[Federal Register Volume 89, Number 68 (Monday, April 8, 2024)]
[Notices]
[Pages 24509-24519]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-07335]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99889; File No. SR-NYSEARCA-2024-31]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change To List and Trade Shares of the Bitwise 
Ethereum ETF

April 2, 2024.
    Pursuant to section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on March 28, 2024, NYSE Arca, Inc. (``NYSE Arca'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade shares of the Bitwise 
Ethereum ETF (the ``Trust'') under NYSE Arca Rule 8.201-E (Commodity-
Based Trust Shares). The proposed rule change is available on the 
Exchange's website at www.nyse.com, at the principal office of the 
Exchange, 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 self-regulatory organization 
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 those 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 parts of such statements.

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

1. Purpose
    The Exchange proposes to list and trade shares (``Shares'') of the 
Trust \4\ pursuant to NYSE Arca Rule 8.201-E, which governs the listing 
and trading of Commodity Based Trust Shares.\5\
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    \4\ The Trust is a Delaware statutory trust. On March 28, 2024, 
the Trust filed with the Commission an initial registration 
statement (the ``Registration Statement'') on Form S-1 under the 
Securities Act of 1933 (15 U.S. C. 77a). The description of the 
operation of the Trust herein is based, in part, on the most recent 
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.
    \5\ Commodity-Based Trust Shares are securities issued by a 
trust that represents investors' discrete identifiable and undivided 
beneficial ownership interest in the commodities deposited into the 
trust.
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    According to the Registration Statement, the Trust will not be 
registered as an investment company under the Investment Company Act of 
1940,\6\ and is not required to register thereunder. The Trust is not a 
commodity pool for purposes of the Commodity Exchange Act.\7\
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    \6\ 15 U.S.C. 80a-1.
    \7\ 17 U.S.C. 1.
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    The Exchange represents that the Shares satisfy the requirements of 
NYSE Arca Rule 8.201-E and thereby qualify for listing on the 
Exchange.\8\
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    \8\ With respect to the application of Rule 10A-3 (17 CFR 
240.10A-3) under the act, the trust relies on the exemption 
contained in Rule 10A-3(c)(7).
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Operation of the Trust \9\
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    \9\ The description of the operation of the Trust, the Shares, 
and the ether market contained herein is based, in part, on the 
Registration Statement. See note 4, supra.
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    The Trust will issue the Shares which, according to the 
Registration Statement, represent units of undivided beneficial 
ownership of the Trust. The Trust is a Delaware statutory trust and 
will operate pursuant to a trust agreement (the ``Trust Agreement'') 
between Bitwise Investment Advisers, LLC (the ``Sponsor'' or 
``Bitwise'') and Delaware Trust Company, as the Trust's trustee (the 
``Trustee''). Coinbase Custody Trust Company, LLC will maintain custody 
of the Trust's ether (the ``Ether Custodian''). Bank of New York Mellon 
will be the custodian for the Trust's cash holdings (in such role, the 
``Cash Custodian''), the administrator of the Trust (in such role, the 
``Administrator''), and the transfer agent for the Trust (in such role, 
the ``Transfer Agent'').
    According to the Registration Statement, the investment objective 
of the Trust is to seek to provide exposure to the value of ether held 
by the Trust, less the expenses of the Trust's operations. In seeking 
to achieve its investment objective, the Trust will hold ether and 
establish its Net Asset Value (``NAV'') at the end of every business 
day by reference to the CME CF Ether Reference Rate--New York Variant 
(the ``Pricing Index'').\10\
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    \10\ The Pricing Index is designed to provide a daily, 4:00 p.m. 
New York time reference rate of the U.S. dollar price of one ether 
that may be used to develop financial products. The Pricing Index 
uses the same methodology as the CME CF Ether Reference Rate 
(``ERR''), which was designed by the CME Group and CF Benchmarks 
Ltd. (the ``Benchmark Provider'') to facilitate the cash settlement 
of ether futures contracts traded on the Chicago Mercantile Exchange 
(``CME''). The only material difference between the Pricing Index 
and ERR is that the ERR measures the U.S. dollar price of one ether 
as 9f 4:00 p.m. Eastern time (``E.T.''). The CME Group also 
publishes the CME CF Ether Real Time Index (the ``CME Ether Real 
Time Price''), which is a continuous measure of the U.S. dollar 
price of one ether calculated once per second.

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[[Page 24510]]

    The Trust's only assets will be ether and cash.\11\ The Trust does 
not seek to hold any non-ether crypto assets and has expressly 
disclaimed ownership of any such assets in the event the Trust ever 
involuntarily comes into possession of such assets.\12\ The Trust will 
not use derivatives that may subject the Trust to counterparty and 
credit risks. The Trust will process creations and redemptions in cash. 
The Trust's only recurring ordinary expense is expected to be the 
Sponsor's unitary management fee (the ``Sponsor Fee''), which will 
accrue daily and will be payable in ether monthly in arrears. The 
Administrator will calculate the Sponsor Fee on a daily basis by 
applying an annualized rate to the Trust's total ether holdings, and 
the amount of ether payable in respect of each daily accrual shall be 
determined by reference to the Pricing Index. Financial institutions 
authorized to create and redeem Shares (each, an ``Authorized 
Participant'') will deliver, or cause to be delivered, cash in exchange 
for Shares of the Trust, and the Trust will deliver cash to Authorized 
Participants when those Authorized Participants redeem Shares of the 
Trust.
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    \11\ The Trust conducts creations and redemptions of its Shares 
for cash. Authorized Participants will deliver cash to the cash 
Custodian pursuant to creation orders for Shares and the Cash 
Custodian will hold such cash until such time as it can be converted 
to ether, which the Trust intends to do on the same business day in 
which such cash is received by the Cash Custodian. Additionally, the 
trust will sell ether in exchange for cash pursuant to redemption 
orders of its Shares. In connection with such sales, and approved 
Ether Trading Counterparty (defined below) will send cash to the 
Cash Custodian. The Cash custodian will hold such cash until it can 
be distributed to the redeeming Authorized Participant, which it 
intends to do on the same business day in which it is received. In 
connection with the purchases and sales of ether pursuant to its 
creation and redemption activity, it is possible that the Trust may 
retain de minimis amounts of cash as a result of rounding 
differences. The trust may also initially hold small amounts of cash 
to initiate Trust operations in the immediate aftermath of its 
Registration Statement being declared effective. Lastly, the Trust 
may also sell ether and temporarily hold cash as part of a 
liquidation of the trust or to pay certain extraordinary expenses 
not assumed by the Sponsor. Under the Trust Agreement, the sponsor 
has agreed to assume the normal operating expenses of the Trust, 
subject to certain limitations. For example, the Trust will bear any 
indemnification or litigation liabilities as extraordinary expenses. 
In any event, in the ongoing course of business, the amounts of cash 
retained by the Trust are not expected to constitute a material 
portion of the Trust's holdings.
    \12\ The Trust may, from time to time, passively receive, by 
virtue of holding ether, certain additional digital assets (``IR 
Assets'') or rights to receive IR Assets (``Incidental Rights'') 
through a fork of the Ethereum network or an airdrop of assets. The 
Trust will not seek to acquire such IR Assets or Incidental Rights. 
Pursuant to the terms of the Trust Agreement, the trust has 
disclaimed ownership in any such IR Assets and/or Incidental Rights 
to make clear that such assets are not and shall never be considered 
assets of the Trust and will not be taken into account for purposes 
of determining the trust's NAV or NAV per Share.
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Custody of the Trust's Ether
    The Trust's Ether Custodian will maintain custody of all of the 
Trust's ether, other than that which is maintained in a trading account 
(the ``Trading Balance'') with Coinbase, Inc. (the ``Prime Execution 
Agent,'' which is an affiliate of the Ether Custodian), in the Trust 
Ether Account. The Trading Balance will only be used in the limited 
circumstances in which the Trust is using the Agent Execution Model to 
effectuate the purchases and sales of ether. The Ether Custodian 
provides safekeeping of ether using a multi-layer cold storage security 
platform designed to provide offline security of the ether held by the 
Ether Custodian.
Valuation of the Trust's Ether
    The net assets of the Trust and its Shares are valued on a daily 
basis with reference to the Pricing Index, a standardized reference 
rate published by CF Benchmarks Ltd. (the ``Benchmark Provider'') that 
is designed to reflect the performance of ether in U.S. dollars. The 
Pricing 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 Pricing 
Index aggregates the trade flow of several major ether trading venues, 
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. The Pricing Index 
currently uses substantially the same methodology as the ERR, including 
utilizing the same constituent ether exchanges, which is the underlying 
rate to determine settlement of CME ether futures contracts, except 
that the Pricing Index is calculated as of 4:00 p.m. ET, whereas the 
ERR is calculated as of 4:00 p.m. London time. The Pricing Index, which 
was introduced on February 28, 2022, is based on materially the same 
methodology (except calculation time) as the ERR, which was first 
introduced on June 4, 2018. The CME Group also publishes the CME CF 
Ether Real Time Index (the ``CME Ether Real Time Price''), which is a 
continuous measure of the U.S. dollar price of one ether calculated 
once per second. Each of the Pricing Index, ERR, and the CME Ether Real 
Time Price are representative of the ether trading activity on the 
Constituent Platforms,\13\ which include, as of the date of this 
filing, Bitstamp, Coinbase, Gemini, itBit, LMAX, and Kraken.
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    \13\ The ``Constituent Platforms'' are the ether trading venues 
included in the Pricing Index.
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    The Pricing Index is designed based on the IOSCO Principals for 
Financial Benchmarks. The Trust uses the Pricing Index to calculate its 
NAV, which is the aggregate U.S. dollar value of ether in the Trust, 
based on the Pricing Index, less its liabilities and expenses. ``NAV 
per Share'' is calculated by dividing NAV by the number of Shares 
currently outstanding.
    The Sponsor, in its sole discretion, may cause the Trust to price 
its portfolio based upon an index, benchmark, or standard other than 
the Pricing Index at any time, with prior notice to the shareholders, 
if investment conditions change or the Sponsor believes that another 
index, benchmark, or standard better aligns with the Trust's investment 
objective and strategy. The Sponsor may make this decision for a number 
of reasons, including, but not limited to, a determination that the 
Pricing Index price of ether differs materially from the global market 
price of ether and/or that third parties are able to purchase and sell 
ether on public or private markets not included among the Constituent 
Platforms, and such transactions may take place at prices materially 
higher or lower than the Pricing Index price. The Sponsor, however, is 
under no obligation whatsoever to make such changes in any 
circumstance. In the event that the Sponsor intends to establish the 
Trust's NAV by reference to an index, benchmark, or standard other than 
the Pricing Index, it will provide shareholders with notice in a 
prospectus supplement and/or through a current report on Form 8-K or in 
the Trust's annual or quarterly reports.
Net Asset Value
    Under normal circumstances, the Trust's only asset will be ether 
and, under limited circumstances, cash. The Trust's NAV and NAV per 
Share will be determined by the Administrator once each Exchange 
trading day as of 4:00 p.m. E.T., or as soon thereafter as practicable. 
The Administrator will calculate the NAV by multiplying the number of 
ether held by the Trust by the Pricing Index for such day, adding any 
additional receivables and subtracting the accrued but unpaid 
liabilities of the Trust. The NAV per Share is calculated by dividing 
the NAV by the number of Shares then outstanding. The Administrator 
will determine the price of the Trust's ether by reference to the

[[Page 24511]]

Pricing Index, which is published and calculated as set forth above.
Intraday Trust Value
    The Trust uses the CME Ether Real Time Price to calculate an 
Indicative Trust Value (``ITV''). One or more major market data vendors 
will disseminate the ITV, updated every 15 seconds each trading day as 
calculated by the Exchange or a third-party financial data provider 
during the Exchange's Core Trading Session (9:30 a.m. to 4:00 p.m., 
E.T.). The ITV will be calculated throughout the trading day by using 
the prior day's holdings at the close of business and the most recently 
reported price level of the CME Ether Real Time Price as reported by 
Bloomberg, L.P. or another reporting service. The ITV will be widely 
disseminated by one or more major market data vendors during the NYSE 
Arca Core Trading Session.
Creation and Redemption of Shares
    The Trust creates and redeems Shares from time to time, but only in 
one or more Creation Units, which will initially consist of at least 
10,000 Shares, but may be subject to change (``Creation Unit''). A 
Creation Unit is only made in exchange for delivery to the Trust or the 
distribution by the Trust of an amount of cash, equivalent to the 
amount of ether represented by the Creation Unit being created or 
redeemed, the amount of which is representative of the combined NAV of 
the number of Shares included in the Creation Units being created or 
redeemed determined as of 4:00 p.m. E.T. on the day the order to create 
or redeem Creation Units is properly received. Except when aggregated 
in Creation Units or under extraordinary circumstances permitted under 
the Trust Agreement, the Shares are not redeemable securities.
    Authorized Participants are the only persons that may place orders 
to create and redeem Creation Units. Authorized Participants must be 
(1) registered broker-dealers or other securities market participants, 
such as banks and other financial institutions, that are not required 
to register as broker-dealers to engage in securities transactions 
described below, and (2) Depository Trust Company (``DTC'') 
participants. To become an Authorized Participant, a person must enter 
into an Authorized Participant Agreement with the Trust and/or the 
Trust's marketing agent (the ``Marketing Agent'').
    According to the Registration Statement, when purchasing or selling 
ether in response to the purchase of Creation Units or the redemption 
of Creation Units, which will be processed in cash, the Trust would do 
so pursuant to either (1) a ``Trust-Directed Trade Model,'' or (2) an 
``Agent Execution Model,'' which are each described in more detail 
below.
    The Trust intends to utilize the Trust-Directed Trade Model for all 
purchases and sales of ether and would only utilize the Agent Execution 
Model in the event that no ether trading counterparty approved by the 
Sponsor (an ``Ether Trading Counterparty'') \14\ is able to effectuate 
the Trust's purchase or sale of ether. Under the Trust-Directed Trade 
Model, in connection with receipt of a purchase order or redemption 
order, the Sponsor, on behalf of the Trust, would be responsible for 
acquiring ether from an approved Ether Trading Counterparty in an 
amount equal to the Basket Amount. When seeking to purchase ether on 
behalf of the Trust, the Sponsor will seek to purchase ether at 
commercially reasonable price and terms from any of the approved Ether 
Trading Counterparties.\15\ Once agreed upon, the transaction will 
generally occur on an ``over-the-counter'' basis.
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    \14\ The Ether Trading Counterparties with which the Sponsor 
will engage in ether transactions are unaffiliated third-parties 
that are not acting as agents of the Trust, the Sponsor or the 
Authorized Participant, and all transactions will be done on an 
arms-length basis. There is no countractual relationship between the 
Trust, the sponsor or the Ether Trading Counterparty. When seeking 
to sell ether on behalf of the Trust, the Sponsor will seek to sell 
ether at commercially reasonable price and terms to any of the 
spproved Ether Trading Counterparties. Once agreed upon, the 
transaction will generally occur on an ``over-the-counter'' basis.
    \15\ The Sponsor will maintain ownership and control of ether in 
a manner consistent with good delivery requirements for spot 
commodity transactions.
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    Whether utilizing the Trust-Directed Trade Model or the Agent 
Execution Model, 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. Additionally, under either the 
Trust-Directed Trade Model or the Agent Execution Model, the Trust will 
create Shares by receiving ether from a third party that is not the 
Authorized Participant and is not affiliated with the Sponsor or the 
Trust, and the Trust--not the Authorized Participant--is responsible 
for selecting the third party to deliver the ether. 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. Additionally, the Trust will redeem Shares by 
delivering ether to a third party that is not the Authorized 
Participant and is not affiliated with the Sponsor or the Trust, and 
the Trust--not the Authorized Participant--is responsible for selecting 
the third party to receive the ether. Finally, 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.
Acquiring and Selling Ether Pursuant to Creation and Redemption of 
Shares Under the Trust-Directed Trade Model
    Under the Trust-Directed Trade Model and as set forth in the 
Registration Statement, on any business day, an Authorized Participant 
may create Shares by placing an order to purchase one or more Creation 
Units with the Transfer Agent through the Marketing Agent. Such orders 
are subject to approval by the Marketing Agent and the Transfer Agent. 
For purposes of processing creation and redemption orders, a ``business 
day'' means any day other than a day when the Exchange is closed for 
regular trading (``Business Day''). To be processed on the date 
submitted, creation orders must be placed before 4:00 p.m. E.T. or the 
close of regular trading on the Exchange, whichever is earlier, but may 
be required to be placed earlier at the discretion of the Sponsor. A 
purchase order will be effective on the date it is received by the 
Transfer Agent and approved by the Marketing Agent (``Purchase Order 
Date'').
    Creation Units are processed in cash. By placing a purchase order, 
an Authorized Participant agrees to deposit, or cause to be deposited, 
an amount of cash equal to the quantity of ether attributable to each 
Share of the Trust (net of accrued but unpaid expenses and liabilities) 
multiplied by the number of Shares (10,000) comprising a Creation Unit 
(the ``Basket Amount''). The Sponsor will cause to be published each 
Business Day, prior to the commencement of trading on the Exchange, the 
Basket Amount relating to a Creation Unit applicable for such Business 
Day. That amount is derived by multiplying the Basket Amount by the 
value of ether ascribed by the Pricing Index. However, the Authorized 
Participant is also responsible for any additional cash required to 
account for the price at which the Trust agrees to purchase the 
requisite amount of ether

[[Page 24512]]

from an Ether Trading Counterparty to the extent it is greater than the 
Pricing Index price on each Purchase Order Date.
    Prior to the delivery of Creation Units, the Authorized Participant 
must also have wired to the Transfer Agent the nonrefundable 
transaction fee due for the creation order. Authorized Participants may 
not withdraw a creation request. If an Authorized Participant fails to 
consummate the foregoing, the order may be cancelled.
    Following the acceptance of a purchase order, the Authorized 
Participant must wire the cash amount described above to the Cash 
Custodian, and the Ether Trading Counterparty must deposit the required 
amount of ether with the Ether Custodian by the end of the day E.T. on 
the Business Day following the Purchase Order Date. The ether will be 
purchased from Ether Trading Counterparties that are not acting as 
agents of the Trust or agents of the Authorized Participant. These 
transactions will be done on an arms-length basis, and there is no 
contractual relationship between the Trust, the Sponsor, or the Ether 
Trading Counterparty to acquire such ether. Prior to any movement of 
cash from the Cash Custodian to the Ether Trading Counterparty or 
movement of Shares from the Transfer Agent to the Authorized 
Participant's DTC account to settle the transaction, the ether must be 
deposited at the Ether Custodian.
    The Ether Trading Counterparty must deposit the required amount of 
ether by end of day E.T. on the Business Day following the Purchase 
Order Date prior to any movement of cash from the Cash Custodian or 
Shares from the Transfer Agent. Upon receipt of the deposit amount of 
ether at the Ether Custodian from the Ether Trading Counterparty, the 
Ether Custodian will notify the Sponsor that the ether has been 
received. The Sponsor will then notify the Transfer Agent that the 
ether has been received, and the Transfer Agent will direct DTC to 
credit the number of Shares ordered to the Authorized Participant's DTC 
account and will wire the cash previously sent by the Authorized 
Participant to the Ether Trading Counterparty to complete settlement of 
the Purchase Order and the acquisition of the ether by the Trust, as 
described above.
    As between the Trust and the Authorized Participant, the expense 
and risk of the difference between the value of ether calculated by the 
Administrator for daily valuation using the Pricing Index and the price 
at which the Trust acquires the ether will be borne solely by the 
Authorized Participant to the extent that the Trust pays more for ether 
than the price used by the Trust for daily valuation. Any such 
additional cash amount will be included in the amount of cash 
calculated by the Administrator on the Purchase Order Date, 
communicated to the Authorized Participant on the Purchase Order Date, 
and wired by the Authorized Participant to the Cash Custodian on the 
day following the Purchase Order Date. If the Ether Trading 
Counterparty fails to deliver the ether to the Ether Custodian, no cash 
is sent from the Cash Custodian to the Ether Trading Counterparty, no 
Shares are transferred to the Authorized Participant's DTC account, the 
cash is returned to the Authorized Participant, and the Purchase Order 
is cancelled.
    Under the Trust-Directed Trade Model and according to the 
Registration Statement, the procedures by which an Authorized 
Participant can redeem one or more Creation Units mirror the procedures 
for the creation of Creation Units. On any Business Day, an Authorized 
Participant may place an order with the Transfer Agent through the 
Marketing Agent to redeem one or more Creation Units. To be processed 
on the date submitted, redemption orders must be placed before 4:00 
p.m. E.T. or the close of regular trading on the Exchange, whichever is 
earlier, or earlier as determined by the Sponsor. A redemption order 
will be effective on the date it is received by the Transfer Agent and 
approved by the Marketing Agent (``Redemption Order Date''). The 
redemption procedures allow Authorized Participants to redeem Creation 
Units and do not entitle an individual shareholder to redeem any Shares 
in an amount less than a Creation Unit, or to redeem Creation Units 
other than through an Authorized Participant. In connection with 
receipt of a redemption order accepted by the Marketing Agent and 
Transfer Agent, the Sponsor, on behalf of the Trust, is responsible for 
selling the ether to an approved Ether Trading Counterparty in an 
amount equal to the Basket Amount.
    The redemption distribution from the Trust will consist of a 
transfer to the redeeming Authorized Participant, or its agent, of the 
amount of cash the Trust received in connection with a sale of the 
Basket Amount of ether to an Ether Trading Counterparty made pursuant 
to the redemption order. The Sponsor will cause to be published each 
Business Day, prior to the commencement of trading on the Exchange, the 
redemption distribution amount relating to a Creation Unit applicable 
for such Business Day. The redemption distribution amount is derived by 
multiplying the Basket Amount by the value of ether ascribed by the 
Pricing Index. However, as between the Trust and the Authorized 
Participant, the expense and risk of the difference between the value 
of ether ascribed by the Pricing Index and the price at which the Trust 
sells the ether will be borne solely by the Authorized Participant to 
the extent that the Trust receives less for ether than the value 
ascribed by Pricing Index.
    Prior to the delivery of Creation Units, the Authorized Participant 
must also have wired to the Transfer Agent the nonrefundable 
transaction fee due for the redemption order.
    The redemption distribution due from the Trust will be delivered by 
the Transfer Agent to the Authorized Participant once the Cash 
Custodian has received the cash from the Ether Trading Counterparty. 
The Ether Custodian will not send the Basket Amount of ether to the 
Ether Trading Counterparty until the Cash Custodian has received the 
cash from the Ether Trading Counterparty and is instructed by the 
Sponsor to make such transfer. Once the Ether Trading Counterparty has 
sent the cash to the Cash Custodian in an agreed upon amount to settle 
the agreed upon sale of the Basket Amount of ether, the Transfer Agent 
will notify Sponsor. The Sponsor will then notify the Ether Custodian 
to transfer the ether to the Ether Trading Counterparty, and the 
Transfer Agent will wire the ether proceeds to the Authorized 
Participant once the Trust's DTC account has been credited with the 
Shares represented by the Creation Unit from the redeeming Authorized 
Participant. Once the Authorized Participant has delivered the Shares 
represented by the Creation Unit to be redeemed to the Trust's DTC 
account, the Cash Custodian will wire the requisite amount of cash to 
the Authorized Participant. If the Trust's DTC account has not been 
credited with all of the Shares of the Creation Unit to be redeemed, 
the redemption distribution will be delayed until such time as the 
Transfer Agent confirms receipt of all such Shares. If the Ether 
Trading Counterparty fails to deliver the cash to the Cash Custodian, 
the transaction will be cancelled, and no transfer of ether or Shares 
will occur.
Acquiring and Selling Ether Pursuant to Creation and Redemption of 
Shares Under the Agent Execution Model
    Under the Agent Execution Model, Coinbase, Inc. (``Coinbase Inc.'' 
or the ``Prime Execution Agent,'' an affiliate of the Ether Custodian), 
acting in an agency capacity, would conduct ether purchases and sales 
on behalf of the Trust with third parties through its

[[Page 24513]]

Coinbase Prime service pursuant to the Prime Execution Agent Agreement. 
To utilize the Agent Execution Model, the Trust may maintain some ether 
or cash in a trading account (the ``Trading Balance'') with the Prime 
Execution Agent. The Prime Execution Agent Agreement provides that the 
Trust does not have an identifiable claim to any particular ether (and 
cash); rather, the Trust's Trading Balance represents an entitlement to 
a pro rata share of the ether (and cash) the Prime Execution Agent 
holds on behalf of customers who hold similar entitlements against the 
Prime Execution Agent. In this way, the Trust's Trading Balance 
represents an omnibus claim on the Prime Execution Agent's ether (and 
cash) held on behalf of the Prime Execution Agent's customers.
    To avoid having to pre-fund purchases or sales of ether in 
connection with cash creations and redemptions and sales of ether to 
pay Trust expenses not assumed by the Sponsor, to the extent 
applicable, the Trust may borrow ether or cash as trade credit (``Trade 
Credit'') from Coinbase Credit, Inc. (the ``Trade Credit Lender'') on a 
short-term basis pursuant to the Coinbase Credit Committed Trade 
Financing Agreement (the ``Trade Financing Agreement'').
    On the day of the Purchase Order Date, the Trust would enter into a 
transaction to buy ether through the Prime Execution Agent for cash. 
Because the Trust's Trading Balance may not be funded with cash on the 
Purchase Order Date for the purchase of ether in connection with the 
Purchase Order under the Agent Execution Model, the Trust may borrow 
Trade Credits in the form of cash from the Trade Credit Lender pursuant 
to the Trade Financing Agreement or may require the Authorized 
Participant to deliver the required cash for the Purchase Order on the 
Purchase Order Date. The extension of Trade Credits on the Purchase 
Order Date allows the Trust to purchase ether through the Prime 
Execution Agent on the Purchase Order Date, with such ether being 
deposited in the Trust's Trading Balance.
    On the day following the Purchase Order Date (the ``Purchase Order 
Settlement Date''), the Trust would deliver Shares to the Authorized 
Participant in exchange for cash received from the Authorized 
Participant. Where applicable, the Trust would use the cash to repay 
the Trade Credits borrowed from the Trade Credit Lender. On the 
Purchase Order Settlement Date for a Purchase Order utilizing the Agent 
Execution Model, the ether associated with the Purchase Order and 
purchased on the Purchase Order Date is swept from the Trust's Trading 
Balance with the Prime Execution Agent to the Trust Ether Account with 
the Ether Custodian pursuant to a regular end-of-day sweep process. 
Transfers of ether into the Trust's Trading Balance are off-chain 
transactions and transfers from the Trust's Trading Balance to the 
Trust Ether Account are ``on-chain'' transactions represented on the 
ether blockchain. Any financing fee owed to the Trade Credit Lender is 
deemed part of trade execution costs and embedded in the trade price 
for each transaction.
    For a Redemption Order utilizing the Agent Execution Model, on the 
day of the Redemption Order Date the Trust would enter into a 
transaction to sell ether through the Prime Execution Agent for cash. 
The Trust's Trading Balance with the Prime Execution Agent may not be 
funded with ether on trade date for the sale of ether in connection 
with the redemption order under the Agent Execution Model, when ether 
remains in the Trust Ether Account with the Ether Custodian at the 
point of intended execution of a sale of ether. In those circumstances 
the Trust may borrow Trade Credits in the form of ether from the Trade 
Credit Lender, which allows the Trust to sell ether through the Prime 
Execution Agent on the Redemption Order Date, and the cash proceeds are 
deposited in the Trust's Trading Balance with the Prime Execution 
Agent. On the business day following the Redemption Order Date (the 
``Redemption Order Settlement Date'') for a redemption order utilizing 
the Agent Execution Model where Trade Credits were utilized, the Trust 
delivers cash to the Authorized Participant in exchange for Shares 
received from the Authorized Participant. In the event Trade Credits 
were used, the Trust will use the ether that is moved from the Trust 
Ether Account with the Ether Custodian to the Trading Balance with the 
Prime Execution Agent to repay the Trade Credits borrowed from the 
Trade Credit Lender.
    For a redemption of Creation Units utilizing the Agent Execution 
Model, the Sponsor would instruct the Ether Custodian to prepare to 
transfer the ether associated with the redemption order from the Trust 
Ether Account with the Ether Custodian to the Trust's Trading Balance 
with the Prime Execution Agent. On the Redemption Order Settlement 
Date, the Trust would enter into a transaction to sell ether through 
the Prime Execution Agent for cash, and the Prime Execution Agent 
credits the Trust's Trading Balance with the cash. On the same day, the 
Authorized Participant would deliver the necessary Shares to the Trust 
and the Trust delivers cash to the Authorized Participant.
Fee Accrual
    According to the Registration Statement, the Trust's only recurring 
ordinary expense is expected to be the Sponsor Fee, which will accrue 
daily and will be payable in ether monthly in arrears. The 
Administrator will calculate the Sponsor Fee on a daily basis by 
applying an annualized rate to the Trust's total ether holdings, and 
the amount of ether payable in respect of each daily accrual shall be 
determined by reference to the Pricing Index.
CME Ether Futures Market
    CME began offering trading in ether futures on February 8, 
2021.\16\ Each contract represents fifty ether and is based on the ERR. 
The contracts trade and settle like other cash settled commodity 
futures contracts.
---------------------------------------------------------------------------

    \16\ See ``CME Group Announces Launch of Ether Futures,'' 
February 8, 2021, available at https://www.cmegroup.com/media-room/press-releases/2021/2/08/cme_group_announceslaunchofetherfutures.html.
---------------------------------------------------------------------------

    Most measurable metrics related to ether futures have trended up 
since launch. For example, there were 174,261 ether futures contracts 
traded in February 2024 (approximately $24.3 billion) compared to 
182,631 contracts ($14.9 billion), 160,108 contracts ($23.1 billion), 
and 17,149 contracts ($1.5 billion) traded in February 2023, February 
2022, and February 2021, respectively.\17\
---------------------------------------------------------------------------

    \17\ Data from CME Volume and average dAily Volume Reports, 
available at https://www.cmegroup.com/market-data/volume-open-interest.html#volumeTotals.

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[[Page 24514]]

[GRAPHIC] [TIFF OMITTED] TN08AP24.015

    Open interest was 3792 ether futures contracts in February 2024 
(approximately $529 million) compared to 4919 contracts ($337 million), 
4014 contracts ($578 million), and 877 contracts ($77 million) in 
February 2023, February 2022, and February 2021 respectively.\18\
---------------------------------------------------------------------------

    \18\ Data from CME Open Interest Reports, available at https://www.cmegroup.com/market-data/volume-openinterest.gtml#openInterestTools.
[GRAPHIC] [TIFF OMITTED] TN08AP24.016

    The number of large open interest holders has increased as well, as 
demonstrated in the figure that follows.\19\
---------------------------------------------------------------------------

    \19\ A large open interest holder in ether futures is an entity 
that holds at least 25 contracts, which is the equivalent of 1250 
ether. Data fromThe Block, available at https://www.theblock.co/data/crypto-markets/cme-cots/large-open-interest-holders-of-cme-ether-futures.

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[[Page 24515]]

[GRAPHIC] [TIFF OMITTED] TN08AP24.017

    The Commodity Futures Trading Commission (``CFTC'') regulates the 
CME ether futures market, and both the Exchange and CME are members of 
the Intermarket Surveillance Group (``ISG'').\20\
---------------------------------------------------------------------------

    \20\ For a list of the current members and affiliate members of 
ISG, see https://www.isgportal.com/.
---------------------------------------------------------------------------

Background
    Ethereum is free software that is hosted on computers distributed 
throughout the globe. Ethereum employs an array of computer code-based 
logic, called a protocol, to create a unified understanding of 
ownership, commercial activity, and economic logic. This allows users 
to engage in commerce without the need to trust any of its participants 
or counterparties. Ethereum code creates verifiable and unambiguous 
rules that assign clear, strong property rights to create a platform 
for unrestrained business formation and free exchange. No single 
intermediary or entity operates or controls the Ethereum network, the 
transaction validation and recordkeeping infrastructure of which is 
collectively maintained by a disparate user base. The Ethereum network 
allows people to exchange tokens of value, or ether, which are recorded 
on a distributed, public recordkeeping system or ledger known as a 
blockchain, and which can be used to pay for goods and services, 
including computational power on the Ethereum network, or converted to 
fiat currencies, such as the U.S. dollar, at rates determined on spot 
trading platforms or in individual peer-to-peer transactions. By 
combining the recordkeeping system of the Ethereum blockchain with a 
flexible scripting language that can be used to implement a wide 
variety of instructions, the Ethereum network is intended to act as a 
public computational layer on top of which users can build their own 
public software programs, as an alternative to centralized web 
services. On the Ethereum network, ether is the unit of account that 
users pay for the computational resources consumed by running programs 
of their choice.
    Previously, U.S. retail investors have lacked a U.S. regulated, 
U.S. exchange-traded vehicle to gain direct exposure to ether. Instead, 
current options include: (i) facing the counter-party risk, legal 
uncertainty, technical risk, and complexity associated with accessing 
spot ether directly, 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, including 
Germany, Switzerland and France, are able to use more traditional 
exchange listed and traded products (including exchange-traded funds 
holding spot ether) to gain exposure to ether.\21\
---------------------------------------------------------------------------

    \21\ The exchange notes that the list of countries above is not 
exhaustive and that securities regulators in a number of additional 
countries have either approved or otherwise allowd the listing and 
trading of Spot ETH ETPs.
---------------------------------------------------------------------------

    To this point, the lack of an ETP that holds spot ether (a ``Spot 
Ether ETP'') exposes U.S. investor assets to significant risk because 
investors who would otherwise seek exposure through a Spot Ether ETP 
are forced to find alternative exposure through generally riskier 
means. For example, investors in OTC Ether Funds are not afforded the 
benefits and protections of regulated Spot Ether ETPs, resulting in 
retail investors potentially suffering losses due to drastic movements 
in the premium/discount of OTC Ether Funds. Additionally, many U.S. 
investors who held their digital assets in accounts at FTX,\22\ Celsius 
Network LLC,\23\ BlockFi Inc.,\24\ and Voyager Digital Holdings, 
Inc.\25\ have become unsecured creditors in the insolvencies of those 
entities. The Sponsor believes that, if a Spot Ether ETP had been 
available to U.S. investors, 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 the transparent, regulated, and well-understood structure 
of a Spot Ether ETP. The Sponsor thus believes that the approval of a 
Spot Ether ETP would represent a major step towards protection of U.S. 
investors.
---------------------------------------------------------------------------

    \22\ See FTX Trading Ltd., et al., Case No. 22-11068.
    \23\ See Celsius Network LLC, et al., Case No. 22-10964.
    \24\ See BlockFi Inc., Case No. 22-19361.
    \25\ See Voyager Digital Holdings, Inc., et al., Case No. 22-
10943.
---------------------------------------------------------------------------

Applicable Standard
    The Commission has historically approved or disapproved exchange 
filings to list and trade series of Trust Issued Receipts, including 
spot, Commodity-Based Trust Shares, on the

[[Page 24516]]

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.\26\ However, the 
Commission recently approved the listing and trading of shares of spot 
bitcoin exchange-traded products (``Spot Bitcoin ETP''), finding that 
there were ``other means'' of preventing fraud and manipulation 
sufficient to satisfy the requirements of section 6(b)(5) of the 
Exchange Act.\27\ In the Spot Bitcoin ETP Approval Order, the 
Commission concluded, through a robust correlation analysis, that fraud 
or manipulation that impacts prices in spot bitcoin markets would 
likely similarly impact CME bitcoin futures prices.\28\ The Commission 
further found that, because the CME's surveillance can assist in 
detecting those impacts on CME bitcoin futures prices, a listing 
exchange's comprehensive surveillance sharing agreement (``CSSA'') with 
the CME can be reasonably expected to assist in surveilling for 
fraudulent and manipulative acts and practices in the specific context 
of the Spot Bitcoin ETP.
---------------------------------------------------------------------------

    \26\ See Securities Exchange Act Release No. 83723 (July 26, 
2018), 83 FR 37579 (August 1, 2018) (SR-BatsBZX-2016-30) (Order 
Setting Aside Action by Delegated Authority and Disapproving a 
Proposed Rule Change, as Modified by Amendments No. 1 and 2, to List 
and Trade Shares of the Winklevoss Bitcoin Trust) (``Winklevoss 
Order''). In the Winklevoss Order, the commission set forth both the 
importance and definition of a surveilled, regulated market of 
significant size, explaining that, for approved commodity-trust 
ETPs, ``there has been in every case at least one significant, 
regulated market for trading futures on the underlying commodity--
whether gold, silve, platinum, palladium, or copper--and the ETP 
listing exchange has entered into surveillance-sharing agreements 
with, or hel Intermarket Surveillance Group membership in common 
with, the market.'' Winklevoss Order, 83 FR at 37594.
    \27\ See Securities Exchange Act Release No. 34-99306 (January 
10, 2024), 89 FR 3008 (January 17, 2024) (SR-NYSEARCA-2021-90; SR-
NYSEARCA-2023-44; SR-NYSEARCA-2023-58; SR-NASDAQ-2023-016; SR-
NASDAQ-2023-019; SR-CboeBZX-2023028; SR-CboeBZX-2023-038; SR-
CboeBZX-2023-040; SR-CboeBZX-2023-042; SR-CboeBZX-2023-044; SR-
CboeBZX-2023-072 (Order Granting Accelerated Appproval of Proposed 
Rule Changes, as Modified by Amendments Thereto, to List and Trade 
Bitcoin-Based Commodity-Based Trust Shares and Trust Units) (the 
``Sopt Bitcoing ETP Approval Order'').
    \28\ In the Spot Bitcoin ETP Approval Order, the Commission 
noted that ``[lsqb]t[rsqb]he robustness of the Commissions's 
correlation analysis rests on the pre-requisites of (1) the 
correlations being calculated with repect to bitcoin futures that 
trade on the CME, a U.S. market regulated by the CFTC, (2) the 
lengthy sample period of price returns for both the CME bitcoin 
futures market and the spot bitcoin market, (3) the frequent intra-
day trading data in both the CME bitcoin futures market and the spot 
bitcoin market over that lengthy sample period, and (4) the 
consistency of the correlation results throughout the lengthy sample 
period.'' Spot Bitcoin ETP Approval Order, 89 FR at 3010 n.38.
---------------------------------------------------------------------------

    In support of this proposed rule change to permit the listing and 
trading of a Spot Ether ETP, the Sponsor has conducted a similarly 
robust correlation analysis between the spot ether markets and the CME 
ether futures market to determine if fraud or manipulation that impacts 
prices in spot ether markets would be likely to similarly impact CME 
ether futures prices. The Sponsor used stationary time series of price 
returns data at hourly, five-minute, and one-minute intervals for the 
spot ETH/USD trading pair on Coinbase and Kraken, as well as for the 
closest-to-maturity CME ether futures contract, over a lengthy sample 
period from August 1, 2021 through March 20, 2024. Pearson correlation 
statistics were calculated for the full sample period, as well as for 
rolling three-month segments within the sample period. The Sponsor's 
correlation analysis utilized frequent intra-day trading data over the 
sample period on this subset of spot ether platforms and on the CME 
ether futures market as well.
    The results of the Sponsor's analysis support that the CME ether 
futures market has been highly correlated with this subset of the spot 
ether platforms throughout the past two and a half years. The 
correlation between the CME ether futures market and this subset of 
spot ether platforms for the full sample period is no less than 98.6% 
using data at an hourly interval; 90.0% using data at a five-minute 
interval; and 70.9% using data at a one-minute interval. The rolling 
three-month correlation results are similar, ranging between 95.7 and 
99.3% using data at an hourly interval; 86.8 and 92.9% using data at a 
five-minute interval; and 65.0 and 79.5% using data at a one-minute 
interval.

                                    Correlations Between Certain Spot Ether Markets and the CME Ether Futures Market
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             Coinbase                                         Kraken
                                                         -----------------------------------------------------------------------------------------------
                                                              Hourly         5 Minutes       1 Minute         Hourly         5 Minutes       1 Minute
--------------------------------------------------------------------------------------------------------------------------------------------------------
Full Sample: 08/01/21 to 03/20/24.......................            98.6            90.0            70.9            98.6            90.3            72.6
Rolling Three-Month Correlations Over the Full Sample
 Period:
    Maximum.............................................            99.3            92.7            78.7            99.3            92.9            79.5
    Minimum.............................................            95.7            86.8            65.0            95.7            87.2            67.3
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The Sponsor believes that the results of its robust correlation 
analysis constitute empirical evidence that prices generally move in 
close (although not perfect) alignment between the spot ether market 
and the CME ether futures market. As a result, the Sponsor believes 
that fraud or manipulation that impacts prices in spot ether markets 
would likely similarly impact CME ether futures prices, and therefore, 
because CME surveillance can assist in detecting those impacts on CME 
ether futures prices, the Exchange and CME's common membership in the 
ISG \29\ can be reasonably expected to assist the Exchange in 
surveilling for fraudulent and manipulative acts and practices in the 
spot ether markets in satisfaction of the requirement of section 
6(b)(5) of the Exchange Act that there are ``other means'' of 
preventing fraud and manipulation.
---------------------------------------------------------------------------

    \29\ The Commission has previously recognized that common 
membership between a listing exchange and a futures market such as 
the cME in the ISG functions as ``the equivalent of a comprehensive 
surveillance sharing agreement.'' See Securities Exchange Act 
Release No. 87267 (October 9, 2019), 84 FR 55382 (October 16, 2019) 
(SR-NYSEArca-2019-01) (Order Disapproving a Proposed Rule Change, as 
Modified by Amendment No. 1, Relating to the Listing and Trading of 
Shares of the Bitwise Bitcoin ETF Trust Under NYSE Arca Rule 8.201-
E).
---------------------------------------------------------------------------

Availability of Information
    The NAV per Share will be disseminated daily to all market 
participants at the same time. Quotation and last-sale information 
regarding the Shares will be disseminated through the facilities of the 
CTA. The ITV will be calculated every 15 seconds throughout the core 
trading session each trading day.

[[Page 24517]]

    The Sponsor will cause information about the Shares to be posted to 
the Trust's website (https://www.bitwiseinvestments.com/): (1) the NAV 
and NAV per Share for each Exchange trading day, posted at end of day; 
(2) the daily holdings of the Trust, before 9:30 a.m. E.T. on each 
Exchange trading day; (3) the Trust's effective prospectus, in a form 
available for download; and (4) the Shares' ticker and CUSIP 
information, along with additional quantitative information updated on 
a daily basis for the Trust. For example, the Trust's website will 
include (1) the prior Business Day's trading volume, the prior Business 
Day's reported NAV and closing price, and a calculation of the premium 
and discount of the closing price or mid-point of the bid/ask spread at 
the time of NAV calculation (``Bid/Ask Price'') against the NAV; and 
(2) data in chart format displaying the frequency distribution of 
discounts and premiums of the daily closing price or Bid/Ask Price 
against the NAV, within appropriate ranges, for at least each of the 
four previous calendar quarters. The Trust's website will be publicly 
available prior to the public offering of Shares and accessible at no 
charge.
    Investors may obtain on a 24-hour basis ether pricing information 
based on the Pricing Index, ERR, and CME Ether Real Time Price, spot 
ether market prices and ether futures price from various financial 
information service providers. Current ether spot market prices are 
also available with bid/ask spreads from ether trading platforms, 
including the Constituent Platforms of the Pricing Index.
    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.
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 of the Trust.\30\ Trading in Shares of the Trust 
will be halted if the circuit breaker parameters in NYSE Arca Rule 
7.12-E have been reached. Trading also may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable.
---------------------------------------------------------------------------

    \30\ See NYSE Arca Rule 7.12-E.
---------------------------------------------------------------------------

    The Exchange may halt trading during the day in which an 
interruption to the dissemination of the ITV or the CME Ether Real Time 
Index occurs.\31\ If the interruption to the dissemination of the ITV 
or the CME Ether Real Time Price 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.
---------------------------------------------------------------------------

    \31\ A limit up/limit down condition in the futures market would 
not be considered an interruption requiring the Trust to be halted.
---------------------------------------------------------------------------

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. Shares will trade on 
the NYSE Arca Marketplace from 4:00 a.m. to 8:00 p.m. E.T. in 
accordance with NYSE Arca Rule 7.34-E (Early, Core, and Late Trading 
Sessions). The Exchange has appropriate rules to facilitate 
transactions in the Shares during all trading sessions. As provided in 
NYSE Arca Rule 7.6-E, the minimum price variation (``MPV'') for quoting 
and entry of orders in equity securities traded on the NYSE Arca 
Marketplace is $0.01, with the exception of securities that are priced 
less than $1.00 for which the MPV for order entry is $0.0001.
    The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Rule 8.201-E. The trading of the Shares will 
be subject to NYSE Arca Rule 8.201-E(g), which sets forth certain 
restrictions on Equity Trading Permit (``ETP'') Holders acting as 
registered Market Makers in Commodity-Based Trust Shares to facilitate 
surveillance.\32\ The Exchange represents that, for initial and 
continued listing, the Trust will be in compliance with Rule 10A-3 
under the Act,\33\ as provided by NYSE Arca Rule 5.3-E. A minimum of 
100,000 Shares of the Trust will be outstanding at the commencement of 
trading on the Exchange.
---------------------------------------------------------------------------

    \32\ Under NYSE Arca Rule 8.201-E(g), and ETP Holder as a 
registered Market Maker in the Shares is required to provide the 
Exchange with information relating to its accounts for trading in 
the underlying commodity, related futures or options on futures, or 
any other related derivatives. Commentary .04 of NYSE Arca Rule 
11.3-E. requires an ETP Holder acting as a registered Market Maker, 
and its affiliates, in the Shares to establish, maintain and enforce 
written policies and procedures reasonably designed to prevent the 
misuse of any material nonpublic information with respect to such 
products, an components of the related products, any physical asset 
or commodity underlying the product, applicable currencies, 
underlying indexes, related futures or options on futures, and any 
related derivative instruments (including the Shares). As a general 
matter, the Exchange has regulatory jurisdiction over its ETP Holder 
and their associated persons, which include any person or entity 
controlling an ETP Holder. To the extent the Exchange may be found 
to lack jurisdiction over a subsidiary or affiliate of an ETP Holder 
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.
    \33\ 17 CFR 240.10A-3. See note 8, supra.
---------------------------------------------------------------------------

Surveillance
    The Exchange represents that trading in the Shares of the Trust 
will be subject to the existing trading surveillances administered by 
the Exchange, as well as cross-market surveillances administered by 
FINRA on behalf of the Exchange, which are designed to detect 
violations of Exchange rules and applicable federal securities 
laws.\34\ The Exchange represents that these procedures are adequate to 
properly monitor Exchange trading of the Shares in all trading sessions 
and to deter and detect violations of Exchange rules and federal 
securities laws applicable to trading on the Exchange.
---------------------------------------------------------------------------

    \34\ FINRA conducts cross-market surveillance 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 surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations.
    The Exchange or FINRA, on behalf of the Exchange, or both, will 
communicate as needed regarding trading in the Shares 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 from such markets 
and other entities. In addition, the Exchange may obtain information 
regarding trading in the Shares from markets and other entities that 
are members of ISG or with which the Exchange has in place a CSSA. The 
Exchange is also able to obtain information regarding trading in the 
Shares in connection with ETP Holders'

[[Page 24518]]

proprietary or customer trades on any relevant market.
    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
    All statements and representations made in this filing regarding 
(a) the description of the portfolios of the Trust, (b) limitations on 
portfolio holdings or reference assets, or (c) the applicability of 
Exchange listing rules specified in this rule filing shall constitute 
continued listing requirements for listing the Shares on the Exchange.
    The Sponsor has represented to the Exchange that it will advise the 
Exchange of any failure by the Trust to comply with the continued 
listing requirements, and, pursuant to its obligations under section 
19(g)(1) of the Act, the Exchange will monitor for compliance with the 
continued listing requirements. If the Trust is not in compliance with 
the applicable listing requirements, the Exchange will commence 
delisting procedures under NYSE Arca Rule 5.5-E(m).
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
ETP Holders in an ``Information Bulletin'' of the special 
characteristics and risks associated with trading the Shares. 
Specifically, the Information Bulletin will discuss the following: (1) 
the procedures for creations of Shares in Creation Units; (2) NYSE Arca 
Rule 9.2-E(a), which imposes a duty of due diligence on its ETP Holders 
to learn the essential facts relating to every customer prior to 
trading the Shares; (3) information regarding how the value of the ITV 
and the Pricing Index is disseminated; (4) the possibility that trading 
spreads and the resulting premium or discount on the Shares may widen 
during the Opening and Late Trading Sessions, when an updated ITV will 
not be calculated or publicly disseminated; (5) the requirement that 
members deliver a prospectus to investors purchasing newly issued 
Shares prior to or concurrently with the confirmation of a transaction 
and (6) trading information.
    In addition, the Information Bulletin will reference that the Trust 
is subject to various fees and expenses as described in the annual 
report. The Information Bulletin will disclose that information about 
the Shares of the Trust is publicly available on the Trust's website. 
The Information Bulletin 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.
    The Information Bulletin will also discuss any relief, if granted, 
by the Commission or the staff from any rules under the Act.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under section 6(b)(5) \35\ that an exchange have rules that 
are designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to remove 
impediments to, and perfect the mechanism of a free and open market 
and, in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \35\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices and to protect 
investors and the public interest in that the Shares will be listed and 
traded on the Exchange pursuant to the initial and continued listing 
criteria in NYSE Arca Rule 8.201-E. Further, the Exchange has 
demonstrated its ability to share information with the CME, pursuant to 
common ISG membership, can be reasonably expected to assist the 
Exchange in surveilling for fraudulent and manipulative acts and 
practices with respect to trading in the Shares, such that there are 
sufficient means of preventing fraud and manipulation sufficient to 
satisfy the requirements of section 6(b)(5) of the Exchange Act. As 
discussed above, the results of the Sponsor's comprehensive correlation 
analysis support that prices on the spot ether and CME ether futures 
markets generally move in close alignment; accordingly, it is likely 
that fraud or manipulation that impacts prices in spot ether markets 
would likely similarly impact CME ether futures prices.
    The Exchange has in place surveillance procedures that are adequate 
to properly monitor Exchange trading in the Shares in all trading 
sessions and to deter and detect attempted manipulation of the Shares 
or other violations of Exchange rules and applicable federal securities 
laws. The Exchange or FINRA, on behalf of the Exchange, or both, will 
communicate as needed regarding trading in the Shares and ether futures 
with the CME and 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 from 
such markets and other entities. In addition, the Exchange may obtain 
information regarding trading in the Shares from markets and other 
entities that are members of ISG or with which the Exchange has in 
place a CSSA. The Exchange is also able to obtain information regarding 
trading in the Shares and ether futures or the underlying ether through 
ETP Holders, in connection with such ETP Holders' proprietary or 
customer trades which they effect through ETP Holders on any relevant 
market.
    Quotation and last-sale information regarding the Shares will be 
disseminated through the facilities of the CTA. The Trust's website 
will also include a form of the prospectus for the Trust that may be 
downloaded. The website will include the Shares' ticker and CUSIP 
information, along with additional quantitative information updated on 
a daily basis for the Trust. The Trust's website will include (1) daily 
trading volume, the prior Business Day's reported NAV and closing 
price, and a calculation of the premium and discount of the closing 
price or mid-point of the Bid/Ask Price against the NAV; and (ii) data 
in chart format displaying the frequency distribution of discounts and 
premiums of the daily closing price or Bid/Ask Price against the NAV, 
within appropriate ranges, for at least each of the four previous 
calendar quarters. The Trust's website will be publicly available prior 
to the public offering of Shares and accessible at no charge.
    Trading in Shares of the Trust will be halted if the circuit 
breaker parameters in NYSE Arca Rule 7.12-E have been reached or 
because of market conditions or for reasons that, in the view of the 
Exchange, make trading in the Shares inadvisable.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of a 
new type of exchange-traded product based on the price of ether that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, the Exchange has in 
place surveillance procedures that are adequate to properly monitor 
trading in the Shares in all trading sessions and to deter and detect 
violations of Exchange rules and applicable federal securities laws.

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

    The Exchange does not believe that the proposed rule change will 
impose

[[Page 24519]]

any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange notes that the 
proposed rule change will facilitate the listing and trading of a new 
type of Commodity-Based Trust Share based on the price of ether that 
would enhance competition among market participants, 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

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change 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-NYSEARCA-2024-31 on the subject line.

Paper Comments

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

All submissions should refer to file number SR-NYSEARCA-2024-31. 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-NYSEARCA-2024-31 and should 
be submitted on or before April 29, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\36\
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    \36\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-07335 Filed 4-5-24; 8:45 am]
BILLING CODE 8011-01-P