[Federal Register Volume 90, Number 31 (Tuesday, February 18, 2025)]
[Notices]
[Pages 9783-9794]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-02680]
[[Page 9783]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102397; File No. SR-CboeBZX-2025-011]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To List and Trade Shares of the
21Shares Core Solana ETF Under BZX Rule 14.11(e)(4), Commodity-Based
Trust Shares
February 11, 2025.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on January 28, 2025, Cboe BZX Exchange, Inc. (``Exchange'' or ``BZX'')
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 Exchange. 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\ 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
Cboe BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (``Commission'' or ``SEC'')
a proposed rule change to list and trade shares of the 21Shares Core
Solana ETF (the ``Trust''),\3\ under BZX Rule 14.11(e)(4), Commodity-
Based Trust Shares.
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\3\ The Trust was formed as a Delaware statutory trust on June
3, 2024, and is operated as a grantor trust for U.S. federal tax
purposes. The Trust has no fixed termination date.
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The text of the proposed rule change is also available on the
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade the Shares under BZX Rule
14.11(e)(4),\4\ which governs the listing and trading of Commodity-
Based Trust Shares on the Exchange.\5\ 21Shares US LLC is the sponsor
of the Trust (the ``Sponsor''). The Shares will be registered with the
Commission by means of the Trust's registration statement on Form S-1
(the ``Registration Statement'').\6\ According to the Registration
Statement, the Trust is neither an investment company registered under
the Investment Company Act of 1940, as amended,\7\ nor a commodity pool
for purposes of the Commodity Exchange Act (``CEA''), and neither the
Trust nor the Sponsor is subject to regulation as a commodity pool
operator or a commodity trading adviser in connection with the Shares.
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\4\ The Commission approved BZX Rule 14.11(e)(4) in Securities
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148
(September 6, 2011) (SR-BATS-2011-018).
\5\ Any of the statements or representations regarding the index
composition, the description of the portfolio or reference assets,
limitations on portfolio holdings or reference assets, dissemination
and availability of index, reference asset, and intraday indicative
values, or the applicability of Exchange listing rules specified in
this filing to list a series of Other Securities (collectively,
``Continued Listing Representations'') shall constitute continued
listing requirements for the Shares listed on the Exchange.
\6\ See the Registration Statement on Form S-1, dated June 28,
2024, submitted by the Sponsor on behalf of the Trust. The
descriptions of the Trust, the Shares, and the Index (as defined
below) contained herein are based, in part, on information in the
Registration Statement. The Registration Statement is not yet
effective, and the Shares will not trade on the Exchange until such
time that the Registration Statement is effective.
\7\ 15 U.S.C. 80a-1.
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Since 2017, the Commission has approved or disapproved exchange
filings to list and trade series of Trust Issued Receipts, including
spot-based Commodity-Based Trust Shares, on the basis of whether the
listing exchange has in place a comprehensive surveillance sharing
agreement with a regulated market of significant size related to the
underlying commodity to be held (the ``Winklevoss Test'').\8\ The
Commission has also consistently recognized that this not the exclusive
means by which an ETP listing exchange can meet this statutory
obligation.\9\ 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.\10\
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\8\ See Securities Exchange Act Release Nos. 78262 (July 8,
2016), 81 FR 78262 (July 14. 2016) (the ``Winklevoss Proposal'').
The Winklevoss Proposal was the first exchange rule filing proposing
to list and trade shares of an ETP that would hold spot bitcoin (a
``Spot Bitcoin ETP''). It was subsequently disapproved by the
Commission. See Securities Exchange Act Release No. 83723 (July 26,
2018), 83 FR 37579 (August 1, 2018) (the ``Winklevoss Order'');
99306 (January 10, 2024), 89 FR 3008 (January 17, 2024) (Self-
Regulatory Organizations; NYSE Arca, Inc.; The Nasdaq Stock Market
LLC; Cboe BZX Exchange, Inc.; Order Granting Accelerated Approval of
Proposed Rule Changes, as Modified by Amendments Thereto, To List
and Trade Bitcoin-Based Commodity-Based Trust Shares and Trust
Units) (the ``Spot Bitcoin ETP Approval Order''); 100224 (May 23,
2024), 89 FR 46937 (May 30, 2024) (Self-Regulatory Organizations;
NYSE Arca, Inc.; The Nasdaq Stock Market LLC; Cboe BZX Exchange,
Inc.; Order Granting Accelerated Approval of Proposed Rule Changes,
as Modified by Amendments Thereto, To List and Trade Shares of
Ether-Based Exchange-Traded Products) (the ``Spot ETH ETP Approval
Order'').
\9\ See Winklevoss Order, 83 FR at 37580; see Spot Bitcoin ETP
Approval Order, 89 FR at 3009; see Spot ETH ETP Approval Order 89 FR
at 46938.
\10\ The Exchange notes that that the Winklevoss Test was first
applied in 2017 in the Winklevoss Order, which was the first
disapproval order related to an exchange proposal to list and trade
a Spot Bitcoin ETP. All prior approval orders issued by the
Commission approving the listing and trading of series of Trust
Issued Receipts included no specific analysis related to a
``regulated market of significant size.'' In the Winklevoss Order
and the Commission's prior orders approving the listing and trading
of series of Trust Issued Receipts have noted that the spot
commodities and currency markets for which it has previously
approved spot ETPs are generally unregulated and that the Commission
relied on the underlying futures market as the regulated market of
significant size that formed the basis for approving the series of
Currency and Commodity-Based Trust Shares, including gold, silver,
platinum, palladium, copper, and other commodities and currencies.
The Commission specifically noted in the Winklevoss Order that the
approval order issued related to the first spot gold ETP ``was based
on an assumption that the currency market and the spot gold market
were largely unregulated.'' See Winklevoss Order at 37592. As such,
the regulated market of significant size test does not require that
the spot 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.
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The Commission recently issued orders granting approval for
proposals to list bitcoin- and ether-based commodity trust shares and
bitcoin-based, ether-based, and a combination of bitcoin- and ether-
based trust issued receipts (these proposed funds are nearly identical
to the Trust, but
[[Page 9784]]
proposed to hold bitcoin and/or ether, respectively, instead of SOL)
(``Spot Bitcoin ETPs'' and ``Spot ETH ETPs''). In both the Spot Bitcoin
ETP Approval Order and Spot ETH ETP Approval Order, the Commission
found that sufficient ``other means'' of preventing fraud and
manipulation had been demonstrated that justified dispensing with a
surveillance-sharing agreement of significant size. Specifically, the
Commission found that while the Chicago Mercantile Exchange (``CME'')
futures market for both bitcoin and ether were not of ``significant
size'' related to the spot market, the Exchange demonstrated that other
means could be reasonably expected to assist in surveilling for
fraudulent and manipulative acts and practices in the specific context
of the proposals.
As further discussed below, both the Exchange and the Sponsor
believe that this proposal and the included analysis are sufficient to
establish that the proposal is consistent with the Act itself and,
additionally, that there are sufficient ``other means'' of preventing
fraud and manipulation that warrant dispensing of the surveillance-
sharing agreement with a regulated market of significant size, as was
done with both Spot Bitcoin ETPs and Spot ETH ETPs, and that this
proposal should be approved.
Background
SOL is a digital asset, also referred to as a digital currency or
cryptocurrency, which serves as the unit of account on the open-source,
peer-to-peer Solana network (``Solana'' or ``Solana network''). The
Solana network source code allows for the creation of decentralized
applications that are supported by a transaction protocol referred to
as ``smart contracts,'' which includes the cryptographic operations
that verify and secure SOL transactions. It is widely understood that
no single intermediary or entity operates or controls the Solana
network (referred to as ``decentralization''), the transaction
validation and recordkeeping infrastructure of which is collectively
maintained by a distributed network of nodes and validators.
The Solana network allows people to exchange tokens of value,
referred to as ``SOL'', which are recorded on a distributed public
recordkeeping system or ledger known as a blockchain (the ``Solana
Blockchain''), and which can be used to pay for goods and services,
including computational power on the Solana network, or converted to
fiat currencies, such as the U.S. dollar, at rates determined on
digital asset platforms or in individual peer-to-peer transactions. The
Solana protocol introduced the proof-of-history (``PoH'') timestamping
mechanism, which it uses in conjunction with proof-of-stake. PoH
automatically orders on-chain transactions by creating a historical
record that proves an event has occurred at a specific moment in time.
PoH is intended to provide a transaction processing speed and capacity
advantage over other blockchain networks like bitcoin and ether, which
rely on sequential production of blocks and can lead to delays caused
by validator confirmations.
In light of these factors, among others, the Sponsor believes
that it is applying the proper legal standards in making a good
faith determination that it believes SOL is not presently and under
these circumstances a security under federal law in light of the
uncertainties inherent in applying the Howey and Reves tests.\11\ As
noted numerous times by the Commission as it relates to crypto
assets, a crypto asset is not itself a security, but rather can be
the object of an investment contract based on the full set of
contracts, expectations, and understanding centered on the sales and
distribution of the crypto asset.\12\ Thus, even where the facts and
circumstances dictate that an investment contract exists, the token
is not itself an investment contract and the investment contract
does not exist in perpetuity. The investment contract (and thus
security) analysis is a facts and circumstances dependent evaluation
related to all circumstances surrounding the buying or selling of
the crypto asset. In the Amended Binance Complaint, the Commission
notes the following:
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\11\ See SEC v. Ripple Labs, 2023 WL 4507900 at 15, (S.D.N.Y.
July 13, 2023) (``(XRP, as a digital token, is not in and of itself
a `contract, transaction[,] or scheme' that embodies the Howey
requirements of an investment contract.)''); SEC v. Terraform Labs,
2023 WL 4858299 at 33 (S.D.N.Y. July 31, 2023) (``To be sure, the
original UST and LUNA coins, as originally created and when
considered in isolation, might not then have been, by themselves,
investment contracts. Much as the orange groves in Howey would not
be considered securities if they were sold apart from the
cultivator's promise to share any profits derived by their
cultivation, the term ``security'' also cannot be used to describe
any crypto-assets that were not somehow intermingled with one of the
investment ``protocols,'' did not confer a ``right to . . .
purchase'' another security, or were otherwise not tied to the
growth of the Terraform blockchain ecosystem''); SEC v. Coinbase,
2024 WL 134037 at 29 (S.D.N.Y. March 27, 2024 at 29) (``As a
preliminary matter, the SEC does not appear to contest that tokens,
in and of themselves, are not securities.''); SEC v. Coinbase,
Transcript of Oral Arguments. (S.D.N.Y. Jan. 17, 2024) (MR.
COSTELLO: ``The token itself is not the security,'' at page 21) (MR.
COSTELLO: ``It's that network or ecosystem, that is what drives the
value of the token because the token as code is linked to that
ecosystem. It is tied to it. It cannot be separated from it. As the
value of that network or platform or ecosystem increases, so does
the value of the token. And the issuers and the project team, they
drive the value of the ecosystem. So your token being part of this
ecosystem is going up or down in value based entirely on what these
issuers and project team members are doing and continuing to do. So
it is their conduct that would be relevant for the Howey analysis,''
at page 19). See also CFTC v. Sam Ikkurty; In the U.S. District
Court for the Northern District of Illinois, Eastern Division, No.
22-cv-02465, July 1, 2024, which stated that ``OHM and Klima, two
non-Bitcoin virtual currencies . . . qualify as commodities,''
noting those virtual currencies fall into the same general class as
Bitcoin, on which there is regulated futures trading; CFTC v. My Big
Coin Pay, Inc., 334 F. Supp. 3d 492, 498 (D. Mass. 2018) (finding
non-Bitcoin virtual currency is a commodity because ``the CEA only
requires the existence of futures trading within a certain class
(e.g., ``natural gas'') in order for all items within that class
(e.g., ``West Coast'' natural gas) to be considered commodities.'').
\12\ See SEC v. Telegram Grp., Inc., 448 F. Supp. 3d 352, 379
(S.D.N.Y. 2020); SEC v. Binance Holdings Limited, No. 1-23-cv-01599,
(D.D.C. Sep 12, 2024) ECF No 273 (Plaintiff Securities and Exchange
Commission's Memorandum of Law in Support of Motion for Leave to
Amend the Complaint) (the ``Amended Binance Complaint).
Specifically, footnote 6 of the Amended Binance Complaint stated:
``As this Court noted and as the SEC reiterates, with its use of the
term ``crypto asset securities,'' the SEC is not referring to the
crypto asset itself as the security; rather, as the SEC has
consistently maintained since the very first crypto asset Howey case
the SEC litigated, the term is a shorthand. See Telegram, 448 F.
Supp. 3d 352, 379 (``While helpful as a shorthand reference, the
security in this case is not simply the [crypto asset], which is
little more than alphanumeric cryptographic sequence . . . [the]
security . . . [in] [t]his case . . . consists of the full set of
contracts, expectations, and understandings centered on the sales
and distribution of the [crypto asset].''). Nevertheless, to avoid
any confusion, the PAC no longer uses the shorthand term, and the
SEC regrets any confusion it may have invited in this regard. MTD
Order at 19-20. As the Court explained, the crypto asset is the
subject of the investment contract. Defendants appear to argue that,
even if the Ten Crypto Assets were offered and sold as securities
during the ICOs, they do not remain securities into perpetuity. The
SEC is not advancing this argument. The SEC's allegations with
respect to the Ten Crypto Assets at issue in secondary markets are
that that their promotions and economic realities have not changed
in any meaningful way under Howey, such that they continue to be
offered and sold as investment contracts.''
Defendants appear to argue that, even if the Ten Crypto Assets
were offered and sold as securities during the ICOs, they do not
remain securities into perpetuity. The SEC is not advancing this
argument. The SEC's allegations with respect to the Ten Crypto
Assets at issue in secondary markets are that that their promotions
and economic realities have not changed in any meaningful way under
Howey, such that they continue to be offered and sold as investment
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contracts.
This footnote is presented in the context of the argument that
transactions in Solana (among other assets) that occur on Binance's
platforms are investment contracts and thus represent securities
transactions. The Amended Binance Complaint also includes extensive
discussion about Binance's role in promoting the Ten Crypto Assets. A
broad reading of this footnote could lead one to believe that the Ten
Crypto Assets discussed therein are in every context considered an
[[Page 9785]]
investment contract and therefore in every context are a security.
However that reading would contradict other statements from both the
SEC and the courts, such as from Telegram: ``[the] security . . . [in]
[t]his case . . . consists of the full set of contracts, expectations,
and understandings centered on the sales and distribution of the
[crypto asset].'' The ``full set of contracts, expectations, and
understandings'' is critical and seems to be the basis for inclusion of
Binance's role in promoting the Ten Crypto Assets in the Amended
Binance Complaint. In this instance, the details about the vehicle
through which a crypto asset is being held and the way that vehicle
will be bought and sold seem to clearly be part of the ``full set of
contracts, expectations, and understandings'' and therefore would
warrant a separate investment contract analysis from cases like the
Amended Binance Complaint unless there was another instance to
analogize in which Solana had been deemed a security.
Here, however, the facts and circumstances are much different than
in any prior complaint, including the Amended Binance Complaint, and
therefore such prior determinations by the Commission that Solana is a
security under the specific applicable sets of facts and circumstances
should not apply as it relates to this rule filing and the specific
facts and circumstances presented herein.
Section 6(b)(5) and the Applicable Standards
The Commission has approved numerous series of Trust Issued
Receipts,\13\ including Commodity-Based Trust Shares,\14\ 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;
\15\ 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 the manipulation concerns previously articulated by the
Commission are sufficiently mitigated to the point that they are
outweighed by quantifiable investor protection issues that would be
resolved by approving this proposal.
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\13\ See Exchange Rule 14.11(f).
\14\ Commodity-Based Trust Shares, as described in Exchange Rule
14.11(e)(4), are a type of Trust Issued Receipt.
\15\ Much like bitcoin and ETH, the Exchange believes that SOL
is resistant to price manipulation and that ``other means to prevent
fraudulent and manipulative acts and practices'' exist to justify
dispensing with the requisite surveillance sharing agreement. The
geographically diverse and continuous nature of SOL trading render
it difficult and prohibitively costly to manipulate the price of
SOL. The fragmentation across platforms and the capital necessary to
maintain a significant presence on each trading platform make
manipulation of SOL prices through continuous trading activity
challenging. To the extent that there are trading platforms engaged
in or allowing wash trading or other activity intended to manipulate
the price of SOL on other markets, such pricing does not normally
impact prices on other trading platforms because participants will
generally ignore markets with quotes that they deem non-executable.
Moreover, the linkage between SOL markets and the presence of
arbitrageurs in those markets means that the manipulation of the
price of SOL on any single venue would require manipulation of the
global SOL price in order to be effective. Arbitrageurs must have
funds distributed across multiple trading platforms in order to take
advantage of temporary price dislocations, thereby making it
unlikely that there will be strong concentration of funds on any
particular trading platforms or OTC platform. Further, the speed and
relatively inexpensive nature of transactions on the Solana network
allow arbitrageurs to quickly move capital between trading platforms
where price dislocations may occur. As a result, the potential for
manipulation on a trading platform would require overcoming the
liquidity supply of such arbitrageurs who are effectively
eliminating any cross-market pricing differences.
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As noted above, the Commission has recognized that the ``regulated
market of significant size'' standard is not the only means for
satisfying Section 6(b)(5) of the Act, specifically providing that a
listing exchange could demonstrate that ``other means to prevent
fraudulent and manipulative acts and practices'' are sufficient to
justify dispensing with the requisite surveillance-sharing
agreement.\16\ While there is currently no futures market for SOL, in
the Spot Bitcoin ETF Approval Order and Spot ETH ETF Approval Order the
Commission determined that the CME bitcoin futures market and CME ETH
future market, respectively, were not of ``significant size'' related
to the spot market. Instead,the Commission found that sufficient
``other means'' of preventing fraud and manipulation had been
demonstrated that justified dispensing with a surveillance-sharing
agreement of significant size. The Exchange and Sponsor believe that
this proposal provides for other means of preventing fraud and
manipulation justify dispensing with a surveillance-sharing agreement
of significant size.
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\16\ See Winklevoss Order at 37580. The Commission has also
specifically noted that it ``is not applying a `cannot be
manipulated' standard; instead, the Commission is examining whether
the proposal meets the requirements of the Exchange Act and,
pursuant to its Rules of Practice, places the burden on the listing
exchange to demonstrate the validity of its contentions and to
establish that the requirements of the Exchange Act have been met.''
Id. at 37582.
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Over the past several years, U.S. investor exposure to SOL has
grown into the billions of dollars, mostly through transactions in spot
SOL on digital asset trading platforms. The Exchange believes that
approving this proposal (and comparable proposals) provides the
Commission with the opportunity to allow U.S. investors with access to
SOL in a regulated and transparent exchange-traded vehicle that would
act to limit risk to U.S. investors by: (i) reducing premium and
discount volatility; (ii) reducing management fees through meaningful
competition; and (iii) providing an alternative to custodying spot SOL.
The Exchange believes that the policy concerns are mitigated by the
fact that the Exchange believes that the underlying reference asset is
not susceptible to manipulation because the nature of the SOL ecosystem
makes manipulation of SOL difficult. The geographically diverse and
continuous nature of SOL trading makes it difficult and prohibitively
costly to manipulate the price of SOL and, in many instances, the SOL
market is generally less susceptible to manipulation than the equity,
fixed income, and commodity futures markets. There are a number of
reasons this is the case, including that there is not inside
information about revenue, earnings, corporate activities, or sources
of supply; manipulation of the price on any single venue would require
manipulation of the global SOL price in order to be effective; a
substantial over-the-counter market provides liquidity and shock-
absorbing capacity; SOL's 24/7/365 nature provides constant arbitrage
opportunities across all trading venues; and it is unlikely that any
one actor could obtain a dominant market share.
Further, SOL is arguably less susceptible to manipulation than
other commodities that underlie ETPs; there may be inside information
relating to the supply of the physical commodity such as the discovery
of new sources of supply or significant disruptions at mining
facilities that supply the commodity that simply are inapplicable as it
relates to certain cryptoassets, including SOL. Further, the Exchange
believes that the fragmentation across SOL trading platforms, the time
stamping of blocks and the proof-of-history mechanism, and the capital
necessary to maintain a significant presence on each trading platform
make
[[Page 9786]]
manipulation of SOL prices through continuous trading activity
unlikely. Moreover, the linkage between the SOL markets and the
presence of arbitrageurs in those markets means that the manipulation
of the price of SOL on any single venue would require manipulation of
the global SOL price in order to be effective. Arbitrageurs must have
funds distributed across multiple SOL trading platforms in order to
take advantage of temporary price dislocations, thereby making it
unlikely that there will be strong concentration of funds on any
particular SOL trading platform. As a result, the potential for
manipulation on a particular SOL trading platform would require
overcoming the liquidity supply of such arbitrageurs who are
effectively eliminating any cross-market pricing differences. For all
of these reasons, SOL is not particularly susceptible to manipulation,
especially as compared to other approved ETP reference assets.
21Shares Core Solana ETF
Delaware Trust Company is the trustee (``Trustee''). A third party
will be the administrator (``Administrator'') and transfer agent
(``Transfer Agent''), and will act as custodian of the Trust's cash and
cash equivalents (``Cash Custodian''). Foreside Global Services, LLC
will be the marketing agent (``Marketing Agent'') in connection with
the creation and redemption of ``Baskets'' of Shares. Coinbase Custody
Trust Company, LLC (the ``Custodian''), will be responsible for custody
of the Trust's SOL.
According to the Registration Statement, each Share will represent
a fractional undivided beneficial interest in the Trust. The Trust's
assets will only consist of SOL, cash, or cash and cash
equivalents.\17\
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\17\ Cash equivalents are short-term instruments with maturities
of less than 3 months.
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According to the Registration Statement, the Trust will be neither
an investment company registered under the Investment Company Act of
1940, as amended,\18\ nor a commodity pool for purposes of the CEA, and
neither the Trust nor the Sponsor is subject to regulation as a
commodity pool operator or a commodity trading adviser in connection
with the Shares.
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\18\ 15 U.S.C. 80a-1.
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Neither the Trust, nor the Sponsor, nor the Custodian, nor any
other person associated with the Trust will, directly or indirectly,
engage in action where any portion of the Trust's SOL becomes subject
to the SOL proof-of-stake validation or is used to earn additional SOL
or generate income or other earnings. The Trust will not acquire and
will disclaim any incidental right (``IR'') or IR asset received, for
example as a result of forks or airdrops, and such assets will not be
taken into account for purposes of determining NAV.
When the Trust creates or redeems its Shares, it will do so in cash
transactions in blocks of 10,000 Shares (a ``Creation Basket'') at the
Trust's net asset value (``NAV''). Authorized participants will
deliver, or facilitate the delivery of, cash to the Trust's account
with the Cash Custodian in exchange for Shares when they create Shares,
and the Trust, through the Cash Custodian, will deliver cash to such
authorized participants when they redeem Shares with the Trust.
Authorized participants may then offer Shares to the public at prices
that depend on various factors, including the supply and demand for
Shares, the value of the Trust's assets, and market conditions at the
time of a transaction.
As noted above, the Trust is designed to protect investors against
the risk of losses through fraud and insolvency that arise by holding
SOL on centralized platforms. Specifically, the Trust is designed to
protect investors as follows:
(i) Assets of the Trust Protected From Insolvency
The Trust's SOL will be held by its Custodian, which is a New York
chartered trust company overseen by the NYDFS and a qualified custodian
under Rule 206-4 of the Investment Adviser Act. The Custodian will
custody the Trust's SOL pursuant to a custody agreement, which requires
the Custodian to maintain the Trust's SOL in segregated accounts that
clearly identify the Trust as owner of the accounts and assets held on
those accounts; the segregation will be both from the proprietary
property of the Custodian and the assets of any other customer. Such an
arrangement is generally deemed to be ``bankruptcy remote,'' that is,
in the event of an insolvency of the Custodian, assets held in such
segregated accounts would not become property of the Custodian's estate
and would not be available to satisfy claims of creditors of the
Custodian. In addition, according to the Registration Statement, the
Custodian carries fidelity insurance, which covers assets held by the
Custodian in custody from risks such as theft of funds. These
arrangements provide significant protections to investors and could
have mitigated the type of losses incurred by investors in the numerous
crypto-related insolvencies, including Celsius, Voyager, BlockFi, and
FTX.
(ii) Trust's Transfer Agent Will Instruct Disposition of Trust's SOL
According to the Registration Statement, except with respect to
sale of SOL from time to time to cover expenses of the Trust, the only
time SOL will move into or out from the Trust will be with respect to
creations or redemptions of Shares of the Trust. In such cases, a third
party will use cash to buy and deliver SOL to create Shares or withdraw
and sell SOL for cash to redeem Shares, on behalf of the Trust.
Authorized participants will deliver cash to the Trust's account with
the Cash Custodian in exchange for Shares of the Trust, and the Trust,
through the Cash Custodian, will deliver cash to authorized
participants when those authorized participants redeem Shares of the
Trust. The Transfer Agent will facilitate the settlement of Shares in
response to the placement of creation orders and redemption orders from
authorized participants. The creation and redemption procedures are
administered by the Transfer Agent, an independent third party.
Specifically, Shares are issued in registered form in accordance with
the Trust agreement.\19\ The Transfer Agent has been appointed
registrar and transfer agent for the purpose of transferring Shares in
certificated form. The Transfer Agent keeps a record of all holders of
the Shares in certified form in the registry. The Sponsor recognizes
transfers of Shares in certified form only if done in accordance with
the Trust agreement. In other words, according to the Registration
Statement, with very limited exceptions, the Sponsor will not give
instructions with respect to the transfer or disposition of the Trust's
SOL. SOL owned by the Trust will at all times be held by, and in the
control of, the Custodian, and transfer of such SOL to or from the
Custodian will occur only in connection with creation and redemptions
of Shares. This will provide safeguards against the movement of SOL
owned by the Trust by or to the Sponsor or affiliates of the Sponsor.
---------------------------------------------------------------------------
\19\ The Trust agreement refers to the ``Amended and Restated
Trust Agreement of 21Shares Core Solana ETF.''
---------------------------------------------------------------------------
(iii) Trust's Assets Are Subject to Regular Audit
According to the Registration Statement, audit trails exist for all
movement of SOL within Custodian-controlled SOL wallets and are audited
annually for accuracy and completeness by an independent external audit
firm. In addition, the Trust will be audited by
[[Page 9787]]
an independent registered public accounting firm on a regular basis.
(iv) Trust Is Subject to the Exchange's Obligations of Companies Listed
on the Exchange and Applicable Corporate Governance Requirements
The Trust will be subject to the obligations of companies listed on
the Exchange set forth in BZX Rule 14.6, which require the listed
companies to make public disclosure of material events and any
notifications of deficiency by the Exchange, file and distribute period
financial reports, engage independent public accountants registered
with the Exchange, among other things. Such disclosures serve a key
investor protection role. In addition, the Trust will be subject to the
corporate governance requirements for companies listed on the Exchange
set forth in BZX Rule 14.10.
Investment Objective
According to the Registration Statement and as further described
below, the investment objective of the Trust will be to seek to track
the performance of SOL, as measured by the performance of a specific
index (the ``Index''), as defined below, adjusted for the Trust's
expenses and other liabilities. In seeking to achieve its investment
objective, the Trust will hold SOL and will value the Shares daily
based on the Index. The Trust will process all creations and
redemptions in cash transactions with authorized participants. The
Trust is not actively managed.
The Index
The Trust will use the CME CF Solana-Dollar Reference Rate--New
York Variant (the ``Index'') to calculate the Trust's NAV. The Trust
will determine the SOL Index price and value its Shares daily based on
the value of SOL as reflected by the Index. The Index will be
calculated daily and aggregates the notional value of SOL trading
across major SOL spot trading platforms.
Net Asset Value
NAV means the total assets of the Trust (which includes all SOL and
cash and cash equivalents) less total liabilities of the Trust. The
Administrator determines the NAV of the Trust on each day that the
Exchange is open for regular trading, as promptly as practical after
4:00 p.m. ET. The NAV of the Trust is the aggregate value of the
Trust's assets less its estimated accrued but unpaid liabilities (which
include accrued expenses). In determining the Trust's NAV, the
Administrator values the SOL held by the Trust based on the price set
by the Index as of 4:00 p.m. ET. The Administrator also determines the
NAV per Share.
The NAV for the Trust will be calculated by the Administrator once
a day and will be disseminated daily to all market participants at the
same time.
If the Index is not available, or if the Sponsor determines in good
faith that the Index does not reflect an accurate SOL price, then the
Administrator will employ an alternative method to determine the fair
value of the Trust's assets.\20\
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\20\ Such alternative method will only be employed on an ad hoc
basis. Any permanent change to the calculation of the NAV would
require a proposed rule change under Rule 19b-4.
---------------------------------------------------------------------------
Availability of Information
In addition to the price transparency of the Index, the Trust will
provide information regarding the Trust's SOL holdings as well as
additional data regarding the Trust. The website for the Trust, which
will be publicly accessible at no charge, will contain the following
information: (a) the current NAV per Share daily and the prior business
day's NAV per Share and the reported BZX Official Closing Price; \21\
(b) the BZX Official Closing Price in relation to the NAV per Share as
of the time the NAV is calculated and a calculation of the premium or
discount of such price against such NAV per Share; (c) data in chart
form displaying the frequency distribution of discounts and premiums of
the BZX Official Closing Price against the NAV per Share, within
appropriate ranges for each of the four previous calendar quarters (or
for the life of the Trust, if shorter); (d) the prospectus; and (e)
other applicable quantitative information. The aforementioned
information will be published as of the close of business and available
on the Sponsor's website at www.21shares.com, or any successor thereto.
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\21\ As defined in Rule 11.23(a)(3), the term ``BZX Official
Closing Price'' shall mean the price disseminated to the
consolidated tape as the market center closing trade.
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The Intraday Indicative Value (``IIV'') will be calculated by using
the prior day's closing NAV per Share as a base and updating that value
during Regular Trading Hours to reflect changes in the value of the
Trust's SOL during the trading day. The IIV disseminated during Regular
Trading Hours should not be viewed as an actual real-time update of the
NAV, which will be calculated only once at the end of each trading day.
The IIV may differ from the NAV due to the differences in the time
window of trades used to calculate each price (the NAV uses the Index
price as of 4 p.m. ET, whereas the IIV draws prices from the last trade
on each Constituent Platform \22\ in an effort to produce a relevant,
real-time price). The Trust will provide an IIV per Share updated every
15 seconds, as calculated by the Exchange or a third-party financial
data provider during the Exchange's Regular Trading Hours (9:30 a.m. to
4:00 p.m. E.T.). The IIV will be widely disseminated on a per Share
basis every 15 seconds during the Exchange's Regular Trading Hours
through the facilities of the consolidated tape association (CTA) and
Consolidated Quotation System (CQS) high speed lines. In addition, the
IIV will be available through on-line information services.
---------------------------------------------------------------------------
\22\ The Constituent Platforms are the same platforms used to
calculate the Index.
---------------------------------------------------------------------------
The price of SOL will be made available by one or more major market
data vendors, updated at least every 15 seconds during Regular Trading
Hours.
As noted above, the Index is calculated daily and aggregates the
notional value of SOL trading activity across major SOL spot trading
platforms. Index data, value, and the description of the Index are
based on information made publicly available by the Index Provider on
its website.
Quotation and last sale information for SOL is widely disseminated
through a variety of major market data vendors, including Bloomberg and
Reuters. Information relating to trading, including price and volume
information, in SOL is available from major market data vendors and
from the trading platforms on which SOL are traded. Depth of book
information is also available from SOL trading platforms. The normal
trading hours for SOL trading platforms are 24 hours per day, 365 days
per year.
Information regarding market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. Information
regarding the previous day's BZX Official Closing Price and trading
volume information for the Shares will be published daily in the
financial section of newspapers. Quotation and last-sale information
regarding the Shares will be disseminated through the facilities of the
CTA.
The Custodian
The Custodian carefully considers the design of the physical,
operational, and cryptographic systems for secure storage of the
Trust's private keys in an effort to lower the risk of loss or theft.
The
[[Page 9788]]
Custodian utilizes a variety of security measures to ensure that
private keys necessary to transfer digital assets remain uncompromised
and that the Trust maintains exclusive ownership of its assets. The
operational procedures of the Custodian are reviewed by third-party
advisors with specific expertise in physical security. The devices that
store the keys will never be connected to the internet or any other
public or private distributed network--this is colloquially known as
``cold storage.'' Only specific individuals are authorized to
participate in the custody process, and no individual acting alone will
be able to access or use any of the private keys. In addition, no
combination of the executive officers of the Sponsor or the investment
professionals managing the Trust, acting alone or together, will be
able to access or use any of the private keys that hold the Trust's
SOL.
Creation and Redemption of Shares
When the Trust creates or redeems its Shares, it will do so in cash
transactions in blocks of 10,000 Shares that are based on the quantity
of SOL attributable to each Share of the Trust (e.g., a Creation
Basket) at the Trust's NAV. The authorized participants will deliver
only cash to create Shares and will receive only cash when redeeming
Shares. Further, authorized participants will not directly or
indirectly purchase, hold, deliver, or receive SOL as part of the
creation or redemption process or otherwise direct the Trust or a third
party with respect to purchasing, holding, delivering, or receiving SOL
as part of the creation or redemption process. The Trust will create
Shares by receiving SOL from a third party that is not the authorized
participant and the Trust--not the authorized participant--is
responsible for selecting the third party to deliver the SOL. Further,
the third party will not be acting as an agent of the authorized
participant with respect to the delivery of the SOL to the Trust or
acting at the direction of the authorized participant with respect to
the delivery of the SOL to the Trust. The Trust will redeem shares by
delivering SOL to a third party that is not the authorized participant
and the Trust--not the authorized participant--is responsible for
selecting the third party to receive the SOL. Further, the third party
will not be acting as an agent of the authorized participant with
respect to the receipt of the SOL from the Trust or acting at the
direction of the authorized participant with respect to the receipt of
the SOL from the Trust.
According to the Registration Statement, on any business day, an
authorized participant may place an order to create one or more
Creation Baskets. Purchase orders must be placed by 12:00 p.m. Eastern
Time, the close of regular trading on the Exchange, or another time
determined by the Sponsor. The day on which an order is received is
considered the purchase order date. The total deposit of cash required
is based on the combined NAV of the number of Shares included in the
Creation Baskets being created determined as of 4:00 p.m. ET on the
date the order to purchase is properly received. The Administrator
determines the quantity of SOL associated with a Creation Basket for a
given day by dividing the number of SOL held by the Trust as of the
opening of business on that business day, adjusted for the amount of
SOL constituting estimated accrued but unpaid fees and expenses of the
Trust as of the opening of business on that business day, by the
quotient of the number of Shares outstanding at the opening of business
divided by the number of Shares in a Creation Basket.
The procedures by which an authorized participant can redeem one or
more Creation Baskets mirror the procedures for the creation of
Creation Baskets.
The Sponsor will maintain ownership and control of SOL in a manner
consistent with good delivery requirements for spot commodity
transactions.
Rule 14.11(e)(4)--Commodity-Based Trust Shares
The Shares will be subject to BZX Rule 14.11(e)(4), which sets
forth the initial and continued listing criteria applicable to
Commodity-Based Trust Shares. The Exchange represents that, for initial
and continued listing, the Trust must be in compliance with Rule 10A-3
under the Act. A minimum of 10,000 Shares will be outstanding at the
commencement of listing on the Exchange. The Exchange will obtain a
representation that the NAV will be calculated daily and information
about the NAV and the assets of the Trust will be made available to all
market participants at the same time. The Exchange notes that, as
defined in Rule 14.11(e)(4)(C)(i), the Shares will be: (a) issued by a
trust that holds (1) a specified commodity \23\ deposited with the
trust, or (2) a specified commodity and, in addition to such specified
commodity, cash; (b) issued by such trust in a specified aggregate
minimum number in return for a deposit of a quantity of the underlying
commodity and/or cash; and (c) when aggregated in the same specified
minimum number, may be redeemed at a holder's request by such trust
which will deliver to the redeeming holder the quantity of the
underlying commodity and/or cash.
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\23\ For purposes of Rule 14.11(e)(4), the term commodity takes
on the definition of the term as provided in the Commodity Exchange
Act.
---------------------------------------------------------------------------
Upon termination of the Trust, the Shares will be removed from
listing. The Trustee, Delaware Trust Company, is a trust company having
substantial capital and surplus and the experience and facilities for
handling corporate trust business, as required under Rule
14.11(e)(4)(E)(iv)(a) and that no change will be made to the trustee
without prior notice to and approval of the Exchange. The Exchange also
notes that, pursuant to Rule 14.11(e)(4)(F), neither the Exchange nor
any agent of the Exchange shall have any liability for damages, claims,
losses or expenses caused by any errors, omissions or delays in
calculating or disseminating any underlying commodity value, the
current value of the underlying commodity required to be deposited to
the Trust in connection with issuance of Commodity-Based Trust Shares;
resulting from any negligent act or omission by the Exchange, or any
agent of the Exchange, or any act, condition or cause beyond the
reasonable control of the Exchange, its agent, including, but not
limited to, an act of God; fire; flood; extraordinary weather
conditions; war; insurrection; riot; strike; accident; action of
government; communications or power failure; equipment or software
malfunction; or any error, omission or delay in the reports of
transactions in an underlying commodity. Finally, as required in Rule
14.11(e)(4)(G), the Exchange notes that any registered market maker
(``Market Maker'') in the Shares must file with the Exchange in a
manner prescribed by the Exchange and keep current a list identifying
all accounts for trading in an underlying commodity, related commodity
futures or options on commodity futures, or any other related commodity
derivatives, which the registered Market Maker may have or over which
it may exercise investment discretion. No registered Market Maker shall
trade in an underlying commodity, related commodity futures or options
on commodity futures, or any other related commodity derivatives, in an
account in which a registered Market Maker, directly or indirectly,
controls trading activities, or has a direct interest in the profits or
losses thereof, which has not been reported to the Exchange as required
by this Rule. In addition to the existing obligations under Exchange
rules regarding the production of books and records (see, e.g., Rule
4.2), the
[[Page 9789]]
registered Market Maker in Commodity-Based Trust Shares shall make
available to the Exchange such books, records or other information
pertaining to transactions by such entity or registered or non-
registered employee affiliated with such entity for its or their own
accounts for trading the underlying physical commodity, related
commodity futures or options on commodity futures, or any other related
commodity derivatives, as may be requested by the Exchange.
The Exchange is able to obtain information regarding trading in the
Shares and the underlying SOL or any other SOL derivative through
members acting as registered Market Makers, in connection with their
proprietary or customer trades.
As a general matter, the Exchange has regulatory jurisdiction over
its Members and their associated persons, which include any person or
entity controlling a Member. To the extent the Exchange may be found to
lack jurisdiction over a subsidiary or affiliate of a Member that does
business only in commodities or futures contracts, the Exchange could
obtain information regarding the activities of such subsidiary or
affiliate through surveillance sharing agreements with regulatory
organizations of which such subsidiary or affiliate is a member.
Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares. The Exchange will halt trading in the Shares
under the conditions specified in BZX Rule 11.18. Trading may be halted
because of market conditions or for reasons that, in the view of the
Exchange, make trading in the Shares inadvisable. These may include:
(1) the extent to which trading is not occurring in the SOL underlying
the Shares; or (2) whether other unusual conditions or circumstances
detrimental to the maintenance of a fair and orderly market are
present. Trading in the Shares also will be subject to Rule
14.11(e)(4)(E)(ii), which sets forth circumstances under which trading
in the Shares may be halted.
If the IIV or the value of the Index is not being disseminated as
required, the Exchange may halt trading during the day in which the
interruption to the dissemination of the IIV or the value of the Index
occurs. If the interruption to the dissemination of the IIV or the
value of the Index persists past the trading day in which it occurred,
the Exchange will halt trading no later than the beginning of the
trading day following the interruption.
In addition, if the Exchange becomes aware that the NAV with
respect to the Shares is not disseminated to all market participants at
the same time, it will halt trading in the Shares until such time as
the NAV is available to all market participants.
Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. BZX will allow
trading in the Shares during all trading sessions on the Exchange. The
Exchange has appropriate rules to facilitate transactions in the Shares
during all trading sessions. As provided in BZX Rule 11.11(a) the
minimum price variation for quoting and entry of orders in securities
traded on the Exchange is $0.01 where the price is greater than $1.00
per share or $0.0001 where the price is less than $1.00 per share. The
Shares of the Trust will conform to the initial and continued listing
criteria set forth in BZX Rule 14.11(e)(4).
Surveillance
The Exchange represents that its surveillance procedures are
adequate to properly monitor the trading of the Shares on the Exchange
during all trading sessions and to deter and detect violations of
Exchange rules and the applicable federal securities laws. Trading of
the Shares through the Exchange will be subject to the Exchange's
surveillance procedures for derivative products, including Commodity-
Based Trust Shares. FINRA conducts certain cross-market surveillances
on behalf of the Exchange pursuant to a regulatory services agreement.
The Exchange is responsible for FINRA's performance under this
regulatory services agreement.
The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares or any other SOL
derivative with other markets and other entities that are members of
the ISG, and the Exchange, or FINRA, on behalf of the Exchange, or
both, may obtain trading information regarding trading in the Shares or
any other SOL derivative from such markets and other entities.\24\ The
Exchange may obtain information regarding trading in the Shares or any
other SOL derivative via ISG, from other exchanges who are members or
affiliates of the ISG, or with which the Exchange has entered into a
comprehensive surveillance sharing agreement.
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\24\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com.
---------------------------------------------------------------------------
In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
The Sponsor has represented to the Exchange that it will advise the
Exchange of any failure by the Trust or the Shares to comply with the
continued listing requirements, and, pursuant to its obligations under
Section 19(g)(1) of the Exchange Act, the Exchange will surveil for
compliance with the continued listing requirements. If the Trust or the
Shares are not in compliance with the applicable listing requirements,
the Exchange will commence delisting procedures under Exchange Rule
14.12.
Information Circular
Prior to the commencement of trading, the Exchange will inform its
members in an Information Circular of the special characteristics and
risks associated with trading the Shares. Specifically, the Information
Circular will discuss the following: (i) the procedures for the
creation and redemption of Creation Baskets (and that the Shares are
not individually redeemable); (ii) BZX Rule 3.7, which imposes
suitability obligations on Exchange members with respect to
recommending transactions in the Shares to customers; (iii) how
information regarding the IIV and the Trust's NAV are disseminated;
(iv) the risks involved in trading the Shares outside of Regular
Trading Hours \25\ when an updated IIV will not be calculated or
publicly disseminated; (v) the requirement that members deliver a
prospectus to investors purchasing newly issued Shares prior to or
concurrently with the confirmation of a transaction; and (vi) trading
information. The Information Circular will also reference the fact that
there is no regulated source of last sale information regarding SOL,
and that the Commission has no jurisdiction over the trading of SOL as
a commodity.
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\25\ Regular Trading Hours is the time between 9:30 a.m. and
4:00 p.m. Eastern Time.
---------------------------------------------------------------------------
In addition, the Information Circular will advise members, prior to
the commencement of trading, of the prospectus delivery requirements
applicable to the Shares. Members purchasing the Shares for resale to
investors will deliver a prospectus to such investors. The Information
Circular will also discuss any exemptive, no-action and interpretive
relief granted by the Commission from any rules under the Act.
[[Page 9790]]
2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act \26\ in general and Section 6(b)(5) of the Act \27\ in
particular in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system and, in general, to protect investors and the
public interest.
---------------------------------------------------------------------------
\26\ 15 U.S.C. 78f.
\27\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Commission has approved numerous series of Trust Issued
Receipts,\28\ including Commodity-Based Trust Shares,\29\ 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;
\30\ 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 on the whole, the manipulation concerns previously
articulated by the Commission are sufficiently mitigated to the point
that they are outweighed by quantifiable investor protection issues
that would be resolved by approving this proposal.
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\28\ See Exchange Rule 14.11(f).
\29\ Commodity-Based Trust Shares, as described in Exchange Rule
14.11(e)(4), are a type of Trust Issued Receipt.
\30\ The Exchange believes that SOL is resistant to price
manipulation and that ``other means to prevent fraudulent and
manipulative acts and practices'' exist to justify dispensing with
the requisite surveillance sharing agreement. The geographically
diverse and continuous nature of SOL trading render it difficult and
prohibitively costly to manipulate the price of SOL. The
fragmentation across SOL platforms and the capital necessary to
maintain a significant presence on each trading platform make
manipulation of SOL prices through continuous trading activity
challenging. To the extent that there are SOL trading platforms
engaged in or allowing wash trading or other activity intended to
manipulate the price of SOL on other markets, such pricing does not
normally impact prices on other trading platforms because
participants will generally ignore markets with quotes that they
deem non-executable. Moreover, the linkage between the SOL markets
and the presence of arbitrageurs in those markets means that the
manipulation of the price of SOL price on any single venue would
require manipulation of the global SOL price in order to be
effective. Arbitrageurs must have funds distributed across multiple
trading platforms in order to take advantage of temporary price
dislocations, thereby making it unlikely that there will be strong
concentration of funds on any particular SOL trading platform or OTC
platforms. As a result, the potential for manipulation on a trading
platform would require overcoming the liquidity supply of such
arbitrageurs who are effectively eliminating any cross-market
pricing differences.
---------------------------------------------------------------------------
As noted above, the Commission has recognized that the ``regulated
market of significant size'' standard is not the only means for
satisfying Section 6(b)(5) of the act, specifically providing that a
listing exchange could demonstrate that ``other means to prevent
fraudulent and manipulative acts and practices'' are sufficient to
justify dispensing with the requisite surveillance-sharing
agreement.\31\ The Exchange and Sponsor believe that such conditions
are present.
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\31\ See Winklevoss Order at 37580. The Commission has also
specifically noted that it ``is not applying a `cannot be
manipulated' standard; instead, the Commission is examining whether
the proposal meets the requirements of the Exchange Act and,
pursuant to its Rules of Practice, places the burden on the listing
exchange to demonstrate the validity of its contentions and to
establish that the requirements of the Exchange Act have been met.''
Id. at 37582.
---------------------------------------------------------------------------
The Exchange believes that the proposal is designed to protect
investors and the public interest. Over the past several years, U.S.
investor exposure to SOL has grown into the billions of dollars, mostly
through transactions in spot SOL on digital asset trading platforms.
The Exchange believes that approving this proposal (and comparable
proposals) provides the Commission with the opportunity to allow U.S.
investors with access to SOL in a regulated and transparent exchange-
traded vehicle that would act to limit risk to U.S. investors by: (i)
reducing premium and discount volatility; (ii) reducing management fees
through meaningful competition; and (iii) providing an alternative to
custodying spot SOL.
The Exchange believes that the policy concerns are mitigated by the
fact that the Exchange believes that the underlying reference asset is
not susceptible to manipulation because the nature of the SOL ecosystem
makes manipulation of SOL difficult. The geographically diverse and
continuous nature of SOL trading makes it difficult and prohibitively
costly to manipulate the price of SOL and, in many instances, the SOL
market is generally less susceptible to manipulation than the equity,
fixed income, and commodity futures markets. There are a number of
reasons this is the case, including that there is not inside
information about revenue, earnings, corporate activities, or sources
of supply; manipulation of the price on any single venue would require
manipulation of the global SOL price in order to be effective; a
substantial over-the-counter market provides liquidity and shock-
absorbing capacity; SOL's 24/7/365 nature provides constant arbitrage
opportunities across all trading venues; and it is unlikely that any
one actor could obtain a dominant market share. The graph below
reflects the evolution of SOL's market cap:
[[Page 9791]]
[GRAPHIC] [TIFF OMITTED] TN18FE25.000
Further, SOL is arguably less susceptible to manipulation than
other commodities that underlie ETPs; there may be inside information
relating to the supply of the physical commodity such as the discovery
of new sources of supply or significant disruptions at mining
facilities that supply the commodity that simply are inapplicable as it
relates to SOL. Additionally, the Exchange believes that the
fragmentation across SOL trading platforms, the time stamping of blocks
and the proof-of-history mechanism, and the capital necessary to
maintain a significant presence on each trading platform make
manipulation of SOL prices through continuous trading activity
unlikely. Moreover, the linkage between the SOL markets and the
presence of arbitrageurs in those markets means that the manipulation
of the price of SOL price on any single venue would require
manipulation of the global SOL price in order to be effective.
Arbitrageurs must have funds distributed across multiple SOL trading
platforms in order to take advantage of temporary price dislocations,
thereby making it unlikely that there will be strong concentration of
funds on any particular SOL trading platform. As a result, the
potential for manipulation on a particular SOL trading platform would
require overcoming the liquidity supply of such arbitrageurs who are
effectively eliminating any cross-market pricing differences. For all
of these reasons, SOL is not particularly susceptible to manipulation,
especially as compared to other approved ETP reference assets.
The graphs below demonstrate the price deviation across numerous
digital asset trading platforms:
BILLING CODE 8011-01-P
[GRAPHIC] [TIFF OMITTED] TN18FE25.001
[[Page 9792]]
[GRAPHIC] [TIFF OMITTED] TN18FE25.002
In addition, the Sponsor calculated the aggregated trading volume
of BTC, ETH, and SOL across major US centralized exchanges based on
data from June 2021 to June 2024. The data highlights the growing
significance of SOL in the spot digital asset market. Notably, SOL
consistently represents a substantial portion of the trading volume
across major US digital asset trading platforms, and is consistently
among the top traded digital assets, occasionally surpassing ETH's
volume.
[GRAPHIC] [TIFF OMITTED] TN18FE25.003
[[Page 9793]]
[GRAPHIC] [TIFF OMITTED] TN18FE25.004
BILLING CODE 8011-01-C
Commodity-Based Trust Shares
The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed on the Exchange pursuant to the initial and
continued listing criteria in Exchange Rule 14.11(e)(4). The Exchange
believes that its surveillance procedures are adequate to properly
monitor the trading of the Shares on the Exchange during all trading
sessions and to deter and detect violations of Exchange rules and the
applicable federal securities laws. Trading of the Shares through the
Exchange will be subject to the Exchange's surveillance procedures for
derivative products, including Commodity-Based Trust Shares. The issuer
has represented to the Exchange that it will advise the Exchange of any
failure by the Trust or the Shares to comply with the continued listing
requirements, and, pursuant to its obligations under Section 19(g)(1)
of the Exchange Act, the Exchange will surveil for compliance with the
continued listing requirements. If the Trust or the Shares are not in
compliance with the applicable listing requirements, the Exchange will
commence delisting procedures under Exchange Rule 14.12. The Exchange
may obtain information regarding trading in the Shares and listed SOL
derivatives via the ISG, from other exchanges who are members or
affiliates of the ISG, or with which the Exchange has entered into a
comprehensive surveillance sharing agreement.
Availability of Information
In addition to the price transparency of the Index, the Trust will
provide information regarding the Trust's SOL holdings as well as
additional data regarding the Trust. The website for the Trust, which
will be publicly accessible at no charge, will contain the following
information: (a) the current NAV per Share daily and the prior business
day's NAV per Share and the reported BZX Official Closing Price; \32\
(b) the BZX Official Closing Price in relation to the NAV per Share as
of the time the NAV is calculated and a calculation of the premium or
discount of such price against such NAV per Share; (c) data in chart
form displaying the frequency distribution of discounts and premiums of
the BZX Official Closing Price against the NAV per Share, within
appropriate ranges for each of the four previous calendar quarters (or
for the life of the Trust, if shorter); (d) the prospectus; and (e)
other applicable quantitative information. The aforementioned
information will be published as of the close of business and available
on the Sponsor's website at www.21shares.com, or any successor thereto.
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\32\ As defined in Rule 11.23(a)(3), the term ``BZX Official
Closing Price'' shall mean the price disseminated to the
consolidated tape as the market center closing trade.
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The Intraday Indicative Value (``IIV'') will be calculated by using
the prior day's closing NAV per Share as a base and updating that value
during Regular Trading Hours to reflect changes in the value of the
Trust's SOL during the trading day. The IIV disseminated during Regular
Trading Hours should not be viewed as an actual real-time update of the
NAV, which will be calculated only once at the end of each trading day.
The IIV may differ from the NAV due to the differences in the time
window of trades used to calculate each price (the NAV uses the Index
price as of 4 p.m. ET, whereas the IIV draws prices from the last trade
on each Constituent Platform \33\ in an effort to produce a relevant,
real-time price). The Trust will provide an IIV per Share updated every
15 seconds, as calculated by the Exchange or a third-party financial
data provider during the Exchange's Regular Trading Hours (9:30 a.m. to
4:00 p.m. ET). The IIV will be widely disseminated on a per Share basis
every 15 seconds during the Exchange's Regular Trading Hours through
the facilities of the consolidated tape association (CTA) and
Consolidated Quotation System (CQS) high speed lines. In addition, the
IIV will be available through on-line information services.
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\33\ The Constituent Platforms are the same platforms used to
calculate the Index.
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The price of SOL will be made available by one or more major market
data vendors, updated at least every 15 seconds during Regular Trading
Hours.
As noted above, the Index is calculated daily and aggregates the
notional value of SOL trading activity across major SOL spot trading
platforms. Index data, value, and the description of the Index are
based on information made publicly available by the Index Provider on
its website.
Quotation and last sale information for SOL is widely disseminated
through a variety of major market data vendors, including Bloomberg and
Reuters.
[[Page 9794]]
Information relating to trading, including price and volume
information, in SOL is available from major market data vendors and
from the trading platforms on which SOL are traded. Depth of book
information is also available from SOL trading platforms. The normal
trading hours for SOL trading platforms are 24 hours per day, 365 days
per year.
Information regarding market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. Information
regarding the previous day's BZX Official Closing Price and trading
volume information for the Shares will be published daily in the
financial section of newspapers. Quotation and last-sale information
regarding the Shares will be disseminated through the facilities of the
CTA.
In sum, the Exchange believes that this proposal is consistent with
the requirements of Section 6(b)(5) of the Act, that on the whole the
manipulation concerns previously articulated by the Commission are
sufficiently mitigated to the point that they are outweighed by
investor protection issues that would be resolved by approving this
proposal.
The Exchange believes that the proposal is, in particular, designed
to protect investors and the public interest. The investor protection
issues for U.S. investors has grown significantly over the last several
years, through premium/discount volatility and management fees for OTC
SOL Funds. As discussed throughout, this growth investor protection
concerns need to be re-evaluated and rebalanced with the prevention of
fraudulent and manipulative acts and practices concerns that previous
disapproval orders have relied upon.
For the above reasons, the Exchange believes that the proposed rule
change is consistent with the requirements of Section 6(b)(5) of the
Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. The Exchange notes that the
proposed rule change, rather will facilitate the listing and trading of
an additional exchange-traded product that will enhance competition
among both market participants and listing venues, to the benefit of
investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on 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 Exchange consents, the Commission will:
A. by order approve or disapprove such 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-CboeBZX-2025-011 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-CboeBZX-2025-011. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-CboeBZX-2025-011 and should
be submitted on or before March 11, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
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\34\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-02680 Filed 2-14-25; 8:45 am]
BILLING CODE 8011-01-P