[Federal Register Volume 89, Number 141 (Tuesday, July 23, 2024)]
[Notices]
[Pages 59786-59787]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-16104]



[[Page 59786]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100541; File Nos. SR-NYSEARCA-2024-44; SR-NYSEARCA-
2024-53]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Changes To List and Trade Shares of the 
Grayscale Ethereum Mini Trust and ProShares Ethereum ETF

July 17, 2024.

I. Introduction

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ NYSE Arca, Inc. 
(``NYSE Arca'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') proposed rule changes to list and trade 
shares of the Grayscale Ethereum Mini Trust \3\ and the ProShares 
Ethereum ETF \4\ (each a ``Trust'' and, together, the ``Trusts'') under 
NYSE Arca Rule 8.201-E (Commodity-Based Trust Shares). Each filing was 
subject to notice and comment.\5\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Notice of Filing of Proposed Rule Change, as Modified by 
Amendment No. 3, To List and Trade Shares of the Grayscale Ethereum 
Mini Trust, Securities Exchange Act Release No. 100233 (May 28, 
2024), 89 FR 47618 (June 3, 2024) (SR-NYSEARCA-2024-44) (``Grayscale 
Filing'').
    \4\ See Notice of Filing of Proposed Rule Change To List and 
Trade Shares of the ProShares Ethereum ETF, Securities Exchange Act 
Release No. 100307 (June 10, 2024), 89 FR 50644 (June 14, 2024) (SR-
NYSEARCA-2024-53) (``ProShares Filing'').
    \5\ The Commission did not receive any comments on either 
filing.
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    Each of the foregoing proposed rule changes is referred to herein 
as a ``Proposal'' and together as the ``Proposals.'' As described in 
more detail in the Proposals' respective filings,\6\ each Proposal 
seeks to list and trade shares of a Trust that would hold spot 
ether,\7\ in whole or in part.\8\ This order approves the Proposals.
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    \6\ See supra notes 3-4.
    \7\ Ether is a digital asset that is native to, and minted and 
transferred via, a distributed, open-source protocol used by a peer-
to-peer computer network through which transactions are recorded on 
a public transaction ledger known as ``Ethereum.'' The Ethereum 
protocol governs the creation of new ether and the cryptographic 
system that secures and verifies transactions on Ethereum.
    \8\ Each Trust proposes to hold spot ether. The ProShares 
Ethereum ETF also proposes to hold cash. See ProShares Filing at 
50645.
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II. Discussion and Commission Findings

    After careful review, the Commission finds that the Proposals are 
consistent with the Exchange Act and rules and regulations thereunder 
applicable to a national securities exchange.\9\ In particular, the 
Commission finds that the Proposals are consistent with Section 6(b)(5) 
of the Exchange Act,\10\ which requires, among other things, that the 
Exchange's rules be designed to ``prevent fraudulent and manipulative 
acts and practices'' and, ``in general, to protect investors and the 
public interest;'' and with Section 11A(a)(1)(C)(iii) of the Exchange 
Act,\11\ which sets forth Congress' finding that it is in the public 
interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers, and investors of information with respect to 
quotations for and transactions in securities.
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    \9\ In approving the Proposals, the Commission has considered 
the Proposals' impacts on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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A. Exchange Act Section 6(b)(5)

    The Commission has explained that one way an exchange that lists 
ether-based exchange-traded products (``ETPs'') can meet the obligation 
under Exchange Act Section 6(b)(5) that its rules be designed to 
prevent fraudulent and manipulative acts and practices is by 
demonstrating that the exchange has a comprehensive surveillance-
sharing agreement with a regulated market of significant size related 
to the underlying or reference assets.\12\ Such an agreement would 
assist in detecting and deterring fraud and manipulation related to 
that underlying asset.
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    \12\ See Order Granting Accelerated Approval of Proposed Rule 
Changes, as Modified by Amendments Thereto, To List and Trade Shares 
of Ether-Based Exchange-Traded Products, Securities Exchange Act 
Release No. 100224 (May 23, 2024), 89 FR 46937 (May 30, 2024) (SR-
NYSEARCA-2023-70; SR-NYSEARCA-2024-31; SR-NASDAQ-2023-045; SR-
CboeBZX-2023-069; SR-CboeBZX-2023-070; SR-CboeBZX-2023-087; SR-
CboeBZX-2023-095; SR-CboeBZX-2024-018) (``Spot Ether ETP Approval 
Order''). See also 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, 
Securities Exchange Act Release No. 99306 (Jan. 10, 2024), 89 FR 
3008 (Jan. 17, 2024) (SR-NYSEARCA-2021-90; SR-NYSEARCA-2023-44; SR-
NYSEARCA-2023-58; SR-NASDAQ-2023-016; SR-NASDAQ-2023-019; SR-
CboeBZX-2023-028; SR-CboeBZX-2023-038; SR-CboeBZX-2023-040; SR-
CboeBZX-2023-042; SR-CboeBZX-2023-044; SR-CboeBZX-2023-072) (``Spot 
Bitcoin ETP Approval Order''); Order Granting Approval of a Proposed 
Rule Change, as Modified by Amendment No. 2, To List and Trade 
Shares of the Teucrium Bitcoin Futures Fund Under NYSE Arca Rule 
8.200-E, Commentary .02 (Trust Issued Receipts), Securities Exchange 
Act Release No. 94620 (Apr. 6, 2022), 87 FR 21676 (Apr. 12, 2022) 
(SR-NYSEARCA-2021-53). The Commission has provided an illustrative 
definition for ``market of significant size'' to 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 successfully manipulate the ETP, so 
that a surveillance-sharing agreement would assist 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. See 
Order Setting Aside Action by Delegated Authority and Disapproving a 
Proposed Rule Change, as Modified by Amendments No. 1 and 2, To List 
and Trade Shares of the Winklevoss Bitcoin Trust, Securities 
Exchange Act Release No. 83723 (July 26, 2018), 83 FR 37579, 37594 
(Aug. 1, 2018) (SR-BatsBZX-2016-30) (``Winklevoss Order'').
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    The Commission has also consistently recognized, however, that this 
is not the exclusive means by which an ETP listing exchange can meet 
this statutory obligation.\13\ A listing exchange could, alternatively, 
demonstrate that ``other means to prevent fraudulent and manipulative 
acts and practices will be sufficient'' to justify dispensing with a 
surveillance-sharing agreement with a regulated market of significant 
size.\14\ In the Spot Ether ETP Approval Order, the Commission 
determined that having a comprehensive surveillance-sharing agreement 
with a U.S.-regulated market that, based on evidence from robust 
correlation analysis, is consistently highly correlated with the ETPs' 
underlying assets (spot ether) constituted ``other means'' sufficient 
to satisfy the Exchange Act Section 6(b)(5) standard.\15\ Specifically, 
given the consistently high correlation between the ether futures 
market of the Chicago Mercantile Exchange (``CME'') and a sample of 
spot ether markets--confirmed by the Commission through robust \16\ 
correlation analysis using data at hourly, five-minute, and one-minute 
intervals--the Commission was able to conclude that fraud or 
manipulation that impacts prices in spot ether markets would likely 
similarly impact CME ether futures prices. And because the CME's 
surveillance can assist in detecting those impacts on CME ether futures 
prices, the Commission was able to conclude that the comprehensive 
surveillance-sharing agreement among

[[Page 59787]]

the listing exchanges and the CME can be reasonably expected to assist 
in surveilling for fraudulent and manipulative acts and practices in 
the specific context of the proposals considered in the Spot Ether ETP 
Approval Order.
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    \13\ See, e.g., Winklevoss Order at 37580; Spot Bitcoin ETP 
Approval Order at 3009; Spot Ether ETP Approval Order at 46938.
    \14\ See Spot Ether ETP Approval Order at 46938 (quoting 
Winklevoss Order at 37580).
    \15\ See id. at 46938-41.
    \16\ The Commission stated that the ``robustness'' of its 
correlation analysis rested on the pre-requisites of (1) the 
correlations being calculated with respect to ether futures that 
trade on the CME, a U.S. market regulated by the Commodity Futures 
Trading Commission, (2) the lengthy sample period of price returns 
for both the CME ether futures market and the spot ether market, (3) 
the frequent intra-day trading data in both the CME ether futures 
market and the spot ether market over that lengthy sample period, 
and (4) the consistency of the correlation results throughout the 
lengthy sample period. See id. at 46941 n.49.
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    With respect to the present Proposals, the structure of the Trusts, 
the terms of their operation and the trading of their shares, and the 
representations in their respective filings are substantially similar 
to those of the proposals considered in the Spot Ether ETP Approval 
Order.\17\ In addition, the Commission recently found in the Spot Ether 
ETP Approval Order that the spot ether market is consistently highly 
correlated with the CME ether futures market.\18\ As such, based on the 
record before the Commission, the Commission is able to conclude that 
the Exchange's 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 
Proposals.
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    \17\ See also infra Section II.B.
    \18\ See Spot Ether ETP Approval Order at 46939-41, assessing 
the period from October 1, 2021, to March 29, 2024.
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B. Exchange Act Section 11A(a)(1)(C)(iii)

    Each Proposal sets forth aspects of its proposed ETP, including the 
availability of pricing information, transparency of portfolio 
holdings, and types of surveillance procedures, that are consistent 
with other ETPs that the Commission has approved.\19\ This includes 
commitments regarding: the availability via the Consolidated Tape 
Association of quotation and last-sale information for the shares of 
each Trust; the availability on the websites of each Trust of certain 
information related to the Trusts, including net asset values; the 
dissemination of intra-day indicative values by one or more major 
market data vendors, updated every 15 seconds throughout the Exchange's 
core trading hours; the Exchange's surveillance procedures and ability 
to obtain information regarding trading in the shares of the Trusts; 
the conditions under which the Exchange would implement trading halts 
and suspensions; and the requirements of registered market makers in 
the shares of each Trust.\20\ In addition, in each Proposal, the 
Exchange deems the shares of the applicable Trust to be equity 
securities, thus rendering trading in such shares subject to the 
Exchange's existing rules governing the trading of equity 
securities.\21\ Further, the listing rules of the Exchange require that 
all statements and representations made in its filing regarding, among 
others, the description of the applicable Trust's holdings, limitations 
on such holdings, and the applicability of the Exchange's listing rules 
specified in the filing, will constitute continued listing 
requirements.\22\ Moreover, each Proposal states that: its sponsor has 
represented to the Exchange that it will advise the Exchange of any 
failure to comply with the continued listing requirements; pursuant to 
obligations under Section 19(g)(1) of the Exchange Act, the Exchange 
will monitor for compliance with the continued listing requirements; 
and if the applicable Trust is not in compliance with the applicable 
listing requirements, the Exchange will commence delisting 
procedures.\23\
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    \19\ See, e.g., Spot Bitcoin ETP Approval Order at 3011; Spot 
Ether ETP Approval Order at 46941-42; Securities Exchange Act 
Release No. 61220 (Dec. 22, 2009), 74 FR 68895 (Dec. 29, 2009) (SR-
NYSEARCA-2009-94) (Order Granting Approval of Proposed Rule Change 
Relating To Listing and Trading Shares of the ETFS Palladium Trust); 
Securities Exchange Act Release No. 94518 (Mar. 25, 2022), 87 FR 
18837 (Mar. 31, 2022) (SR-NYSEARCA-2021-65) (Notice of Filing of 
Amendment No. 1 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1, To List and 
Trade Shares of the Sprott ESG Gold ETF Under NYSE Arca Rule 8.201-E 
(Commodity-Based Trust Shares)).
    \20\ See Grayscale Filing at 47635-37; ProShares Filing at 
50646, 50649-51.
    \21\ See Grayscale Filing at 47636; ProShares Filing at 50650.
    \22\ See NYSE Arca Rule 8.201-E(e)(2)(vii).
    \23\ See Grayscale Filing at 47637; ProShares Filing at 50651.
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    The Commission therefore finds that the Proposals, as with other 
ETPs that the Commission has approved,\24\ are reasonably designed to 
promote fair disclosure of information that may be necessary to price 
the shares of the Trusts appropriately, to prevent trading when a 
reasonable degree of transparency cannot be assured, to safeguard 
material non-public information relating to the Trusts' portfolios, and 
to ensure fair and orderly markets for the shares of the Trusts.
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    \24\ See supra note [19].
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III. Conclusion

    This approval order is based on all of the Exchange's 
representations and descriptions in the respective filings, which the 
Commission has carefully evaluated as discussed above.\25\ For the 
reasons set forth above, the Commission finds, pursuant to Section 
19(b)(2) of the Exchange Act,\26\ that the Proposals are consistent 
with the requirements of the Exchange Act and the rules and regulations 
thereunder applicable to a national securities exchange, and in 
particular, with Section 6(b)(5) and Section 11A(a)(1)(C)(iii) of the 
Exchange Act.\27\
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    \25\ See supra notes 3-4. In addition, the shares of the Trusts 
must comply with the requirements of NYSE Arca Rule 8.201-E 
(Commodity-Based Trust Shares) to be listed and traded on NYSE Arca 
on an initial and continuing basis.
    \26\ 15 U.S.C. 78s(b)(2).
    \27\ 15 U.S.C. 78f(b)(5); 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\28\ that the Proposals (SR-NYSEARCA-2024-44; SR-NYSEARCA-
2024-53) be, and hereby are, approved.
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    \28\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).

J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-16104 Filed 7-22-24; 8:45 am]
BILLING CODE 8011-01-P