Price against the NAV, 
within appropriate ranges for each of the four previous calendar 
quarters (or for the life of the Trust, if shorter); (d) the 
prospectus; and (e) other applicable quantitative information. The 
aforementioned information will be published as of the close of 
business and available on the Sponsor's website at www.21shares.com, or 
any successor thereto.
---------------------------------------------------------------------------

    \58\ As defined in Rule 11.23(a)(3), the term ``BZX Official 
Closing Price'' shall mean the price disseminated to the 
consolidated tape as the market center closing trade.
---------------------------------------------------------------------------

    The IIV will be calculated by using the prior day's closing NAV per 
Share as a base and updating that value during Regular Trading Hours to 
reflect changes in the value of the Trust's ether during the trading 
day. The IIV disseminated during Regular Trading Hours to reflect 
changes in the value of the Trust's ether holdings during the trading 
day. The IIV disseminated during Regular Trading Hours should not be 
viewed as an actual real-time update of the NAV, which will be 
calculated only once at the end of each trading day. The IIV may differ 
from the NAV due to the differences in the time window of trades used 
to calculate each price (the NAV uses the Index price as of 4 p.m. ET, 
whereas the IIV draws prices from the last trade on each Constituent 
Platform in an effort to produce a relevant, real-time price). The 
Trust will provide an IIV per Share updated every 15 seconds, as 
calculated by the Exchange or a third-party financial data provider 
during the Exchange's Regular Trading Hours (9:30 a.m. to 4:00 p.m. 
E.T.). The IIV will be widely disseminated on a per Share basis every 
15 seconds during the Exchange's Regular Trading Hours through the 
facilities of the consolidated tape association (CTA) and Consolidated 
Quotation System (CQS) high speed lines. In addition, the IIV will be 
available through on-line information services.
    The price of ether will be made available by one or more major 
market data vendors, updated at least every 15 seconds during Regular 
Trading Hours.
    As noted above, the Index is calculated daily and aggregates the 
notional value of ether trading activity across major ether spot 
trading platforms. Index data, value, and the description of the Index 
are based on information made publicly available by the Index Provider 
on its website at https://www.cfbenchmarks.com.
    Quotation and last sale information for ether is widely 
disseminated through a variety of major market data vendors, including 
Bloomberg and Reuters. Information relating to trading, including price 
and volume information, in ether is available from major market data 
vendors and from the trading platforms on which ether are traded. Depth 
of book information is also available from ether trading platforms. The 
normal trading hours for ether trading platforms are 24 hours per day, 
365 days per year.
    Information regarding market price and trading volume of the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume 
information for the Shares will be published daily in the financial 
section of newspapers.
    In sum, the Exchange believes that this proposal is consistent with 
the requirements of Section 6(b)(5) of the Act, that this filing 
sufficiently demonstrates that the CME Ether Futures market represents 
a regulated market of significant size, and that on the whole the 
manipulation concerns previously articulated by the Commission are 
sufficiently mitigated to the point that they are outweighed by 
investor protection issues that would be resolved by approving this 
proposal.
    The Exchange believes that the proposal is, in particular, designed 
to protect investors and the public interest. The investor protection 
issues for U.S. investors has grown significantly over the last several 
years, through roll costs for ether Futures ETFs and premium/discount 
volatility and management fees for OTC Ether Funds. As discussed 
throughout, this growth investor protection concerns need to be re-
evaluated and rebalanced with the prevention of fraudulent and 
manipulative acts and practices concerns that previous disapproval 
orders have relied upon. Finally, the Exchange notes that in addition 
to all of the arguments herein which it believes sufficiently establish 
the CME Ether Futures market as a regulated market of significant size, 
it is logically inconsistent to find that the CME Ether Futures market 
is a significant market as it relates to the CME Ether Futures market, 
but not a significant market as it relates to the ether spot market for 
the numerous reasons laid out above.

[[Page 20734]]

    For the above reasons, the Exchange believes that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Act. The Exchange notes that the 
proposed rule change, rather will facilitate the listing and trading of 
an additional exchange-traded product that will enhance competition 
among both market participants and listing venues, to the benefit of 
investors and the marketplace.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Notice of Designation of a Longer Period for Commission Action on 
Proceedings To Determine Whether To Approve or Disapprove the Proposed 
Rule Change, as Modified by Amendment No. 1

    Section 19(b)(2) of the Act \59\ provides that, after initiating 
proceedings, the Commission shall issue an order approving or 
disapproving the proposed rule change not later than 180 days after the 
date of publication of notice of filing of the proposed rule change. 
The Commission may extend the period for issuing an order approving or 
disapproving the proposed rule change, however, by not more than 60 
days if the Commission determines that a longer period is appropriate 
and publishes the reasons for such determination. The proposed rule 
change was published for comment in the Federal Register on September 
27, 2023.\60\ The 180th day after publication of the proposed rule 
change is March 25, 2024. The Commission is extending the time period 
for approving or disapproving the proposed rule change for an 
additional 60 days.
---------------------------------------------------------------------------

    \59\ 15 U.S.C. 78s(b)(2).
    \60\ See supra note 3 and accompanying text.
---------------------------------------------------------------------------

    The Commission finds that it is appropriate to designate a longer 
period within which to issue an order approving or disapproving the 
proposed rule change so that it has sufficient time to consider the 
proposed rule change, as modified by Amendment No. 1, and the issues 
raised therein. Accordingly, the Commission, pursuant to Section 
19(b)(2) of the Act,\61\ designates May 24, 2024, as the date by which 
the Commission shall either approve or disapprove the proposed rule 
change (File No. SR-CboeBZX-2023-070).
---------------------------------------------------------------------------

    \61\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change, as modified by Amendment No. 1, is consistent with the Act. 
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-CboeBZX-2023-070 on the subject line.

Paper Comments

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

All submissions should refer to file number SR-CboeBZX-2023-070. 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 submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-CboeBZX-2023-070 and should 
be submitted on or before April 15, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\62\
---------------------------------------------------------------------------

    \62\ 17 CFR 200.30-3(a)(12), (57).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-06174 Filed 3-22-24; 8:45 am]
BILLING CODE 8011-01-P