[Federal Register Volume 90, Number 62 (Wednesday, April 2, 2025)]
[Notices]
[Pages 14493-14500]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-05589]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102736; File No. SR-CboeBZX-2025-045]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change, as Modified by Amendment No. 1, To
List and Trade Shares of the Osprey Bitcoin Trust Under BZX Rule
14.11(e)(4), Commodity-Based Trust Shares
March 27, 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 March 14, 2025, Cboe BZX Exchange, Inc. (``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission
(``Commission'') a proposed rule change to list and trade shares of the
Osprey Bitcoin Trust under BZX Rule 14.11(e)(4), Commodity-Based Trust
Shares. On March 25, 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proposed rule change, which replaced and superseded the original filing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, 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, 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, as Modified by Amendment No. 1
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 Osprey Bitcoin
Trust (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
January 3, 2019, 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, as Modified by Amendment
No. 1
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
This Amendment No. 1 to SR-CboeBZX-2025-045 amends and replaces in
its entirety the proposal as originally submitted on March 17, 2025.
The Exchange submits this Amendment No. 1 in order to clarify certain
points and add additional details to the proposal.
The Exchange proposes to list and trade the Shares under BZX Rule
14.11(e)(4),\4\ which governs the listing and trading of Commodity-
Based Trust Shares on the Exchange.\5\ Osprey Funds LLC is the Sponsor
(``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\ Coinbase Custody Trust Company, LLC
(the ``Bitcoin Custodian''), which is a third-party U.S.-based trust
company and qualified custodian, will be responsible for custody of the
Trust's bitcoin holdings and a third-party U.S.-based custodian will be
the custodian for the Trust's cash holdings, if any (the ``Cash
Custodian'' and together with the Bitcoin Custodian, the
``Custodians'').
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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
any filing to list a series of Other Securities (collectively,
``Continued Listing Representations'') shall constitute continued
listing requirements for the securities listed on the Exchange.
\6\ The Sponsor confidentially submitted a Draft Registration
Statement to the SEC on Form S-1 on February 14, 2025. The Shares
will not trade on the Exchange until such time that the Registration
Statement is effective.
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The Trust has approximately $161 million in assets under management
\7\ and its Shares trade millions of dollars in daily volume and are
held by over 5,000 American investor accounts seeking exposure to
Bitcoin without the cost and complexity of purchasing the asset
directly. However, because the Trust is not currently listed as an
exchange-traded product (``ETP''), the value of the Shares has not been
able to closely track the value of the Trust's underlying bitcoin. The
Sponsor thus believes that allowing Shares of the Trust to list and
trade on the Exchange as an ETP (i.e., converting the Trust to a spot
bitcoin ETP) would unlock over $10,352,000 of value \8\ for the Trust's
shareholders and provide other investors with a safe and secure way to
invest in bitcoin on a regulated national securities exchange.
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\7\ As of February 27, 2025.
\8\ Based on a discount of 6.43% as of February 26, 2025.
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Section 6(b)(5) and the Applicable Standard
The Commission has approved numerous series of Trust Issued
Receipts,\9\ including Commodity-Based
[[Page 14494]]
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.
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\9\ See Exchange Rule 14.11(f).
\10\ Commodity-Based Trust Shares, as described in Exchange Rule
14.11(e)(4), are a type of Trust Issued Receipt.
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The Commission has historically approved or disapproved exchange
filings to list and trade series of Trust Issued Receipts, including
spot-based Commodity-Based Trust Shares, on the basis of whether the
listing exchange has in place a comprehensive surveillance sharing
agreement with a regulated market of significant size related to the
underlying commodity to be held.\11\ The Commission has also
consistently recognized, however, that this is not the exclusive means
by which an ETP listing exchange can meet this statutory
obligation.\12\ 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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\11\ 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 bitcoin 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.
\12\ See Winklevoss Order, 83 FR 37580.
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Both the Exchange and Chicago Mercantile Exchange (``CME'') are
members of the Intermarket Surveillance Group (``ISG'').\13\ With this
in mind, the CME bitcoin futures (``CME Bitcoin Futures'') market is
the proper market to consider in determining whether there is a related
regulated market of significant size. Recently, the Commission issued
orders granting approval for proposals to list bitcoin-based (``Spot
Bitcoin ETPs'') \14\ commodity trust and trust issued receipts (these
funds are nearly identical to the Trust). In the Spot Bitcoin ETP
Approval Order, the Commission stated:
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\13\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com.
\14\ See Exchange Act Release Nos. 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''); 100610 (July 26, 2024) 89 FR 62821 (August 1,
2024) (Order Granting Approval of a Proposed Rule Change, as
Modified by Amendment No. 1, To List and Trade Shares of the
Grayscale Bitcoin Mini Trust and Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 1, To List and
Trade Shares of the Pando Asset Spot Bitcoin Trust).
[B]ased on the record before the Commission and the improved
quality of the correlation analysis in the record . . . the
Commission is able to conclude that fraud or manipulation that
impacts prices in spot bitcoin markets would likely similarly impact
CME bitcoin futures prices. And because the CME's surveillance can
assist in detecting those impacts on CME bitcoin futures prices, the
Exchanges' comprehensive surveillance-sharing agreement with the
CME--a U.S. regulated market whose bitcoin futures market is
consistently highly correlated to spot bitcoin, albeit not of
``significant size'' related to spot bitcoin--can be reasonably
expected to assist in surveilling for fraudulent and manipulative
acts and practices in the specific context of the [p]roposals.\15\
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\15\ See the Spot Bitcoin ETP Approval Order at 3011-3012.
As such, the listing exchanges demonstrated ``other means to
prevent fraudulent and manipulative acts and practices will be
sufficient'' to justify dispensing with the ``regulated market of
significant size'' test. Given this and the above, the Exchange
believes the Shares satisfy the requirements of Exchange Rule BZX Rule
14.11(e)(4) and thereby qualify for listing and trading on the
Exchange.
Osprey Bitcoin Trust
CSC Delaware Trust Company, a subsidiary of the Corporation Service
Company, is the trustee (``Trustee''). As noted above, Coinbase Custody
Trust Company, LLC, will be responsible for the safekeeping of the
Trust's bitcoin, and a third-party U.S.-based custodian will be the
custodian for the Trust's cash holdings. A qualified third-party and
will also serve as the Trust's administrator and transfer agent (the
``Administrator'' or ``Transfer Agent'').
According to the Registration Statement, each Share will represent
a fractional undivided beneficial interest in the Trust's net assets.
The Trust's assets will only consist of bitcoin, cash, and cash
equivalents. The ``Index'' refers to the Coin Metrics Coin Metrics'
Bletchley Indexes (``CMBI'') Bitcoin Index.
According to the Registration Statement, the Trust is neither an
investment company registered under the 1940 Act, as amended,\16\ 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. 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 net asset value (``NAV'').
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\16\ 15 U.S.C. 80a-1.
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When the Trust sells or redeems its Shares, it will do so in cash
transactions in large blocks of 50,000 Shares (a ``Creation Basket'')
at the Trust's NAV. Registered broker-dealers that become authorized
participants by entering into a contract with the Sponsor and the
Trustee (``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 purchase Shares, and the Trust, through
the Cash Custodian, will deliver cash to such Authorized Participants
when they redeem Shares. 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. Shareholders who buy or
sell Shares during the day from their broker may do so at a premium or
discount relative to the NAV of the Shares of the Trust.
Investment Objective
According to the Registration Statement and as further described
[[Page 14495]]
below, the investment objective of the Trust is for the Shares to
reflect the performance of bitcoin as measured by reference to the
Index, before payment of the Trust's expenses and other liabilities. In
seeking to achieve its investment objective, the Trust will hold only
bitcoin, cash, and cash equivalents. The value of the bitcoin held by
the Trust is determined based on the estimated fair market value price
for bitcoin, reflecting the execution price of bitcoin on its principal
market as determined by Lukka Inc., an independent third-party digital
asset data company (``Lukka''). If the Sponsor determines in good faith
that the principal market does not reflect an accurate bitcoin price,
then the Sponsor will instruct the Administrator to employ an
alternative method to determine the fair value of the Trust's assets.
There are no predefined criteria to make a good faith assessment as to
which of the rules the Sponsor will apply and the Sponsor may make this
determination in its sole discretion.\17\
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\17\ Any alternative method will only be employed on an ad hoc
basis. Any permanent change to the calculation of the NAV would
require a proposed rule change under Rule 19b-4.
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The Index
The Index is a U.S. dollar-denominated composite reference rate for
the price of bitcoin. The Index is designed to (i) mitigate the effects
of fraud, manipulation and other anomalous trading activity from
impacting the bitcoin reference rate, (ii) provide a real-time, volume-
weighted fair value of bitcoin and (iii) appropriately handle and
adjust for non-market related events.
The Index Price is determined by Coin Metrics, Inc. (the ``Index
Provider''), and is calculated using transacted crypto asset prices
from the Index Provider's vetted markets. The Index Price is calculated
by applying weighted-median techniques to such trade data where weights
are based on the trading volume on each constituent market and inverse
price variance, where a constituent market with high price variance as
a result of outliers or market anomalies compared to other constituent
markets is assigned a smaller weight.
The method by which the Index Provider selects constituent markets
for its indexes is contained in Section 3.1 Constituent Market
Eligibility Criteria in the Index Provider's CMBI Single Asset Series
Methodology.\18\ The constituent markets for CMBI indexes are derived
from the constituent markets for the Coin Metrics' Reference Rates,\19\
which in turn evaluates markets traded on digital asset exchanges as
potential input data sources using CMBI's market selection framework.
The framework consists of a fully systematized process for evaluating
markets. In this framework, a market refers to a specific traded asset
pair on a specific exchange.
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\18\ See https://cmbi-indexes.coinmetrics.io/cmbibtc.
\19\ See https://coinmetrics.io/wp-content/uploads/2021/05/reference-rates-methodology.pdf.
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The market selection framework consists of 36 features which
represent individual measurable properties that provide an indication
of the suitability for a market to serve as an input data source, which
are combined to form a market rating. For each asset, the Index
Provider selects the highest quality markets using a rating algorithm
and a selection algorithm.\20\
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\20\ See https://coinmetrics.io/wp-content/uploads/2021/04/reference-rates-market-selection-framework.pdf.
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The value of the Index is calculated and disseminated on a 24-hour
basis and will be available on a continuous basis at https://indexes.coinmetrics.io/cmbibtc.
Lukka
As described in the Registration Statement, the Trust determines
the current value of bitcoin by reference to the market price of
bitcoin as determined once a day in accordance with the Financial
Accounting Standards Board Accounting Standards Codification Topic 820,
``Fair Value Measurements and Disclosures'' (``ASC 820'') on each day
the Exchange is open for trading (the ``Bitcoin Market Price''). The
Bitcoin Market Price is determined based on the estimated fair market
value price for bitcoin, reflecting the execution price of bitcoin on
its principal market as determined by Lukka. Lukka's pricing
methodology is designed in accordance with ASC 820-10, and its
proprietary software dynamically designates principal market and
derives fair value prices for financial reporting using this
designation.
Lukka is designed to provide an estimated fair market value for
bitcoin, in a manner that aligns with U.S. GAAP and IFRS accounting
guidelines regarding fair market value measurements. In this regard,
Lukka seeks to identify a ``principal market'' for bitcoin, by
evaluating eligible bitcoin exchanges across a variety of different
criteria, including the exchanges' oversight and governance frameworks,
microstructure efficiency, trading volume, data transparency and data
integrity.
Net Asset Value
NAV means the total assets of the Trust (which includes bitcoin,
cash and cash equivalents) less total liabilities of the Trust. The
Administrator will determine 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 liabilities (which include accrued but unpaid
fees and expenses), both estimated and finally determined), based on
the Bitcoin Market Price. In determining the Trust's NAV, the
Administrator values the bitcoin held by the Trust based on the Bitcoin
Market Price 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
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 available on the Trust's website at https://ospreyfunds.io/products/obtc/, or any successor thereto. The Trust will also
disseminate its holdings on a daily basis on its website.
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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 bitcoin holdings during the trading day, using Lukka. The IIV
disseminated during Regular Trading Hours should not be viewed as an
actual real-time update of the NAV,
[[Page 14496]]
which will be calculated only once at the end of each trading day. The
IIV will be widely disseminated on a per Share basis every 15 seconds
during the Exchange's Regular Trading Hours through the facilities of
the consolidated tape association (CTA) and Consolidated Quotation
System (CQS) high speed lines. In addition, the IIV will be available
through on-line information services such as Bloomberg and Reuters.
The price of bitcoin will be made available by one or more major
market data vendors, updated at least every 15 seconds during Regular
Trading Hours.
Quotation and last sale information for bitcoin 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 bitcoin is available from major market data
vendors and from the trading platforms on which bitcoin are traded.
Depth of book information is also available from bitcoin trading
platforms. The normal trading hours for bitcoin 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 Bitcoin Custodian
The Bitcoin Custodian has been engaged to keep the digital assets
in safe custody. The Bitcoin Custodian processes deposits and
withdrawals only according to instructions received from the Sponsor.
The Bitcoin Custodian requires up to twenty-four (24) hours between any
request to withdraw Digital Assets from the Custodial Account and
submission of such withdrawal to the applicable Digital Asset network.
The Bitcoin Custodian stores all Digital Asset private keys in offline
storage, and it may be necessary to retrieve certain information from
offline storage in order to facilitate a withdrawal in accordance with
the Sponsor's instructions, which may delay the initiation or crediting
of such withdrawal.
While the Bitcoin Custodian will make reasonable efforts to process
Sponsor initiated deposits in a timely manner, the Bitcoin Custodian
does not guarantee the amount of time needed to complete processing as
such processing is dependent upon many factors outside of the Bitcoin
Custodian's control.
Creation and Redemption of Shares
When the Trust sells or redeems its Shares, it will do so in cash
transactions in blocks of 50,000 Shares that are based on the quantity
of bitcoin attributable to each Share of the Trust (e.g., a Creation
Basket) at the 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 bitcoin 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 bitcoin as
part of the creation or redemption process. The Trust will create
Shares by receiving bitcoin 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 bitcoin.
Further, the third party will not be acting as an agent of the
Authorized Participant with respect to the delivery of the bitcoin to
the Trust or acting at the direction of the Authorized Participant with
respect to the delivery of the bitcoin to the Trust. The Trust will
redeem shares by delivering bitcoin 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 bitcoin.
Further, the third party will not be acting as an agent of the
Authorized Participant with respect to the receipt of the bitcoin from
the Trust or acting at the direction of the Authorized Participant with
respect to the receipt of the bitcoin 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 for cash transaction Creation Baskets
must be placed by 4:00 p.m. Eastern Time, or the close of regular
trading on the Exchange, whichever is earlier. The day on which an
order is received is considered the purchase order date. The total
deposit of cash required is based on the combined NAV of the number of
Shares included in the Creation Baskets being created determined as of
4:00 p.m. ET on the date the order to purchase is properly received.
The Administrator determines the quantity of bitcoin associated with a
Creation Basket for a given day by dividing the number of bitcoin held
by the Trust as of the opening of business on that business day,
adjusted for the amount of bitcoin 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 (including its delegates) will maintain ownership and
control of the Trust's bitcoin 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 100,000 Shares will be outstanding at the
commencement of listing on the Exchange. The Exchange will obtain a
representation that the NAV will be calculated daily and 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 \22\ 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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\22\ For purposes of Rule 14.11(e)(4), the term commodity takes
on the definition of the term as provided in the CEA. As noted
above, the CFTC has opined that Bitcoin is a commodity as defined in
Section 1a(9) of the CEA. See Coinflip.
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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
[[Page 14497]]
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 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 bitcoin, Bitcoin Futures contracts, options
on Bitcoin Futures, or any other bitcoin 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. 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 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 bitcoin
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, CME Bitcoin
Futures, or any other bitcoin derivative with other markets and other
entities that are members of the ISG, and the Exchange, or FINRA on
behalf of the Exchange, or both, may obtain trading information
regarding trading in the Shares, CME Bitcoin Futures, or any other
bitcoin derivative from such markets and other entities.\23\ The
Exchange may obtain information regarding trading in the Shares, CME
Bitcoin Futures, or any other bitcoin 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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\23\ See supra note 13.
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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
[[Page 14498]]
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 \24\ 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
bitcoin, that the Commission has no jurisdiction over the trading of
bitcoin as a commodity, and that the CFTC has regulatory jurisdiction
over the trading of CME Bitcoin Futures contracts and options on CME
Bitcoin Futures contracts.
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\24\ Regular Trading Hours is the time between 9:30 a.m. and
4:00 p.m. Eastern time.
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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.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\25\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \26\ requirements that the rules
of an exchange be 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 regulating,
clearing, settling, processing information with respect to, and
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.
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\25\ 15 U.S.C. 78f(b).
\26\ 15 U.S.C. 78f(b)(5).
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The Commission has historically approved or disapproved exchange
filings to list and trade series of Trust Issued Receipts, including
spot-based Commodity-Based Trust Shares, on the basis of whether the
listing exchange has in place a comprehensive surveillance sharing
agreement with a regulated market of significant size related to the
underlying commodity to be held.\27\ The Commission has also
consistently recognized, however, that this is not the exclusive means
by which an ETP listing exchange can meet this statutory
obligation.\28\ 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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\27\ See supra note 12.
\28\ See Winklevoss Order, 83 FR at 37580.
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Both the Exchange and CME are members of the ISG.\29\ With this in
mind, the CME Bitcoin Futures market is the proper market to consider
in determining whether there is a related regulated market of
significant size. Recently, the Commission issued orders granting
approval for Spot Bitcoin ETPs and commodity trust and trust issued
receipts (these funds are nearly identical to the Trust). In the Spot
Bitcoin ETP Approval Order, the Commission stated:
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\29\ See supra note 13.
[B]ased on the record before the Commission and the improved
quality of the correlation analysis in the record . . . the
Commission is able to conclude that fraud or manipulation that
impacts prices in spot bitcoin markets would likely similarly impact
CME bitcoin futures prices. And because the CME's surveillance can
assist in detecting those impacts on CME bitcoin futures prices, the
Exchanges' comprehensive surveillance-sharing agreement with the
CME--a U.S. regulated market whose bitcoin futures market is
consistently highly correlated to spot bitcoin, albeit not of
``significant size'' related to spot bitcoin--can be reasonably
expected to assist in surveilling for fraudulent and manipulative
acts and practices in the specific context of the [p]roposals.\30\
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\30\ See the Spot Bitcoin ETP Approval Order at 3011-3012.
As such, the listing exchanges demonstrated ``other means to
prevent fraudulent and manipulative acts and practices will be
sufficient'' to justify dispensing with the ``regulated market of
significant size'' test. Given this, the Exchange believes the Shares
satisfy the requirements of Exchange Rule BZX Rule 14.11(e)(4) and
thereby qualify for listing and trading on the Exchange.
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
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. The Exchange may obtain information regarding trading in the
Shares and listed bitcoin 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 bitcoin holdings as well as
additional data regarding the Trust.
[[Page 14499]]
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; \31\ (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 available on the Trust's website at https://ospreyfunds.io/products/obtc/, or any successor thereto. The Trust will also
disseminate its holdings on a daily basis on its website.
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\31\ See supra note 22.
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The IIV will be calculated by using the prior day's closing NAV per
Share as a base and updating that value during Regular Trading Hours to
reflect changes in the value of the Trust's bitcoin holdings during the
trading day, using Lukka. The IIV disseminated during Regular Trading
Hours should not be viewed as an actual real-time update of the NAV,
which will be calculated only once at the end of each trading day. The
IIV will be widely disseminated on a per Share basis every 15 seconds
during the Exchange's Regular Trading Hours through the facilities of
the consolidated tape association (CTA) and Consolidated Quotation
System (CQS) high speed lines. In addition, the IIV will be available
through on-line information services such as Bloomberg and Reuters.
The price of bitcoin 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 bitcoin trading activity across high quality bitcoin
spot trading platforms. Index data, the Index value, and the
description of the Index are based on information made publicly
available by the Index Provider on its website at https://indexes.coinmetrics.io/cmbibtc.
Quotation and last sale information for bitcoin 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 bitcoin is available from major market data
vendors and from the trading platforms on which bitcoin are traded.
Depth of book information is also available from bitcoin trading
platforms. The normal trading hours for bitcoin 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 proposed rule change is designed to perfect the mechanism of a
free and open market, and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of exchange-traded product that will enhance
competition among market participants, to the benefit of investors and
the marketplace. As noted above, the Exchange has in place surveillance
procedures relating to trading in the Shares and may obtain information
via ISG from other exchanges that are members of ISG or with which the
Exchange has entered into a surveillance sharing agreement. The
Exchange or FINRA, on behalf of the Exchange, or both, will communicate
as needed regarding trading in the Shares, CME Bitcoin Futures, or any
other bitcoin derivative with other markets and other entities that are
members of the ISG, and the Exchange, or FINRA, on behalf of the
Exchange, or both, may obtain trading information regarding trading in
the Shares, CME Bitcoin Futures, or any other bitcoin derivative from
such markets and other entities.\32\ The Exchange may obtain
information regarding trading in the Shares, CM CME Bitcoin Futures, or
any other bitcoin 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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\32\ See supra note 13.
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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 purposes 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, 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-CboeBZX-2025-045 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-2025-045. This
file number should be included on the subject line if email is used. To
help the Commission process and review your
[[Page 14500]]
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-2025-045 and should be submitted on or before April 23,
2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
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\33\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-05589 Filed 4-1-25; 8:45 am]
BILLING CODE 8011-01-P