[Federal Register Volume 90, Number 48 (Thursday, March 13, 2025)]
[Notices]
[Pages 12008-12015]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-03969]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102540; File No. SR-NASDAQ-2025-018]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Proposed Rule Change, as Modified by Amendment No.
1, To List and Trade Shares of the Canary HBAR ETF Under Nasdaq Rule
5711(d) (Commodity-Based Trust Shares)
March 7, 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 February 21, 2025, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') a proposed rule change to list and trade
shares of the Canary HBAR ETF under Nasdaq Rule 5711(d). On March 4,
2025, the Exchange filed Amendment No. 1 to the proposed rule change,
which replaced and superseded the original filing in its entirety. The
proposed rule change, as modified by Amendment No.1, is described in
Items I and II below, which Items have been prepared by the Exchange.
The Commission is publishing this notice to solicit comments on the
proposed rule change, as modified by Amendment No. 1, 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
The Exchange proposes to list and trade shares of the Canary HBAR
ETF (the ``Trust'') under Nasdaq Rule 5711(d) (``Commodity-Based Trust
Shares''). The shares of the Trust are referred to herein as the
``Shares.'' This Amendment No. 1 supersedes the original filing in its
entirety.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rulefilings, 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 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade the Shares under Nasdaq
Rule 5711(d),\3\ which governs the listing and trading of Commodity-
Based Trust Shares on the Exchange. Canary Capital Group LLC is the
sponsor of the Trust (the ``Sponsor''). The Shares will be registered
with the SEC by means of the Trust's registration statement on Form S-1
(the ``Registration Statement'').\4\ Any statements or representations
included in this proposal regarding: (a) the description of the
reference assets or trust holdings; (b) limitations on the reference
assets or trust holdings; (c) dissemination and availability of the
reference asset or intraday indicative value; or (d) the applicability
of Nasdaq listing rules specified in this proposal shall constitute
continued listing standards for the Shares listed on the Exchange.
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\3\ The Commission approved Nasdaq Rule 5711 in Securities
Exchange Act Release No. 66648 (March 23, 2012), 77 FR 19428 (March
30, 2012) (SR-NASDAQ-2012-013).
\4\ See Registration Statement on Form S-1, dated February 21,
2025, filed with the Commission by the Sponsor on behalf of the
Trust. The descriptions of the Trust, the Shares, the Index (as
defined below), and HBAR contained herein are based, in part, on
information in 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.
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Description of the Trust
The Shares will be issued by the Trust, a Delaware statutory trust.
The Trust will operate pursuant to a trust agreement (the ``Trust
Agreement''), as amended and/or restated from time to time. CSC
Delaware Trust Company, a Delaware corporation, is the trustee of the
Trust (the ``Trustee''). The Trust is managed and controlled by the
Sponsor. U.S. Bancorp Fund Services, LLC will be the administrator (the
``Administrator''), U.S. Bancorp Fund Services, LLC will be the
transfer agent (the ``Transfer Agent''), and U.S. Bank, N.A. will be
responsible for the custody of the Trust's cash (the ``Cash
Custodian''). BitGo Trust Company, Inc. and Coinbase Custody Trust
Company, LLC, (the ``Custodians'') will be responsible for custody of
the Trust's HBAR.\5\
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\5\ The Trust may engage additional custodians for its HBAR in
the future, each of whom may be referred to as a Custodian.
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The Trust's investment objective is to seek to provide exposure to
the value of the native asset of the Hedera Network (``HBAR'') held by
the Trust, less the expenses of the Trust's operations and other
liabilities. In seeking to achieve its investment objective, the Trust
will hold HBAR and establish its net asset value (``NAV'') by
referencing the price of HBAR in U.S. Dollars as calculated by the
CoinDesk Hedera USD CCIX 30min NY Rate a financial data website
integrating spot market prices from various digital asset trading
platforms (``Pricing Benchmark''). The Pricing Benchmark is calculated
by CoinDesk Indices, Inc. (the ``Benchmark Provider'') based on an
aggregation of executed trade flow of major HBAR trading platforms
(``Constituent Platforms'').
According to the Registration Statement, each Share will represent
a fractional undivided beneficial interest in and ownership of the
Trust. The Trust's assets will consist only of HBAR and cash. According
to the Registration Statement, the Trust is not a fund registered under
the Investment Company Act of 1940, as amended.\6\ Further, the Trust
is not a commodity pool for purposes of the Commodity Exchange Act of
1936, as amended (the ``CEA''), and the Sponsor is not subject to
regulation by the Commodity Futures Trading Commission (the ``CFTC'')
as a commodity pool operator or a commodity trading advisor in
connection with the Shares.
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\6\ 15 U.S.C. 80a-1.
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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 the Trust's net asset value (``NAV'').
When the Trust sells or redeems its Shares, it will do so in blocks
of 10,000 Shares (a ``Basket'') based on the quantity of HBAR
attributable to each
[[Page 12009]]
Share of the Trust (net of accrued but unpaid expenses and
liabilities). The Trust will allow for both an in-kind creation and
redemption process, and a cash creation and redemption process. As
such, for a creation of Shares, the creation shall be in either the
amount of HBAR represented by the Basket being created or the amount of
cash needed to purchase the amount of HBAR represented by the Basket
being created, as calculated by the Administrator. For a redemption of
Shares, the Sponsor shall arrange for either the HBAR represented by
the Basket to be redeemed to distributed or the HBAR represented by the
Basket to be redeemed and the cash proceeds distributed. Authorized
participants will deliver, or facilitate the delivery of, HBAR or cash
to the Trust's account with the Custodians or the Cash Custodian, as
applicable, in exchange for Shares when they purchase Shares, and the
Trust will deliver HBAR or 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. Owners of
the beneficial interests of the Shares who buy or sell Shares during
the day from their broker may do so at a premium or discount relative
to the per Share NAV of the Trust.
Investment Objective
According to the Registration Statement, the Trust's investment
objective is to track the performance of HBAR, as measured by the
Pricing Benchmark, adjusted for the Trust's expenses and other
liabilities. In seeking to achieve its investment objective, the Trust
will hold HBAR and will value its Shares daily as of 4:00 p.m. Eastern
Time (``ET'') using the same methodology used to calculate the Pricing
Benchmark. All of the Trust's HBAR will be held by the Custodians. The
Pricing Benchmark is calculated by the Benchmark Provider based on an
aggregation of executed trade flow of major HBAR trading platforms
(``Constituent Platforms'').
HBAR and the Hedera Network
According to the Registration Statement, the Hedera Network enables
people to interact and transact online efficiently and securely without
the need for third-party companies, which often collect and sell their
users' personal information. The purpose of the Hedera Network is to
provide a stable, trustworthy network for a wide variety of
decentralized, enterprise-grade applications. Although the primary
purpose of the Hedera Network is not to operate a payments system or
store of value, like most public distributed ledger technology
(``DLT'') networks, the Hedera Network requires a cryptocurrency to
properly operate and incentivize consensus and behavior on the network.
The Hedera Network's native cryptocurrency is HBAR, which serves two
purposes. First, it is used as a mechanism to secure the network
against cyberattacks through the Hedera Network's distributed consensus
process. Additionally, it provides the ``fuel'' that incentivizes and
pays for the computing resources necessary to enable the Hedera
Network.
The Hedera Network is built on the hashgraph distributed consensus
algorithm, invented by Dr. Leemon Baird and subsequently patented by
Swirlds, Inc. in 2016. Swirlds has granted to Hedera an exclusive non-
transferable, perpetual right and license to using hashgraph technology
for the limited and sole purpose of making the Hedera Network. The
hashgraph data structure and consensus algorithm provides a novel
platform for distributed consensus.
One central difference between hashgraphs and blockchains is the
way that they add transactions to their respective distributed ledgers.
Generally on a blockchain, blocks with records of transactions are
added to the data-chain one after the other to create a history of the
network's data. If two miners create blocks simultaneously, the
blockchain will momentarily fork and the network's nodes will choose to
continue adding to the longest chain, abandoning the shorter chain. The
sequential order must be maintained for the network to function and to
ensure the ledger consists of just one chain of blocks.
The Hedera Network is governed by the Hedera Governance Council
(``Hedera Council''), a rotating group of global organizations that
span across multiple industries and geographies. The primary
responsibilities of Hedera Council members are to: (i) participate in
the governance of the Hedera Network; and (ii) host and maintain a node
on the Hedera Network. Hedera Council members contribute their
expertise and experience in Hedera Council deliberations and decision-
making relating to software updates, Hedera Treasury management,
network pricing, regulatory compliance, and other key governance
matters.
As of February 20, 2025, the Hedera Council represented the largest
owner, holding approximately 10,624,000,000 HBAR, or 21.25% of the
total supply of HBAR, most in unreleased supply yet to be distributed
and held in treasury. On December 20, 2024, the Hedera Council
announced a grant of 7,000,000,000 HBAR to the Hedera Foundation,
representing 14% of the total supply of HBAR. On February 14, 2025,
3,500,000,000 HBAR of the grant was transferred to wallets controlled
by the Hedera Foundation. As of February 20, 2025, approximately
41,904,000,000 HBAR, or 83.8% of the total supply of HBAR was in
circulation distributed across multiple wallets.
Pricing Benchmark
The net assets of the Trust and its Shares are valued at on a daily
basis with reference to the Pricing Benchmark as of 4:00 p.m. ET, which
integrates spot market prices from various digital asset trading
platforms. The Pricing Benchmark is designed to reflect the performance
of HBAR in U.S. dollars. The Trust uses the Pricing Benchmark to
calculate its NAV, which is the aggregate U.S. dollar value of HBAR in
the Trust, based on the Pricing Benchmark, less its liabilities and
expenses. ``NAV per Share'' is calculated by dividing NAV by the number
of Shares currently outstanding.
Custody of the Trust's Assets
The Custodians will be responsible for custody of the Trust's HBAR.
The Custodians are qualified custodians under Rule 206-4 of the
Investment Adviser Act. The Custodians will custody the Trust's HBAR
pursuant to custody agreements. The custody agreements require the
Custodians to maintain the Trust's HBAR in segregated accounts that
clearly identify the Trust as owner of the accounts and assets held in
the accounts; the segregation will be both from the proprietary
property of the Custodians and the assets of any other customer. Such
arrangements are generally deemed to be ``bankruptcy remote,'' that is,
in the event of an insolvency of a 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, the Custodians carry fidelity insurance, which
covers assets held by the Custodians in custody from risks such as
theft of funds. HBAR owned by the Trust will at all times be held by,
and in the control of, the Custodians, and transfer of such HBAR to or
from the Custodians will occur only in connection with creation and
redemptions of Shares.
The Custodians carefully consider the design of the physical,
operational and
[[Page 12010]]
cryptographic systems for secure storage of the Trust's private keys in
an effort to lower the risk of loss or theft. The Custodians utilize 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 Custodians 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 HBAR.
Creation and Redemption of Shares
As stated in the Registration Statement, the Trust creates and
redeems Shares from time to time, but only in one or more Baskets. The
Trust would allow for both an in-kind creation and redemption process
as well as a cash creation and redemption process. As such, Baskets are
only made in exchange for delivery to the Trust or the distribution by
the Trust of the amount of HBAR or cash represented by the Baskets
being created or redeemed (the ``Basket Deposit''). The amount of HBAR
required in a Basket Deposit (the ``Basket HBAR Deposit'') and amount
of cash required in a Basket Deposit (the ``Basket Cash Deposit'') are
based on the quantity or value of the quantity, as applicable, of HBAR
and cash attributable to each Share of the Trust (net of accrued but
unpaid Sponsor Fees and any accrued but unpaid Extraordinary Expenses)
being created or redeemed determined as of 4:00 p.m. ET on the day the
order to create or redeem Baskets is properly received.
``Authorized Participants'' are the only persons that may place
orders to create and redeem Baskets. Authorized Participants must be
(1) registered broker-dealers or other securities market participants,
such as banks and other financial institutions, that are not required
to register as broker-dealers to engage in securities transactions
described below and (2) Depository Trust Company (``DTC'')
Participants. To become an Authorized Participant, a person must enter
into an Authorized Participant agreement with a distributor (the
``Distributor''), who is responsible for working with the Administrator
to review and approve, or reject, purchase and redemption orders of
Baskets placed by Authorized Participants.
Creation Procedures
On any business day, an Authorized Participant may place an order
with the Transfer Agent to create one or more Baskets. For purposes of
processing creation and redemption orders, a ``business day'' means any
day other than a day when the Exchange is closed for regular trading.
Purchase orders must be placed by the close of the Exchange's regular
market session of 9:30 a.m. to 4:00 p.m. ET (the ``Regular Market
Session'') on the Exchange or an earlier time as determined and
communicated by the Sponsor and its agent. A purchase order will be
effective on the date it is received in good order by the Transfer
Agent (``Purchase Order Date'').
The manner by which creations are made is dictated by the terms of
the Authorized Participant agreement. Creation orders may be
denominated and settled in an amount of HBAR (``In-Kind Creation
Order'') or cash (``Cash Creation Order''). By placing an In-Kind
Creation Order, an Authorized Participant agrees to facilitate (either
directly or through its designee) the deposit of HBAR with the
Custodian. By placing a Cash Creation Order, an Authorized Participant
agrees to facilitate the deposit of cash with the Cash Custodian. In
either case, if an Authorized Participant fails to consummate the
foregoing, the order will be cancelled or delayed until the full cash
deposit has been received. An Authorized Participant may not withdraw a
creation order without the prior consent of the Sponsor in its
discretion.
Following an Authorized Participant's In-Kind Creation Order, the
Trust's account at the Custodian must be credited with the required
HBAR by the end of the following business day or such later time as may
be agreed upon by the Authorized Participant and the Sponsor following
the Purchase Order Date. The Authorized Participant or its designee
will normally send the required HBAR in an ``on chain'' transaction
over the HBAR network. Upon receipt of the Basket HBAR Deposit amount
in the Trust's account at the Custodian, the Custodian will notify the
Transfer Agent, the Distributor, the Authorized Participant, and the
Sponsor that the Basket HBAR Deposit amount has been deposited. The
Transfer Agent will then direct DTC to credit the number of Shares
created to the Authorized Participant's DTC account.
Following an Authorized Participant's Cash Creation Order, the
Trust's account at the Cash Custodian must be credited with the Basket
Cash Deposit amount by the end of the following business day or such
earlier or later time as may be agreed upon by the Authorized
Participant and the Sponsor following the Purchase Order Date. Upon
receipt of the Basket Cash Deposit amount in the Trust's account at the
Cash Custodian, the Transfer Agent will notify the Distributor, the
Authorized Participant, and the Sponsor that the Basket Cash Amount has
been deposited. The Sponsor, on behalf of the Trust, will instruct an
HBAR trading counterparty to purchase the amount of HBAR equivalent in
value to the cash deposit amount associated with the creation order,
with such purchase transaction prearranged to be executed, in the
Sponsor's reasonable efforts, at the Pricing Benchmark price used by
the Trust to calculate NAV, taking into account any spread,
commissions, or other trading costs on the applicable Purchase Order
Date. The resulting HBAR will be deposited in the Trust's account with
the Custodians. Any slippage incurred (including, but not limited to,
any trading fees, spreads, or commissions), on a cash equivalent basis,
will be the responsibility of the Authorized Participant and not of the
Trust or Sponsor. To the extent the execution price of the HBAR
acquired by the trading counterparty exceeds the cash deposit amount,
such cash difference will be the responsibility of the Authorized
Participant and not the Trust or Sponsor. The Transfer Agent will then
direct DTC to credit the number of Shares created to the Authorized
Participant's DTC account.
Redemption Procedures
The procedures by which an Authorized Participant can redeem one or
more Baskets mirror the procedures for the creation of Baskets with an
additional safeguard on HBAR being removed from the HBAR Account at the
Custodian. On any business day, an Authorized Participant may place an
order with the Transfer Agent to redeem one or more Baskets. Redemption
orders must be placed by the close of the Regular Market Session on the
Exchange or an earlier time as determined and communicated by the
Sponsor and its agent. A redemption order will be effective on the date
it is received by the Transfer Agent (``Redemption Order Date'').
The manner by which redemptions are made is dictated by the terms
of the Authorized Participant agreement. Redemption orders are
denominated
[[Page 12011]]
and settled in HBAR (``In-Kind Redemption Order'') or cash (``Cash
Redemption Order''). By placing a Cash Redemption Order, an Authorized
Participant agrees to facilitate the deposit of Shares with the
Transfer Agent. If an Authorized Participant fails to consummate the
foregoing, the order will be cancelled or delayed until the required
Shares have been received. An Authorized Participant may not withdraw a
redemption order without the prior consent of the Sponsor in its
discretion.
In the case of an In-Kind Redemption Order, the redemption
distribution from the Trust consists of a movement of HBAR to the
redeeming designee of the Authorized Participant, representing the
amount of HBAR held by the Trust, net of accrued expenses and other
liabilities, evidenced by the Shares being redeemed on the Redemption
Order Date. In the case of a Cash Redemption Order, the redemption
distribution from the Trust consists of a transfer to the Authorized
Participant of an amount of cash that is in the same proportion to the
total assets of the Trust, net of accrued expenses and other
liabilities, on the Redemption Order Date, as the number of Shares to
be redeemed under the purchase order is in proportion to the total
number of Shares outstanding on the Redemption Order Date. With respect
to either an In-Kind Redemption Order or Cash Redemption Order, the
redemption distribution due from the Trust will be delivered once the
Transfer Agent notifies the Cash Custodian, the Distributor and the
Sponsor that the Authorized Participant has delivered the Shares
represented by the Baskets to be redeemed to the Transfer Agent's DTC
account. If the Transfer Agent's DTC account has not been credited with
all of the Shares of the Baskets to be redeemed, the redemption
distribution will be cancelled or delayed until such time as the
Transfer Agent confirms receipt of all such Shares.
By placing a redemption order, an Authorized Participant agrees to
deliver the Baskets to be redeemed through DTC's book-entry system to
the Trust by the end of the following business day or such later time
as may be agreed upon by the Authorized Participant and the Sponsor
following the Redemption Order Date. An Authorized Participant may not
withdraw a redemption order without the prior consent of the Sponsor in
its discretion.
Net Asset Value
As set forth in the Registration Statement, NAV means the total
assets of the Trust including, but not limited to, all HBAR and cash
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 accrued but
unpaid liabilities (which include accrued expenses). In determining the
Trust's NAV, the Administrator values the HBAR held by the Trust based
on the price set by the Pricing Benchmark 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.
Availability of Information and Intraday Indicative Value
In addition to the price transparency of the Pricing Benchmark, the
Trust will provide information regarding the Trust's HBAR 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 prior business day's NAV per Share; (b)
the prior business day's Nasdaq official closing price; (c) calculation
of the premium or discount of such Nasdaq official closing price
against such NAV per Share; (d) data in chart form displaying the
frequency distribution of discounts and premiums of the Exchange's
official closing price against the NAV, within appropriate ranges for
each of the four previous calendar quarters (or for the life of the
Trust, if shorter); (e) the prospectus; and (f) other applicable
quantitative information. The Trust will also disseminate the Trust's
holdings on a daily basis on the Trust's website. Quotation and last
sale information regarding the Shares will be disseminated through the
facilities of the relevant securities information processor.
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 the Exchange's Regular Market Session to reflect changes in the
value of the Trust's HBAR holdings during the trading day. The IIV
disseminated during the Regular Market Session should not be viewed as
an actual real-time update of the NAV, because NAV per Share is
calculated only once at the end of each trading day based upon the
relevant end-of-day values of the Trust's investments. The IIV will be
widely disseminated on a per-Share basis every 15 seconds during the
Regular Market Session through the facilities of the relevant
securities information processor by market data vendors. In addition,
the IIV will be available through online information services, such as
Bloomberg and Reuters.
Quotation and last sale information for HBAR is disseminated
through a variety of major market data vendors. Information related to
trading, including price and volume information, in HBAR is available
from major market data vendors and from the trading platforms on which
HBAR are traded. Depth of book information is also available from HBAR
trading platforms. The normal trading hours for HBAR 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 Nasdaq official closing price and trading
volume information for the Shares will be published daily in the
financial section of newspapers.
Applicable Standard
The Commission has previously 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.\7\ The Commission has also
[[Page 12012]]
consistently recognized, however, that this is not the exclusive means
by which an ETP listing exchange can meet this statutory obligation.\8\
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.
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\7\ See Securities Exchange Act Release Nos. 78262 (July 8,
2016), 81 FR 78262 (July 14. 2016) (the ``Winklevoss Proposal'').
The Winklevoss Proposal was subsequently disapproved by the
Commission. See Securities Exchange Act Release No. 83723 (July 26,
2018), 83 FR 37579 (August 1, 2018) (the ``Winklevoss Order'').
Prior orders from the Commission have pointed out that in every
prior approval order for Commodity-Based Trust Shares, there has
been a derivatives market that represents the regulated market of
significant size, generally a Commodity Futures Trading Commission
(the ``CFTC'') regulated futures market. Further to this point, the
Commission's prior orders have noted that the spot commodities and
currency markets for which it has previously approved spot ETPs are
generally unregulated and that the Commission relied on the
underlying futures market as the regulated market of significant
size that formed the basis for approving the series of Currency and
Commodity-Based Trust Shares, including gold, silver, platinum,
palladium, copper, and other commodities and currencies. The
Commission specifically noted in the Winklevoss Order that the
approval order issued related to the first spot gold ETP ``was based
on an assumption that the currency market and the spot gold market
were largely unregulated.'' See Winklevoss Order at 37592. As such,
the regulated market of significant size test does not require that
the spot 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. See Securities
Exchange Act No. 99306 (January 10, 2024), 89 FR 3008 (January 17,
2024) (Self-Regulatory Organizations; NYSE Arca, Inc.; The Nasdaq
Stock Market LLC; Cboe BZX Exchange, Inc.; Order Granting
Accelerated Approval of Proposed Rule Changes, as Modified by
Amendments Thereto, To List and Trade Bitcoin-Based Commodity-Based
Trust Shares and Trust Units) (the ``Spot Bitcoin ETP Approval
Order''); 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'').
\8\ 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.
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The Commission recently issued orders granting approval for
proposals to list bitcoin- and ether-based commodity trust shares and
bitcoin- and ether-based trust issued receipts (these proposed funds
are nearly identical to the Trust, but proposed to hold bitcoin and
ether, respectively, instead of HBAR) (``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 with a
market 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'' with respect 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.
Both the Exchange and the Sponsor believe that this proposal is
sufficient to establish 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.
The Commission has approved numerous series of Trust Issued
Receipts,\9\ including Commodity-Based Trust Shares,\10\ 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.
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\9\ Pursuant to Nasdaq Rule 5720(a), the term ``Trust Issued
Receipt'' means a security (a) that is issued by a trust which holds
specified securities deposited with the trust; (b) that, when
aggregated in some specified minimum number, may be surrendered to
the trust by the beneficial owner to receive the securities; and (c)
that pays beneficial owners dividends and other distributions on the
deposited securities, if any are declared and paid to the trustee by
an issuer of the deposited securities.
\10\ Pursuant to Nasdaq Rule 5711(d)(iv), the term ``Commodity-
Based Trust Shares'' means a security (1) that is issued by a trust
that holds (a) a specified commodity deposited with the trust, or
(b) a specified commodity and, in addition to such specified
commodity, cash; (2) that is 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 (3) that, 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.
---------------------------------------------------------------------------
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.\11\ For example, in approving the Spot Bitcoin ETPs, the
Commission found that there were ``sufficient `other means' of
preventing fraud and manipulation,'' including that:
---------------------------------------------------------------------------
\11\ 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.
[B]ased on the record before the Commission and the improved
quality of the correlation analysis in the record, including the
Commission's own analysis, the Commission is able to conclude that
fraud or manipulation that impacts prices in spot bitcoin markets
would likely similarly impact CME bitcoin futures prices. And
because the CME's surveillance can assist in detecting those impacts
on CME bitcoin futures prices, the Exchanges' comprehensive
surveillance-sharing agreement with the CME--a U.S. regulated market
whose bitcoin futures market is consistently highly correlated to
spot bitcoin, albeit not of ``significant size'' related to spot
bitcoin--can be reasonably expected to assist in surveilling for
fraudulent and manipulative acts and practices in the specific
context of the [Spot Bitcoin ETPs].\12\
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\12\ See Securities Exchange Act Release No. 99306 (January 10,
2024), 89 FR 3008 (January 17, 2024) (Order Granting Accelerated
Approval of Proposed Rule Changes, as Modified by Amendments
Thereto, To List and Trade Shares of Bitcoin-Based Commodity-Based
Trust Shares and Trust Units). The SEC made substantially similar
findings in the approval order for Spot ETH ETPs. See Securities
Exchange Act Release No. 100224 (May 23, 2024), 89 FR 46937 (May 30,
2024) (Order Granting Accelerated Approval of Proposed Rule Changes,
as Modified by Amendments Thereto, To List and Trade Shares of
Ether-Based Exchange-Traded Products).
Today, Coinbase Derivatives, LLC (``Coinbase Derivatives'') offers
trading in HBAR futures. Nasdaq has a comprehensive surveillance-
sharing agreement with Coinbase Derivatives via its common membership
in the Intermarket Surveillance Group (``ISG'').\13\ This facilitates
the sharing of information that is available to Coinbase Derivatives
through its surveillance of its markets, including its surveillance of
Coinbase Derivatives' HBAR futures market. Similar to the Spot Bitcoin
and Spot ETH ETPs previously approved by the SEC, Nasdaq's ability to
obtain information regarding trading in the HBAR futures from other
markets that are members of the ISG (specifically Coinbase Derivatives)
would assist Nasdaq in detecting and deterring misconduct.
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\13\ For a list of the current members and affiliate members of
ISG, see https://isgportal.org/public-members.
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Initial and Continued Listing
The Shares will be subject to Nasdaq Rule 5711(d)(vi), which sets
forth the initial and continued listing criteria applicable to
Commodity-Based Trust Shares. The Exchange will obtain a representation
that the Trust's NAV per Share will be calculated daily and will be
made available to all market participants at the same time. A
[[Page 12013]]
minimum of 40,000 Shares will be required to be outstanding at the time
of commencement of trading on the Exchange. Upon termination of the
Trust, the Shares will be removed from listing. The Trustee will be a
trust company having substantial capital and surplus and the experience
and facilities for handling corporate trust business, as required under
Nasdaq Rule 5711(d)(vi)(D) and no change will be made to the Trustee
without prior notice to and approval of the Exchange.
As required in Nasdaq Rule 5711(d)(viii), 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 the underlying
commodity, related futures or options on futures, or any other related
derivatives, which the registered Market Maker may have or over which
it may exercise investment discretion. No registered Market Maker in
the Shares shall trade in the underlying commodity, related futures or
options on futures, or any other related 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
Nasdaq Rule 5711(d). In addition to the existing obligations under
Exchange rules regarding the production of books and records, the
registered Market Maker in the Shares shall make available to the
Exchange such books, records or other information pertaining to
transactions by such entity or any limited partner, officer or approved
person thereof, registered or non-registered employee affiliated with
such entity for its or their own accounts in the underlying commodity,
related futures or options on futures, or any other related
derivatives, as may be requested by the Exchange.
The Exchange is able to obtain information regarding trading in the
Shares and the underlying HBAR 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. The Exchange also has
regulatory jurisdiction over any person or entity controlling a member,
as well as a subsidiary or affiliate of a member that is in the
securities business. A subsidiary or affiliate of a member organization
that does business only in commodities would not be subject to Exchange
jurisdiction, but 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 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. The Exchange will
allow trading in the Shares from 4:00 a.m. to 8:00 p.m. ET. The
Exchange has appropriate rules to facilitate transactions in the Shares
during all trading sessions. The Shares of the Trust will conform to
the initial and continued listing criteria set forth in Nasdaq Rule
5711(d) and will comply with the requirements of Rule 10A-3 of the Act.
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 Nasdaq Rules 4120 and 4121, including
without limitation the conditions specified in Nasdaq Rule 4120(a)(9)
and (10) and the trading pauses under Nasdaq Rules 4120(a)(11) and
(12).
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 HBAR underlying the Shares; or (2) whether other
unusual conditions or circumstances detrimental to the maintenance of a
fair and orderly market are present.
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 per Share
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 per Share is available to all market participants.
Surveillance
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. The surveillance
program includes real-time patterns for price and volume movements and
post-trade surveillance patterns (e.g., spoofing, marking the close,
pinging, phishing). Trading of Shares on the Exchange will be subject
to the Exchange's surveillance program for derivative products, as well
as cross-market surveillances administered by FINRA, on behalf of the
Exchange pursuant to a regulatory services agreement, which are also
designed to detect violations of Exchange rules and applicable federal
securities laws. The Exchange is responsible for FINRA's performance
under this regulatory services agreement.
The Exchange will require the Trust to represent 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 Exchange Act, the Exchange
will surveil 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 the
Nasdaq 5800 Series. In addition, the Exchange also has a general policy
prohibiting the distribution of material, non-public information by its
employees.
The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares with other
markets and other entities that are members of the ISG, and the
Exchange or FINRA, on behalf of the Exchange, or both, may obtain
trading information regarding trading in the Shares, listed HBAR
futures, or any other HBAR derivative from such markets and other
entities.
Information Circular
Prior to the commencement of trading, the Exchange will inform its
members in an information circular (``Information Circular'') of the
special characteristics and risks associated with trading the Shares.
Specifically, the Information Circular will discuss the following: (1)
the procedures for creations and redemptions of Shares in Baskets (and
that Shares are not individually redeemable); (2) Section 10 of Nasdaq
General Rule 9, which imposes suitability obligations on Nasdaq members
with respect to recommending transactions in the Shares to customers;
(3) how information regarding the IIV and NAV
[[Page 12014]]
is disseminated; (4) the risks involved in trading the Shares during
the pre-market and post-market sessions when an updated IIV will not be
calculated or publicly disseminated; (5) the requirement that members
deliver a prospectus to investors purchasing newly issued Shares prior
to or concurrently with the confirmation of a transaction; and (6)
trading information. The Information Circular will also discuss any
exemptive, no action and interpretive relief granted by the Commission
from any rules under the Act.
The Information Circular will also reference the fact that there is
no regulated source of last sale information regarding HBAR that the
Commission has no jurisdiction over the trading of HBAR as a commodity.
Additionally, the Information Circular will reference that the
Trust is subject to various fees and expenses described in the
Registration Statement. The Information Circular will also disclose the
trading hours of the Shares. The Information Circular will disclose
that information about the Shares will be publicly available on the
Trust's website.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\14\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\15\ in particular, in that it is designed to
promote just and equitable principles of trade, 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.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Commission has approved numerous series of Trust Issued
Receipts, including 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.
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
with the underlying spot market. The Exchange and Sponsor believe that
such conditions are present. As discussed above, in approving the Spot
Bitcoin ETPs, the Commission found that there were ``sufficient `other
means' of preventing fraud and manipulation,'' including that:
[B]ased on the record before the Commission and the improved
quality of the correlation analysis in the record, including the
Commission's own analysis, the Commission is able to conclude that
fraud or manipulation that impacts prices in spot bitcoin markets
would likely similarly impact CME bitcoin futures prices. And
because the CME's surveillance can assist in detecting those impacts
on CME bitcoin futures prices, the Exchanges' comprehensive
surveillance-sharing agreement with the CME--a U.S. regulated market
whose bitcoin futures market is consistently highly correlated to
spot bitcoin, albeit not of ``significant size'' related to spot
bitcoin--can be reasonably expected to assist in surveilling for
fraudulent and manipulative acts and practices in the specific
context of the [Spot Bitcoin ETPs].\16\
---------------------------------------------------------------------------
\16\ See Securities Exchange Act Release No. 99306 (January 10,
2024), 89 FR 3008 (January 17, 2024) (Order Granting Accelerated
Approval of Proposed Rule Changes, as Modified by Amendments
Thereto, To List and Trade Shares of Bitcoin-Based Commodity-Based
Trust Shares and Trust Units). The SEC made substantially similar
findings in the approval order for spot ether ETPs. See Securities
Exchange Act Release No. 100224 (May 23, 2024), 89 FR 46937 (May 30,
2024) (Order Granting Accelerated Approval of Proposed Rule Changes,
as Modified by Amendments Thereto, To List and Trade Shares of
Ether-Based Exchange-Traded Products).
As discussed above, Coinbase Derivatives offers trading in HBAR
futures. Nasdaq has a comprehensive surveillance-sharing agreement with
Coinbase Derivatives via its common membership in ISG, which
facilitates the sharing of information that is available to Coinbase
Derivatives through its surveillance of its markets, including its
surveillance of Coinbase Derivatives' HBAR futures market. Similar to
the Spot Bitcoin and Spot ETH ETPs previously approved by the SEC,
Nasdaq's ability to obtain information regarding trading in the HBAR
futures from other markets that are members of the ISG (specifically
Coinbase Derivatives) would assist Nasdaq in detecting and deterring
misconduct. The Exchange further believes that the proposed rule change
is designed to prevent fraudulent and manipulative acts and practices
and to protect investors and the public interest in that the Shares
will be listed and traded on the Exchange pursuant to the initial and
continued listing criteria set forth in Nasdaq Rule 5711(d). 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. As discussed above, the surveillance program includes
real-time patterns for price and volume movements and post-trade
surveillance patterns (e.g., spoofing, marking the close, pinging,
phishing). Trading of Shares on the Exchange will be subject to the
Exchange's surveillance program for derivative products, as well as
cross-market surveillances administered by FINRA, on behalf of the
Exchange pursuant to a regulatory services agreement, which are also
designed to detect violations of Exchange rules and applicable federal
securities laws. The Exchange is responsible for FINRA's performance
under this regulatory services agreement.
The Exchange will require the Trust to represent 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 Exchange Act, the Exchange
will surveil 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 the
Nasdaq 5800 Series. In addition, the Exchange also has a general policy
prohibiting the distribution of material, non-public information by its
employees.
The Exchange will communicate as needed regarding trading in the
Shares with other markets and other entities that are members of the
ISG, and the Exchange may obtain trading information regarding trading
in the Shares and any HBAR derivatives from such markets and other
entities.
Trading in Shares of the Trust will be halted if the circuit
breaker parameters have been reached or because of market conditions or
for reasons that, in the view of the Exchange, make trading in the
Shares inadvisable. These may include unusual conditions or
circumstances detrimental to the maintenance of a fair and orderly
market.
The proposed rule change is designed to perfect the mechanism of a
free and
[[Page 12015]]
open market and, in general, to protect investors and the public
interest in that it will facilitate the listing and trading of Shares
that will enhance competition among market participants, to the benefit
of investors and the marketplace.
For all 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
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
No written comments were either solicited or received.
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 shall: (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, as modified by Amendment No. 1, 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-NASDAQ-2025-018 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-NASDAQ-2025-018. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-NASDAQ-2025-018 and should
be submitted on or before April 3, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2025-03969 Filed 3-12-25; 8:45 am]
BILLING CODE 8011-01-P