[Federal Register Volume 90, Number 130 (Thursday, July 10, 2025)]
[Notices]
[Pages 30749-30763]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-12809]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103394; File No. SR-NYSEARCA-2025-45]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change To List and Trade Shares of the Truth Social
Bitcoin and Ethereum ETF, B.T. Under NYSE Arca Rule 8.201-E (Commodity-
Based Trust Shares)
July 7, 2025.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934
[[Page 30750]]
(``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on June 24, 2025, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade shares of the following
under NYSE Arca Rule 8.201-E: Truth Social Bitcoin and Ethereum ETF,
B.T. (the ``Trust''). The proposed rule change is available on the
Exchange's website at www.nyse.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
Under NYSE Arca Rule 8.201-E, the Exchange may propose to list and/
or trade pursuant to unlisted trading privileges ``Commodity-Based
Trust Shares.'' \4\ The Exchange proposes to list and trade shares (the
``Shares'') of the Trust pursuant to NYSE Arca Rule 8.201-E.\5\
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\4\ Commodity-Based Trust Shares are securities issued by a
trust that represent investors' discrete identifiable and undivided
beneficial ownership interest in the commodities deposited into the
Trust.
\5\ The Trust expects to file a registration statement on Form
S-1 under the Securities Act (the ``Registration Statement''). The
descriptions of the Trust and Shares contained herein are based, in
part, on a draft of 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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The sponsor of the Trust is Yorkville America Digital, LLC (the
``Sponsor''), a Florida limited liability company.
The Trust is a Nevada business trust that operates pursuant to a
trust agreement (the ``Trust Agreement'') between the Sponsor and the
trustee for the Trust (the ``Trustee'').
The custodian for the Trust's bitcoin and ether is Foris DAX Trust
Company, LLC (the ``Bitcoin and Ether Custodian''). The custodian for
the Trust's cash is referred to here as the ``Cash Custodian,'' the
administrator and transfer agent of the Trust as the ``Transfer Agent''
and its administrator as the ``Trust Administrator.''
Each Share issued by the Trust represents a fractional undivided
beneficial interest in the net assets of the Trust. The assets of the
Trust consist primarily of bitcoin and ether held by the Bitcoin and
Ether Custodian on behalf of the Trust.\6\ As provided for in the Trust
Agreement, the Trust's allocation of its assets to bitcoin and ether
(the ``allocation ratio'') is initially expected to approximate a
three-to-one ratio of the value of the bitcoin held by the Trust to the
value of the ether held by the Trust. Any change to the allocation
ratio will require an amendment to the Trust Agreement. Additionally,
upon any amendment of the Trust Agreement to change the allocation
ratio, the Trust will notify Shareholders in a prospectus supplement,
in its periodic reports filed pursuant to the requirements of the
Exchange Act and/or on the Trust's website.
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\6\ From time to time, the Trust may be entitled to, or come
into possession of rights to acquire, or otherwise establish
dominion and control over, any virtual currency (for avoidance of
doubt, other than bitcoin and ether) or other asset or right, which
rights are incident to the Trust's ownership of bitcoin and/or ether
and arise without any action of the Trust, or of the Sponsor on
behalf of the Trust (``Incidental Rights'') and/or virtual currency
tokens, or other assets or rights, acquired by the Trust through the
exercise (subject to the applicable provisions of the Trust
Agreement) of any Incidental Right (``IR Digital Assets'') by virtue
of its ownership of bitcoin and/or ether, generally through a fork
in the Bitcoin Blockchain or the Ethereum Blockchain, an airdrop
offered to holders of bitcoin or ether, or other similar event. With
respect to a fork, airdrop or similar event, the Sponsor will cause
the Trust to permanently and irrevocably abandon the Incidental
Rights and IR Digital Assets. In the event the Trust seeks to change
this position, the Exchange would file a subsequent proposed rule
change with the Commission.
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Investment Objective
According to the Registration Statement, the Trust is a passive
investment vehicle that seeks to reflect generally the performance of
the price of bitcoin and ether. The Trust seeks to reflect such
performance before payment of the Trust's expenses and liabilities. The
Shares are intended to constitute a simpler means of making an
investment similar to an investment in bitcoin and ether rather than by
acquiring, holding and trading bitcoin and ether directly on a peer-to-
peer or other basis or via a digital asset trading platform. The Shares
have been designed to remove the obstacles represented by the
complexities and operational burdens involved in a direct investment in
bitcoin and ether, while at the same time having an intrinsic value
that reflects, at any given time, the investment exposure to the
bitcoin and ether owned by the Trust at such time, less the Trust's
expenses and liabilities. Although the Shares are not the exact
equivalent of a direct investment in bitcoin and ether, they provide
investors with an alternative method of achieving investment exposure
to bitcoin and ether through the securities market, which may be more
familiar to them.
Custody of the Trust's Bitcoin and Ether
The Bitcoin and Ether Custodian will keep custody of all of the
Trust's bitcoin and ether, other than that which is maintained in a
trading account (the ``Trading Balance'') with Foris DAX, Inc., the
prime execution agent for the Trust (the ``Prime Execution Agent''), in
accounts that are required to be segregated from the assets held by the
Bitcoin and Ether Custodian as principal and the assets of its other
customers (the ``Vault Balance''). Except to the extent required to
facilitate any Staking (as defined herein) activities, the Bitcoin and
Ether Custodian will keep all of the private keys associated with the
Trust's bitcoin and ether held by the Bitcoin and Ether Custodian in
the Vault Balance in ``cold storage,'' which refers to a safeguarding
method by which the private keys corresponding to the Trust's bitcoin
and ether are generated and stored in an offline manner using computers
or devices that are not connected to the internet, which is intended to
make them more resistant to hacking.
The Sponsor represents that it will maintain ownership and control
of the Trust's bitcoin and ether in a manner consistent with good
delivery requirements for spot commodity transactions.
Valuation of Bitcoin and Ether and Determination of NAV
The net asset value of the trust (the ``NAV'') will be equal to the
total assets of the Trust, which will consist solely
[[Page 30751]]
of bitcoin, ether and cash, less total liabilities of the Trust.
In determining the NAV, the Trust Administrator values the bitcoin
held by the Trust based on the CME CF Bitcoin Reference Rate--New York
Variant (the ``Bitcoin Pricing Benchmark'') and the ether held by the
Trust based on the CME CF Ether Reference Rate--New York Variant (the
``Ether Pricing Benchmark,'' and, together with the Bitcoin Pricing
Benchmark, the ``Pricing Benchmarks''), unless otherwise determined by
the Sponsor in its sole discretion. If either Pricing Benchmark is not
available or the Sponsor determines, in its sole discretion, that a
Pricing Benchmark should not be used, the Trust's holdings may be fair
valued in accordance with policies approved by the Sponsor. If a
Pricing Benchmark is not used, the Trust will notify the Exchange and
its shareholders (``Shareholders'') in a prospectus supplement, in its
periodic Exchange Act reports and/or on the Trust's website.
On each day other than a day when NYSE Arca is closed for trading
(``Business Day'') at 4:00 p.m. E.T., or as soon thereafter as
practicable, the Trust Administrator will evaluate the bitcoin and
ether held by the Trust as reflected by the applicable Pricing
Benchmark and determine the NAV and net asset value per Share (``NAV
per Share'') of the Trust.
According to the Registration Statement, the Pricing Benchmarks are
designed based on the IOSCO Principles for Financial Benchmarks and are
registered benchmarks under the U.K. Benchmark Regulations (``BMR'').
The administrator of the Pricing Benchmarks is CF Benchmarks Ltd. (the
``Index Administrator''), a U.K. incorporated company, authorized and
regulated by the U.K. Financial Conduct Authority (the ``FCA'') as a
benchmark administrator, under U.K. BMR.
The Pricing Benchmarks are subject to the U.K. BMR regulations,
compliance with which has been subject to a Limited Assurance Audit
under the ISAE 3000 standard as of September 12, 2022, and are
administered under the CF Benchmarks Control Framework to ensure
compliance with U.K. BMR regulations.
According to the Registration Statement, the constituent platforms
of the Pricing Benchmarks (the ``Constituent Platforms''), as further
described below, are selected by the Oversight Committee of the Index
Administrator (the ``Oversight Committee''). A trading platform is
eligible as a Constituent Platform if it offers a market that
facilitates the spot trading of the relevant crypto base asset against
the corresponding quote asset, including markets where the quote asset
is made fungible with accepted assets and makes trade data and order
data available through an API with sufficient reliability, detail and
timeliness, in the opinion of the Oversight Committee.
The Bitcoin Pricing Benchmark
The Bitcoin Pricing Benchmark serves as a once-a-day benchmark rate
of the U.S. dollar price of bitcoin (``USD/BTC''), calculated as of
4:00 p.m. E.T. The Bitcoin Pricing Benchmark aggregates the trade flow
of several bitcoin platforms, during an observation window between 3:00
p.m. and 4:00 p.m. E.T. into the U.S. dollar price of one bitcoin at
4:00 p.m. E.T. Specifically, the Bitcoin Pricing Benchmark is
calculated based on the ``Relevant Bitcoin Transactions'' (as defined
below) of all of its constituent bitcoin platforms (collectively, the
``Bitcoin Constituent Platforms''), which may change from time to time.
A ``Relevant Bitcoin Transaction'' is any crypto asset versus U.S.
dollar spot trade that occurs during the observation window between
3:00 p.m. and 4:00 p.m. E.T. on a Bitcoin Constituent Platform in the
USD/BTC pair that is reported and disseminated by a Bitcoin Constituent
Platform through its publicly available Application Programming
Interface (``API'') and observed by the Index Administrator. The
Bitcoin Pricing Benchmark is calculated based on the Relevant Bitcoin
Transactions on the Bitcoin Constituent Platforms, as follows:
All Relevant Bitcoin Transactions are added to a joint
list, recording the time of execution and trade price for each
transaction;
The list is partitioned by timestamp into 12 equally sized
time intervals of five minutes in length;
For each partition separately, the volume-weighted median
trade price is calculated from the trade prices and sizes of all
Relevant Bitcoin Transactions, i.e., across all Bitcoin Constituent
Platforms; and
The Bitcoin Pricing Benchmark is then determined by the
equally weighted average of the volume medians of all partitions.
As of March 31, 2025, the Bitcoin Constituent Platforms were as
follows:
Crypto.com: Foris DAX, Inc. d/b/a Crypto.com is a U.S.-
based platform that is registered as a money services business
(``MSB'') with the U.S. Department of Treasury's Financial Crimes
Enforcement Network (``FinCEN'') and licensed as a money transmitter in
more than 40 states.
Bitstamp: A U.K.-based platform registered as an MSB with
FinCEN, licensed as a virtual currency business under the New York
Department of Financial Services (``NYDFS'') BitLicense regulation, as
well as a money transmitter in various U.S. states.
Bullish: A Gibraltar-based platform operated by Bullish
(GI) Limited and regulated by the Gibraltar Financial Services
Commission (``GFSC'') as a distributed ledger technology (``DLT'')
provider for execution and custody services.
Coinbase: A U.S.-based platform registered as an MSB with
FinCEN and licensed as a virtual currency business under the NYDFS
BitLicense regulation, as well as a money transmitter in various U.S.
states.
Gemini: A U.S.-based platform that is licensed as a
virtual currency business under the NYDFS BitLicense regulation. Gemini
is also registered with FinCEN as an MSB and is licensed as a money
transmitter in various U.S. states.
itBit: A U.S.-based platform that is licensed as a virtual
currency business under the NYDFS BitLicense regulation. itBit is also
registered with FinCEN as an MSB and is licensed as a money transmitter
in various U.S. states.
Kraken: A U.S.-based platform that is registered as an MSB
with FinCEN in various U.S. states. Kraken is also registered with the
FCA and is authorized by the Central Bank of Ireland as a virtual asset
service provider. Kraken also holds a variety of other licenses and
regulatory approvals, including those from the Japan Financial Services
Agency and the Canadian Securities Administrators.
LMAX Digital: A Gibraltar-based platform registered as an
MSB with FinCEN and regulated by the GFSC as a DLT provider for
execution and custody services. LMAX Digital is part of LMAX Group, a
U.K.-based operator of an FCA-regulated multilateral trading facility
and broker-dealer.
The Ether Pricing Benchmark
The Ether Pricing Benchmark serves as a once-a-day benchmark rate
of the U.S. dollar price of ether (``USD/ETH''), calculated as of 4:00
p.m. E.T. The Ether Pricing Benchmark aggregates the trade flow of
several ether platforms, during an observation window between 3:00 p.m.
and 4:00 p.m. E.T. into the U.S. dollar price of one ether at 4:00 p.m.
E.T. Specifically, the Ether Pricing Benchmark is calculated based on
the ``Relevant Ether Transactions'' (as defined below) of all of its
constituent ether platforms (collectively, the ``Ether Constituent
Platforms'' and, together
[[Page 30752]]
with the Bitcoin Constituent Platforms, the ``Constituent Platforms''),
which may change from time to time. A ``Relevant Ether Transaction'' is
any cryptocurrency versus U.S. dollar spot trade that occurs during the
observation window between 3:00 p.m. and 4:00 p.m. E.T. on an Ether
Constituent Platform in the USD/ETH pair that is reported and
disseminated by an Ether Constituent Platform through its publicly
available API and observed by the Index Administrator. The Ether
Pricing Benchmark is calculated based on the Relevant Ether
Transactions of all of its Ether Constituent Platforms, as follows:
All Relevant Ether Transactions are added to a joint list,
recording the time of execution and trade price for each transaction.
The list is partitioned by timestamp into 12 equally sized
time intervals of five minutes in length.
For each partition separately, the volume-weighted median
trade price is calculated from the trade prices and sizes of all
Relevant Ether Transactions, i.e., across all Ether Constituent
Platforms.
The Ether Pricing Benchmark is then determined by the
equally weighted average of the volume medians of all partitions.
As of March 31, 2025, the Ether Constituent Platforms were as
follows:
Crypto.com: Foris DAX, Inc. d/b/a Crypto.com is a U.S.-
based platform that is registered as an MSB with FinCEN and licensed as
a money transmitter in more than 40 states.
Bitstamp: A U.K.-based platform registered as an MSB with
FinCEN, licensed as a virtual currency business under the NYDFS
BitLicense regulation, as well as a money transmitter in various U.S.
states.
Coinbase: A U.S.-based platform registered as an MSB with
FinCEN, licensed as a virtual currency business under the NYDFS
BitLicense regulation and licensed as a money transmitter in various
U.S. states.
Gemini: A U.S.-based platform that is licensed as a
virtual currency business under the NYDFS BitLicense regulation. Gemini
is also registered with FinCEN as an MSB and is licensed as a money
transmitter in various U.S. states.
itBit: A U.S.-based platform that is licensed as a virtual
currency business under the NYDFS BitLicense regulation. itBit is also
registered with FinCEN as an MSB and is licensed as a money transmitter
in various U.S. states.
Kraken: A U.S.-based platform that is registered as an MSB
with FinCEN in various U.S. states. Kraken is also registered with the
FCA and is authorized by the Central Bank of Ireland as a virtual asset
service provider. Kraken also holds a variety of other licenses and
regulatory approvals, including those from the Japan Financial Services
Agency and the Canadian Securities Administrators.
LMAX Digital: A Gibraltar-based platform registered as an
MSB with FinCEN and regulated by the GFSC as a DLT provider for
execution and custody services. LMAX Digital is part of LMAX Group, a
U.K.-based operator of an FCA-regulated multilateral trading facility
and broker-dealer.
Bitcoin and the Bitcoin Network
Bitcoin is a digital asset that is created and transmitted through
the operations of the peer-to-peer network (the ``Bitcoin Network''), a
decentralized network of computers that operates pursuant to
cryptographic protocols. No single entity owns or operates the Bitcoin
Network, the infrastructure of which is collectively maintained by its
user base. The Bitcoin Network allows people to exchange tokens of
value, called bitcoin, which are recorded on a public transaction
ledger known as the ``Bitcoin Blockchain.'' Bitcoin can be used to pay
for goods and services, or it can be converted to fiat currencies, such
as the U.S. dollar, at rates determined on bitcoin platforms that
enable trading in bitcoin or in individual end-user-to-end-user
transactions under a barter system.
The Bitcoin Network is commonly understood to be decentralized and
does not require governmental authorities or financial institution
intermediaries to create, transmit or determine the value of bitcoin.
Rather, bitcoin is created and allocated by the Bitcoin Network's
cryptographic protocols through a ``mining'' process. The value of
bitcoin is determined by the supply of and demand for bitcoin on
bitcoin platforms or in private end-user-to-end-user transactions.
New bitcoin are created and rewarded to the miners of a block in
the Bitcoin Blockchain for verifying transactions. The Bitcoin
Blockchain is a shared database that includes all blocks that have been
added by miners, and it is updated to include new blocks as they are
added. Each bitcoin transaction is broadcast to the Bitcoin Network
and, when included in a block, recorded in the Bitcoin Blockchain. As
each new block records outstanding bitcoin transactions, and
outstanding transactions are settled and validated through such
recording, the Bitcoin Blockchain represents a complete, transparent
and unbroken history of all transactions of the Bitcoin Network.
Overview of the Bitcoin Network's Operations
In order to own, transfer or use bitcoin directly on the Bitcoin
Network (as opposed to through an intermediary, such as a trading
platform), a person generally must have internet access to connect to
the Bitcoin Network. Bitcoin transactions may be made directly between
end users without the need for a third-party intermediary. To prevent
the possibility of double-spending bitcoin, a user must notify the
Bitcoin Network of the transaction by broadcasting the transaction data
to its network peers. The Bitcoin Network provides confirmation against
double-spending by memorializing every transaction in the Bitcoin
Blockchain, which is publicly accessible and transparent. This
memorialization and verification against double-spending is
accomplished through the Bitcoin Network mining process, which adds
``blocks'' of data, including recent transaction information, to the
Bitcoin Blockchain.
Overview of Bitcoin Transfers
Prior to engaging in bitcoin transactions directly on the Bitcoin
Network, a user generally must first install on its computer or mobile
device a Bitcoin Network software program that will allow the user to
generate a private and public key pair associated with a bitcoin
address commonly referred to as a ``wallet.'' The Bitcoin Network
software program and the bitcoin address also enable the user to
connect to the Bitcoin Network and transfer bitcoin to, and receive
bitcoin from, other users.
Each Bitcoin Network address, or wallet, is associated with a
unique ``public key'' and ``private key'' pair. To receive bitcoin, the
bitcoin recipient must provide its public key to the party initiating
the transfer. This activity is analogous to a recipient for a
transaction in U.S. dollars providing a routing address in wire
instructions to the payor so that cash may be wired to the recipient's
account. The payor approves the transfer to the address provided by the
recipient by ``signing'' a transaction that consists of the recipient's
public key with the private key of the address from where the payor is
transferring the bitcoin. The recipient, however, does not make public
or provide to the sender its related private key.
Neither the recipient nor the sender reveals its private keys in a
transaction because the private key authorizes transfer of the funds in
that address to
[[Page 30753]]
other users. Therefore, if a user loses his private key, the user may
permanently lose access to the bitcoin contained in the associated
address. When sending bitcoin, a user's Bitcoin Network software
program must validate the transaction with the associated private key.
The resulting digitally validated transaction is sent by the user's
Bitcoin Network software program to the Bitcoin Network to allow
transaction confirmation.
Some bitcoin transactions are conducted ``off-blockchain'' and are
therefore not recorded in the Bitcoin Blockchain. Some ``off-blockchain
transactions'' involve the transfer of control over, or ownership of, a
specific digital wallet holding bitcoin or the reallocation of
ownership of certain bitcoin in a digital wallet containing assets
owned by multiple persons, such as a digital wallet maintained by a
digital asset trading platform. In contrast to on-blockchain
transactions, which are publicly recorded on the Bitcoin Blockchain,
information and data regarding off-blockchain transactions are
generally not publicly available. Off-blockchain transactions do not
involve the transfer of transaction data on the Bitcoin Network and do
not reflect a movement of bitcoin between addresses recorded in the
Bitcoin Blockchain. For these reasons, off-blockchain transactions are
subject to risks as any such transfer of bitcoin ownership is not
protected by the protocol behind the Bitcoin Network or recorded in,
and validated through, the blockchain mechanism.
Summary of a Bitcoin Transaction
In a bitcoin transaction directly on the Bitcoin Network between
two parties (as opposed to through an intermediary, such as a platform
or a custodian), the following circumstances must initially be in
place: (i) the party seeking to send bitcoin must have a Bitcoin
Network public key, and the Bitcoin Network must recognize that public
key as having sufficient bitcoin for the transaction; (ii) the
receiving party must have a Bitcoin Network public key; and (iii) the
spending party must have internet access with which to send its
spending transaction.
The receiving party must provide the spending party with its public
key and allow the Bitcoin Blockchain to record the sending of bitcoin
to that public key. After the provision of a recipient's Bitcoin
Network public key, the spending party must enter the address into its
Bitcoin Network software program along with the number of bitcoin to be
sent. The number of bitcoin to be sent will typically be agreed upon
between the two parties based on a set number of bitcoin or an agreed-
upon conversion of the value of fiat currency to bitcoin.
Since every computation on the Bitcoin Network requires the payment
of bitcoin, including verification and memorialization of bitcoin
transfers, there is a transaction fee involved with the transfer, which
is based on computation complexity and not on the value of the transfer
and is paid by the payor with a fractional number of bitcoin.
After the entry of the Bitcoin Network address, the number of
bitcoin to be sent and the transaction fees, if any, to be paid will be
transmitted by the spending party. The transmission of the spending
transaction results in the creation of a data packet by the spending
party's Bitcoin Network software program, which is transmitted onto the
Bitcoin Network, resulting in the distribution of the information among
the software programs of users across the Bitcoin Network for eventual
inclusion in the Bitcoin Blockchain.
Creation of a New Bitcoin
New bitcoin are created through the mining process.
The Bitcoin Network is kept running by computers all over the
world. In order to incentivize those who incur the computational costs
of securing the network by validating transactions, there is a reward
that is given to the computer that was able to create the latest block
on the chain. Every 10 minutes, on average, a new block is added to the
Bitcoin Blockchain with the latest transactions processed by the
network, and the computer that generated this block is currently
awarded 3.125 bitcoin. Due to the nature of the algorithm for block
generation, this process (called ``proof-of-work'' consensus) is
random. Over time, rewards are expected to be proportionate to the
computational power of each machine.
The process by which bitcoin is ``mined'' results in new blocks
being added to the Bitcoin Blockchain and new bitcoin tokens being
issued to the miners. Computers on the Bitcoin Network engage in a set
of prescribed complex mathematical calculations in order to add a block
to the Bitcoin Blockchain and thereby confirm bitcoin transactions
included in that block's data.
To begin mining, a user can download and run Bitcoin Network mining
software, whereby the user's computer acts as a ``node'' on the Bitcoin
Network that validates blocks. Each block contains the details of some
or all of the most recent transactions that are not memorialized in
prior blocks, as well as a record of the award of bitcoin to the miner
who added the new block. Each unique block can be solved and added to
the Bitcoin Blockchain by only one miner. Therefore, all individual
miners and mining pools on the Bitcoin Network are engaged in a
competitive process of constantly seeking to increase their computing
power to improve their likelihood of solving for new blocks. As more
miners join the Bitcoin Network and its processing power increases, the
Bitcoin Network adjusts the complexity of the block-solving equation to
maintain a predetermined pace of adding a new block to the Bitcoin
Blockchain approximately every 10 minutes. A miner's proposed block is
added to the Bitcoin Blockchain once a majority of the nodes on the
Bitcoin Network confirms the miner's work. Miners that are successful
in adding a block to the Bitcoin Blockchain are automatically awarded
bitcoin for their effort and may also receive transaction fees paid by
transferors whose transactions are recorded in the block. This reward
system is the method by which new bitcoin enter circulation.
The Bitcoin Network is designed in such a way that the reward for
adding new blocks to the Bitcoin Blockchain decreases over time. More
specifically, the reward rate halves approximately every four years.
Once new bitcoin tokens are no longer awarded for adding a new block
(expected to occur in the year 2140), miners will only have transaction
fees to incentivize them, and as a result, it is expected that miners
will need to be better compensated with higher transaction fees to
ensure that there is adequate incentive for them to continue mining.
Limits on Bitcoin Supply
Under the source code that governs the Bitcoin Network, the supply
of new bitcoin is mathematically controlled so that the number of
bitcoin grows at a limited rate pursuant to a preset schedule. The
number of bitcoin awarded for solving a new block is automatically
halved after every 210,000 blocks are added to the Bitcoin Blockchain,
approximately every four years. Currently, the fixed reward for solving
a new block is 3.125 bitcoin per block, and this is expected to
decrease by half to become 1.5625 bitcoin in approximately mid-2028.
This deliberately controlled rate of bitcoin creation means that
the number of bitcoin in existence will increase at a controlled rate
until the number of bitcoin in existence reaches the predetermined 21
million bitcoin.
[[Page 30754]]
However, the 21 million supply cap could be changed pursuant to a hard
fork. As of March 31, 2025, approximately 19.8 million bitcoin were
outstanding and the date when the 21 million bitcoin limitation will be
reached is estimated to be the year 2140.
Ether and the Ethereum Network
Ether is a digital asset that is created and transmitted through
the operations of the peer-to-peer network (the ``Ethereum Network''),
a network of computers, known as nodes, that operates pursuant to
cryptographic protocols. No single entity owns or operates the Ethereum
Network, the infrastructure of which is collectively maintained by a
distributed user base. Ether is not issued by governments, banks or any
other centralized authority. The Ethereum Network allows people to
exchange tokens of value, called ether, which are recorded on a public
transaction ledger known as the Ethereum blockchain (the ``Ethereum
Blockchain''). Ether can be used to pay for goods and services,
including computational power on the Ethereum Network, or it can be
converted to fiat currencies, such as the U.S. dollar, at rates
determined on digital asset exchanges or in individual end-user-to-end-
user transactions under a barter system.
The Ethereum Network allows users to write and implement computer
programs called 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 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 ether on the Ethereum Network. Smart contract
operations are executed on the Ethereum Blockchain in exchange for
payment of ether. The Ethereum Network is one of a number of projects
intended to expand blockchain use beyond just a peer-to-peer money and
payments system.
The Ethereum Network is commonly understood to be decentralized and
does not require governmental authorities or financial institution
intermediaries to create, transmit or determine the value of ether.
Rather, following the initial distribution of ether, ether is created,
burned and allocated by the Ethereum Network protocol through a process
that is currently subject to an issuance and burn rate. The value of
ether is determined by the supply of and demand for ether on the
digital asset exchanges or in private end-user-to-end-user
transactions. There is no hard cap which would limit the number of
outstanding ether at any one time to a predetermined maximum.
New ether is created and rewarded to the validators of a block in
the Ethereum Blockchain for verifying transactions. The Ethereum
Blockchain is effectively a decentralized database that includes all
blocks that have been validated and it is updated to include new blocks
as they are validated. Each ether transaction is broadcast to the
Ethereum Network and, when included in a block, recorded in the
Ethereum Blockchain. As each new block records outstanding ether
transactions, and outstanding transactions are settled and validated
through such recording, the Ethereum Blockchain represents a complete,
transparent and unbroken history of all transactions of the Ethereum
Network.
Among other things, ether is used to pay for transaction fees and
computational services (e.g., smart contracts) on the Ethereum Network;
users of the Ethereum Network pay for the computational power of the
machines executing the requested operations with ether. Requiring
payment in ether also is designed to ensure that the Ethereum Network
remains economically viable by compensating people for their
contributed computational resources and making it costly to spam the
network.
Assets in the Ethereum Network are held in accounts. Each account,
or ``wallet,'' is made up of at least two components: a public address
and a private key. An Ethereum private key controls the transfer or
``spending'' of ether from its associated public ether address. An
ether ``wallet'' is a collection of a public Ethereum address and its
associated private key. This design allows only the owner of ether to
send ether, the intended recipient of ether to unlock it, and the
validation of the transaction and ownership to be verified by any third
party anywhere in the world.
Transaction fees (including transactions that involve the operation
of smart contracts) are only payable in ether. An Ethereum improvement
proposal known as EIP-1559 simplified the transaction fee process.
Instead of performing complex calculations to estimate the fee that is
charged (``gas''), users instead pay an algorithmically determined
transaction fee set by the protocol itself. Gas price is often a small
fraction of ether, which is denoted in the unit of Gwei (10[supcaret]9
Gwei = 1 ether). Gas is essential in sustaining the Ethereum Network.
It motivates validators to process and verify transactions for a
monetary reward. Gas price fluctuates with supply. Gas has another
important function in preventing unintentional waste of energy. Because
the coding language for Ethereum is Turing-complete, there is a
possibility of a program running indefinitely, and a transaction can be
left consuming a lot of energy. A gas limit is imposed as the maximum
price users are willing to pay to facilitate transactions. When gas
runs out, the program will be terminated, and no additional energy
would be used.
In 2022 the Ethereum Network implemented software upgrades and
other changes to its protocol, including the adoption of network
upgrades collectively referred to as the Merge, or Ethereum 2.0.
Ethereum 2.0 aimed to improve the network's speed, scalability,
efficiency, security, accessibility, and transaction throughput in part
by reducing its energy footprint and decreasing transaction times for
the network. As part of Ethereum 2.0, in mid-September 2022, a shift
from the proof-of-work to the proof-of-stake model occurred. Ethereum
2.0 also encompassed the addition of other new features, such as
``sharding.'' Sharding is a multi-phase upgrade to improve Ethereum's
scalability and capacity. Shard chains spread the network's load across
numerous new chains splitting the data processing responsibility among
many nodes and allowing for parallel processing and validation of
transactions. Sharding makes it easier to run a node by keeping
hardware requirements low. A digital asset network's consensus
mechanism is an aspect of its source code, and any failure to properly
implement such a change could have a material adverse effect on the
value of ether and the value of the Shares. The move to proof-of-stake
may subject Ethereum and ether to new and unexpected vulnerabilities
not applicable to proof-of-work consensus models.
Smart Contracts and Development on the Ethereum Network
Smart contracts are programs that run on a blockchain that can
execute automatically when certain conditions are met. Smart contracts
facilitate the exchange of anything representative of value, such as
money, information, property, or voting rights. Using smart contracts,
users can send or receive digital assets, create markets, store
registries of debts or promises, represent ownership of property or a
company, move funds in accordance with
[[Page 30755]]
conditional instructions and create new digital assets, among other
actions.
Development on the Ethereum Network involves building more complex
tools on top of smart contracts, such as decentralized applications
(``dApps''); decentralized autonomous organizations (``DAOs''); and
entirely new decentralized networks. For example, a company that
distributes charitable donations on behalf of users could hold donated
funds in smart contracts that are paid to charities only if the
charities satisfy certain pre-defined conditions.
Moreover, the Ethereum Network has also been used as a platform for
creating new digital assets. A majority of digital assets not issued as
the native token on their own blockchains were built on the Ethereum
Network, with such assets representing a significant amount of the
total market value of all digital assets.
More recently, the Ethereum Network has been used for DeFi
platforms, which seek to democratize access to financial services, such
as borrowing, lending, custody, trading, derivatives and insurance, by
replacing third-party intermediaries with autonomous code. DeFi
platforms can allow users to lend and earn interest on their digital
assets, exchange one digital asset for another and create derivative
digital assets such as stablecoins, which are digital assets pegged to
a reference asset such as fiat currency.
In addition, the Ethereum Network and other smart contract
platforms have been used for creating non-fungible tokens (``NFTs'').
Unlike digital assets native to smart contract platforms which are
fungible, NFTs allow for digital ownership of unique assets that convey
certain rights to other digital or real-world assets. For example, an
NFT may convey rights to a digital asset that exists in an online game
or a dApp, and users can trade their NFTs in the dApp or game and carry
them to other digital experiences.
The DAO and Ethereum Classic
In July 2016, the Ethereum Network experienced what is referred to
as a hard fork that resulted in two different versions of its
blockchain: Ethereum and Ethereum Classic.
In April 2016, a blockchain solutions company known as Slock.it
announced the launch of a decentralized autonomous organization, known
as ``The DAO,'' on the Ethereum Network. The DAO was designed as a
decentralized crowdfunding model, in which anyone could contribute
ether tokens to The DAO in order to become a voting member and equity
stakeholder in the organization. Members of The DAO could then make
proposals about different projects to pursue and put them to a vote. By
committing to profitable projects, members would be rewarded based on
the terms of a smart contract and their proportional interest in The
DAO. As of May 27, 2016, $150 million, or approximately 14% of all
ether outstanding, was contributed to, and invested in, The DAO.
On June 17, 2016, an anonymous hacker exploited The DAO's smart
contract code to syphon approximately $60 million, or 3.6 million
ether, into a segregated account. Upon the news of the breach, the
price of ether was quickly cut in half as investors liquidated their
holdings and members of the Ethereum community worked to develop a
solution.
In the days that followed, several attempts were made to retrieve
the stolen funds and secure the Ethereum Network, but none were
successful. Members of the community subsequently coalesced around
performing a hard fork that would create an entirely new version of the
Ethereum Blockchain, erasing any record of the theft, and restoring the
stolen funds to their original owners. The counterargument was that it
would be antithetical to the core principle of immutability of the
Ethereum Blockchain.
The decision over whether or not to hard fork the Ethereum
Blockchain was put to a vote of Ethereum community members. A majority
of votes were cast in favor of a hard fork. On July 15, 2016, a hard
fork specification was implemented by the Ethereum Foundation. On July
20, 2016, the Ethereum Network completed the hard fork, and a new
version of the blockchain, without recognition of the theft, went live.
Many believed that after the hard fork the original version of the
Ethereum Blockchain would dissipate entirely. However, a group of
validators continued to mine the original Ethereum Blockchain for
philosophical and economic reasons. On July 20, 2016, the original
Ethereum protocol was rebranded as Ethereum Classic, and its native
token as ether classic (``ETC''), preserving the untampered transaction
history (including the DAO theft). Following the hard fork of Ethereum,
each holder of original ether (subsequently regarded as ETC)
automatically received an equivalent number of new ether (subsequently
regarded as simply ``ether'').
Overview of the Ethereum Network's Operations
In order to own, transfer or use ether directly on the Ethereum
Network on a peer-to-peer basis (as opposed to through an intermediary,
such as a custodian or centralized exchange), a person generally must
have internet access to connect to the Ethereum Network. Ether
transactions may be made directly between end-users without the need
for a third-party intermediary. To prevent the possibility of double-
spending ether, a user must broadcast the transaction data to the
Ethereum Network. The Ethereum Network provides confirmation against
double-spending by memorializing every peer-to-peer transaction in the
Ethereum Blockchain, which is publicly accessible and transparent. This
memorialization and verification against double-spending of peer-to-
peer transactions is accomplished through the Ethereum Network
validation process, which adds ``blocks'' of data, including recent
transaction information, to the Ethereum Blockchain.
Summary of an Ether Transaction
A ``transaction request'' refers to a request to the Ethereum
Network made by a user, in which the requesting user (the ``sender'')
asks the Ethereum Network to send some ether or execute some code. A
``transaction'' refers to a fulfilled transaction request and the
associated change in the Ethereum Network's state. An Ethereum Client
is a software application that implements the Ethereum Network
specification and communicates with the Ethereum Network. A node is a
computer or other device, such as a mobile phone, running an individual
Ethereum Client that is connected to other computers also running their
own Ethereum Clients, which collectively form the Ethereum Network.
Nodes can be full nodes (meaning they host a local copy of the entire
Ethereum Blockchain) or light nodes, which only host a local copy of a
sub-portion of the full Ethereum Blockchain with reduced data. Nodes
may (but do not have to) be validators, which requires them to download
an additional piece of software in the node's Ethereum Client and stake
a certain amount of ether, which is discussed below.
Any user can broadcast a transaction request to the Ethereum
Network from a node located on the network. A user can run its own
node, or it can connect to a node operated by others. For the
transaction request to actually result in a change to the current state
of the
[[Page 30756]]
Ethereum Network, it must be validated, executed and ``committed to the
network'' by another node (specifically, a validator node). Execution
of the transaction request by the validator results in a change to the
state of the Ethereum Network once the transaction is broadcast to all
other nodes across the Ethereum Network. Transactions can include, for
example, sending ether from one account to another, as discussed below;
publishing a new smart contract onto the Ethereum Network; or
activating and executing the code of an existing smart contract, in
accordance with the terms and conditions specified in the sender's
transaction request.
The Ethereum Blockchain can be thought of as a ledger recording a
history of transactions and the balances associated with individual
accounts, each of which has an address on the Ethereum Network. An
Ethereum Network account can be used to store ether. There are two
types of Ethereum accounts: ``externally owned accounts,'' which are
controlled by a private key, and ``smart contract accounts,'' which are
controlled by their own code. Externally owned accounts are controlled
by users, do not contain executable code, and are associated with a
unique ``public key'' and ``private key'' pair, commonly referred to as
a ``wallet,'' with the private key being used to execute transactions.
Smart contract accounts contain, and are controlled by, their own
executable code: every time the smart contract account receives a
transaction from, or is ``called'' by, another user, the smart contract
account's code activates, allowing it to read and write to internal
storage, send ether, or perform other operations. Both externally owned
accounts and smart contract accounts can be used to send, hold or
receive ether, and both can interact with other smart contracts.
However, only externally owned accounts have the power to initiate
transactions; smart contract accounts can only send transactions of
their own after they are first activated or called by another
transaction. An externally owned account is associated with both a
public address on the Ethereum Network and a private key, while a smart
contract account is only associated with a public address. While a
smart contract account does not use a private key to authorize
transactions, including transfers of ether, the developer of a smart
contract may hold an ``admin key'' to the smart contract account, or
have special access privileges, allowing the developer to make changes
to the smart contract, enable or disable features on the smart
contract, or change how the smart contract receives external inputs and
data, among others.
Accounts depend on nodes to access the peer-to-peer Ethereum
Network. Through the node's Ethereum Client, a user's Ethereum wallet
and its associated Ethereum Network address enable the user to connect
to the Ethereum Network and transfer ether to, and receive ether from,
other users, and interact with smart contracts, on a peer-to-peer
basis. A user with an externally owned account can either run its own
node (and its own Ethereum Client) and connect that node to its
Ethereum wallet, allowing it to make transactions from its Ethereum
wallet on the Ethereum Network, or a user's wallet can connect to
third-party nodes operated as a service (e.g., Infura) and access the
Ethereum Network that way. Multiple accounts can access the Ethereum
Network through one node.
Each user's Ethereum wallet is associated with a unique ``public
key'' and ``private key'' pair. To receive ether in a peer-to-peer
transaction, the ether recipient must provide its public key to the
sender. This activity is analogous to a recipient for a transaction in
U.S. dollars providing a routing address in wire instructions to the
payor so that cash may be wired to the recipient's account. The sender
approves the transfer to the address provided by the recipient by
``signing'' a transaction that consists of the recipient's public key
with the private key of the address from which the sender is
transferring the ether. The recipient, however, does not make public or
provide to the sender the recipient's related private key, only its
public key.
Neither the recipient nor the sender reveals its private keys in a
peer-to-peer transaction, because the private key authorizes transfer
of the funds in that address to other users. Therefore, if a user loses
its private key, the user may permanently lose access to the ether
contained in the associated address. When sending ether, a user's
Ethereum wallet must sign the transaction with the sender's associated
private key. In addition, since every computation on the Ethereum
Network requires processing power, there is a mandatory transaction fee
involved with the transfer that is paid by the sender to the Ethereum
Network itself (``base fee''), plus additional transaction fees the
sender can elect (or not) to pay at their discretion to the validators
who validate their transaction (``tip''). The resulting digitally
signed transaction is sent by the user's Ethereum wallet, via a node
(whether run by the user or operated by others), to other Ethereum
Network nodes, who in turn broadcast it on a peer-to-peer basis to
validators to allow transaction confirmation.
Ethereum Network validators record and confirm transactions when
they validate and add blocks of information to the Ethereum Blockchain.
Validators operate through nodes whose Ethereum Clients have an extra
piece of software that permits the node to perform validation
transactions. In a proof-of-stake consensus protocol like that used by
the Ethereum Network, validators compete to be randomly selected to
validate transactions. A validator must stake 32 ether to become a
validator, which allows it to activate a unique validator key pair
(consisting of a public and private validator key). Each stake of 32
ether results in issuance of a validator key pair, meaning that
multiple validators can operate through a single validator node
(including a validator node operated by a third party as a service).
Validators may engage in two categories of activities: first, they may
propose blocks (``proposers'') and second, they may approve a
proposer's block (``attesters''). Staking more ether (in chunks of 32
ether) can increase the numerical chances that a given validator will
be randomly selected to propose a new block. When a validator is
randomly selected by the protocol's algorithm to propose a block, it
creates that block, which includes data relating to (i) the
verification of newly submitted transaction requests submitted by
senders and (ii) a reference to the prior block in the Ethereum
Blockchain to which the new block is being added. The proposing
validator becomes aware of outstanding transaction requests through
peer-to-peer data packet transmission and distribution enforced by the
Ethereum protocol rules, which connects the proposer to users who want
transactions recorded. If--once created--the proposing validator's
block is confirmed by a committee of randomly selected attesters, the
block is broadcast to the Ethereum Network and added to the Ethereum
Blockchain. Any smart contract code that has been called by the
transaction request is also executed (provided the requisite fee is
paid for the Ethereum Network's computational power associated with
executing the code). Upon the addition of a block included in the
Ethereum Blockchain, an adjustment to the ether balance in both the
sender and recipient's Ethereum Network public key will occur,
completing the ether transaction. Once a transaction is confirmed on
the Ethereum Blockchain, it is irreversible.
[[Page 30757]]
As a reward for their services in adding the block to the
Blockchain, both the proposing validator and the attesting validators
receive newly minted ether from the Ethereum Network. If the proposing
validator's block is determined by the approving validator committee to
be faulty or to break protocol rules, the proposer is penalized by
having its staked ether reduced. Validators can also be penalized for
attesting to transactions that break protocol rules or are inconsistent
with the majority of other validators, or for inactivity or missing
attestations that the Ethereum Network protocol assigned to them. In
extreme cases, a proposing or attesting validator can be ``slashed,''
meaning forcibly ejected by other validators, with its staked ether
continuously drained, potentially up to the loss of its entire stake.
In this way, the Ethereum Network attempts to reduce double-spend and
other attacks by validators and incentivize validator integrity.
Some ether transactions are conducted ``off-blockchain'' and are
therefore not recorded in the Ethereum Blockchain. Some ``off-
blockchain transactions'' involve the transfer of control over, or
ownership of, a specific digital wallet holding ether or the
reallocation of ownership of certain ether in a pooled-ownership
digital wallet, such as a digital wallet owned by a digital asset
exchange. If a transaction can also take place through a centralized
digital asset exchange or a custodian's internal books and records, it
is not broadcast to the Ethereum Network or recorded on the Ethereum
Blockchain. In contrast to on-blockchain transactions, which are
publicly recorded on the Ethereum Blockchain, information and data
regarding off-blockchain transactions are generally not publicly
available. Therefore, off-blockchain transactions are not peer-to-peer
ether transactions in that they do not involve a transaction on the
Ethereum Network and do not reflect a movement of ether between
addresses recorded in the Ethereum Blockchain. For these reasons, off-
blockchain transactions are not necessarily immutable or irreversible
as any such transfer of ether ownership is not cryptographically
protected by the protocol behind the Ethereum Network or recorded in,
and validated through, the blockchain mechanism.
Ether has generally exhibited high price volatility relative to
more traditional asset classes. One volatility measure, standard
deviation, is based on the variability of historical price returns. A
higher standard deviation indicates a wider dispersion of past price
returns and thus greater historical volatility.
Creation of New Ether
Unlike other digital assets, such as bitcoin, which are solely
created through a progressive mining process, 72.0 million ether were
created in connection with the launch of the Ethereum Network. The
initial 72.0 million ether were distributed as follows:
Initial Distribution: 60.0 million ether, or 83.33% of the supply,
was sold to the public in a crowd sale conducted between July and
August 2014 that raised approximately $18 million.
Ethereum Foundation: 6.0 million ether, or 8.33% of the supply, was
distributed to the Ethereum Foundation for operational costs.
Ethereum Developers: 3.0 million ether, or 4.17% of the supply, was
distributed to developers who contributed to the Ethereum Network.
Developer Purchase Program: 3.0 million ether, or 4.17% of the
supply, was distributed to members of the Ethereum Foundation to
purchase at the initial crowd sale price.
Following the launch of the Ethereum Network, ether supply
initially increased through a progressive validation process. Following
the introduction of EIP-1559, described below, ether supply and
issuance rates vary based on factors such as recent use of the network.
Proof-of-Stake Process
Prior to September 2022, Ethereum operated using a proof-of-work
consensus mechanism. In the second half of 2020, the Ethereum Network
began the first of several stages of an upgrade that was initially
known as ``Ethereum 2.0'' and eventually became known as the ``Merge''
to transition the Ethereum Network from a proof-of-work consensus
mechanism to a proof-of-stake consensus mechanism. The Merge was
completed on September 15, 2022, and the Ethereum Network has operated
on a proof-of-stake model since such time.
Unlike proof-of-work, in which validators expend computational
resources to compete to validate transactions and are rewarded coins in
proportion to the amount of computational resources expended, in proof-
of-stake, validators risk or ``stake'' tokens to compete to be randomly
selected to validate transactions and are rewarded in tokens. Any
malicious activity, such as validating multiple blocks, disagreeing
with the eventual consensus or otherwise violating protocol rules,
results in the forfeiture or ``slashing'' of a portion of the staked
coins. Proof-of-stake is commonly regarded as more energy efficient
than proof-of-work. Approximately every 12 seconds, a new block is
added to the Ethereum Blockchain with the latest transactions processed
by the network, and the validator that generated this block is awarded
ether.
Limits on Ether Supply
The rate at which new ether are issued and put into circulation is
expected to vary. In September 2022 the Ethereum Network converted from
proof-of-work to a new proof-of-stake consensus mechanism. Following
the Merge, approximately 1,700 ether are issued per day, though the
issuance rate varies based on the number of validators on the network.
In addition, the issuance of new ether could be partially or completely
offset by the burn mechanism introduced by the EIP-1559 modification,
under which ether are removed from supply at a rate determined by
network usage. On many occasions, the ether supply has been
deflationary over 24-hour periods as a result of the burn mechanism.
The attributes of the new consensus algorithm are subject to change,
but in sum, the new consensus algorithm and related modifications
reduced total new ether issuances and may turn the ether supply
deflationary over the long term.
As of March 31, 2025, approximately 121 million ether were
outstanding.
Applicable Standard
The Commission has historically approved or disapproved exchange
filings to list and trade series of Trust Issued Receipts, including
spot, Commodity-Based Trust Shares, on the basis of whether the listing
exchange has in place a comprehensive surveillance sharing agreement
(``CSSA'') with a regulated market of significant size related to the
underlying commodity to be held.\7\ The Commission has since approved
the listing and trading of shares of spot
[[Page 30758]]
bitcoin exchange-traded products (``Spot Bitcoin ETPs'') and spot ether
exchange-traded products (``Spot Ether ETPs''), finding that there were
sufficient ``other means'' of preventing fraud and manipulation
sufficient to satisfy the requirements of Section 6(b)(5) of the
Exchange Act.\8\ In each of the Spot Bitcoin ETP Approval Order and
Spot Ether Approval Order, the Commission concluded, through a robust
correlation analysis, that fraud or manipulation that impacts prices in
spot bitcoin markets or spot ether markets would likely similarly
impact CME bitcoin futures prices and CME ether futures prices,
respectively.\9\ The Commission further found that, because the CME's
surveillance can assist in detecting those impacts on CME bitcoin
futures prices and CME ether futures prices, a listing exchange's CSSA
with the CME can be reasonably expected to assist in surveilling for
fraudulent and manipulative acts and practices in the context of the
Spot Bitcoin ETPs and Spot Ether ETPs.\10\
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\7\ See Securities Exchange Act Release No. 83723 (July 26,
2018), 83 FR 37579 (August 1, 2018) (SR-BatsBZX-2016-30) (Order
Setting Aside Action by Delegated Authority and Disapproving a
Proposed Rule Change, as Modified by Amendments No. 1 and 2, to List
and Trade Shares of the Winklevoss Bitcoin Trust) (``Winklevoss
Order''). In the Winklevoss Order, the Commission set forth both the
importance and definition of a surveilled, regulated market of
significant size, explaining that, for approved commodity-trust
ETPs, ``there has been in every case at least one significant,
regulated market for trading futures on the underlying commodity--
whether gold, silver, platinum, palladium, or copper--and the ETP
listing exchange has entered into surveillance-sharing agreements
with, or held Intermarket Surveillance Group membership in common
with, that market.'' Winklevoss Order, 83 FR at 37594.
\8\ See Securities Exchange Act Release No. 34-99306 (January
10, 2024), 89 FR 3008 (January 17, 2024) (SR-NYSEARCA-2021-90; SR-
NYSEARCA-2023-44; SR-NYSEARCA-2023-58; SR-NASDAQ-2023-016; SR-
NASDAQ-2023-019; SR-CboeBZX-2023028; SR-CboeBZX-2023-038; SR-
CboeBZX-2023-040; SR-CboeBZX-2023-042; SRCboeBZX-2023-044; SR-
CboeBZX-2023-072) (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''); Securities Exchange Act
Release No. 100224 (May 23, 2024), 89 FR 46937 (May 30, 2024) (SR-
NYSEARCA-2023-70; SR-NYSEARCA-2024-31; SR-NASDAQ-2023-045; SR-
CboeBZX-2023-069; SR-CboeBZX-2023-070; SR-CboeBZX-2023-087; SR-
CboeBZX-2023-095; SR-CboeBZX-2024-018) (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 Ether ETP Approval Order'').
\9\ See Spot Bitcoin ETP Approval Order, 89 FR at 3010; Spot
Ether ETP Approval Order, 89 FR at 46938.
\10\ See Spot Bitcoin ETP Approval Order, 89 FR at 3010; Spot
Ether ETP Approval Order, 89 FR at 46938-39.
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The Commission also more recently approved the listing and trading
of shares of exchange-traded products that, like the Trust, hold both
spot bitcoin and spot ether in proportion to their market
capitalizations (the ``Spot Bitcoin/Ether ETPs'').\11\ In approving the
Spot Bitcoin/Ether ETPs, the Commission similarly found, based on the
continued consistent correlation between the spot bitcoin market and
the CME bitcoin futures market and between the spot ether market and
the CME ether futures market that a listing exchange's CSSA with the
CME can be reasonably expected to assist in surveilling for fraudulent
and manipulative acts and practices in the context of the Spot Bitcoin/
Ether ETPs.\12\
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\11\ See Securities Exchange Act Release No. 101998 (December
19, 2024), 89 FR 106707 (December 30, 2024) (SR-NASDAQ-2024-028; SR-
CboeBZX-2024-091) (Order Granting Approval of a Proposed Rule
Change, as Modified by Amendment No. 1, To List and Trade Shares of
the Hashdex Nasdaq Crypto Index US ETF and Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment No. 1,
To List and Trade Shares of the Franklin Crypto Index ETF, a Series
of the Franklin Crypto Trust) (the ``Spot Bitcoin/Ether ETP Approval
Order'').
\12\ See Spot Bitcoin/Ether ETP Approval Order, 89 FR at 106708.
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The Trust is structured and will operate in a manner materially the
same as the Spot Bitcoin ETPs, Spot Ether ETPs, and Spot Bitcoin/Ether
ETPs. The Sponsor believes that the Exchange's ability to obtain
information regarding trading in bitcoin futures and ether futures from
the CME, which, like the Exchange, is a member of the ISG, would assist
the Exchange in detecting potential fraud or manipulation with respect
to trading in the Shares. The Sponsor thus believes that, for reasons
similar to those set forth in the Spot Bitcoin ETP Approval Order, Spot
Ether ETP Approval Order, and Spot Bitcoin/Ether ETP Approval Order,
listing and trading Shares of the Trust would be consistent with the
requirements of the Act.
Creation and Redemption of Shares
The Trust issues and redeems ``Baskets'' on a continuous basis.
Baskets are only created or redeemed in exchange for the amount of
bitcoin and ether represented by the Baskets being created or redeemed.
Only ``Authorized Participants'' can initiate a creation or redemption
of Baskets. Each Authorized Participant must be a registered broker-
dealer, a participant in Depository Trust Company (``DTC''), have
entered into an agreement with the Sponsor and be in a position to
transfer cash to, and take delivery of cash from, the Cash Custodian
through one or more accounts.
The Trust issues and redeems Shares only in Baskets of 10,000 or
integral multiples thereof, based on the quantity of bitcoin and ether
attributable to each Share (net of accrued but unpaid Sponsor's Fee and
any accrued but unpaid expenses or liabilities). Baskets may be
redeemed by the Trust in exchange for the amount of bitcoin and ether
corresponding to their redemption value. Only Authorized Participants
can initiate a creation or redemption of Baskets.
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 or ether 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 or ether as part
of the creation or redemption process. For a redemption in cash, the
Sponsor shall arrange for the bitcoin and ether represented by the
creation Basket to be sold to the Liquidity Provider,\13\ and the cash
proceeds distributed from the Trust's account at the Cash Custodian to
the Authorized Participant.
---------------------------------------------------------------------------
\13\ The Trust's Liquidity Provider is Foris DAX, Inc. The
Liquidity Provider facilitates the purchase and sale of bitcoin and
ether for creations or redemptions of Baskets in cash.
---------------------------------------------------------------------------
Baskets are only issued or redeemed in exchange for an amount of
bitcoin and ether determined by the Sponsor on each day that the
Exchange is open for regular trading. No Shares are issued unless the
Bitcoin and Ether Custodian or Prime Execution Agent has allocated to
the Trust's account the corresponding amount of bitcoin and ether.
Issuance of Baskets
For a creation of Baskets, the Authorized Participant will be
required to submit the purchase order by an early order cutoff time
(the ``Creation Early Order Cutoff Time'') on the Business Day prior to
the trade date. The Authorized Participant must submit a purchase order
through an electronic order entry system, indicating the number of
Baskets it intends to acquire. The date that order is received will
determine the basket amount of bitcoin and ether (the ``Basket
Amount'') the Trust needs to purchase from the Liquidity Provider or
through the Prime Execution Agent. The final cash amounts will be
determined after the net asset value of the Trust is struck and the
Trust's bitcoin and ether transactions have settled. However, orders
received after the Creation Early Order Cutoff Time on a Business Day
will not be accepted and should be resubmitted on the following
Business Day.
The Basket Amount necessary for the creation of a Basket changes
from day to day. On each Business Day, the Trust Administrator will
adjust the quantity of bitcoin and ether constituting the Basket Amount
as appropriate to reflect sales of bitcoin and ether, any loss of
bitcoin or ether that may occur and accrued expenses. The Basket Amount
is determined for a given day by multiplying the NAV per Share by the
number of Shares in each Basket and
[[Page 30759]]
dividing the resulting product by the weighted-average value of the
Trust's bitcoin and ether holdings that day, as determined by reference
to the applicable Pricing Benchmark and the proportion of bitcoin and
ether in the Trust's NAV as of such date. The Basket Amount so
determined will be made available to all Authorized Participants and
the Liquidity Provider and will be made available on the Sponsor's
website for the Shares.
On the date of the Creation Early Order Cutoff Time, the Trust will
choose, in its sole discretion, to enter into a transaction with the
Liquidity Provider or the Prime Execution Agent to buy bitcoin and
ether in exchange for the cash proceeds from such purchase order. For
settlement of a creation, the Trust delivers Shares to the Authorized
Participant in exchange for cash received from the Authorized
Participant. Meanwhile, the Liquidity Provider or Prime Execution
Agent, as applicable, delivers the required bitcoin and ether pursuant
to its trade with the Trust into the Trust's Trading Balance with the
Prime Execution Agent in exchange for cash.
Upon the deposit by the Liquidity Provider or the Prime Execution
Agent of the corresponding amount of bitcoin and ether with the Trust's
Trading Balance, and of any expenses, taxes or charges, the Cash
Custodian will deliver the appropriate number of Baskets to the DTC
account of the depositing Authorized Participant.
Because the Sponsor has assumed what are expected to be most of the
Trust's expenses, and the Sponsor's Fee accrues daily at the same rate,
in the absence of any extraordinary expenses or liabilities, the amount
of bitcoin and ether by which the Basket Amount will decrease each day
will be predictable. The Sponsor intends to have the Trust
Administrator make available on each Business Day an indicative Basket
Amount for the next Business Day. Authorized Participants may use that
indicative Basket Amount as guidance regarding the amount of cash that
they may expect to have to deposit with the Trust Administrator in
respect of purchase orders placed by them on such next Business Day and
accepted by the Sponsor.
The Sponsor may suspend the acceptance of purchase orders or the
delivery or registration of transfers of Shares or may refuse a
particular purchase order, delivery or registration of Shares (i)
during any period when the transfer books of the Sponsor are closed or
(ii) at any time, if the Sponsor thinks it advisable for any reason.
The Sponsor will reject any purchase order that is not in proper form.
Redemption of Baskets
Authorized Participants, acting on authority of the registered
holder of Shares, may surrender Baskets in exchange for the
corresponding Basket Amount announced by the Sponsor.
For a redemption of Baskets, the Authorized Participant will be
required to submit a redemption order by an early order cutoff time
(the ``Redemption Early Order Cutoff Time'') on the Business Day prior
to the trade date. On the date of the Redemption Early Order Cutoff
Time, the Trust may choose, in its sole discretion, to enter into a
transaction with the Liquidity Provider or the Prime Execution Agent to
sell bitcoin and ether in exchange for cash. Also on the date of the
Redemption Order Early Cutoff, the Trust instructs the Bitcoin and
Ether Custodian to prepare to move the associated bitcoin and ether
from the Trust's Vault Balance with the Bitcoin and Ether Custodian to
the Trust's Trading Balance with the Prime Execution Agent. For
settlement of a redemption, the Authorized Participant delivers the
necessary Shares to the Trust, the Liquidity Provider or the Prime
Execution Agent, as applicable, delivers the cash to the Trust
associated with the Trust's sale of bitcoin and ether, the Sponsor
delivers bitcoin and ether to the Liquidity Provider's account at the
Prime Execution Agent or directly to the Prime Execution Agent, as
applicable, and the Trust delivers cash to the Authorized Participant.
Disruption of services at the Prime Execution Agent, the Bitcoin
and Ether Custodian, the Cash Custodian or the Authorized Participant's
banks would have the potential to delay settlement of the bitcoin and
ether related to Share redemptions.
Upon the surrender of such Shares and the payment of applicable
costs, expenses, taxes or charges (such as stamp taxes or stock
transfer taxes or fees), by the redeeming Authorized Participant, and
the completion of the sale of bitcoin and ether for cash by the Trust,
the Sponsor will instruct the delivery of cash to the Authorized
Participant. The Authorized Participant is responsible for the dollar
cost of the difference between the value of bitcoin and ether
calculated by the Trust Administrator for the applicable NAV per Share
of the Trust and the prices at which the Trust sells bitcoin and ether
to raise the cash needed for the cash redemption order to the extent
the prices realized in selling the bitcoin and ether are lower in the
aggregate than the prices of bitcoin and ether utilized in the NAV. To
the extent the prices realized in selling the bitcoin and ether are
higher in the aggregate than the price utilized in the NAV, the
Authorized Participant shall get to keep the dollar impact of any such
difference. Shares can only be surrendered for redemption in Baskets of
10,000 Shares each.
An Authorized Participant must submit a redemption order through an
electronic order entry system, indicating the number of Baskets it
intends to redeem. The date that order is received determines the
Basket Amount to be received in exchange. However, orders received
after the Redemption Early Order Cutoff Time on a Business Day will not
be accepted and should be resubmitted on the following Business Day.
All taxes incurred in connection with the delivery of bitcoin and/
or ether to the Bitcoin and Ether Custodian or cash to the Cash
Custodian in exchange for Baskets (including any applicable value added
tax) will be the sole responsibility of the Authorized Participant
making such delivery.
Redemptions may be suspended (1) during any period in which regular
trading on NYSE Arca is suspended or restricted or the exchange is
closed (other than scheduled holiday or weekend closings), or (2)
during a period when the Sponsor determines that delivery, disposal or
evaluation of bitcoin or ether is not reasonably practicable. The
Sponsor and the Trust Administrator will reject any redemption order
that is not in proper form. If the Trust suspends redemptions,
Shareholders will be notified in a prospectus supplement, in its
periodic Exchange Act reports and/or on the Trust's website.
Availability of Information
The Trust's website will include quantitative information on a per
Share basis updated on a daily basis, including (i) the current NAV per
Share daily and the prior Business Day's NAV per Share and the reported
closing price of the Shares; (ii) the mid-point of the bid-ask price
\14\ as of the time the NAV per Share is calculated (``Bid-Ask Price'')
and a calculation of the premium or discount of such price against such
NAV per Share; and (iii) data in chart format displaying the frequency
distribution of discounts and premiums of the daily Bid-Ask Price
[[Page 30760]]
against the NAV per Share, within appropriate ranges, for each of the
four previous calendar quarters (or for as long as the Trust has been
trading as an ETP if shorter). In addition, on each Business Day, the
Trust's website will provide pricing information for the Shares.
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\14\ The bid-ask price of the Trust is determined using the
highest bid and lowest offer on the Consolidated Tape as of the time
of calculation of the closing day NAV.
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The Trust Administrator will also disseminate the Trust's holdings
on a daily basis on the Trust's website. The NAV per Share for the
Trust will be calculated by the Trust Administrator once a day and will
be disseminated daily to all market participants at the same time.
Quotation and last sale information regarding the Shares will be
disseminated through the facilities of the Consolidated Tape
Association (the ``CTA'').
The Sponsor will publish an intraday indicative value per Share
(``IIV'') using the CME CF Bitcoin Real Time Index and the CME CF Ether
Real Time Index. One or more major market data vendors will provide an
IIV updated every 15 seconds, as calculated by the Exchange or a third-
party financial data provider during the Exchange's Core Trading
Session (9:30 a.m. to 4:00 p.m. E.T.). The IIV will be calculated by
using the prior day's closing NAV per Share as a base and updating that
value during the NYSE Arca Core Trading Session to reflect changes in
the value of the Trust's NAV per Share during the trading day.
The IIV's dissemination during the Core Trading Session should not
be viewed as an actual real time update of the NAV per Share, which
will be calculated only once at the end of each trading day. The IIV
will be widely disseminated every 15 seconds during the Core Trading
Session by one or more major market data vendors. In addition, the IIV
will be available through online information services.
The NAV per Share for the Trust will be calculated by the Trust
Administrator once a day and will be disseminated daily to all market
participants at the same time.
Quotation and last sale information for bitcoin and ether will be
widely disseminated through a variety of major market data vendors,
including Bloomberg and Reuters. In addition, real-time price (and
volume) data for bitcoin and ether is available by subscription from
Reuters and Bloomberg. The spot prices of bitcoin and ether are
available on a 24-hour basis from major market data vendors, including
Bloomberg and Reuters. Information relating to trading, including price
and volume information, in bitcoin and ether will be available from
major market data vendors and from the trading platforms on which
bitcoin and ether are traded.
Rebalancing
Foris DAX, Inc., will serve as the exclusive rebalancing agent (in
such capacity, the ``Rebalancing Agent'') for the Trust. The
Rebalancing Agent will rebalance the Trust's digital asset holdings
quarterly, on the first Business Day in January, April, July, and
October (each such date, a ``Reconstitution Date''), to ensure the
allocation of the Trust's assets to bitcoin and ether approximates the
allocation ratio. The Sponsor may, in its sole discretion, instruct the
Rebalancing Agent to defer any such rebalancing to the following
Reconstitution Date if on the applicable Reconstitution Date the actual
allocation of the Trust's assets to each of bitcoin and ether is within
2% of its respective allocation ratio. The rebalancing process involves
adjusting the quantities of bitcoin and ether held by the Trust (i.e.,
by buying or selling some amount of each asset) to reflect changes in
the digital assets' relative market values. This rebalancing is
executed by purchasing or selling the necessary quantities of bitcoin
and/or ether to re-align their weightings with the appropriate ratio.
To that end, on or about each Reconstitution Date, the Sponsor will
halt creations and redemptions of Shares as needed to complete the
rebalancing process.
The Trust is a passive investment vehicle which seeks to reflect
generally the performance of the price of bitcoin and ether in
accordance with the allocation ratio set forth in the Trust Agreement.
The Sponsor does not intend to actively manage the Trust's digital
asset holdings in response to price changes in bitcoin and ether, and
any quarterly rebalancing described herein is not a form of active
management.
Staking
``Staking'' is the act of committing capital in the form of ether
to participate in verifying and adding transactions to the Ethereum
Blockchain digital ledger and in securing the Ethereum Network in
exchange for ether as a reward. If the Trust decides to pursue Staking
activities with respect to all or a portion of the Trust's ether, the
Trust's ether may be restricted within the Ethereum Network's protocol
for a specific period of time.
Staking activity may require withdrawals of ether by the Sponsor in
order to deposit ether within the Ethereum Network's protocol. While
the ability to gain temporary control of even a portion of the Trust's
ether is restricted to a limited number of authorized personnel of the
Sponsor, Staking activities introduce a risk of loss. Should the
Sponsor decide to engage in any Staking activities, the Trust's ether
would be staked directly from the Trust's wallets and would not be
transferred to any other wallet as part of the Staking process.
Further, the Staking Provider (as defined below) would not have any
control over the Trust's staked ether other than in connection with
Staking and unstaking the Trust's ether at the Sponsor's direction.
However, Staking activities would expose the Trust's ether to increased
risk of loss, including in the form of potential penalties, slashing or
inactivity leaks, or technological complication that could result in
the loss of such ether in its entirety.
Further, while any ether is staked, it will not be available to the
Trust. In connection with Staking's ``activation'' and ``exit''
processes, the Trust's staked ether will not be accessible for a
variable period of time, resulting in liquidity risk to the Trust's
ability to satisfy redemptions or rebalance its holdings, which could
create deviations between the Trust's actual and intended allocation of
bitcoin to ether.
The Trust would record receipt of Staking rewards when they are
received if there is value to the Trust in doing so. Ether received
from Staking rewards have no cost basis and the Trust recognizes
unrealized gains equal to the fair value of the new ether received. The
Trust may engage in Staking activities if the Trust deems such activity
to be in the best interest of Shareholders and solely to the extent the
Sponsor believes, in its sole discretion, that such Staking activities
may be conducted in compliance with applicable law.
The Trust has engaged Foris DAX, Inc. as its exclusive Staking
infrastructure provider (in such capacity, the ``Staking Provider'') in
connection with any Staking activities the Trust may conduct. The
Staking Provider would provide hardware, software and services
necessary to enable the Trust to establish validator nodes and stake
the Trust's ether on the Ethereum Network. The Staking Provider would
exercise no discretion as to the amount the Trust's ether to be staked
or timing of the Staking activities (other than as is incidental in
establishing or deactivating validator nodes).
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
[[Page 30761]]
equity securities. Shares will trade on the NYSE Arca Marketplace from
4:00 a.m. to 8:00 p.m. E.T., in accordance with NYSE Arca Rule 7.34-E
(Early, Core, and Late Trading Sessions). The Exchange has appropriate
rules to facilitate transactions in the Shares during all trading
sessions. As provided in NYSE Arca Rule 7.6-E, the minimum price
variation (``MPV'') for quoting and entry of orders in equity
securities traded on the NYSE Arca Marketplace is $0.01, with the
exception of securities that are priced less than $1.00, for which the
MPV for order entry is $0.0001.
The Shares will be required to conform to the initial and continued
listing criteria under NYSE Arca Rule 8.201-E. The trading of the
Shares will be subject to NYSE Arca Rule 8.201-E(g), which sets forth
certain restrictions on Equity Trading Permit Holders (``ETP Holders'')
acting as registered market makers (``Market Makers'') in Commodity-
Based Trust Shares to facilitate surveillance. The Exchange represents
that, for initial and continued listing, the Trust is required to
comply with Rule 10A-3 \15\ under the Act, as provided by NYSE Arca
Rule 5.3-E. A minimum of 100,000 Shares of the Trust will be
outstanding at the commencement of trading on the Exchange.
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\15\ 17 CFR 240.10A-3.
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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 of the Trust.\16\ Trading in Shares of the Trust
will be halted if the circuit breaker parameters in NYSE Arca Rule
7.12-E have been reached. Trading also may be halted because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable.
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\16\ See NYSE Arca Rule 7.12-E.
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The Exchange may halt trading during the day in which an
interruption to the dissemination of the IIV or the value of either
Pricing Benchmark occurs. If the interruption to the dissemination of
the IIV or the value of either Pricing Benchmark 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 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 represents that trading in the Shares of the Trust on
the Exchange will be subject to the existing trading surveillances
administered by the Exchange, as well as cross-market surveillances
administered by the Financial Industry Regulatory Authority (``FINRA'')
on behalf of the Exchange, which are designed to detect potential
violations of Exchange rules and applicable federal securities laws
with respect to the Shares of the Trust trading on the Exchange.\17\
The Exchange represents that these procedures are adequate to properly
monitor Exchange trading of the Shares in all trading sessions and to
deter and detect violations of Exchange rules and federal securities
laws with respect to the Shares of the Trust trading on the Exchange.
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\17\ FINRA conducts cross-market surveillances on behalf of the
Exchange pursuant to a regulatory services agreement. The Exchange
is responsible for FINRA's performance under this regulatory
services agreement.
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The existing surveillances referred to above generally focus on
detecting securities trading outside their normal trading patterns,
which could be indicative of manipulative or other violative activity
with respect to the Shares of the Trust. When such situations are
detected, surveillance analysis follows and investigations are opened,
where appropriate, to review the behavior of all relevant parties for
all relevant trading violations.
The Exchange 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 Intermarket
Surveillance Group (the ``ISG''), and the Exchange or FINRA, on behalf
of the Exchange, or both, may obtain trading information regarding
trading in the Shares and bitcoin and ether derivatives from such
markets and other entities. In addition, the Exchange may obtain
information regarding trading in the Shares and bitcoin and ether
derivatives from markets and other entities that are members of ISG or
with which the Exchange has in place a CSSA.\18\ The Exchange is also
able to obtain information from ETP Holders regarding their trading (as
principal or agent) in the Shares and any underlying bitcoin, ether,
bitcoin futures contracts, ether futures contracts, options on bitcoin
futures, options on ether futures or any other bitcoin or ether
derivative.
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\18\ For a list of the current members of ISG, see
www.isgportal.org.
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In addition, under NYSE Arca Rule 8.201-E(g), an ETP Holder acting
as a registered Market Maker in the Shares is required to provide the
Exchange with information relating to its accounts for trading in any
underlying commodity, related futures or options on futures or any
other related derivatives. Commentary .04 of NYSE Arca Rule 11.3-E
requires an ETP Holder acting as a registered Market Maker, and its
affiliates, in the Shares to establish, maintain and enforce written
policies and procedures reasonably designed to prevent the misuse of
any material nonpublic information with respect to such products, any
components of the related products, any physical asset or commodity
underlying the product, applicable currencies, underlying indexes,
related futures or options on futures, and any related derivative
instruments (including the Shares). As a general matter, the Exchange
has regulatory jurisdiction over its ETP Holders and their associated
persons, which include any person or entity controlling an ETP Holder.
To the extent the Exchange may be found to lack jurisdiction over a
subsidiary or affiliate of an ETP Holder that does business only in
commodities or futures contracts and that subsidiary or affiliate is a
member of another regulatory organization, the Exchange could obtain
information regarding the activities of such subsidiary or affiliate
through surveillance sharing agreements with that regulatory
organization to the extent such agreements exist.
In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
All statements and representations made in this filing regarding
(a) the description of the index, portfolio or reference asset, (b)
limitations on index or portfolio holdings or reference assets or (c)
the applicability of Exchange listing rules specified in this rule
filing shall constitute continued listing requirements for listing the
Shares on the Exchange.
The Sponsor has represented to the Exchange that it will advise the
Exchange if the Trust no longer complies with the continued listing
requirements, and, pursuant to its obligations under Section 19(g)(1)
of the Act, the Exchange will monitor for compliance with the continued
listing requirements. If the Exchange becomes aware that the Trust is
not in compliance with the applicable listing requirements, the
Exchange will commence delisting procedures under NYSE Arca Rule 5.5-
E(m).
[[Page 30762]]
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its
ETP Holders in an ``Information Bulletin'' of the special
characteristics and risks associated with trading the Shares.
Specifically, the Information Bulletin will discuss the following: (1)
the procedures for creations of Shares in Baskets; (2) NYSE Arca Rule
9.2-E(a), which imposes a duty of due diligence on its ETP Holders to
learn the essential facts relating to every customer prior to trading
the Shares; (3) information regarding how the value of the Pricing
Benchmarks and NAV are disseminated; (4) the possibility that trading
spreads and the resulting premium or discount on the Shares may widen
during the Early and Late Trading 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.
In addition, the Information Bulletin will reference that the Trust
is subject to various fees and expenses as described in the
Registration Statement. The Information Bulletin will disclose that
information about the Shares of the Trust is publicly available on the
Trust's website. The Information Bulletin will also reference the fact
that there is no regulated source of last sale information regarding
bitcoin or ether, that the Commission has no jurisdiction over the
trading of bitcoin or ether as a commodity, and that the Commodity
Futures Trading Commission (the ``CFTC'') has regulatory jurisdiction
over the trading of CME bitcoin futures contracts, ether futures
contracts and options on CME bitcoin futures contracts and ether
futures contracts.
The Information Bulletin will also discuss any relief, if granted,
by the Commission or the staff from any rules under the Act.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \19\ that an exchange have rules that
are designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of, a free and open market
and, in general, to protect investors and the public interest.
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\19\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in NYSE Arca Rule 8.201-E. The
Exchange has in place surveillance procedures that are adequate to
properly monitor trading in the Shares in all trading sessions on the
Exchange and to deter and detect violations of Exchange rules and
applicable federal securities laws. The Exchange or FINRA, on behalf of
the Exchange, or both, will communicate as needed regarding trading in
the Shares with other markets 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 bitcoin and
ether derivatives from such markets. In addition, the Exchange may
obtain information regarding trading in the Shares and bitcoin and
ether derivatives from markets that are members of ISG or with which
the Exchange has in place a CSSA. Also, pursuant to NYSE Arca Rule
8.201-E(g), the Exchange is able to obtain information regarding Market
Maker accounts for trading in the Shares and the underlying bitcoin,
underlying ether or any bitcoin or ether derivative through ETP Holders
acting as registered Market Makers, in connection with such ETP
Holders' proprietary trades which they effect on any relevant market.
The proposed rule change is also designed to prevent fraudulent and
manipulative acts and practices because the Trust is structured
similarly to and will operate in materially the same manner as the Spot
Bitcoin ETPs, Spot Ether ETPs, and Spot Bitcoin/Ether ETPs previously
approved by the Commission. The Exchange further believes that the
proposed rule change is designed to prevent fraudulent and manipulative
acts and practices because, as noted by the Commission in the Spot
Bitcoin ETP Approval Order, Spot Ether ETP Approval Order, and Spot
Bitcoin/Ether ETP Approval Order, the Exchange's ability to obtain
information regarding trading in the Shares and futures from markets
and other entities that are members of the ISG (including the CME)
would assist the Exchange in detecting and deterring misconduct. In
particular, the CME bitcoin and ether futures markets are large,
surveilled and regulated markets that are closely connected with the
spot markets for bitcoin and ether, respectively, through which the
Exchange could obtain information to assist in detecting and deterring
potential fraud or manipulation.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that there is a considerable amount of bitcoin and ether price and
market information available on public websites and through
professional and subscription services. Investors may obtain, on a 24-
hour basis, bitcoin and ether pricing information based on the spot
price for bitcoin and ether from various financial information service
providers. The closing price and settlement prices of bitcoin and ether
are readily available from the Constituent Platforms and other publicly
available websites.
In addition, such prices are published in public sources, or on-
line information services such as Bloomberg and Reuters. The NAV per
Share will be calculated daily and made available to all market
participants at the same time. The Trust will provide website
disclosure of its NAV and NAV per Share daily. One or more major market
data vendors will disseminate for the Trust on a daily basis
information with respect to the most recent NAV per Share and Shares
outstanding. In addition, if the Exchange becomes aware that the NAV
per Share 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. Quotation and last-sale
information regarding the Shares will be disseminated through the
facilities of the CTA. The IIV will be widely disseminated on a per
Share basis every 15 seconds during the NYSE Arca Core Trading Session
(normally 9:30 a.m. E.T. to 4:00 p.m. E.T.) by one or more major market
data vendors. The Exchange represents that the Exchange may halt
trading during the day in which an interruption to the dissemination of
the IIV or the value of either Pricing Benchmark occurs. If the
interruption to the dissemination of the IIV or the value of either
Pricing Benchmark 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.
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 on the Exchange and may
obtain information via ISG
[[Page 30763]]
from other exchanges that are members of ISG or with which the Exchange
has entered into a CSSA. In addition, as noted above, investors will
have ready access to information regarding the Trust's NAV per Share,
IIV, and quotation and last sale information for the Shares.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange notes that the
proposed rule change will facilitate the listing and trading of an
additional type of exchange-traded product, which will enhance
competition among market participants, to the benefit of investors and
the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-NYSEARCA-2025-45 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-NYSEARCA-2025-45. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-NYSEARCA-2025-45 and should
be submitted on or before July 31, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2025-12809 Filed 7-9-25; 8:45 am]
BILLING CODE 8011-01-P