[Federal Register Volume 89, Number 172 (Thursday, September 5, 2024)]
[Notices]
[Pages 72524-72535]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-19879]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100877; File No. SR-NYSEARCA-2024-70]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change To List and Trade Shares of the COtwo Advisors 
Physical European Carbon Allowance Trust Under NYSE Arca Rule 8.201-E 
(Commodity-Based Trust Shares)

August 29, 2024.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on August 19, 2024, NYSE Arca, Inc. (``NYSE Arca'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade shares of the COtwo 
Advisors Physical European Carbon Allowance Trust under NYSE Arca Rule 
8.201-E (Commodity-Based Trust Shares). The proposed rule change is 
available on the Exchange's website at www.nyse.com, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to list and trade shares (``Shares'') of the 
COtwo Advisors Physical European Carbon Allowance Trust (the 
``Trust''), under NYSE Arca Rule 8.201-E, which governs the listing and 
trading of Commodity-Based Trust Shares.\4\
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    \4\ Commodity-Based Trust Shares are securities issued by a 
trust that represent investors' discrete identifiable and undivided 
beneficial ownership interest in the commodities deposited into the 
trust.
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    The Trust was formed as a Delaware statutory trust on January 12, 
2023.\5\ The Trust has no fixed termination date. The Trust will not be 
registered as an investment company under the Investment Company Act of 
1940, as amended,\6\ and is not required to register under such act. 
The Trust is not

[[Page 72525]]

a commodity pool for purposes of the Commodity Exchange Act, as 
amended.\7\
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    \5\ On May 12, 2023, the Trust filed with the Commission a 
registration statement on Form S-1, as amended on January 16, 2024 
and April 4, 2024 (File No. 333-271910) (the ``Registration 
Statement'') under the Securities Act of 1933 (15 U.S.C. 77a) (the 
``Securities Act''). The description of the operation of the Trust 
herein is based, in part, on the Registration Statement. The 
Registration Statement in not yet effective and the Shares will not 
trade on the Exchange until such time that the Registration 
Statement is effective.
    \6\ 15 U.S.C. 80a-1.
    \7\ 17 U.S.C. 1.
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    The sponsor of the Trust is COtwo Advisors LLC, a Delaware limited 
liability company (``Sponsor''). State Street Bank and Trust Company 
serves as the Trust's administrator (the ``Administrator'') to perform 
various administrative, accounting and recordkeeping functions on 
behalf of the Trust. Wilmington Trust serves as trustee of the Trust 
(the ``Trustee''). State Street Bank and Trust Company serves as the 
Trust's transfer agent (the ``Transfer Agent'') and as custodian of the 
Trust's cash, if any (``Cash Custodian'').\8\
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    \8\ The Cash Custodian is responsible for holding the Trust's 
cash as well as receiving and dispensing cash on behalf of the 
Trust. Deposits of cash held by the Cash Custodian will be used in 
connection with the purchase of an applicable amount of EUAs for 
creations and redemptions of Creation Units and in connection with 
the payment of Trust expenses.
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    The Exchange represents that the Shares will satisfy the 
requirements of NYSE Arca Rule 8.201-E and thereby will qualify for 
listing on the Exchange.
Operation of the Trust \9\
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    \9\ The description of the operation of the Trust, the Shares, 
and the carbon credit industry contained herein are based, in part, 
on the Registration Statement. See note 5, supra.
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    The investment objective of the Trust will be for the Shares to 
reflect the performance of the price of EU Carbon Emission Allowances 
for stationary installations (``EUAs''), less the Trust's expenses. The 
Trust intends to achieve its objective by investing all of its assets 
in EUAs on a non-discretionary basis (i.e., without regard to whether 
the value of EUAs is rising or falling over any particular period). 
Shares of the Trust will represent units of fractional undivided 
beneficial interest in and ownership of the Trust. The Trust's only 
ordinary recurring expense will be the Sponsor's annual fee. The Trust 
will not hold any assets other than EUAs and cash. The Trust may 
purchase or sell EUAs in connection with the creation or redemption of 
Creation Units by Authorized Participants, as described below. In 
addition to selling EUAs to distribute cash to Authorized Participants 
redeeming Shares, the Trust may sell EUAs to pay the Sponsor's annual 
fee. All EUAs will be held in the Union Registry (defined below).
    The Trust will not invest in futures, options, options on futures, 
or swap contracts. The Trust will not hold or trade in commodity 
futures contracts, ``commodity interests,'' or any other instruments 
regulated by the Commodity Exchange Act.
    The Trust is not a proxy for investing in EUAs. Rather, the Shares 
are intended to provide a cost-effective means of obtaining investment 
exposure through the securities markets that is similar to an 
investment in EUAs. Specifically, the Shares are intended to constitute 
a simple and cost-efficient means of gaining investment benefits 
similar to those of holding EUAs directly, by providing investors an 
opportunity to participate in the EUA market through an investment in 
the Shares, instead of the traditional means of purchasing and storing 
EUAs. Trust shareholders will be exposed to the risks of investing in 
EUAs, as well as to additional risks that are unrelated to EUAs. For 
example, the public trading price at which an investor buys or sells 
Shares during the day from their broker may be different from the value 
of the Trust's holdings. Price differences may relate primarily to 
supply and demand forces at work in the secondary trading market for 
the Trust's Shares that are closely related to, but not identical to, 
the same forces influencing the prices of EUAs, cash and cash 
equivalents that constitute the Trust's assets. In addition, EUAs will 
have to be sold to pay Trust expenses that would not be associated with 
an investment in EUAs. Additional risks related to the Trust's 
structure, the Sponsor's management of the Trust, and the tax treatment 
of an investment in Shares are further in the Registration Statement.
EUAs and the EUA Industry
Description of EU Emissions Trading Scheme
    According to the Registration Statement, the European Union 
Emissions Trading System (``EU ETS'') is a ``cap and trade'' system 
that caps the total volume of greenhouse gas (``GHG'') emissions from 
installations and aircraft operators responsible for around 40% of 
European Union (``EU'') GHG emissions.\10\ The EU ETS is the largest 
cap and trade system in the world and covers more than 11,000 power 
stations and industrial plants in 31 countries, and flights between 
airports of participating countries. The EU ETS is administered by the 
EU Commission, which issues a predefined amount of EUAs through 
auctions or free allocation. An EUA represents the right to emit one 
metric ton of carbon dioxide equivalent into the atmosphere by 
operators of stationary installations (``Covered Entities''). By the 
end of April each year, all Covered Entities are required to surrender 
EUAs equal to the total volume of actual emissions from their 
installation for the last calendar year. EU ETS operators can buy or 
sell EUAs to achieve EU ETS compliance.
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    \10\ There are two types of EU emissions allowance: (i) general 
allowances for stationary installations, or EUA; and (ii) allowances 
for the aviation sector (``EUAA''). The Trust will hold EUAs only.
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    In 2012, EU ETS operations were centralized into a single EU 
registry operated by the EU Commission (the ``Union Registry''), which 
covers all countries participating in the EU ETS. According to the 
Registration Statement, the Union Registry is an online database that 
holds accounts for all entities covered by the EU ETS as well as for 
participants (such as the Trust) not covered under the EU ETS. The 
Union Registry can be accessed online in a similar manner to online 
banking systems. An account must be opened in the Union Registry by a 
legal or natural person before being able to participate in the EU ETS 
and transact in EUAs. The European Union Transaction Log (``EUTL'') 
\11\ checks, records and authorizes all transactions that take place 
between accounts in the Union Registry to ensure that transfers are in 
accordance with the EU ETS rules. The Union Registry is at all times 
responsible for holding the EUAs. All EUAs are held in the Union 
Registry.
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    \11\ The EUTL is a central transaction log that checks and 
records all transactions taking place within the EU ETS. It is run 
by the European Commission and provides an easy access to emission 
trading data contained in the EUTL. See https://www.eea.europa.eu/data-and-maps/dashboards/emissions-trading-viewer-1.
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Major Holders and Allowance Use Cases
    According to the Registration Statement, while there is limited 
publicly available data on individuals or individual organizations' 
holdings in physical carbon allowances, carbon allowances are primarily 
held for three different use cases:
    (a) Complying with the EU ETS: Companies that need to surrender 
allowances under the EU ETS hold allowances to surrender them annually. 
These positions are typically built over time and ultimately 
surrendered at time of compliance. Therefore, the largest emitters in 
the EU ETS hold a significant amount of allowances, which include 
entities such as large utilities with a substantial share of fossil 
fuel fired power plants, cement companies, steel producers, chemical 
producers, oil and gas majors and airlines.
    (b) Providing financial services for hedging purposes or 
speculation, such as clearing houses for the European Energy Exchange 
or the Intercontinental Exchange, or banks holding allowances for their 
clients.

[[Page 72526]]

    (c) Trading on and speculating around price moves, using physical 
emission allowances. This can take many forms, including ``yield 
trades'', which includes holding a physical allowance and selling an 
EUA future at a premium to gain the yield in the forward curve; or 
outright positions for short term or long term speculation.
    In addition to holding physical allowances, there is a liquid 
secondary futures and options market that is primarily used for hedging 
future emissions or speculating.
Trading Location
    According to the Registration Statement, the EU ETS is linked to 
small emissions trading systems in Europe (Norway, Switzerland, Iceland 
and Liechtenstein), but not to any other major cap and trade markets. 
Therefore, allowances handed out in the EU ETS are not transferable to 
any registry outside of the EU ETS and cannot be used for compliance in 
any other cap and trade market.
    There are a number of other trading systems globally, and like the 
EU ETS, no allowances of any of these systems can be used in any other 
system:
    (a) Western Climate Initiative (WCI): The State of California and 
the Canadian province Quebec created a linked cap and trade market, 
that covers >80% of emissions.
    (b) Regional Greenhouse Gas Initiative (RGGI): a group of US east 
coast states created a linked market that covers power generators only.
    (c) The China National ETS: Technically not a cap and trade scheme 
(as the amount of allowances is not fixed but calculated according to 
historic production of units).
    (d) South Korea ETS: A comprehensive market covering the majority 
of Korean emissions.
Pricing of Allowances and Trading Volume
    According to the Registration Statement, there are currently two 
primary avenues for trading EUAs: a primary market and a secondary 
market. The primary market involves participation in a regularly 
scheduled auction. The secondary market involves transactions between 
buyers and sellers on regulated markets. The contracts offered for 
trading are the following (1) instruments with a daily expiry, 
including spot EUAs and the Daily EUA Future (as defined below), (2) 
futures contracts with various maturities; and (3) options on futures 
contracts. There are also over-the-counter transactions, but they 
comprise a negligible percentage of transactions.
    The spot and futures markets for EUAs have existed since 2005 after 
the formal launch of the EU ETS on January 1, 2005. Spot EUA contracts 
are traded exclusively on the European Energy Exchange AG 
(``EEX''),\12\ and futures contracts and options on futures contracts 
are traded on EEX, ICE Endex Markets B.V. (``ICE Endex'') \13\ and 
Nasdaq Oslo, although the latter's market share is marginal.
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    \12\ EEX is an exchange under the German Exchange Act and a 
Regulated Market (``RM''), as defined in the Markets in Financial 
Instruments Directive (Directive 2014/65/EC) (``MIFID II''). As a RM 
for spot and derivatives transactions, EEX is supervised by the 
Saxon State Ministry for Economic Affairs, Labour and Transport (the 
``Exchange Supervisory Authority''). The Exchange Supervisory 
Authority is in charge of the legal supervision of EEX and of market 
supervision of the trading participants according to the German 
Exchange Act. The members of EEX are supervised by the Federal 
Financial Supervisory Authority (BaFin). All trading participants 
are required to comply with the market behavior at the spot and 
derivatives markets of all exchange participants is supervised on a 
daily basis by the Market Surveillance Office, an independent body 
of the exchange according to Section 7 of the German Exchange Act. 
See https://www.esma.europa.eu/sites/default/files/EEX_1.pdf. See 
also Rules and Regulations at https://www.eex.com/en/markets/trading-ressources/rules-and-regulations.
    \13\ ICE Endex is regulated in the Netherlands by the Dutch 
Authority for the Financial Markets (``AFM'') as a RM, as defined in 
MIFID II, which is implemented in Dutch Act on Financial Supervision 
(``DFSA''). The license as a RM is obtained under Section 5:26(1) of 
the DFSA, resulting in an authorization by the Minister of Dutch 
Ministry of Finance to operate a RM and supervised by the AFM. In 
the UK, ICE Endex is a Recognized Overseas Investment Exchange by 
the Financial Conduct Authority. See https://www.ice.com/endex/
regulation#:~:text=The%20Dutch%20Authority%20for%20Consumers,energy%2
0industry%20and%20wholesale%20trading. ICE Endex is also recognized 
by the CFTC as an authorized Foreign Board of Trade. See https://www.cftc.gov/sites/default/files/idc/groups/public/@otherif/documents/ifdocs/orgiceeregorder170110.pdf.
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    According to the Registration Statement, the EUA markets are 
generally liquid. The classifications for market participants include 
five basic categories--(1) investment firms or credit institutions, (2) 
investment funds, (3) other financial institutions, (4) operators with 
compliance obligations and (5) commercial undertakings which are non-
financial firms without compliance obligations.\14\ According to the 
European Union Transaction Log, there are over 18,773 registry 
accounts.\15\ The number of participants in the market have a direct 
bearing on the quality of trading. An Oxera report indicates that as 
the number of participants trading EUA futures has increased 
consistently since January 2017, relative spreads, calculated as the 
average quoted spread divided by the closing price, have decreased 
significantly--from just under 0.4% in January 2017 to roughly 0.06% in 
October 2021.\16\ In a February 2023 publication, Refinitiv estimated 
that approximately 9.27 billion EUAs were traded across all markets in 
2022, amounting to approximately [euro]751 billion.\17\ Out of the 
total EUA market, approximately 487 million EUAs (amounting to 
[euro]38.5 billion) were attributable to the EUA primary (auction) 
market, 8.45 billion EUAs ([euro]685.3 billion) were attributable to 
the EUA secondary market and 335 million EUAs ([euro]27.3 billion) were 
attributable to over-the-counter (``OTC'') transactions. In this 
context, the secondary market includes (1) the EEX spot EUA market, (2) 
the Daily EUA Futures market, (3) the markets for other EUA futures 
contracts (together with Daily EUA Futures, ``EUA Futures''), and (4) 
options contracts on EUA Futures. Data regarding each of the trading of 
each of these instruments is provided below. As of January 2023, the 
secondary market had average daily trading volume of [euro]2 billion, 
with the majority of the liquidity in the daily futures market as 
described in more detail below. EUA auctions are held on a near-daily 
basis throughout the year, other than between mid-December to mid-
January, when auctions are paused. Twenty-eight countries (25 EU member 
states plus Liechtenstein, Norway, and Iceland) have agreed to use EEX 
to conduct their regularly scheduled auctions. Germany and Poland have 
opted out of the common auction but also utilize the EEX for auctions. 
Hence, EUA auctions take place exclusively on EEX. These auctions take 
place on a regularly scheduled basis; the number of allowances being 
auctioned is disclosed on a schedule prior to auction. Prices achieved 
in these auctions are published on various publicly-accessible 
websites, including the European Commission's primary website.
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    \14\ See esma70-445-
38_final_report_on_emission_allowances_and_associated_derivatives.pdf
 (europa.eu).
    \15\ See https://ec.europa.eu/clima/ets/.
    \16\ Carbon trading in the European Union: An economic 
assessment of market functioning in 2021, Oxera, p. 42 (February 15, 
2022); available at https://www.oxera.com/wp-content/uploads/2022/02/Oxera-EU-carbon-trading-report-3.pdf.
    \17\ See ``Review of Carbon Markets in 2022'' (February 2023): 
available at https://www.refinitiv.com/content/dam/marketing/en_us/documents/gated/reports/carbon-market-year-in-review-2022.pdf. The 
report presents Refinitiv's assessment of the world's major carbon 
markets in 2022 and the total EUA market size includes spot, 
auctions and futures.
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    Below is a discussion of the secondary markets for EUAs and 
associated derivatives. The Trust will

[[Page 72527]]

only hold EUAs, and will not hold any of the related derivatives.
Instruments With a Daily Expiry
    Instruments with daily expiry include spot EUAs traded on the EEX 
and the Daily EUA Future traded on ICE Endex. The Exchange notes that 
the settlement and economic outcome for a spot purchase on the EEX and 
a same day futures purchase on the ICE Endex are identical (as further 
detailed below). In fact, the European Securities Markets Authority 
(``ESMA''), in its ``Final Report: Emission Allowances and Associated 
Derivatives,'' uses the term ``spot'' EUAs to include both spot EUAs 
traded on EEX and the Daily EUA Future traded on ICE Endex.\18\
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    \18\ See esma70-445-
38_final_report_on_emission_allowances_and_associated_derivatives.pdf
 (europa.eu).
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Spot EUA Market
    As noted above, spot EUA contracts are traded exclusively on the 
EEX. The current value (spot price) for a EUA is greatly influenced by 
a number of factors, including regulatory changes, world events and 
general levels of economic activity. The trading hours for spot EUAs on 
EEX are 8:00 a.m. to 6:00 p.m. Central European Time (``C.E.T.''), and 
trade registrations are possible until 6:45 p.m. C.E.T. Trades 
concluded before 4:00 p.m. C.E.T. are settled on the next business day, 
or T+1, while trades after 4:00 p.m. C.E.T. are settled on the day 
after the first business day, or T+2. In the twelve-month period ended 
July 15, 2024, the average daily, monthly and annual trading volumes of 
spot EUAs on the EEX was 156, 3,247 and 38,968 round lots of 1000 EUAs, 
respectively. Over the same period, spot EUAs traded in the secondary 
market on EEX at their highest volume of 5,010 round lots of EUAs on 
December 1, 2023, and their lowest volume of 0 EUAs on four different 
occasions. The EEX calculates and publishes each trading day an index 
(the ``EUA End of Day Index'') reflecting the end of day price of EUAs 
traded in the secondary market on EEX.\19\
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    \19\ The EUA End of Day Index methodology is available at 
https://www.eex.com/fileadmin/EEX/Downloads/Trading/Specifications/Indeces/DE/20211005_Index_Description_v010.pdf.
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Daily EUA Futures
    Most liquidity in the secondary market is achieved by trading 
futures contracts. These contracts have expiration going out as far as 
2030. A single day futures contract on EUAs is exclusively traded on 
the ICE Endex (the ``Daily EUA Future''), which settles each day at the 
close of trading.\20\ The Daily EUA Future is a deliverable contract 
where each person with a position open at cessation of trading is 
obliged to make or take physical delivery of EUAs upon the expiration 
of the contract at the end of each trading day. Settlement of the Daily 
EUA Future does not occur through cash transactions. Each Daily EUA 
Future represents one lot of 1,000 EUAs, with each EUA providing an 
entitlement to emit one ton of carbon dioxide equivalent gas. 
Generally, Daily EUA Futures trade on ICE Endex from approximately 2:00 
a.m. Eastern Time (``E.T.'') to approximately 12:00 p.m. E.T. The 
settlement price is fixed each business day and is published by the 
exchange at approximately 12:15 E.T. Final cash settlement occurs the 
first business day following the expiry day. In the twelve-month period 
ended July 15, 2024, the average daily, monthly and annual trading 
volumes of Daily EUA Futures was approximately 3,688, 76,842 and 
922,094, respectively, which represents trading volumes of 3,688,000, 
76,842,000 and 922,094,000 EUAs, respectively. Over the same period, 
Daily EUA Futures traded at their highest volume of 27,749 on April 17, 
2024, representing 27,749,000 EUAs, and their lowest volume of 230 on 
August 11, 2023, representing 230,000 EUAs.
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    \20\ All references to the ``Daily EUA Future'' refer to the 
single day EUA futures contract traded on ICE Endex. NASDAQ Oslo 
also offers a single day futures contract on EUAs, but the contract 
is not traded.
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Comparison of Spot EUA Market and Daily EUA Futures Market
    The daily EUA End of Day Index value can be expected to be 
substantially identical to the daily settlement price of the Daily EUA 
Future. The comparison below shows a 99.8% correlation between the 
movements of the two values over the five years from May 23, 2019 
through May 23, 2024.
[GRAPHIC] [TIFF OMITTED] TN05SE24.000

    Additionally, the chart below illustrates how closely the Daily EUA 
Future, in fact, reflects the EUA spot price during the trading day. 
This chart shows the prices in continuous trading of EUAs on the EEX 
and the Daily EUA Futures on ICE Endex, in EUR/tCO2 from January 2018 
to January 2022. No major differences can be observed, with an average 
absolute difference of [euro]0.015 between the daily settlement prices 
for EUAs on the EEX and ICE Endex.

[[Page 72528]]

[GRAPHIC] [TIFF OMITTED] TN05SE24.001

(https://www.esma.europa.eu/sites/default/files/library/esma70-445-38_final_report_on_emission_allowances_and_associated_derivatives.pdf 
:p37)
Other EUA Futures Contracts
    EEX offers monthly EUA futures contracts for the current and next 
two months unless a quarterly or December future expires at that 
month's maturity date; quarterly futures for the current and next 11 
quarters unless a December future expires at that quarter's maturity 
date; and yearly, or December, futures for the next 8 years which 
mature in December of each respective year. ICE Endex offers up to 
seven December futures contracts, nine quarterly futures contracts, 
three August futures contracts and two monthly futures contracts. 
Nasdaq Oslo offers a quarterly futures contract over a rolling six year 
period. There is no material trading volume in EUA Futures on Nasdaq 
Oslo.
    In each market, the predominant futures contracts traded were those 
expiring in December 2024 and December 2025. For the twelve-month 
period ended July 24, 2024, the average daily trading volumes and 
annual volumes of the EUA Futures expiring in December 2024 and 
December 2025 were as follows:

                                       July 24, 2023 Through July 24, 2024
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                                                    ICE Endex                                EEX
                                     ---------------------------------------------------------------------------
                                        Average daily      Total trading      Average daily      Total trading
                                        trading volume      volume (each      trading volume      volume (each
                                        (each contract        contract        (each contract        contract
                                       represents 1,000   represents 1,000   represents 1,000   represents 1,000
                                            EUAs)              EUAs)              EUAs)              EUAs)
----------------------------------------------------------------------------------------------------------------
December 2024 EUA Future............             31,989          4,900,021                952            244,574
December 2025 EUA Future............              3,463            500,792                195             50,164
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Options on EUA Futures Contracts
    Options on EUA futures contracts are also traded on EEX and ICE 
Endex for the December futures contracts. These options contracts are 
only traded in de minimis amounts. For example, on July 24, 2024, there 
was no trading of options contracts on EUA Futures on either the EEX or 
ICE Endex.
Section 6(b)(5) and the Applicable Standards
    The Commission has approved numerous Commodity-Based Trust Shares, 
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; 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 ICE Endex is a regulated market of 
significant size for trading EUAs and that any manipulation concerns 
are sufficiently mitigated to the point that they are outweighed by 
investor protection issues that would be resolved by approving this 
proposal.
Designed To Prevent Fraudulent and Manipulative Acts and Practices
    The Exchange believes that the proposal is designed to prevent 
fraudulent and manipulative acts and practices and to protect investors 
and the public interest, consistent with Section 6(b)(5) of the Act 
because (1) the Exchange has entered into a comprehensive surveillance-
sharing agreement (``CSSA'') with a regulated market of ``significant 
size'' and (2) there are sufficient ``other means to prevent fraudulent 
and manipulative acts and practices.''
Comprehensive Surveillance-Sharing Agreement
    The Commission has explained that a proposal could satisfy the 
requirements

[[Page 72529]]

of the Act in the first instance by demonstrating that the listing 
exchange has entered into a CSSA with a regulated ``market of 
significant size'' relating to the underlying assets.\21\ With respect 
to the Trust, the underlying assets are EUAs. The relevant analysis, 
therefore, is whether the Exchange has a CSSA with a regulated market 
of significant size related to EUAs. The Commission has further stated 
that ``[c]onsistent with the discussion of `significant market' . . . , 
the Commission has not previously, and does not now, require that [a] 
listing exchange be able to enter into a surveillance-sharing agreement 
with each regulated spot or derivatives market relating to an 
underlying asset, provided that the market or markets with which there 
is such an agreement constitute a `significant market.' '' \22\
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    \21\ See Securities Exchange Act Release No. 88284 (February 26, 
2020), 85 FR 12595 (March 3, 2020) (SR-NYSEArca-2019-39) (Order 
Disapproving a Proposed Rule Change, as Modified by Amendment No. 1, 
to Amend NYSE Arca Rule 8.201-E (Commodity-Based Trust Shares) and 
to List and Trade Shares of the United States Bitcoin and Treasury 
Investment Trust Under NYSE Arca Rule 8.201-E).
    \22\ See Securities Exchange Act Release No. 83723 (July 26, 
2018), 83 FR 37579 (August 1, 2018) (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) (the ``Winklevoss Order'').
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    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 the underlying assets 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.\23\ Comprehensive surveillance-sharing agreements ``provide 
a necessary deterrent to manipulation because they facilitate the 
availability of information needed to fully investigate a manipulation 
if it were to occur.'' \24\ 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.\25\
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    \23\ See Amendment to Rule Filing Requirements for Self-
Regulatory Organizations Regarding New Derivative Securities 
Products, Securities Exchange Act Release No. 40761 (Dec. 8, 1998), 
63 FR 70952, 70959 (Dec. 22, 1998).
    \24\ Id. See also Winklevoss Order, 83 FR at 37594.
    \25\ See Winklevoss Order, 83 FR at 37592-93 (discussing Letter 
from Brandon Becker, Director, Division of Market Regulation, 
Commission, to Gerard D. O'Connell, Chairman, Intermarket 
Surveillance Group (June 3, 1994), available at https://www.sec.gov/divisions/marketreg/mr-noaction/isg060394.htm).
---------------------------------------------------------------------------

The ICE Endex Futures Market Is a Regulated Market
    As discussed more below, ICE Endex is subject to the EU regulatory 
framework for EUA contracts and EUA derivatives. The EU regulatory 
framework includes the Markets in Financial Instruments Directive and 
Regulation (``MiFID II'' and ``MiFIR''), the Market Abuse Regulation 
(``MAR'') and the European Market Infrastructure Regulation (``EMIR''). 
MiFID II and MiFIR together is a framework governing investment firms, 
trading venues, data reporting service providers and non-EU investment 
firms that provide investment services in the EU. The MAR prohibits 
insider dealing, unlawful disclosure of inside information and market 
manipulation and provides broad powers to the national competent 
authorities (``NCAs'') for detection and prosecution of violations. 
EMIR regulates OTC derivatives transactions, central counterparties and 
trade repositories.
The ICE Endex Futures Market Is a Market of Significant Size
    In the Winklevoss Order, the Commission stated that the term 
``significant market'' or ``market of significant size'' includes a 
market (or group of markets) as to which (1) there is a reasonable 
likelihood that a person attempting to manipulate the Trust would also 
have to trade on that market to successfully manipulate the Trust, so 
that a surveillance-sharing agreement would assist in detecting and 
deterring misconduct, and (2) it is unlikely that trading in the Trust 
would be the predominant influence on prices in that market.\26\ The 
Commission explained that this definition is illustrative and not 
exclusive, and that there could be other types of ``significant 
markets'' and ``markets of significant size.'' \27\
---------------------------------------------------------------------------

    \26\ See Winklevoss Order, 83 FR at 37594.
    \27\ Id.
---------------------------------------------------------------------------

Any Manipulator Would Have To Trade on ICE Endex
    The first prong of the analysis addresses whether the surveillance-
sharing agreement on which the fund's listing exchange proposes to rely 
would assist in detecting and deterring fraudulent or manipulative 
misconduct related to the assets held by the fund. In the present 
proposal, the Trust's only non-cash holdings will be EUAs. The 
predominant market for trading EUA instruments with daily expiry is the 
ICE Endex Daily EUA Futures market, with de minimis secondary market 
trading taking place on EEX or over-the-counter. The EEX's primary role 
in the EUA ecosystem is to serve as the venue for the daily auctions of 
EUAs.
    The regulated market of significant size test does not require that 
the spot EUA 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. With this in mind, if the ICE Endex Daily 
EUA Futures market is not viewed as the market for spot EUAs, the ICE 
Endex EUA Futures market more broadly is an appropriate market to 
consider in determining whether there is a related regulated market of 
significant size.
    ICE Endex is the only market for trading Daily EUA Futures and, as 
noted above, for the twelve-months ended July 15, 2024, the average 
daily trading volume of Daily EUA Futures on the ICE Endex was 3,688 
contracts, representing 3,688,000 EUAs, whereas the average daily 
trading volume on the EEX was 156 round lots, representing 156,000 
EUAs. Therefore, over that one year period, approximately 96% of all 
secondary market trading of EUA spot instruments with daily expiry 
occurred on the ICE Endex (which, as described above, includes spot 
EUAs and Daily EUA Futures). With respect to all EUA based derivatives, 
ICE Endex accounts for approximately 85% of the EUA trading volume and 
EEX accounts for approximately 15%.\28\
---------------------------------------------------------------------------

    \28\ See esma70-445-
38_final_report_on_emission_allowances_and_associated_derivatives.pdf
 (europa.eu).
---------------------------------------------------------------------------

    Given the size of the ICE Endex futures markets, especially the 
Daily EUA Futures market, the Sponsor believes such markets meet the 
Commission's definition of ``significant market'' because there is a 
reasonable likelihood that a person attempting to manipulate the Trust 
would also have to

[[Page 72530]]

trade on that market to successfully manipulate the Trust, since 
arbitrage between the derivative and spot markets would tend to counter 
an attempt to manipulate the spot market alone. Arbitrageurs have 
access to both the EEX and ICE Endex and any attempt to manipulate one 
market that causes a difference between the EUA spot price and the 
Daily EUA Futures price will quickly be exploited, thus maintaining the 
correlation between EEX and ICE Endex. Therefore, any attempt to 
manipulate the spot EUA market alone would be impossible because 
arbitrage would correct any movements in the spot market to bring the 
prices of spot EUAs back in line with the settlement price of the Daily 
EUA Future. Therefore, any person attempting to manipulate the Trust 
Shares would also have to trade in the EUA Futures market to manipulate 
the spot and futures markets in tandem.\29\
---------------------------------------------------------------------------

    \29\ The Commission has granted several prior proposals to list 
and trade shares of physical commodity-based exchange-traded 
products, noting in every case that there was at least one regulated 
market of significant size for trading futures in the underlying 
commodity--whether gold, silver, platinum, palladium or copper--and 
the product's listing exchange has entered into surveillance-sharing 
agreements with, or held Intermarket Surveillance Group (``ISG'') 
membership in common with, that market. See Securities Exchange Act 
Release Nos. 61220 (December 22, 2009), 74 FR 68895, 68896 (December 
29, 2009) (SR-NYSEArca-2009-94) (notice of proposed rule change 
included NYSE Arca's representation that ``[t]he most significant 
palladium futures exchanges are the NYMEX and the Tokyo Commodity 
Exchange,'' that ``NYMEX is the largest exchange in the world for 
trading precious metals futures and options,'' and that NYSE Arca 
``may obtain trading information via the Intermarket Surveillance 
Group,'' of which NYMEX is a member; 61219 (December 22, 2009), 74 
FR 68886, 68887-88 (December 29, 2009) (SR-NYSEArca-2009-95) (notice 
of proposed rule change included NYSE Arca's representation that 
``[t]he most significant platinum futures exchanges are the NYMEX 
and the Tokyo Commodity Exchange,'' that ``NYMEX is the largest 
exchange in the world for trading precious metals futures and 
options,'' and that NYSE Arca ``may obtain trading information via 
the Intermarket Surveillance Group,'' of which NYMEX is a member; 
62692 (August 11, 2010), 75 FR 50789, 50790 (August 17, 2010) (SR-
NYSEArca-2010-56) (notice of proposed rule change included NYSE 
Arca's representation that ``the most significant gold, silver, 
platinum and palladium futures exchanges are the COMEX and the 
TOCOM'' and that NYSE Arca ``may obtain trading information via the 
Intermarket Surveillance Group,'' of which COMEX is a member; 62875 
(September 9, 2010), 75 FR 56156, 56158 (September 15, 2010) (SR-
NYSEArca-2010-71) (notice of proposed rule change included NYSE 
Arca's representation that ``the most significant silver, platinum 
and palladium futures exchanges are the COMEX and the TOCOM'' and 
that NYSE Arca ``may obtain trading information via the Intermarket 
Surveillance Group,'' of which COMEX is a member; 63464 (December 8, 
2010), 75 FR 77926, 77928 (December 14, 2010) (SR-NYSEArca-2010-95) 
(notice of proposed rule change included NYSE Arca's representation 
that ``the most significant gold futures exchanges are the COMEX and 
the Tokyo Commodity Exchange,'' that ``COMEX is the largest exchange 
in the world for trading precious metals futures and options,'' and 
that NYSE Arca ``may obtain trading information via the Intermarket 
Surveillance Group,'' of which COMEX is a member; 68430 (December 
13, 2012), 77 FR 75239, 75240-41 (December 19, 2012) (SR-NYSEArca-
2012-111) (notice of proposed rule change included NYSE Arca's 
representation that ``[f]utures on platinum and palladium are traded 
on two major exchanges: The New York Mercantile Exchange . . . and 
Tokyo Commodities Exchange'' and that NYSE Arca ``may obtain trading 
information via the Intermarket Surveillance Group,'' of which COMEX 
is a member; 71378 (January 23, 2014), 79 FR 4786, 4786-87 (January 
29, 2014) (SR-NYSEArca-2013-137) (notice of proposed rule change 
included NYSE Arca's representation that ``COMEX is the largest gold 
futures and options exchange'' and that NYSE Arca ``may obtain 
trading information via the Intermarket Surveillance Group,'' 
including with respect to transactions occurring on COMEX pursuant 
to CME and NYMEX's membership, or from exchanges ``with which [NYSE 
Arca] has in place a comprehensive surveillance sharing 
agreement.'').
---------------------------------------------------------------------------

The Trust Is Unlikely To Be the Predominant Influence on Price
    It is unlikely that trading in the Trust Shares would be the 
predominant influence on Daily EUA Futures prices traded on ICE Endex 
for a number of reasons, including the significant volume in and size 
of the EUA daily expiry market (meaning the Daily EUA Futures market, 
in effect). The total EUA market size is approximately [euro]751 
billion with approximately [euro]64.1 billion of that attributable to 
the Daily EUA Futures market. The daily average trading volume for EUAs 
across the secondary market is approximately [euro]2 billion, with 
approximately [euro]264.8 million attributable to trading in the Daily 
EUA Futures market. The Trust has not yet launched and cannot predict 
its future inflows; however, given the size of the Daily EUA Futures 
market and the EUA market, as a whole, the Sponsor does not anticipate 
that the Trust will have available capital to buy and sell EUAs in an 
amount that would move the EUA market or that investors would be able 
to trade Trust Shares at such a volume as to influence Daily EUA 
Futures prices on ICE Endex. Additionally, the trading hours for the 
ICE Endex (i.e., EUA Futures market) are approximately 2:00 a.m. E.T. 
to approximately 12:00 p.m. E.T. The majority of this time period (7.5 
hours) is outside of the Trust's trading hours of 9:30 a.m. E.T. to 
4:00 p.m. E.T. As such, it is unlikely that trading in the Trust's 
Shares would be the primary influencer of the EUA Futures prices traded 
on ICE Endex, because the ICE Endex is actively traded for 7.5 hours 
during which the Trust Shares cannot be traded.
Other Means To Prevent Fraudulent and Manipulative Acts and Practices
    In addition to Exchange's CSSA with ICE Endex, there are other 
mechanisms in place to deter and detect misconduct across both the EUA 
spot and derivatives markets. Both EEX and ICE Endex are subject to the 
EU regulatory framework for EUA contracts and EUA derivatives. The EU 
regulatory framework includes the Markets in Financial Instruments 
Directive and Regulation (``MiFID II'' and ``MiFIR''), the Market Abuse 
Regulation (``MAR'') and the European Market Infrastructure Regulation 
(``EMIR'').\30\ MiFID II and MiFIR together is a framework governing 
investment firms, trading venues, data reporting service providers and 
non-EU investment firms that provide investment services in the EU.\31\ 
The MAR prohibits insider dealing, unlawful disclosure of inside 
information and market manipulation and provides broad powers to the 
national competent authorities (``NCAs'') for detection and prosecution 
of violations.\32\ EMIR regulates OTC derivatives transactions, central 
counterparties and trade repositories.\33\ ESMA is the EU's overall 
financial markets regulator that has supervisory authority over the 
NCAs.\34\ Under the EU regulatory framework, there are three lines of 
defense against market abuse.\35\ At the firm level (first line), firms 
are required to have systems and procedures in place to ensure that 
abusive trading is detected and reported to NCAs. At the market 
operator, investment firm and trading venue level (second line), these 
entities are required to identify and report suspicious transactions 
and maintain policies and procedures to prevent market abuse. 
Additionally, exchanges such as EEX and ICE Endex are required to 
report information to the relevant authorities on a daily basis. At the 
NCA level (third line), NCAs have market surveillance systems in place 
to monitor markets and

[[Page 72531]]

identify and investigate suspicious transactions. NCAs have broad 
enforcement power and cooperate with each other and ESMA to obtain the 
information needed for optimal surveillance and in order to prosecute 
violations.\36\ Exchanges (such as EEX and ICE Endex) and governmental 
authorities share information and communicate frequently regarding 
monitoring activities.\37\
---------------------------------------------------------------------------

    \30\ Carbon trading in the European Union: An economic 
assessment of market functioning in 2021, Oxera, p. 26 (February 15, 
2022); available at https://www.oxera.com/wp-content/uploads/2022/02/Oxera-EU-carbon-trading-report-3.pdf.
    \31\ MiFID II Overview, Practical Law Financial Services.
    \32\ See esma70-445-
38_final_report_on_emission_allowances_and_associated_derivatives.pdf
 (europa.eu).
    \33\ Carbon trading in the European Union: An economic 
assessment of market functioning in 2021, Oxera, p. 61 (February 15, 
2022); available at https://www.oxera.com/wp-content/uploads/2022/02/Oxera-EU-carbon-trading-report-3.pdf.
    \34\ https://www.esma.europa.eu/about-esma.
    \35\ See esma70-445-
38_final_report_on_emission_allowances_and_associated_derivatives.pdf
 (europa.eu).
    \36\ Id.
    \37\ Carbon trading in the European Union: An economic 
assessment of market functioning in 2021, Oxera, p. 26-27 (February 
15, 2022); available at https://www.oxera.com/wp-content/uploads/2022/02/Oxera-EU-carbon-trading-report-3.pdf.
---------------------------------------------------------------------------

    While the Exchange is not a participant in the EU regulatory 
framework, the Exchange believes that the EU's robust oversight and 
monitoring regime, in addition to the Exchange's CSSA with ICE Endex 
which would allow for the sharing of information and thus provide 
sufficient means to prevent fraudulent and manipulative acts and 
practices.
Designed To Protect Investors and the Public Interest
    The Exchange believes that the proposal is designed to protect 
investors and the public interest. The Exchange believes that the 
concerns related to the prevention of fraudulent and manipulative acts 
and practices have been sufficiently addressed for this proposal to be 
consistent with the Act and, to the extent that the Commission 
disagrees with that assertion, such concerns are now outweighed by 
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 to access EUAs 
in a regulated and transparent exchange-traded vehicle that would act 
to limit risk and benefit U.S. investors by: (i) reducing premium and 
discount volatility as compared to OTC investment vehicles; (ii) 
increasing competitive pressure on management fees resulting in fee 
compression/reductions; (iii) reducing risks and costs as compared to 
those associated with investing in EUAs; and (iv) providing an 
alternative to maintaining custody of EUAs.
Creation and Redemption of Shares
    According to the Registration Statement, the Trust will create and 
redeem Shares on a continuous basis in one or more Creation Units. A 
Creation Unit equals a block of 50,000 Shares, which amount may be 
revised from time-to-time. The Trust will issue Shares in Creation 
Units to certain authorized participants (``Authorized Participants'') 
on an ongoing basis. Each Authorized Participant must be a registered 
broker-dealer or other securities market participant such as a bank or 
other financial institution which is not required to register as a 
broker-dealer to engage in securities transactions, a participant in 
The Depository Trust Company (``DTC'') and have entered into an 
agreement with the Sponsor and the Transfer Agent (the ``Participant 
Agreement'').
    Creation Units may be created or redeemed only by Authorized 
Participants. The creation and redemption of Creation Units is made in 
exchange for the delivery to the Trust or the distribution by the Trust 
of the amount of EUAs, or the amount of cash sufficient to purchase the 
amount of EUAs, represented by the Creation Units being created or 
redeemed. The amount of EUAs or cash required to be delivered to the 
Trust in connection with any creation, or paid out upon redemption, is 
based on the combined net asset value of the number of Shares included 
in the Creation Units being created or redeemed as determined on the 
day the order to create or redeem Creation Units is properly received 
and accepted. Orders must be placed by 11:00 a.m. New York time. The 
day on which the Administrator receives a valid purchase or redemption 
order is the order date. Creation Units may only be issued or redeemed 
on a day that the Exchange is open for regular trading.
    For a cash creation, an Authorized Participant will deliver the 
cash to the Trust's account at the Cash Custodian, which the Sponsor 
will then use to purchase EUAs from a third party selected by the 
Sponsor who (1) is not an Authorized Participant and (2) will not be 
acting as an agent, nor at the discretion, of the Authorized 
Participant with respect to the delivery of EUAs to the Trust (such 
third party, a ``Liquidity Provider''). For a cash redemption, the 
Sponsor shall arrange for the EUAs represented by the Creation Units to 
be sold to a Liquidity Provider selected by the Sponsor and the cash 
proceeds distributed from the Trust's account at the Cash Custodian to 
the Authorized Participant in exchange for its Shares. In the case of 
``in-kind'' creation or redemption orders for Shares, an Authorized 
Participant may deliver or direct the delivery of EUAs by third 
parties, or take delivery or direct the taking of delivery of EUAs by 
third parties.
    For cash creations, an Authorized Participant who places a purchase 
order is responsible for arranging for the delivery to the Trust's 
account with the Cash Custodian of the required cash deposit by 2:00 
p.m. New York time on the first business day following the purchase 
order date. The Liquidity Provider delivers EUAs to the Trust's Union 
Registry account in exchange for the cash purchase price. Upon 
settlement of the EUA purchase from the Liquidity Provider into the 
Trust's Union Registry account, the Trust instructs the Transfer Agent 
to release the Shares to the Authorized Participant, and the Transfer 
Agent directs DTC to credit the number of Shares ordered to the 
applicable DTC account, by close of business on the purchase settlement 
date.
    For in-kind creation orders, an Authorized Participant who places a 
purchase order is responsible for arranging for the delivery to the 
Trust's Union Registry account the required EUA deposit by 2:00 p.m. 
New York time on the first business day following the order date. Upon 
receipt of the EUA deposit amount in the Trust's Union Registry 
account, the Union Registry will notify the Sponsor that the EUAs have 
been deposited. Upon receipt of confirmation from the Union Registry 
that the EUA deposit amount has been received, the Administrator will 
direct DTC to credit the number of Shares created to the Authorized 
Participant's DTC account.
    According to the Registration Statement, the redemption 
distribution due from the Trust will be delivered once the 
Administrator notifies the Sponsor that the Authorized Participant has 
delivered the Shares to be redeemed to the Trust's DTC account. The 
redemption distribution will be delivered to the Authorized Participant 
on the first business day following the order date.
    For cash redemptions, on the redemption settlement date, the 
Liquidity Provider delivers cash to the Trust's account with the Cash 
Custodian in exchange for the redemption EUAs amount. Upon settlement 
of the EUA sale by the Trust to the Liquidity Provider and the receipt 
of the Liquidity Provider's cash in the Trust's Cash Custodian account, 
the Trust instructs the Transfer Agent to deliver the Authorized 
Participant's Shares to be redeemed back to the Trust, in exchange for 
which the Trust instructs the Cash Custodian to transfer the requisite 
to the Authorized Participant's designated bank account and the 
redemption order is settled.
    For in-kind redemptions, once the Administrator notifies the 
Sponsor that the Shares have been received in the Trust's DTC account, 
the Sponsor instructs the Union Registry to transfer

[[Page 72532]]

the redemption EUA amount from the Trust's Union Registry account to 
the Union Registry account of the Authorized Participant or its agent.
    The Sponsor is the only entity that may initiate a withdrawal of 
EUAs from the Trust's Union Registry account, and the only accounts 
that may receive EUAs from the Trust's Union Registry account are the 
Union Registry accounts of the Authorized Participants and Liquidity 
Providers, their agents or the Sponsor.
Net Asset Value (``NAV'')
    The Trust's NAV is calculated by taking the current market value of 
its total assets, less any liabilities of the Trust, and dividing that 
total by the total number of outstanding Shares.
    The Administrator will calculate the NAV of the Trust once each 
Exchange trading day. The NAV for a normal trading day will be released 
after the end of the Core Trading Session, which is typically 4 p.m. 
New York time. The NAV for the Trust's Shares will be disseminated 
daily to all market participants at the same time. The Administrator 
will use the settlement price for the Daily EUA Futures established by 
ICE Endex to calculate the NAV. The Administrator also converts the 
value of Euro denominated assets into US Dollar equivalent using 
published foreign currency exchange prices by an independent pricing 
vendor. Third parties supplying quotations or market data may include, 
without limitation, dealers in the relevant markets, end-users of the 
relevant product, information vendors, brokers and other sources of 
market information.
Indicative Fund Value (``IFV'')
    In order to provide updated information relating to the Trust for 
use by investors and market professionals, an updated IFV will be made 
available through on-line information services throughout the Exchange 
Core Trading Session (normally 9:30 a.m. to 4:00 p.m. E.T.) on each 
trading day. The IFV will be calculated by using the prior day's 
closing NAV per Share of the Trust as a base and updating that value 
throughout the trading day to reflect changes in the most recently 
reported mid-point of the bid-ask spread of the Daily EUA Future. The 
IFV disseminated during NYSE Arca Core Trading Session hours should not 
be viewed as an actual real time update of the NAV, because the NAV 
will be calculated only once at the end of each trading day based upon 
the relevant end of day values of the Trust's investments. Although the 
IFV will be disseminated throughout the Core Trading Session, the 
customary trading hours for EUAs are 2 a.m. to 12 p.m. Eastern Time. 
During the gap in time at the end of each trading day during which the 
Shares are traded on the Exchange, but real-time trading prices for 
EUAs are not available, the IFV will be calculated based on the end of 
day price of EUAs immediately preceding the trading session.
    The IFV will be disseminated on a per Share basis every 15 seconds 
during regular NYSE Arca Core Trading Session.
Availability of Information
    The NAV for the Trust's Shares will be disseminated daily to all 
market participants at the same time. The intraday, closing prices, and 
settlement prices for EUAs will be readily available from the 
applicable futures exchange websites, automated quotation systems, 
published or other public sources, or major market data vendors. The 
IFV per Share for the Shares will be disseminated by one or more major 
market data vendors on at least a 15 second delayed basis as required 
by NYSE Arca Rule 8.201-E(e)(2)(v).
    Complete real-time data for EUAs and Daily EUA Futures is available 
by subscription through on-line information services. Quotation and 
last-sale information regarding the Shares will be disseminated through 
the facilities of the Consolidated Tape Association. The IFV will be 
available through on-line information services. The trading prices for 
EUAs and Daily EUA Futures will be disseminated by on-line subscription 
services or by one or more major market data vendors during the NYSE 
Arca Core Trading Session of 9:30 a.m. to 4:00 p.m. E.T.
    EEX also provides on its website, on a daily basis, transaction 
volumes and transaction prices for the EUA spot market. ICE Endex 
provides on its website, on a daily basis, transaction volumes, 
transaction prices, daily settlement prices and historical settlement 
prices for Daily EUA Futures that were traded outside of block trades 
by EUA futures brokers. In addition, transaction volumes, transaction 
prices, daily settlement prices and historical settlement prices for 
Daily EUA Futures traded in block trades by futures brokers are 
available on a daily basis through a subscription service to ICE Endex. 
However, ICE Endex provides the daily settlement price change of the 
Daily EUA Future on its website.
    In addition, the Trust's website (www.cotwoadvisors.com) will 
contain the following information, on a per Share basis, for the Trust: 
(a) the prior business day's end of day closing NAV; (b) the Official 
Closing Price \38\ or the midpoint of the national best bid and the 
national best offer (``NBBO'') as of the time the NAV is calculated 
(``Bid-Ask Price''); (c) calculation of the premium or discount of the 
Official Closing Price against the NAV expressed as a percentage of 
such NAV; (d) the prospectus; and (e) other applicable quantitative 
information. The Trust will also provide website disclosure of its EUA 
holdings before 9:30 a.m. E.T. on each trading day.
---------------------------------------------------------------------------

    \38\ The term ``Official Closing Price'' is defined in NYSE Arca 
Rule 1.1(ll) as the reference price to determine the closing price 
in a security for purposes of Rule 7-E Equities Trading, and the 
procedures for determining the Official Closing Price are set forth 
in that rule.
---------------------------------------------------------------------------

    The Trust's website will be publicly available prior to the public 
offering of Shares and accessible at no charge. The website disclosure 
of the Trust's daily holdings will occur at the same time as the 
disclosure by the Trust of the daily holdings to Authorized 
Participants so that all market participants are provided daily 
holdings information at the same time. Therefore, the same holdings 
information will be provided on the public website as well as in 
electronic files provided to Authorized Participants. Accordingly, each 
investor will have access to the current daily holdings of the Trust 
through the Trust's website. In addition, information regarding market 
price and trading volume of the Shares will be continually available on 
a real-time basis throughout the day on brokers' computer screens and 
other electronic services. Information regarding the previous day's 
closing price and trading volume information for the Shares will be 
published daily in the financial section of newspapers.
Trading 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. Trading in the Shares 
on the Exchange will occur in accordance with NYSE Arca Rule 7.34-E 
(Early, Core, and Late Trading Sessions). The Exchange has appropriate 
rules to facilitate transactions in the Shares during all trading 
sessions. As provided in NYSE Arca Rule 7.6-E, the minimum price 
variation (``MPV'') for quoting and entry of orders in equity 
securities traded on the NYSE Arca Marketplace is $0.01, with the 
exception of securities that are priced less than $1.00, for which the 
MPV for order entry is $0.0001.

[[Page 72533]]

    The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Rule 8.201-E. The trading of the Shares will 
be subject to NYSE Arca Rule 8.201-E(g), which sets forth certain 
restrictions on Equity Trading Permit (``ETP'') Holders acting as 
registered Market Makers in Commodity-Based Trust Shares to facilitate 
surveillance. The Exchange represents that, for initial and continued 
listing, the Trust will be in compliance with Rule 10A-3 \39\ under the 
Act, as provided by NYSE Arca Rule 5.3-E. A minimum of 50,000 Shares 
will be outstanding at the commencement of trading on the Exchange.
---------------------------------------------------------------------------

    \39\ With respect to the application of Rule 10A-3 (17 CFR 
240.10A-3) under the Act, the Trust relies on the exemption 
contained in Rule 10A-3(c)(7).
---------------------------------------------------------------------------

    As a general matter, the Exchange has regulatory jurisdiction over 
its ETP Holders and their associated persons, which include any person 
or entity controlling an ETP Holder. To the extent the Exchange may be 
found to lack jurisdiction over a subsidiary or affiliate of an ETP 
Holder that does business only in commodities or futures contracts, the 
Exchange could obtain information regarding the activities of such 
subsidiary or affiliate through surveillance sharing agreements with 
regulatory organizations of which such subsidiary or affiliate is a 
member.
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. Trading on the Exchange in the Shares 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 conditions in the underlying carbon 
credit market have caused disruptions and/or lack of trading, or (2) 
whether other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present. In addition, 
trading in Shares will be subject to trading halts caused by 
extraordinary market volatility pursuant to the Exchange's ``circuit 
breaker'' rule.\40\
---------------------------------------------------------------------------

    \40\ See NYSE Arca Rule 7.12-E.
---------------------------------------------------------------------------

    The Exchange may halt trading during the day in which an 
interruption occurs to the dissemination of the IFV, as described 
above. If the interruption to the dissemination of the IFV persists 
past the trading day in which it occurs, 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.
Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances administered by the Exchange, as 
well as cross-market surveillances administered by the Financial 
Industry Regulatory Authority Inc. (``FINRA''), on behalf of the 
Exchange, which are designed to detect violations of Exchange rules and 
applicable federal securities laws.\41\ The Exchange represents that 
these procedures are adequate to properly monitor Exchange trading of 
the Shares in all trading sessions and to deter and detect violations 
of Exchange rules and federal securities laws applicable to trading on 
the Exchange.
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    \41\ FINRA conducts 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.
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    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations.
    The Exchange has entered into a CSSA with ICE Endex. Pursuant to 
the CSSA, the Exchange will communicate as needed regarding trading in 
the Shares and Daily EUA Futures with ICE Endex, and the Exchange may 
obtain trading information regarding trading in the Shares and Daily 
EUA Futures from ICE Endex.
    The Exchange represents that all EUAs held by the Trust will be 
held and maintained in the Union Registry and that the Trust will not 
invest in futures, options, options on futures, or swap contracts. It 
is possible that EUAs and Daily EUA Futures may become listed on other 
exchanges that are members of ISG \42\ or with which the Exchange has 
in place a comprehensive surveillance sharing agreement.
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    \42\ For a list of the current members of ISG, see 
www.isgportal.org.
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    Additionally, the Exchange is able to obtain information regarding 
trading in the Shares in connection with ETP Holders' proprietary or 
customer trades which they effect through ETP Holders on any relevant 
market. Additionally, under NYSE Arca Rule 8.201-E(g), an ETP Holder 
acting as a registered Market Maker in the Shares is required to 
provide the Exchange with information relating to its accounts for 
trading in any underlying commodity, related futures or options on 
futures, or any other related derivatives. Commentary .04 of NYSE Arca 
Rule 11.3-E requires an ETP Holder acting as a registered Market Maker, 
and its affiliates, in the Shares to establish, maintain and enforce 
written policies and procedures reasonably designed to prevent the 
misuse of any material nonpublic information with respect to such 
products, any components of the related products, any physical asset or 
commodity underlying the product, applicable currencies, underlying 
indexes, related futures or options on futures, and any related 
derivative instruments (including the Shares). As a general matter, the 
Exchange has regulatory jurisdiction over its ETP Holders and their 
associated persons, which include any person or entity controlling an 
ETP Holder. To the extent the Exchange may be found to lack 
jurisdiction over a subsidiary or affiliate of an ETP Holder that does 
business only in commodities or futures contracts and that subsidiary 
or affiliate is a member of another regulatory organization, the 
Exchange could obtain information regarding the activities of such 
subsidiary or affiliate through a surveillance sharing agreement with 
that regulatory organization.
    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
    All statements and representations made in this filing regarding 
(a) the description of the portfolio or reference assets, (b) 
limitations on portfolio holdings or reference assets, or (c) the 
applicability of Exchange listing rules specified in this rule filing 
shall constitute continued listing requirements for listing the Shares 
on the Exchange.
    The Trust has represented to the Exchange that it will advise the 
Exchange of any failure by the Trust to comply with the continued 
listing requirements, and, pursuant to its obligations under Section 
19(g)(1) of the Act, the Exchange will monitor for compliance with the 
continued listing requirements. If the Trust is not in compliance with 
the applicable listing requirements, the Exchange will commence 
delisting procedures under NYSE Arca Rule 5.5-E(m).

[[Page 72534]]

Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
ETP Holders in an Information Bulletin of the special characteristics 
and risks associated with trading the Shares. Specifically, the 
Information Bulletin will discuss the following: (1) the procedures for 
purchases and redemptions of Shares in Creation Units (including noting 
that Shares are not individually redeemable); (2) NYSE Arca Rule 9.2-
E(a), which imposes a duty of due diligence on its ETP Holders to learn 
the essential facts relating to every customer prior to trading the 
Shares; (3) how information regarding the IFV is disseminated; (4) the 
requirement that ETP Holders deliver a prospectus to investors 
purchasing newly issued Shares prior to or concurrently with the 
confirmation of a transaction; (5) the possibility that trading spreads 
and the premium or discount on the Shares may widen as a result of 
reduced liquidity of EUAs during the Core and Late Trading Sessions; 
and (6) trading information. For example, the Information Bulletin will 
advise ETP Holders, prior to the commencement of trading, of the 
prospectus delivery requirements applicable to the Trust. The Exchange 
notes that investors purchasing Shares directly from the Trust will 
receive a prospectus. ETP Holders purchasing Shares from the Trust for 
resale to investors will deliver a prospectus to such investors.
    In addition, the Information Bulletin will reference that the Trust 
is subject to various fees and expenses as will be described in the 
Registration Statement. The Information Bulletin will also reference 
the fact that last sale information regarding EUAs is subject to 
regulation by EEX and ICE Endex, that the Commission and the CFTC do 
not have jurisdiction over the trading of EUAs as a commodity, and that 
jurisdiction over the trading of EUAs is held by the relevant competent 
authority of the individual EU member states in which the trading takes 
place, namely the Bundesanstalt f[uuml]r Finanzdienstleistungsaufsicht 
(BaFIN) in Germany and the Autoriteit Financi[euml]le Markten (AFM) in 
the Netherlands.\43\ The Information Bulletin will also discuss any 
relief, if granted, by the Commission or the staff from any rules under 
the Act.
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    \43\ Article 22 of Regulation (EU) No. 596/2014 on market abuse 
(market abuse regulation) (``MAR'') requires each EU member state to 
designate a single administrative competent authority to ensure that 
the provisions of MAR are applied on its territory. Commission 
Regulation 596/2014, 2014 O.J. (L 173) 42. For a list of the 
competent authorities for each EU Member State. See https://www.esma.europa.eu/sites/default/files/mar.pdf.
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    The Information Bulletin will also disclose the trading hours of 
the Shares and that the NAV for the Shares will be calculated after 
4:00 p.m. E.T. each trading day. The Information Bulletin will disclose 
that information about the Shares will be publicly available on the 
Trust's website.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \44\ that an exchange have rules that 
are designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to remove 
impediments to, and perfect the mechanism of a free and open market 
and, in general, to protect investors and the public interest.
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    \44\ 15 U.S.C. 78f(b)(5).
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    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 and traded on the Exchange pursuant to the 
initial and continued listing criteria in NYSE Arca Rule 8.201-E. 
Further, the Exchange has demonstrated that the proposed rule change 
satisfies Section 6(b)(5) of the Act by showing that the ICE Endex is a 
regulated market of significant size that shares surveillance with the 
Exchange. The Exchange has in place surveillance procedures that are 
adequate to properly monitor trading in the Shares in all trading 
sessions and to deter and detect violations of Exchange rules and 
applicable federal securities laws. The Exchange may obtain information 
regarding trading in the Shares and Daily EUA Futures from ICE Endex 
with which the Exchange has entered into a CSSA. Also, pursuant to NYSE 
Arca Rule 8.201-E(g), the Exchange is able to obtain information 
regarding trading in the Shares and the underlying commodity through 
ETP Holders acting as registered Market Makers, in connection with such 
ETP Holders' proprietary trades which they effect on any relevant 
market. The Exchange represents that all EUAs held by the Trust will be 
held and maintained in the Union Registry and that the Trust will not 
invest in futures, options, options on futures, or swap contracts. The 
Exchange further represents that ICE Endex is the principal market for 
EUAs in which the Trust may invest, and that the Exchange can monitor 
those EUAs through its CSSA with ICE Endex.\45\
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    \45\ See the discussion in the ``Surveillance'' section, supra.
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    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that there is a considerable amount of information on EUAs and Daily 
EUA Futures available on public websites and through professional and 
subscription services. The trading prices for EUAs will be disseminated 
by on-line subscription services or by one or more major market data 
vendors during the NYSE Arca Core Trading Session. EEX also provides on 
its website, on a daily basis, transaction volumes and transaction 
prices for the EUA spot market. Additionally, ICE Endex provides on its 
website, on a daily basis, transaction volumes, transaction prices, 
daily settlement prices and historical settlement prices for Daily EUA 
Futures that were traded outside of block trades by EUA futures 
brokers. In addition, transaction volumes, transaction prices, daily 
settlement prices and historical settlement prices for Daily EUA 
Futures traded in block trades by futures brokers are available on a 
daily basis through a subscription service to ICE Endex. ICE Endex also 
provides the daily settlement price change of the Daily EUA Future on 
its website.
    In addition, the Trust's website (www.cotwoadvisors.com) will 
provide pricing information for EUAs and the Shares. Market prices for 
the Shares will be available from a variety of sources including 
brokerage firms, information websites and other information service 
providers. Quotation and last-sale information regarding the Shares 
will be disseminated through the facilities of the Consolidated Tape 
Association. The NAV of the Trust will be published on each day that 
the NYSE Arca is open for regular trading and will be posted on the 
Trust's website. The IFV relating to the Shares will be widely 
disseminated by one or more major market data vendors at least once 
every 15 seconds as required by NYSE Arca Rule 8.201-E(e)(2)(v). The 
Trust's website will also provide its prospectus and other relevant 
quantitative information regarding the Shares. The Trust will also 
provide website disclosure of its EUA holdings before 9:30 a.m. E.T. on 
each trading day. In addition, information regarding market price and 
trading volume of the Shares will be continually available on a real-
time basis throughout the day on brokers' computer screens and other 
electronic services. Information regarding the previous day's closing 
price and trading volume information for the Shares will be published 
daily in the financial section of newspapers.

[[Page 72535]]

    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of exchange-traded product that will enhance 
competition among market participants, to the benefit of investors and 
the marketplace. As noted above, the Exchange has in place surveillance 
procedures relating to trading in the Shares and may obtain information 
regarding trading in the Shares, EUAs and Daily EUA Futures from ICE 
Endex pursuant to the CSSA between the Exchange and ICE Endex. In 
addition, as noted above, investors will have ready access to 
information regarding the Trust's NAV, IFV, and quotation and last sale 
information for the Shares.

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 purposes of the Act. The Exchange believes the 
proposed rule change will enhance competition by accommodating Exchange 
trading of an additional exchange-traded product, and the first such 
product relating to physical carbon credits, which will enhance 
competition among market participants, to the benefit of investors and 
the marketplace.

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

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

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

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

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NYSEARCA-2024-70 on the subject line.

Paper Comments

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

All submissions should refer to file number SR-NYSEARCA-2024-70. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-NYSEARCA-2024-70 and should 
be submitted on or before September 26, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\46\
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    \46\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-19879 Filed 9-4-24; 8:45 am]
BILLING CODE 8011-01-P