[Federal Register Volume 89, Number 104 (Wednesday, May 29, 2024)]
[Notices]
[Pages 46499-46511]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-11710]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100218; File No. SR-CboeBZX-2024-018]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of Amendment No. 1 to a Proposed Rule Change Relating To List 
and Trade Shares of the Franklin Ethereum ETF, a Series of the Franklin 
Ethereum Trust, Under BZX Rule 14.11(e)(4), Commodity-Based Trust 
Shares

May 22, 2024.
    On February 22, 2024, 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 
Franklin Ethereum ETF, a series of the Franklin Ethereum 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 March 13, 
2024.\3\ On April 23, 2024, pursuant to Section 19(b)(2) of the Act,\4\ 
the Commission designated a longer period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to disapprove the proposed rule 
change.\5\ On May 21, 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 the proposed rule change in its entirety. The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as modified by Amendment No. 1, from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 99686 (Mar. 7, 
2024), 89 FR 18447. Comments on the proposed rule change are 
available at: https://www.sec.gov/comments/sr-cboebzx-2024-018/srcboebzx2024018.htm.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 100015, 89 FR 33431 
(Apr. 29, 2024).
---------------------------------------------------------------------------

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 Franklin 
Ethereum ETF (the ``Fund''), a series of the Franklin Ethereum Trust 
(the ``Trust''),\6\ under BZX Rule 14.11(e)(4), Commodity-Based Trust 
Shares.
---------------------------------------------------------------------------

    \6\ The Trust was formed as a Delaware statutory trust on 
February 8, 2024. The Fund is operated as a grantor trust for U.S. 
federal tax purposes. The Trust and the Fund have 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-2024-018 amends and replaces in 
its entirety the proposal as originally submitted on February 22, 2024. 
The Exchange submits this 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),\7\ which governs the listing and trading of Commodity-
Based Trust Shares on the Exchange.\8\ Franklin Holdings, LLC is the 
sponsor of the Fund (``Sponsor''). The Shares will be registered with 
the Commission by means of the Trust's registration statement on Form 
S-1 (the ``Registration Statement'').\9\
---------------------------------------------------------------------------

    \7\ 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).
    \8\ 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.
    \9\ On February 12, 2024, the Trust filed with the Commission 
the Registration Statement on Form S-1, submitted to the Commission 
by the Sponsor on behalf of the Trust (333-277008). The descriptions 
of the Fund, 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.
---------------------------------------------------------------------------

    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.\10\ With this in mind, the

[[Page 46500]]

Chicago Mercantile Exchange (``CME'') ether futures (``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.
---------------------------------------------------------------------------

    \10\ See Securities Exchange Act Release No. 78262 (July 8, 
2016), 81 FR 78262 (July 14, 2016) (the ``Winklevoss Proposal''). 
The Winklevoss 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 ether 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 funds are nearly identical to the Fund, but hold 
bitcoin instead of ether) (``Spot Bitcoin ETPs'').\11\ By way of 
background, in 2022 the Commission disapproved proposals \12\ to list 
Spot Bitcoin ETPs, including a proposal sponsored by Grayscale 
Investments, LLC (``Grayscale'').\13\ 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.\14\ In considering the 
remand of the Grayscale Order and Spot Bitcoin ETPs, the Commission 
determined in the Spot Bitcoin ETP Approval Order that the CME bitcoin 
futures (``Bitcoin Futures'') market is highly correlated to spot 
bitcoin. Specifically, the Commission stated:
---------------------------------------------------------------------------

    \11\ 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'').
    \12\ 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.
    \13\ 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'').
    \14\ 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.\15\
---------------------------------------------------------------------------

    \15\ 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 and that this proposal should be approved.
Background
    Ethereum is free software that is hosted on computers distributed 
throughout the globe. It employs an array of logic, called a protocol, 
to create a unified understanding of ownership, commercial activity, 
and business 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. It is widely understood that no single 
intermediary or entity operates or controls the Ethereum network 
(referred to as ``decentralization''), 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, referred to as ``ether'' or ``ETH'', which are 
recorded on a distributed public recordkeeping system or ledger known 
as a blockchain (the ``Ethereum 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 digital asset platforms or in individual 
peer-to-peer transactions. Furthermore, by combining the recordkeeping 
system of the Ethereum Blockchain with a flexible scripting language 
that is programmable and can be used to implement sophisticated logic 
and execute a wide variety of instructions, the Ethereum network is 
intended to act as a foundational infrastructure layer on top of which 
users can build their own custom software programs, as an alternative 
to centralized web servers. In theory, anyone can build their own 
custom software programs on the Ethereum network. In this way, the 
Ethereum network represents a project to expand blockchain deployment 
beyond a limited-purpose, peer-to-peer private money system into a 
flexible, distributed alternative computing infrastructure that is 
available to all. On the Ethereum network, ETH is the unit of account 
that users pay for the computational resources consumed by running 
their programs.
    Heretofore, U.S. retail investors have lacked a U.S. regulated, 
U.S. exchange-traded vehicle to gain exposure to ETH. 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 ETH 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 physical ETH) to gain 
exposure to ETH. 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.\16\
---------------------------------------------------------------------------

    \16\ 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 allowed the listing and 
trading of Spot Ether ETPs.
---------------------------------------------------------------------------

    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 generally 
riskier means. For example, investors in OTC ETH 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 ETH Funds. An investor who purchased the 
largest OTC ETH Fund in January 2021 and held the position at the end 
of 2022 would have suffered a 69% loss due to the premium/discount, 
even if the price of ETH did not change. Many retail investors likely 
suffered losses due to this premium/discount in OTC ETH 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

[[Page 46501]]

digital assets in accounts at FTX,\17\ Celsius Network LLC,\18\ BlockFi 
Inc.\19\ and Voyager Digital Holdings, Inc.\20\ 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 Fund, 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 
ETH, on centralized platforms.
---------------------------------------------------------------------------

    \17\ See FTX Trading Ltd., et al., Case No. 22-11068.
    \18\ See Celsius Network LLC, et al., Case No. 22-10964.
    \19\ See BlockFi Inc., Case No. 22-19361.
    \20\ 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),\21\ 
the Sponsor believes this concern is mitigated to a significant degree 
by the custodial arrangements that the Fund has contracted with the 
Custodian (as discussed below) 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 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 Fund's ether. After diligent 
investigation, the Sponsor believes that the Custodian's policies, 
procedures, and controls for safekeeping, exclusively possessing, and 
controlling the Fund'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 
New York Department of Financial Services (``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.
---------------------------------------------------------------------------

    \21\ 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 will 
continue to lose significant amounts of money from holding Ether 
Futures ETFs as compared to Spot Ether ETPs, losses which could be 
prevented by the Commission approving 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.

[[Page 46502]]

CME Ether Futures \22\
---------------------------------------------------------------------------

    \22\ 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 CME Ether Futures in February 2021. 
Each contract represents 50 ETH and is based on the CME CF Ether-Dollar 
Reference Rate.\23\ 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 76,293 CME Ether 
Futures contracts traded in July 2023 (approximately $7.3 billion) 
compared to 70,305 ($11.1 billion) and 158,409 ($7.5 billion) contracts 
traded in July 2021, and July 2022 respectively.\24\ The Sponsor's 
research indicates daily correlation between the spot ETH and the CME 
Ether Futures is 0.998 from the period of 9/1/22 through 9/1/23.
---------------------------------------------------------------------------

    \23\ The CME CF Ether-Dollar Reference Rate is based on a 
publicly available calculation methodology based on pricing sourced 
from several crypto trading platforms, including Bitstamp, Coinbase, 
Gemini, itBit, Kraken, and LMAX Digital.
    \24\ Source: CME, 7/31/23.
---------------------------------------------------------------------------

    The number of large open interest holders \25\ and unique accounts 
trading CME Ether Futures have both increased, even in the face of 
heightened ether price volatility.
---------------------------------------------------------------------------

    \25\ A large open interest holder in CME Ether Futures is an 
entity that holds at least 25 contracts, which is the equivalent of 
1,250 ether. At a price of approximately $1,867 per ether on 7/31/
2023, more than 59 firms had outstanding positions of greater than 
$2.3 million in CME Ether Futures.
[GRAPHIC] [TIFF OMITTED] TN29MY24.020

[GRAPHIC] [TIFF OMITTED] TN29MY24.021


[[Page 46503]]


[GRAPHIC] [TIFF OMITTED] TN29MY24.022

[GRAPHIC] [TIFF OMITTED] TN29MY24.023

Section 6(b)(5) and the Applicable Standards
    The Commission has approved numerous series of Trust Issued 
Receipts,\26\ including Commodity-Based Trust Shares,\27\ 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; 
\28\ 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 46504]]

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.
---------------------------------------------------------------------------

    \26\ See Exchange Rule 14.11(f).
    \27\ Commodity-Based Trust Shares, as described in Exchange Rule 
14.11(e)(4), are a type of Trust Issued Receipt.
    \28\ The Exchange believes that ETH 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 ETH trading render it difficult and 
prohibitively costly to manipulate the price of ETH. The 
fragmentation across ETH platforms, the relatively slow speed of 
transactions, and the capital necessary to maintain a significant 
presence on each trading platform make manipulation of ETH prices 
through continuous trading activity challenging. To the extent that 
there are ETH platforms engaged in or allowing wash trading or other 
activity intended to manipulate the price of ETH on other markets, 
such pricing does not normally impact prices on other platforms 
because participants will generally ignore markets with quotes that 
they deem non-executable. Moreover, the linkage between the ETH 
markets and the presence of arbitrageurs in those markets means that 
the manipulation of the price of ETH on any single venue would 
require manipulation of the global ETH 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 ETH or OTC trading 
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 \29\ with a regulated market of significant size. 
Both the Exchange and CME are members of the Intermarket Surveillance 
Group (``ISG'').\30\ The only remaining issue to be addressed is 
whether the CME 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\
---------------------------------------------------------------------------

    \29\ 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 Securities 
Exchange Act Release No. 88284 (February 26, 2020), 85 FR 12595 
(March 3, 2020) (SR-NYSEArca-2019-39) (the ``Wilshire Phoenix 
Disapproval'').
    \30\ For a list of the current members and affiliate members of 
ISG, see www.isgportal.com.
    \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 requisite surveillance-sharing agreement.\32\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

(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 
\33\ also indicates that this test is satisfied for this proposal. As 
noted above, in the Spot Bitcoin ETP Approval Order, the SEC concluded 
that:
---------------------------------------------------------------------------

    \33\ See 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.\34\
---------------------------------------------------------------------------

    \34\ 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 ETH 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 Fund 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.\35\ The Sponsor notes 
that ether total 24-hour spot trading volume has averaged $9.4 billion 
over the year ending September 1, 2023.\36\ The Sponsor expects that 
the Fund would represent a very small percentage of this daily trading 
volume in the spot ether market even in its most aggressive projections 
for the Fund's assets and, thus, the Fund 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 U.S. Court of Appeals for the D.C. 
Circuit found in its review of 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.
---------------------------------------------------------------------------

    \35\ This logic is reflected by the U.S. Court of Appeals for 
the D.C. Circuit on its review of the Grayscale Order at 17-18. See 
Grayscale Investments, LLC v. SEC, 82 F. 4th 1239 (D.C. Cir. 2023). 
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.''
    \36\ Source: TokenTerminal.
---------------------------------------------------------------------------

(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

[[Page 46505]]

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 ETH 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 ETH 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.
Franklin Ethereum ETF
    Delaware Trust Company is the trustee (``Trustee''). Bank of New 
York Mellon is the custodian for the Fund's cash and cash equivalents 
\37\ (the ``Cash Custodian'') and also serves as the Fund's 
administrator and transfer agent (the ``Administrator'' or ``Transfer 
Agent''). Coinbase Trust Company, LLC (the ``Custodian'') will be 
responsible for custody of the Fund's ether.
---------------------------------------------------------------------------

    \37\ Cash equivalents are short-term instruments with maturities 
of less than 3 months.
---------------------------------------------------------------------------

    According to the Registration Statement, each Share will represent 
a fractional undivided beneficial interest in the Fund's net assets. 
The Fund's assets will only consist of ether, cash, and cash 
equivalents.
    According to the Registration Statement, the Trust is neither an 
investment company registered under the 1940 Act,\38\ nor a commodity 
pool for purposes of the Commodity Exchange Act (``CEA''), and neither 
the Trust, the Fund nor the Sponsor is subject to regulation as a 
commodity pool operator or a commodity trading adviser in connection 
with the Shares.
---------------------------------------------------------------------------

    \38\ 15 U.S.C. 80a-1.
---------------------------------------------------------------------------

    Neither the Trust or the Fund, nor the Sponsor, nor the Custodian, 
nor any other person associated with the Trust or Fund will, directly 
or indirectly, engage in action where any portion of the Fund's ETH 
becomes subject to the Ethereum proof-of-stake validation or is used to 
earn additional ETH or generate income or other earnings. The Fund will 
not acquire and will disclaim any incidental right (``IR'') or IR asset 
received, for example as a result of forks or airdrops, and such assets 
will not be taken into account for purposes of determining NAV.
    When the Fund sells or redeems its Shares, it will do so in cash 
transactions in large blocks of 50,000 Shares (a ``Creation Basket'') 
at the Fund's net asset value (``NAV''). For creations, authorized 
participants will deliver, or facilitate the delivery of, cash to the 
Fund's account with the Cash Custodian in exchange for Shares. Upon 
receipt of an approved creation order, the Sponsor, on behalf of the 
Fund, will submit an order to buy the amount of ether represented by a 
Creation Basket. Based off ether executions, the Cash Custodian will 
request the required cash from the authorized participant. Following 
receipt by the Cash Custodian of the cash from an authorized 
participant, the Sponsor, on behalf of the Fund, will approve an order 
with one or more previously onboarded trading partners to purchase the 
amount of ether represented by the Creation Basket.\39\ 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 Fund's assets, and market conditions at the time of a 
transaction. Shareholders who buy or sell Shares during the day from 
their broker may do so at a premium or discount relative to the NAV of 
the Shares of the Fund.
---------------------------------------------------------------------------

    \39\ For redemptions, the process will occur in the reverse 
order. Upon receipt of an approved redemption order, the Sponsor, on 
behalf of the Fund, will submit an order to sell the amount of ether 
represented by a Creation Basket and the cash proceeds will be 
remitted to the authorized participant when the large block of 
Shares is received by the Transfer Agent.
---------------------------------------------------------------------------

Investment Objective
    According to the Registration Statement and as further described 
below, the investment objective of the Fund is to generally reflect the 
performance of the price of ether before payment of the Fund's expenses 
and liabilities. In seeking to achieve its investment objective, the 
Fund will hold only ether, cash, and cash equivalents. The Fund will 
value its Shares daily based on the value of ether as reflected by the 
CME CF Ether-Dollar Reference Rate--New York Variant (the ``Index''), 
which is an independently calculated value based on an aggregation of 
executed trade flow of major ether spot trading platforms. 
Specifically, the Index is calculated based on certain transactions of 
all of its constituent ether trading platforms, which are currently 
Bitstamp, Coinbase, itBit, Kraken, Gemini, and LMAX Digital, and which 
may change from time to time. If the Index is not available or the 
Sponsor determines, in its sole discretion, that the Index should not 
be used, the Fund's holdings may be fair valued in accordance with the 
policy approved by the Sponsor.\40\
---------------------------------------------------------------------------

    \40\ Any 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.
---------------------------------------------------------------------------

The Index
    As described in the Registration Statement, the Fund will 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 International Organization of Securities 
Commissions (``IOSCO'') Principals for Financial Indexes. The 
administrator of the Index is CF Benchmarks Ltd. (the ``Index 
Provider'').
    The Index 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 5 (five) minute length.
     For each partition separately, the volume-weighted median 
trade price is calculated from the trade prices and

[[Page 46506]]

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. ET on a Constituent Platform in the ETH/USD pair that is 
reported and disseminated by a Constituent Platform through its 
publicly available Application Programming Interface (``API'') and 
observed by the Index Provider.
    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 the Index, large trades or 
clusters of trades transacted over a short period of time will not have 
an undue influence on the Index value, and the effect of large trades 
at prices that deviate from the prevailing price are mitigated from 
having an undue influence on the Index value.
    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.
    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 Fund (which includes ether, cash 
and cash equivalents) less total liabilities of the Fund. The 
Administrator will determine the NAV of the Fund on each day that the 
Exchange is open for regular trading, as promptly as practical after 
4:00 p.m. ET. The NAV of the Fund is the aggregate value of the Fund's 
assets less its estimated accrued but unpaid liabilities (which include 
accrued expenses). In determining the Fund's NAV, the Administrator 
values the ether held by the Fund based on the price set by the Index 
as of 4:00 p.m. ET. The Administrator also determines the NAV per 
Share.
    The NAV for the Fund 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 the Sponsor determines, in its 
sole discretion, that the Index should not be used, the Fund's holdings 
may be fair valued in accordance with the policy approved by the 
Sponsor.
Availability of Information
    The website for the Fund, 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 per Share and the reported 
BZX Official Closing Price; \41\ (b) the BZX Official Closing Price in 
relation to the NAV per Share as of the time the NAV is calculated and 
a calculation of the premium or discount of such price against such NAV 
per Share; (c) data in chart form displaying the frequency distribution 
of discounts and premiums of the BZX Official Closing Price against the 
NAV per Share, within appropriate ranges for each of the four previous 
calendar quarters (or for the life of the Fund, if shorter); (d) the 
prospectus; and (e) other applicable quantitative information. The 
aforementioned information will be published as of the close of 
business available on the Fund's website at https://www.franklintempleton.com/investments/options/exchange-traded-funds, or 
any successor thereto. The Fund will also disseminate its holdings on a 
daily basis on its website.
---------------------------------------------------------------------------

    \41\ 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 
Fund's ether holdings during the trading day, which is based on CME CF 
Ether-Dollar Real Time Index. 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 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 such as Bloomberg and 
Reuters.
    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, the Index 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 BZX Official Closing Price and trading 
volume information for the Shares will be published daily in the 
financial section of newspapers. Quotation and last-sale information 
regarding the Shares will be disseminated through the facilities of the 
CTA.
The Custodian
    The Custodian carefully considers the design of the physical, 
operational and cryptographic systems for secure storage of the Fund'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 Fund maintains exclusive ownership of its assets. The 
Custodian will keep the private keys associated with the Fund's ether 
in ``cold storage'' \42\ (the ``Cold

[[Page 46507]]

Vault Balance''). The hardware, software, systems, and procedures of 
the ether Custodian may not be available or cost-effective for many 
investors to access directly. 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, acting alone or 
together, will be able to access or use any of the private keys that 
hold the Fund's ether.
---------------------------------------------------------------------------

    \42\ The term ``cold storage'' refers to a safeguarding method 
by which the private keys corresponding to ether stored on a digital 
wallet are removed from any computers actively connected to the 
internet. Cold storage of private keys may involve keeping such 
wallet on a non-networked computer or electronic device or storing 
the public key and private keys relating to the digital wallet on a 
storage device (for example, a USB thumb drive) or printed medium 
(for example, papyrus or paper) and deleting the digital wallet from 
all computers.
---------------------------------------------------------------------------

Creation and Redemption of Shares
    When the Fund sells or redeems its Shares, it will do so in cash 
transactions in blocks of Shares (e.g., a Creation Basket) that are 
based on the quantity of ether attributable to each Share of the Fund 
at the NAV. According to the Registration Statement, on any business 
day, an authorized participant may place an order to create one or more 
Creation Baskets. Purchase orders for cash transaction Creation Baskets 
must be placed by 2:00 p.m. Eastern Time, or the close of regular 
trading on the Exchange, whichever is earlier. The day on which an 
order is received is considered the purchase order date. The total 
deposit of cash required is based on the combined NAV of the number of 
Shares included in the Creation Baskets being created determined as of 
4:00 p.m. ET on the date the order to purchase is properly received. 
The Administrator determines the quantity of ether associated with a 
Creation Basket for a given day by dividing the number of ether held by 
the Fund 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 Fund 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 Basket. The 
procedures by which an authorized participant can redeem one or more 
Creation Baskets mirror the procedures for the creation of Creation 
Baskets.
    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 Fund or a third party with respect to purchasing, 
holding, delivering, or receiving ether as part of the creation or 
redemption process.
    The Fund will create Shares by receiving ether from a third party 
that is not the authorized participant and the Fund--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 Fund or acting at the direction of the authorized participant with 
respect to the delivery of the ether to the Fund. The Fund will redeem 
Shares by delivering ether to a third party that is not the authorized 
participant and the Fund--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 Fund or acting at the direction of the authorized participant with 
respect to the receipt of the ether from the Fund.
    The Sponsor (including its delegates) will maintain ownership and 
control of the Fund's 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 Fund must be in compliance with Rule 10A-3 
under the Act. A minimum of 100,000 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 that the NAV 
and information about the assets of the Fund 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 \43\ 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.
---------------------------------------------------------------------------

    \43\ 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.
---------------------------------------------------------------------------

    Upon termination of the Fund, 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 Fund 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

[[Page 46508]]

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, CME Ether Futures, options on CME 
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.
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 Fund 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, CME Ether 
Futures, or any other ether derivative 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, CME Ether Futures, or any other ether 
derivative from such markets and other entities.\44\ The Exchange may 
obtain information regarding trading in the Shares, CME Ether Futures, 
or any other ether derivative 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.
---------------------------------------------------------------------------

    \44\ 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 Sponsor has represented to the Exchange that it will advise the 
Exchange of any failure by the Fund 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 Fund 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 Creation 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 Fund's NAV are disseminated; (iv) 
the risks involved in trading the Shares outside of Regular Trading 
Hours \45\ 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 CME Ether Futures contracts and options on CME Ether Futures 
contracts.
---------------------------------------------------------------------------

    \45\ 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

[[Page 46509]]

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 \46\ in general and Section 6(b)(5) of the Act \47\ 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.
---------------------------------------------------------------------------

    \46\ 15 U.S.C. 78f.
    \47\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission has approved numerous series of Trust Issued 
Receipts,\48\ including Commodity-Based Trust Shares,\49\ 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; 
\50\ 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.
---------------------------------------------------------------------------

    \48\ See Exchange Rule 14.11(f).
    \49\ Commodity-Based Trust Shares, as described in Exchange Rule 
14.11(e)(4), are a type of Trust Issued Receipt.
    \50\ The Exchange believes that ETH 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 ETH trading render it difficult and 
prohibitively costly to manipulate the price of ETH. The 
fragmentation across ETH platforms, the relatively slow speed of 
transactions, and the capital necessary to maintain a significant 
presence on each trading platform make manipulation of ETH prices 
through continuous trading activity challenging. To the extent that 
there are ETH platforms engaged in or allowing wash trading or other 
activity intended to manipulate the price of ETH on other markets, 
such pricing does not normally impact prices on other platforms 
because participants will generally ignore markets with quotes that 
they deem non-executable. Moreover, the linkage between the ETH 
markets and the presence of arbitrageurs in those markets means that 
the manipulation of the price of ETH on any single venue would 
require manipulation of the global ETH 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 ETH platform 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 \51\ with a regulated market of significant size. 
Both the Exchange and CME are members of ISG.\52\ The only remaining 
issue to be addressed is whether the CME 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\
---------------------------------------------------------------------------

    \51\ 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 ISG 
constitutes such a surveillance sharing agreement. See Wilshire 
Phoenix Disapproval.
    \52\ For a list of the current members and affiliate members of 
ISG, see www.isgportal.com.
    \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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

(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 
also indicates that this test is satisfied for this proposal. As noted 
above, in the Spot Bitcoin ETP Approval Order, the SEC concluded 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 . . . can be reasonably 
expected to assist in surveilling for fraudulent and manipulative 
acts and practices in the specific context of the [p]roposals.\55\
---------------------------------------------------------------------------

    \55\ 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

[[Page 46510]]

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 ETH 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 Fund 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.\56\ The Sponsor notes 
that ether total 24-hour spot trading volume has averaged $9.4 billion 
over the year ending September 1, 2023.\57\ The Sponsor expects that 
the Fund would represent a very small percentage of this daily trading 
volume in the spot ether market even in its most aggressive projections 
for the Fund's assets and, thus, the Fund 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 U.S. Court of Appeals for the D.C. 
Circuit found in its review of 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.
---------------------------------------------------------------------------

    \56\ This logic is reflected by the U.S. Court of Appeals for 
the D.C. Circuit on its review of the Grayscale Order at 17-18. See 
Grayscale Investments, LLC v. SEC, 82 F. 4tha 1239 (D.C. Cir. 2023). 
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.''
    \57\ Source: TokenTerminal.
---------------------------------------------------------------------------

(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 ETH 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 ETH 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.
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 Fund 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 Fund 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 Fund will 
provide information regarding the Fund's ETH holdings as well as 
additional data regarding the Fund. The website for the Fund, 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 per Share and the reported BZX Official Closing Price; (b) 
the BZX Official Closing Price in relation to the NAV per Share as of 
the time the NAV is calculated and a calculation of the premium or 
discount of such price against such NAV per Share; (c) data in chart 
form displaying the frequency distribution of discounts and premiums of 
the BZX Official Closing Price against the NAV per Share, within 
appropriate ranges for each of the four previous calendar quarters (or 
for the life of the Fund, if shorter); (d) the prospectus; and (e) 
other applicable quantitative information. The aforementioned 
information will be published as of the close of business available on 
the Fund's website at https://www.franklintempleton.com/investments/options/exchange-traded-funds, or any successor thereto. The Fund will 
also disseminate its holdings on a daily basis on its website.
    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 Fund's ether holdings during the 
trading day, which is based on CME CF Ether-Dollar Real Time Index. 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 will be widely 
disseminated on a per Share basis every 15 seconds during the 
Exchange's Regular Trading Hours through the facilities of the CTA and 
CQS high

[[Page 46511]]

speed lines. In addition, the IIV will be available through on-line 
information services such as Bloomberg and Reuters.
    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, the Index 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 BZX Official Closing Price and trading 
volume information for the Shares will be published daily in the 
financial section of newspapers. Quotation and last-sale information 
regarding the Shares will be disseminated through the facilities of the 
CTA.
    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. Premium and discount 
volatility, high fees, rolling costs, insufficient disclosures, and 
technical hurdles are putting U.S. investor money at risk on a daily 
basis that could potentially be eliminated through access to a Spot 
Ether ETP. As such, the Exchange believes that this proposal acts to 
limit the risk to U.S. investors that are increasingly seeking exposure 
to ether by providing direct, 1-for-1 exposure to ether in a regulated, 
transparent, exchange-traded vehicle, specifically by: (i) reducing 
premium/discount volatility; (ii) reducing management fees through 
meaningful competition; (iii) providing an alternative to Ether Futures 
ETFs which will eliminate roll cost; (iv) reducing risks associated 
with investing in operating companies that are imperfect proxies for 
ether exposure; and (v) providing an alternative to custodying spot 
ether. 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 ETH Funds. As discussed throughout, this growth investor protection 
concerns need to be reevaluated 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 establishes 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.
    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. 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-CboeBZX-2024-018 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-2024-018. 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-2024-018 and should 
be submitted on or before June 20, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\58\
---------------------------------------------------------------------------

    \58\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-11710 Filed 5-28-24; 8:45 am]
BILLING CODE 8011-01-P