[Federal Register Volume 90, Number 81 (Tuesday, April 29, 2025)]
[Notices]
[Pages 17846-17852]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-07312]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102917; File No. SR-NASDAQ-2025-032]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Proposed Rule Change To List and Trade Shares of
the VanEck Avalanche ETF Under Nasdaq Rule 5711(d) (Commodity-Based
Trust Shares)
April 23, 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 April 9, 2025, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as 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 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 VanEck
Avalanche ETF (the ``Trust'') under Nasdaq Rule 5711(d) (``Commodity-
Based Trust Shares''). The shares of the Trust are referred to herein
as the ``Shares.''
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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade the Shares under Nasdaq
Rule 5711(d), which governs the listing and trading of Commodity-Based
Trust Shares on the Exchange.\3\ VanEck Digital Assets, LLC (the
``Sponsor'') is the sponsor of the Trust, Delaware Trust Company (the
``Trustee'') is the trustee of the Trust, and a third party custodian,
(the ``AVAX Custodian'') will be the custodian of the Trust, who will
hold all of the Trust's Avalanche (``AVAX'') on the Trust's behalf.
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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).
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Overview of the Trust
The Shares will be registered with the Commission by means of the
Trust's registration statement on Form S-1 (the ``Registration
Statement'').\4\ According to the Registration Statement, the Trust is
neither an investment company registered under the Investment Company
Act of 1940, as amended, nor a commodity pool for purposes of the
Commodity Exchange Act (``CEA''), and the Sponsor is not subject to
regulation by the Commodity Futures Trading Commission (``CFTC'') as a
commodity pool operator or a commodity trading adviser in connection
with the Shares. The Trust is a passive investment vehicle that does
not seek to pursue any investment strategy beyond tracking the price of
AVAX. As a result, the Trust will not attempt to avoid losses or hedge
exposure arising from the risk of changes in the price of AVAX.
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\4\ See Registration Statement on Form S-1, dated March 14,
2025, submitted by the Sponsor on behalf of the Trust. The
descriptions of the Trust, the Shares, and the Index (as defined
below) contained herein are based, in part, on information in the
Registration Statement. The Registration Statement is not yet
effective, and the Shares will not trade on the Exchange until such
time that the Registration Statement is effective.
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According to the Registration Statement, the Trust's investment
objective is to reflect the performance of the price of AVAX, the
native token of the Avalanche network, less the expenses of the Trust's
operations. In seeking to achieve its investment objective, the Trust
will hold AVAX and will value its Shares daily based on the reported
MarketVector\TM\ Avalanche Benchmark Rate (the ``Index''), which is
calculated based on prices contributed by trading platforms that the
Sponsor's affiliate, MarketVector Indexes GmbH (``MarketVector''),
believes represent the top five AVAX trading platforms based on the
industry leading CCData Centralized Exchange Benchmark review report,
as described below.
The Sponsor is not registered as an investment adviser and
currently is not required to register under the Advisers Act in
connection with its activities on behalf of the Trust. The Sponsor may,
from time to time, stake a portion of the Trust's assets through one or
more trusted staking providers, which may include an affiliate of the
Sponsor (``Staking Providers''). In consideration for any staking
activity (``Staking Activity'') in which the Trust may engage, the
Trust would receive certain staking rewards of AVAX tokens, which may
be treated as income to the Trust.
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 considered for purposes of
determining the Trust's net asset value (``NAV'') .
When the Trust sells or redeems its Shares, it will do so in either
cash or in-kind transactions in blocks of 25,000 Shares (a ``Basket'')
at the NAV. The Trust will conduct creations and redemptions in cash or
in-kind transactions with financial firms that are authorized to
purchase or redeem Shares with the Trust (``Authorized Participants''
or ``APs''). Authorized Participants must be registered broker-dealers.
Background
AVAX and the Avalanche Network
AVAX is a digital asset that is created and transmitted through the
operations of the peer-to-peer Avalanche network, a dispersed network
of computers that operates on cryptographic software protocols based on
open source code. No single entity is known to own or operate the
Avalanche network on a day to day basis, the infrastructure of which is
understood to be collectively maintained by a global user base. The
Avalanche network allows people to exchange tokens of value, called
AVAX, which are recorded on a public transaction ledger known as a
blockchain. AVAX can be used to pay for goods and services, including
computational power on the Avalanche
[[Page 17847]]
network, or it can be converted to fiat currencies, such as the U.S.
dollar, at rates determined on digital asset trading platforms or in
individual end-user- to-end-user transactions under a barter system.
Furthermore, the Avalanche network was designed to allow users to write
and implement smart contracts--that is, general-purpose code that
executes on every computer in the network and can instruct the
transmission of information and value based on a sophisticated set of
logical conditions. Using smart contracts, users can create markets,
store registries of debts or promises, represent the ownership of
property, move funds in accordance with conditional instructions and
create digital assets other than AVAX on the Avalanche network. Smart
contract operations are executed on the Avalanche blockchain in
exchange for payment of AVAX. Like the Ethereum network, the Avalanche
network is one of a number of projects intended to expand blockchain
use beyond just a peer-to-peer money system.
Avalanche Network
Avalanche is a Layer 1 blockchain and smart contract platform for
decentralized applications and custom blockchains. The Avalanche
network is an open-source protocol that enables users to deploy smart
contracts to support their blockchain projects and the network was
created by Kevin Sekniqi, Maofan ``Ted'' Yin and Emin G[uuml]n Sirer
and was further developed by researchers from Cornell University prior
to its launch by Ava Labs US in September 2020. The Avalanche network
is one of the main competitors of Ethereum and aims to beat the leading
smart contract platform by offering higher transaction throughput
without compromising scalability or security. Avalanche is powered by
the Avalanche consensus protocol, which its proponents believe is a
unique ``proof-of-stake'' algorithm comprised of three blockchains, X-
Chain (Exchange Chain), C-Chain (Contract) and P-Chain (Platform),
which allow the network to create and trade assets such as AVAX,
coordinate transaction validators and facilitate the creation of smart
contracts. Each chain serves a different purpose and run different
consensus mechanisms based on their use-cases. The X-Chain is used to
create and exchange native AVAX tokens and other assets. The C-Chain is
used to host Ethereum Virtual Machine (EVM) compatible smart contracts.
The P-Chain is coordinating network validators, tracks active subnets
and allows the creation of new subnets. Ava Labs is the main entity
that develops and maintains the codebase of the Avalanche network and
suite of tools and applications.
The AVAX Token
The AVAX token is the native token of the Avalanche network and
serves as the base currency for transactions, smart contract
interactions and deployment. The AVAX token also serves as a governance
tokens that allows token holders to participate in the decentralized
governance of the protocol. The AVAX token can be staked to help secure
the network and earn staking rewards. AVAX has a capped supply of 720
million and is used as fee payment, for staking in Avalanche's
consensus process and provides a basic unit of account between subnets
created on the network. AVAX holders may become transaction validators
if they stake a minimum number of coins or can delegate their coins to
an already existing validator.
Investment Objective
According to the Registration Statement, and as further described
below, the investment objective of the Trust is for the Shares to
reflect the performance of the price of AVAX less the expenses of the
Trust's operations. In seeking to achieve its investment objective, the
Trust will hold AVAX and will value its Shares daily based on the
Index, and process all creations and redemptions in cash or in-kind
transactions with Authorized Participants. The Trust is not actively
managed.
The Trust will not utilize leverage, derivatives or any similar
arrangements in seeking to meet its investment objective. From time to
time, the Sponsor may stake, or cause to be staked, all or a portion of
the Trust's AVAX through one or more Staking Providers. In
consideration for any Staking Activity in which the Trust may engage,
the Trust would receive certain staking rewards of AVAX tokens, which
may be treated as income to the Trust.
The Index
As described in the Registration Statement, the Trust will use the
Index to calculate the Trust's NAV. The Index is designed to be a
robust price for AVAX in USD and there is no component other than AVAX
in the Index. The underlying AVAX platforms (the ``constituent
platforms'') are sourced from the CCData Centralized Exchange Benchmark
review report. CCData's Centralized Exchange Benchmark was established
in 2019 as a tool designed to bring clarity to the digital trading
platform sector by providing a framework for assessing risk and in turn
bringing transparency and accountability to a complex and rapidly
evolving market.\5\
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\5\ As set forth in the Registration Statement, the CCData
Centralized Exchange Benchmark methodology utilizes a combination of
qualitative and quantitative metrics to analyze a comprehensive data
set across eight categories of evaluation: legal/regulation, KYC/
transaction risk, data provision, security, team/exchange, asset
quality/diversity, market quality and negative events. Based on the
CCData Centralized Exchange Benchmark, MarketVector initially
selects the top five trading platforms by rank for inclusion in the
Index. If an eligible trading platform is downgraded by two or more
notches in a semi-annual review and is no longer in the top five by
rank, it is replaced by the highest ranked non-component trading
platform. Adjustments to exchange coverage are announced four
business days prior to the first business day of each of March and
September at 23:00 CET. The Index is rebalanced at 16:00:00 GMT/BST
on the last business day of each of February and August.
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In calculating the closing value of the Index, the methodology
captures trade prices and sizes from AVAX platforms and examines twenty
three-minute periods leading up to 4:00 p.m. Eastern time (``ET''). It
then calculates an equal-weighted average of the volume-weighted median
price of these twenty three-minute periods, removing the highest and
lowest contributed prices. Using twenty consecutive three-minute
segments over a sixty-minute period means malicious actors would need
to sustain efforts to manipulate the market over an extended period of
time, or would need to replicate efforts multiple times across AVAX
platforms, potentially triggering review. This extended period also
supports Authorized Participant activity by capturing volume over a
longer time period, rather than forcing Authorized Participants to mark
an individual close or auction. The use of a median price reduces the
ability of outlier prices to impact the NAV, as it systematically
excludes those prices from the NAV calculation. The use of a volume-
weighted median (as opposed to a traditional median) serves as an
additional protection against attempts to manipulate the NAV by
executing a large number of low-dollar trades, because any manipulation
attempt would have to involve a majority of global spot AVAX volume in
a three-minute window to have any influence on the NAV. As discussed in
the Registration Statement, removing the highest and lowest prices
further protects against attempts to manipulate the NAV, requiring bad
actors to act on multiple AVAX platforms at once to have any ability to
influence the price.
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Net Asset Value
NAV means the total assets of the Trust (which includes all AVAX
and cash and cash equivalents) less total liabilities of the Trust. The
Administrator determines the NAV of the Trust on each day that the
Exchange is open for regular trading, as promptly as practical after
4:00 p.m. ET based on the closing value of the Index. The NAV of the
Trust is the aggregate value of the Trust's assets less its estimated
accrued but unpaid liabilities (which include accrued expenses). In
determining the NAV, the Administrator values the AVAX held by the
Trust based on the closing value of the Index as of 4:00 p.m. ET. The
Administrator also determines the NAV per Share.
The NAV for the Trust will be calculated by the Administrator once
a day and will be disseminated daily to all market participants at the
same time.
The Sponsor will monitor for significant events related to crypto
assets that may impact the value of AVAX and will determine, in good
faith, and in accordance with its valuation policies and procedures,
whether to fair value the Trust's AVAX on a given day based on whether
certain pre-determined criteria have been met. For example, if the
closing value of the Index deviates by more than a pre-determined
amount from an alternate benchmark available to the Sponsor, the
Sponsor may determine to utilize an alternate benchmark. The Sponsor
may also fair value the Trust's AVAX using observed market transactions
from various trading platforms, including some or all of the trading
platforms included in the Index.\6\
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\6\ Any alternative method to determining NAV 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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Availability of Information and Intraday Indicative Value
In addition to the price transparency of the Index, the Trust will
provide information regarding the Trust's AVAX 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 Exchange 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 of 9:30 a.m. to 4:00 p.m.
ET (the ``Regular Market Session'') to reflect changes in the value of
the Trust's AVAX 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 AVAX is disseminated
through a variety of major market data vendors. Information related to
trading, including price and volume information, in AVAX is available
from major market data vendors and from the trading platforms on which
AVAX are traded. The normal trading hours for AVAX 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.
The AVAX Custodian
The AVAX Custodian's services (i) allow AVAX to be deposited from a
public blockchain address to the Trust's AVAX account, (ii) allow AVAX
to be withdrawn from the AVAX account to a public blockchain address as
instructed by the Trust, and (iii) allow AVAX to be staked. The custody
agreement requires the AVAX Custodian to hold the Trust's AVAX in cold
storage, unless required to facilitate withdrawals as a temporary
measure. The AVAX Custodian will use segregated cold storage AVAX
addresses for the Trust which are separate from the AVAX addresses that
the AVAX Custodian uses for its other customers and which are directly
verifiable via the AVAX blockchain. The AVAX Custodian will safeguard
the private keys to the AVAX associated with the Trust's AVAX account.
The AVAX Custodian will at all times record and identify in its books
and records that such AVAX constitutes the property of the Trust. The
AVAX Custodian will not withdraw the Trust's AVAX from the Trust's
account with the AVAX Custodian, or loan, hypothecate, pledge or
otherwise encumber the Trust's AVAX, without the Trust's instruction.
If the custody agreement terminates, the Sponsor may appoint another
custodian and the Trust may enter into a custodian agreement with such
custodian.
Creation and Redemption of Shares
According to 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. Baskets are only
made in exchange for delivery to the Trust of the amount of AVAX
represented by the Baskets being created, or an amount of cash
sufficient to purchase such amount of AVAX, the amount of which is
equal to the combined NAV of the number of Shares included in the
Baskets being created determined as of 4:00 p.m. ET on the day the
order to create Baskets is properly received. Baskets are only redeemed
in exchange for delivery to the Trust of the amount of Shares
represented by the Basket.
For a redemption in cash, the Sponsor shall arrange for the AVAX
represented by the Basket to be sold to a Liquidity Provider and the
cash proceeds distributed from the Trust's account at the Cash
Custodian to the Authorized Participant in exchange for their Shares.
For an ``in-kind'' creation, Authorized Participants will deliver,
or facilitate the delivery of, AVAX to the Trust's account with the
Avalanche Custodian in exchange for Shares when they purchase Shares.
For an ``in-kind'' redemption transaction, when Authorized Participants
redeem Shares with the Trust, the Trust, through the Avalanche
Custodian, will deliver AVAX to such Authorized Participants, or a
designee thereof, in exchange for their Shares.
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Applicable Standard
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.\7\ 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.\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 has 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 AVAX) (``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.
As further discussed below, both the Exchange and the Sponsor
believe that this proposal and the analysis to be included are
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.
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As noted above, the Commission has recognized that the ``regulated
market of significant size'' standard is not the only means for
satisfying Section 6(b)(5) of the Act, specifically providing that a
listing exchange could demonstrate that ``other means to prevent
fraudulent and manipulative acts and practices'' are sufficient to
justify dispensing with the requisite surveillance-sharing
agreement.\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:
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\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).
[[Page 17850]]
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Today, Coinbase Derivatives, LLC (``Coinbase Derivatives'') offers
trading in AVAX 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' AVAX 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 AVAX 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 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 AVAX, AVAX futures contracts, or any other
AVAX 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 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 AVAX 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
[[Page 17851]]
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 and listed AVAX
futures from such markets and other entities. The Exchange also may
obtain information regarding trading in the Shares, listed AVAX futures
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.
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 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 AVAX, that the
Commission has no jurisdiction over the trading of AVAX 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.
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\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(5).
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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\
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\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 AVAX
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' AVAX 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 AVAX
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
[[Page 17852]]
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 listed AVAX futures 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 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 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
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 will:
A. by order approve or disapprove such proposed rule change, or
B. institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-NASDAQ-2025-032 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-2025-032. 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-2025-032 and should
be submitted on or before May 20, 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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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-07312 Filed 4-28-25; 8:45 am]
BILLING CODE 8011-01-P