[Federal Register Volume 90, Number 132 (Monday, July 14, 2025)]
[Notices]
[Pages 31542-31551]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-13065]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103408; File No. SR-CboeBZX-2025-081]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change, as Modified by Amendment No. 2, To
List and Trade Shares of the Canary PENGU ETF Under BZX Rule
14.11(e)(4), Commodity-Based Trust Shares
July 9, 2025.
On June 25, 2025, Cboe BZX Exchange, Inc. (``Exchange'' or ``BZX'')
filed with the Securities and Exchange Commission (the ``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change
to list and trade shares of the Canary PENGU ETF under BZX Rule
14.11(e)(4), Commodity-Based Trust Shares. On July 7, 2025, the
Exchange filed Amendment No. 1 to the proposed rule change, which
replaced and superseded the original filing in its entirety. On July 8,
2025, the Exchange filed Amendment No. 2 to the proposed rule change,
which replaced and superseded the proposed rule change, as modified by
Amendment No. 1, in its entirety. The proposed rule change, as modified
by Amendment No. 2, is described in Items I, II, and III below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change, as
modified by Amendment No. 2, from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
(a) Pursuant to the provisions of Section 19(b)(1) under the
Securities Exchange Act of 1934 (``Exchange Act'' or the ``Act''),\3\
and Rule 19b-4 thereunder,\4\ Cboe BZX Exchange, Inc. (``BZX'' or the
``Exchange'') is filing with the Securities and Exchange Commission
(``Commission'' or ``SEC'') a proposed rule change to list and trade
shares of the Canary PENGU ETF (the ``Trust''),\5\ under BZX Rule
14.11(e)(4), Commodity-Based Trust Shares. The shares of the Trust are
referred to herein as the ``Shares.''
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\3\ 15 U.S.C. 78s(b)(1).
\4\ 17 CFR 240.19b-4.
\5\ The Trust will be formed as a Delaware statutory trust. The
Trust will have no fixed termination date.
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
The text of the proposed rule change is also available on the
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
This Amendment No. 2 to SR-CboeBZX-2025-081 amends and replaces in
its entirety the proposal as originally submitted on June 25, 2025, and
as amended by Amendment No. 1 on July 7, 2025. The Exchange submits
this Amendment No. 2 in order to clarify certain points and add
additional details to the proposal.
The Exchange proposes to list and trade the Shares under BZX Rule
14.11(e)(4),\6\ which governs the listing and trading of Commodity-
Based Trust Shares on the Exchange.\7\ Canary Capital
[[Page 31543]]
Group LLC is the sponsor of the Trust (the ``Sponsor''). The Shares
will be registered with the Commission by means of the Trust's
registration statement on Form S-1 (the ``Registration Statement'').\8\
According to the Registration Statement, the Trust is neither an
investment company registered under the Investment Company Act of 1940,
as amended,\9\ nor a commodity pool for purposes of the Commodity
Exchange Act (``CEA''), and neither the Trust nor the Sponsor is
subject to regulation as a commodity pool operator or a commodity
trading adviser in connection with the Shares.
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\6\ The Commission approved BZX Rule 14.11(e)(4) in Securities
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148
(September 6, 2011) (SR-BATS-2011-018).
\7\ Any of the statements or representations regarding the index
composition, the description of the portfolio or reference assets,
limitations on portfolio holdings or reference assets, dissemination
and availability of index, reference asset, and intraday indicative
values, or the applicability of Exchange listing rules specified in
this filing to list a series of Other Securities (collectively,
``Continued Listing Representations'') shall constitute continued
listing requirements for the Shares listed on the Exchange.
\8\ See the Registration Statement on Form S-1, dated March 20,
2025, submitted by the Sponsor on behalf of the Trust. The
descriptions and operation of the Trust and the Shares contained
herein are based, in part, on information in the Registration
Statement. The Registration Statement is not yet effective, and the
Shares will not trade on the Exchange until such time that the
Registration Statement is effective.
\9\ 15 U.S.C. 80a-1.
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Since 2017, the Commission has approved or disapproved exchange
filings to list and trade series of Trust Issued Receipts, including
spot-based Commodity-Based Trust Shares, on the basis of whether the
listing exchange has in place a comprehensive surveillance sharing
agreement with a regulated market of significant size related to the
underlying commodity to be held (the ``Winklevoss Test'').\10\ The
Commission has also consistently recognized that this not the exclusive
means by which an ETP listing exchange can meet this statutory
obligation.\11\ A listing exchange could, alternatively, demonstrate
that ``other means to prevent fraudulent and manipulative acts and
practices will be sufficient'' to justify dispensing with a
surveillance-sharing agreement with a regulated market of significant
size.\12\
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\10\ See Securities Exchange Act Release Nos. 78262 (July 8,
2016), 81 FR 78262 (July 14. 2016) (the ``Winklevoss Proposal'').
The Winklevoss Proposal was the first exchange rule filing proposing
to list and trade shares of an ETP that would hold spot bitcoin (a
``Spot Bitcoin ETP''). It was subsequently disapproved by the
Commission. See Securities Exchange Act Release No. 83723 (July 26,
2018), 83 FR 37579 (August 1, 2018) (the ``Winklevoss Order'');
99306 (January 10, 2024), 89 FR 3008 (January 17, 2024) (Self-
Regulatory Organizations; NYSE Arca, Inc.; The Nasdaq Stock Market
LLC; Cboe BZX Exchange, Inc.; Order Granting Accelerated Approval of
Proposed Rule Changes, as Modified by Amendments Thereto, To List
and Trade Bitcoin-Based Commodity-Based Trust Shares and Trust
Units) (the ``Spot Bitcoin ETP Approval Order''); 100224 (May 23,
2024), 89 FR 46937 (May 30, 2024) (Self-Regulatory Organizations;
NYSE Arca, Inc.; The Nasdaq Stock Market LLC; Cboe BZX Exchange,
Inc.; Order Granting Accelerated Approval of Proposed Rule Changes,
as Modified by Amendments Thereto, To List and Trade Shares of
Ether-Based Exchange-Traded Products) (the ``Spot ETH ETP Approval
Order'').
\11\ See Winklevoss Order, 83 FR at 37580; see Spot Bitcoin ETP
Approval Order, 89 FR at 3009; see Spot ETH ETP Approval Order 89 FR
at 46938.
\12\ The Exchange notes that that the Winklevoss Test was first
applied in 2017 in the Winklevoss Order, which was the first
disapproval order related to an exchange proposal to list and trade
a Spot Bitcoin ETP. All prior approval orders issued by the
Commission approving the listing and trading of series of Trust
Issued Receipts included no specific analysis related to a
``regulated market of significant size.''In the Winklevoss Order and
the Commission's prior orders approving the listing and trading of
series of Trust Issued Receipts have noted that the spot commodities
and currency markets for which it has previously approved spot ETPs
are generally unregulated and that the Commission relied on the
underlying futures market as the regulated market of significant
size that formed the basis for approving the series of Currency and
Commodity-Based Trust Shares, including gold, silver, platinum,
palladium, copper, and other commodities and currencies. The
Commission specifically noted in the Winklevoss Order that the
approval order issued related to the first spot gold ETP ``was based
on an assumption that the currency market and the spot gold market
were largely unregulated.'' See Winklevoss Order at 37592. As such,
the regulated market of significant size test does not require that
the spot market be regulated in order for the Commission to approve
this proposal, and precedent makes clear that an underlying market
for a spot commodity or currency being a regulated market would
actually be an exception to the norm. These largely unregulated
currency and commodity markets do not provide the same protections
as the markets that are subject to the Commission's oversight, but
the Commission has consistently looked to surveillance sharing
agreements with the underlying futures market in order to determine
whether such products were consistent with the Act.
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The Commission recently issued orders granting approval for
proposals to list bitcoin- and ether-based commodity trust shares and
bitcoin-based, ether-based, and a combination of bitcoin- and ether-
based trust issued receipts (``Spot Bitcoin ETPs'' and ``Spot ETH
ETPs'').In both the Spot Bitcoin ETP Approval Order and Spot ETH ETP
Approval Order, the Commission found that sufficient ``other means'' of
preventing fraud and manipulation had been demonstrated that justified
dispensing with a surveillance-sharing agreement of significant size.
Specifically, the Commission found that while the Chicago Mercantile
Exchange (``CME'') futures market for both bitcoin and ether were not
of ``significant size'' related to the spot market, the Exchange
demonstrated that other means could be reasonably expected to assist in
surveilling for fraudulent and manipulative acts and practices in the
specific context of the proposals.
The Exchange notes that the Commission has also previously approved
the listing and trading of a series of Commodity-Based Trust Shares
that, like the Trust, holds multiple commodities,\13\ and has also
approved the listing and trading of securities registered under the
Securities Act of 1933, as amended (the ``Securities Act''), that are
actively managed.\14\ As further discussed below, both the Exchange and
the Sponsor believe that this proposal and the included analysis are
sufficient to establish that the proposal is consistent with the Act
itself and, additionally, that there are sufficient ``other means'' of
preventing fraud and manipulation that warrant dispensing of the
surveillance-sharing agreement with a regulated market of significant
size, as was done with both Spot Bitcoin ETPs and Spot ETH ETPs, and
that this proposal should be approved.
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\13\ See Securities Exchange Act Nos. 101998 (December 30, 2024)
89 FR 106707 (December 30, 2024) (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) (SR-CboeBZX-2024-
091) (SR-Nasdaq-2024-028); 82448 (January 5, 2018) 83 FR 1428
(January 11, 2018) (SR-NYSEArca-2017-131) (NYSE Arca, Inc.; Notice
of Filing of Amendment No. 2 and Order Approving on an Accelerated
Basis a Proposed Rule Change, as Modified by Amendment No. 2, To
List and Trade Shares of the Sprott Physical Gold and Silver Trust
Under NYSE Arca Rule 8.201-E).
\14\ See Securities Exchange Act No. 87223 (October 10, 2019) 84
FR 54707 (SR-NYSEArca-2019-55) (Order Approving a Proposed Rule
Change To Amend NYSE Arca Rule 8.700-E and To List and Trade Shares
of the Dynamic Short Short-Term Volatility Futures ETF).
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Background on Portfolio Assets
The Trust will hold PENGU, Pudgy Penguin non-fungible tokens
(``Pudgy Penguin NFTs''), SOL, and ETH (the ``Portfolio Digital
Assets''). The Trust is expected to hold approximately 80-95% of its
total assets in PENGU and 5-15% of its total assets in Pudgy Penguin
NFTS. The Trust expects that under normal circumstances at least 95% of
the Trust's total assets will be invested in PENGU and Pudgy Penguin
NFTs. Because PENGU and Pudgy Penguin NFTs are tokens on the Solana and
Ethereum Networks, respectively, it may be necessary from time to time
for the Trust to hold SOL or ETH in order to pay the respective network
transactions fees. Furthermore, as many Pudgy Penguin NFT marketplaces
conduct auction denominated in ETH, it may be necessary for the Trust
to convert cash to ETH in order to purchase Pudgy Penguin NFTs.
Similarly, when the Trust sells Pudgy Penguin NFTs, the sales proceeds
may be in ETH. The Trust intend to hold only as much SOL or ETH as the
Sponsor believes is necessary to pay for anticipated transaction
expenses or to purchase Pudgy Penguin NFTs.
[[Page 31544]]
PENGU is a digital asset created and transmitted through the Solana
Network, a peer-to-peer, decentralized computer network operating on
cryptographic protocols. Introduced in December 2024 by Pudgy Penguins
(the public identity of LSLTT Holdings LLC), PENGU differs from native
cryptocurrencies like bitcoin, ETH, and SOL as it doesn't have its own
underlying network or blockchain. Instead, PENGU exists as an SPL token
on the Solana Network, utilizing its underlying technology. PENGU can
facilitate payments for goods and services or be converted to fiat
currencies at rates determined by digital asset trading platforms or
through individual barter transactions. Due to its association with
Pudgy Penguins, PENGU is often considered a digital collector's item.
Classified as a ``utility token'' PENGU theoretically grants holders
access to specific services within its ecosystem, similar to a ticket
for particular products or services.
PENGU launched with a total supply of 88,888,888,888 tokens. As a
``solana program library (``SPL'') token, PENGU depends entirely on the
Solana Network, which is maintained by a decentralized user base rather
than a single entity. The Solana Network enables value token exchanges
recorded on its public blockchain ledger and supports smart contracts--
code that executes across the network to manage information and value
transfers based on programmed conditions. Through these smart
contracts, users can create markets, store registries, represent
ownership, transfer funds conditionally, and create digital assets
beyond SOL, with operations executed in exchange for SOL payments. Like
Eth, SOL represents broader efforts to expand blockchain technology
beyond simple peer-to-peer money systems.
Non-fungible tokens, or NFTs, are a type of digital asset that
represents ownership or proof of authenticity of a unique item or piece
of content, typically stored on a blockchain. Unlike cryptocurrencies
such as bitcoin and ether, which are fungible and can be exchanged on a
one-to-one basis, NFTs are unique and cannot be exchanged like-for-
like. Pudgy Penguin NFTs are a collection of 8,888 NFTs launched in
July 2021 by a team of four pseudonymous developers. The collection
consists of unique, hand-drawn penguins, each having distinct traits
and characteristics, and quickly gained the attention of the NFT
community due to its charming and whimsical artwork. These Pudgy
Penguin NFTs are ERC-721 tokens that are recorded and transferred
through the operation of the peer-to-peer Ethereum Network, which is
not owned or operated by any single entity but rather maintained
collectively by a distributed user base in a decentralized manner.
Ether is not issued by governments, banks or any other centralized
authority, and 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. Ether, the native cryptocurrency of
the Ethereum Network, 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.
Section 6(b)(5) and the Applicable Standards
The Commission has approved numerous series of Trust Issued
Receipts,\15\ including Commodity-Based Trust Shares,\16\ to be listed
on U.S. national securities exchanges. In order for any proposed rule
change from an exchange to be approved, the Commission must determine
that, among other things, the proposal is consistent with the
requirements of Section 6(b)(5) of the Act, specifically including: (i)
the requirement that a national securities exchange's rules are
designed to prevent fraudulent and manipulative acts and practices;
\17\ and (ii) the requirement that an exchange proposal be designed, in
general, to protect investors and the public interest. The Exchange
believes that this proposal is consistent with the requirements of
Section 6(b)(5) of the Act and that this filing sufficiently
demonstrates that potential policy concerns under the Act are
sufficiently mitigated to the point that they are outweighed by
quantifiable investor protection issues that would be resolved by
approving this proposal.
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\15\ See Exchange Rule 14.11(f).
\16\ Commodity-Based Trust Shares, as described in Exchange Rule
14.11(e)(4), are a type of Trust Issued Receipt.
\17\ Much like bitcoin and ETH, the Exchange believes that the
PENGU is resistant to price manipulation and that ``other means to
prevent fraudulent and manipulative acts and practices'' exist to
justify dispensing with the requisite surveillance sharing
agreement. The geographically diverse and continuous nature of PENGU
trading renders it difficult and prohibitively costly to manipulate
the price of PENGU. The fragmentation across platforms and the
capital necessary to maintain a significant presence on each trading
platform make manipulation PENGU prices through continuous trading
activity challenging. To the extent that there are trading platforms
engaged in or allowing wash trading or other activity intended to
manipulate the price of PENGU on other markets, such pricing does
not normally impact prices on other trading platforms because
participants will generally ignore markets with quotes that they
deem non-executable. Moreover, the linkage between PENGU markets and
the presence of arbitrageurs in those markets means that the
manipulation of the price of PENGU on any single venue would require
manipulation of the global PENGU price in order to be effective.
Arbitrageurs must have funds distributed across multiple trading
platforms in order to take advantage of temporary price
dislocations, thereby making it unlikely that there will be strong
concentration of funds on any particular trading platforms or OTC
platform. Further, the speed and relatively inexpensive nature of
transactions on the Solana Network allow arbitrageurs to quickly
move capital between trading platforms where price dislocations may
occur. As a result, the potential for manipulation on a trading
platform would require overcoming the liquidity supply of such
arbitrageurs who are effectively eliminating any cross-market
pricing differences.
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More recently, the Commission has applied the Winklevoss Test while
also recognizing that the ``regulated market of significant size''
standard is not the only means for satisfying Section 6(b)(5) of the
Act. In the specifically providing that a listing exchange could
demonstrate that ``other means to prevent fraudulent and manipulative
acts and practices'' are sufficient to justify dispensing with the
requisite surveillance-sharing agreement.\18\ While there are currently
several futures markets for PENGU, in the Spot Bitcoin ETF Approval
Order and Spot ETH ETF Approval Order the Commission determined that
the CME bitcoin futures market and CME ETH futures market,
respectively, were not of ``significant size'' related to the spot
market. Instead, the Commission found that sufficient ``other means''
of preventing fraud and manipulation had been demonstrated that
justified dispensing with a surveillance-sharing agreement of
significant size. The Exchange and Sponsor believe that this proposal
provides for other means of preventing fraud and manipulation justify
dispensing with a surveillance-sharing agreement of significant size.
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\18\ See Winklevoss Order at 37580. The Commission has also
specifically noted that it ``is not applying a `cannot be
manipulated' standard; instead, the Commission is examining whether
the proposal meets the requirements of the Exchange Act and,
pursuant to its Rules of Practice, places the burden on the listing
exchange to demonstrate the validity of its contentions and to
establish that the requirements of the Exchange Act have been met.''
Id. at 37582.
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Over the past months years, U.S. investor exposure to PENGU has
grown into millions of dollars with a fully diluted market cap of
greater than $563 million. The Exchange believes that approving this
proposal (and comparable proposals) provides the Commission with the
opportunity to allow U.S. investors with access to
[[Page 31545]]
PENGU in a regulated and transparent exchange-traded vehicle that would
act to limit risk to U.S. investors.
The policy concerns that the Exchange Act is designed to address
are also otherwise mitigated by the fact that the size of the market
for the primary underlying reference asset ($563+ million fully diluted
value) and the nature of the PENGU ecosystem reduces its susceptibility
to manipulation. The geographically diverse and continuous nature of
the PENGU trading makes it difficult and prohibitively costly to
manipulate the price of PENGU and, in many instances, PENGU markets can
be less susceptible to manipulation than the equity, fixed income, and
commodity futures markets. There are a number of reasons this is the
case, including that there is not inside information about revenue,
earnings, corporate activities, or sources of supply; manipulation of
the price on any single venue would require manipulation of the global
PENGU price in order to be effective; a substantial over-the-counter
market provides liquidity and shock-absorbing capacity; PENGU's 24/7/
365 nature provides constant arbitrage opportunities across all trading
venues; and it is unlikely that any one actor could obtain a dominant
market share.
Further, PENGU is arguably less susceptible to manipulation than
other commodities that underlie ETPs; there may be inside information
relating to the supply of the physical commodity such as the discovery
of new sources of supply or significant disruptions at mining
facilities that supply the commodity that simply are inapplicable as it
relates to certain cryptoassets, including PENGU. Further, the Exchange
believes that the fragmentation across the PENGU trading platforms and
increased adoption of the PENGU, as displayed through increased user
engagement and trading volumes, and the Solana Network make
manipulation of PENGU prices through continuous trading activity more
difficult. Moreover, the linkage between the PENGU markets and the
presence of arbitrageurs in those markets means that the manipulation
of the price of the PENGU prices on any single venue would require
manipulation of the global PENGU prices in order to be effective.
Arbitrageurs must have funds distributed across multiple spot trading
platforms in order to take advantage of temporary price dislocations,
thereby making it unlikely that there will be strong concentration of
funds on any particular spot trading platform. As a result, the
potential for manipulation on a particular spot trading platform would
require overcoming the liquidity supply of such arbitrageurs who are
effectively eliminating any cross-market pricing differences. For all
of these reasons, PENGU is not particularly susceptible to
manipulation, especially as compared to other approved ETP reference
assets.
Canary PENGU ETF
CSC Delaware Trust Company is the trustee (``Trustee''). A third
party will be the administrator (``Administrator'') and transfer agent
(``Transfer Agent'') and will be responsible for the custody of the
Trust's cash and cash equivalents \19\ (the ``Cash Custodian''). A
third-party custodian (the ``Custodian'') will be responsible for
custody of the Trust's Portfolio Digital Assets.
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\19\ Cash equivalents are short-term instruments with maturities
of less than 3 months.
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According to the Registration Statement, each Share will represent
a fractional undivided beneficial interest in and ownership of the
Trust.
According to the Registration Statement, the Trust will be neither
an investment company registered under the Investment Company Act of
1940, as amended,\20\ nor a commodity pool for purposes of the CEA, and
neither the Trust nor the Sponsor is subject to regulation as a
commodity pool operator or a commodity trading adviser in connection
with the Shares.
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\20\ 15 U.S.C. 80a-1.
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Neither the Trust, nor the Sponsor, nor the Custodian, nor any
other person associated with the Trust will, directly or indirectly,
engage in action where any portion of the Trust's Portfolio Digital
Assets becomes subject to the proof-of-stake validation or is used to
earn additional Portfolio Digital Assets or generate income or other
earnings. The Trust will not acquire and will disclaim any incidental
right (``IR'') or IR asset received, for example as a result of forks
or airdrops, and such assets will not be taken into account for
purposes of determining the Trust's net asset value (``NAV'').
When the Trust sells or redeems its Shares, it will do so in cash
transactions in blocks of 10,000 Shares (a ``Creation Basket'') at the
Trust's net asset value (``NAV''). For creations, authorized
participants will deliver cash to the Trust's account with the Cash
Custodian in exchange for Shares. Upon receipt of an approved creation
order, the Sponsor, on behalf of the Trust, will submit an order to buy
the amount of Portfolio Digital Assets represented by a Creation
Basket. Based off Portfolio Digital Asset executions, the Cash
Custodian will request the required cash from the authorized
participant; the Transfer Agent will only issue Shares when the
authorized participant has made delivery of the cash. Following receipt
by the Cash Custodian of the cash from an authorized participant, the
Sponsor, on behalf of the Trust, will approve an order with one or more
previously onboarded trading partners to purchase the amount of
Portfolio Digital Assets represented by the Creation Basket. This
purchase of Portfolio Digital Assets will normally be cleared through
an affiliate of the Custodian (although the purchase may also occur
directly with the trading partner) and the Portfolio Digital Assets
will settle directly into the Trust's account at the Custodian.\21\
Authorized participants may then offer Shares to the public at prices
that depend on various factors, including the supply and demand for
Shares, the value of the Trust's assets, and market conditions at the
time of a transaction. Shareholders who buy or sell Shares during the
day from their broker may do so at a premium or discount relative to
the NAV of the Shares of the Trust.
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\21\ For redemptions, the process will occur in the reverse
order. Upon receipt of an approved redemption order, the Sponsor, on
behalf of the Trust, will submit an order to sell the amount of
PENGU represented by a Creation Basket and the cash proceeds will be
remitted to the authorized participant when the 10,000 Shares are
received by the Transfer Agent.
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Investment Objective
According to the Registration Statement and as further described
below, the Trust's investment objective is provide capital
appreciation. In seeking to achieve its investment objective, the Trust
will hold PENGU, Pudgy Penguin NFTs, SOL, and ETH.
The Trust is expected to hold approximately 80-95% of its total
assets in PENGU and 5-15% of its total assets in Pudgy Penguin NFTS.
The Trust expects that under normal circumstances at least 95% of the
Trust's total assets will be invested in PENGU and Pudgy Penguin NFTs.
Because PENGU and Pudgy Penguin NFTs are tokens on the Solana and
Ethereum Networks, respectively, it may be necessary from time to time
for the Trust to hold SOL or ETH in order to pay the respective network
transactions fees. Furthermore, as many Pudgy Penguin NFT marketplaces
conduct auction denominated in ETH, it may be necessary for the Trust
to convert cash to ETH in order to purchase Pudgy Penguin NFTs.
Similarly, when the Trust sells Pudgy Penguin NFTs, the sales proceeds
may be in ETH. The Trust intend to hold only as much SOL or ETH as the
Sponsor believes is
[[Page 31546]]
necessary to pay for anticipated transaction expenses or to purchase
Pudgy Penguin NFTs.
With respect to the Pudgy Penguin NFTs, the Sponsor will select
which NFTs to purchase by considering factors such as price, relative
rarity, perceived desirability of a particular NFTs traits and
characteristics, and the overall collection value. The Sponsor will
periodically rebalance the Trust's portfolio to bring the portfolio
within these ranges if it becomes out of compliance due to market
changes. Within these ranges, the Sponsor has discretion to adjust the
relative weightings of PENGU and Pudgy Penguin NFTs. Furthermore,
within these ranges the Sponsor has discretion to speculatively buy and
sell Pudgy Penguin NFTs based on its own analysis of market for Pudgy
Penguin NFTs. The Trust will also hold SOL and ETH as necessary or
incidental to the purchase, sale and transfer of the Trust's PENGU and
Pudgy Penguins NFTs.
In seeking to achieve its investment objective, the Trust will hold
the Portfolio Digital Assets and will value its Shares daily as of 4:00
p.m. ET using the Trust's valuation policy. All of the Trust's
Portfolio Digital Assets will be held by the Custodian(s).
The Portfolio Digital Assets
The Trust will value its PENGU, SOL and ETH, based on certain
pricing benchmarks. The Trust will value the Pudgy Penguin NFT will be
valued by a third-party NFT pricing service. The Trust will determine
the price of the Portfolio Digital Assets and value its Shares daily
based on the value of each applicable benchmark price and the price of
Pudgy Penguins NFT as reflected by the third-party pricing service.
Net Asset Value
NAV means the total assets of the Trust (which includes all
Portfolio Digital Assets and cash and cash equivalents) less total
liabilities of the Trust. The Administrator determines the NAV of the
Trust on each day that the Exchange is open for regular trading, as
promptly as practical after 4:00 p.m. ET using the aggregate value of
the Trust's assets less its accrued but unpaid liabilities based on the
Trust's valuation policy, which as described above is based on the
value of each applicable benchmark price and the price of Pudgy
Penguins NFT as reflected by the third-party pricing service. The
Administrator also determines the NAV per Share. The NAV for the Trust
will be calculated by the Administrator once a day and will be
disseminated daily to all market participants at the same time.
Availability of Information
The Trust will provide information regarding the Trust's Portfolio
Digital Assets holdings as well as additional data regarding the Trust.
The website for the Trust, which will be publicly accessible at no
charge, will contain the following information: (a) the current NAV per
Share daily and the prior business day's NAV per Share and the reported
BZX Official Closing Price; \22\ (b) the BZX Official Closing Price in
relation to the NAV per Share as of the time the NAV is calculated and
a calculation of the premium or discount of such price against such NAV
per Share; (c) data in chart form displaying the frequency distribution
of discounts and premiums of the BZX Official Closing Price against the
NAV per Share, within appropriate ranges for each of the four previous
calendar quarters (or for the life of the Trust, if shorter); (d) the
prospectus; and (e) other applicable quantitative information. The
aforementioned information will be published as of the close of
business and available on the Sponsor's website at https://canary.capital, or any successor thereto. The NAV for the Trust will be
calculated by the Administrator once a day and will be disseminated
daily to all market participants at the same time. Quotation and last-
sale information regarding the Shares will be disseminated through the
facilities of the Consolidated Tape Association (``CTA''). The Trust
will also disseminate its holdings on a daily basis on its website.
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\22\ As defined in Rule 11.23(a)(3), the term ``BZX Official
Closing Price'' shall mean the price disseminated to the
consolidated tape as the market center closing trade.
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The Intraday Indicative Value (``IIV'') will be updated during
Regular Trading Hours to reflect changes in the value of the Trust's
PENGU, SOL, and ETH holdings (the ``Portfolio Cryptocurrencies'')
during the trading day. The IIV disseminated during Regular Trading
Hours should not be viewed as an actual real-time update of the NAV,
which will be calculated only once at the end of each trading day. The
IIV may differ from the NAV because NAV is calculated, using the
closing value of the Portfolio Digital Assets, once a day at 4 p.m. ET,
whereas the IIV draws prices from the last trade on each constituent
platform for each benchmark price in an effort to produce a relevant,
real-time price. The Trust will provide an IIV per Share updated every
15 seconds, as calculated by the Exchange or a third-party financial
data provider during the Exchange's Regular Trading Hours (9:30 a.m. to
4:00 p.m. E.T.). The IIV will be widely disseminated on a per Share
basis every 15 seconds during the Exchange's Regular Trading Hours
through the facilities of the CTA and Consolidated Quotation System
(CQS) high speed lines. In addition, the IIV will be available through
on-line information services, such as Bloomberg and Reuters.
The price of the Portfolio Cryptocurrencies will be made available
by one or more major market data vendors, updated at least every 15
seconds during Regular Trading Hours.
Quotation and last sale information for the Portfolio
Cryptocurrencies is widely disseminated through a variety of major
market data vendors, including Bloomberg and Reuters. Information
relating to trading, including price and volume information, in the
Portfolio Cryptocurrencies is available from major market data vendors
and from the trading platforms on which the Portfolio Cryptocurrencies
are traded. Depth of book information is also available from the
Portfolio Cryptocurrencies trading platforms. The normal trading hours
for the Portfolio Cryptocurrencies trading platforms are 24 hours per
day, 365 days per year.
Information regarding market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. Information
regarding the previous day's BZX Official Closing Price and trading
volume information for the Shares will be published daily in the
financial section of newspapers. Quotation and last-sale information
regarding the Shares will be disseminated through the facilities of the
CTA.
The Custodian
The Custodian's services (i) allow the Portfolio Digital Assets to
be deposited from a public blockchain address to the Trust's Portfolio
Digital Assets account; and (ii) allow Portfolio Digital Assets to be
withdrawn from the Portfolio Digital Assets account to a public
blockchain address as instructed by the Trust. The custody agreement
requires the Custodian to hold the Trust's Portfolio Digital Assets in
cold storage, unless required to facilitate withdrawals as a temporary
measure. The Custodian will use segregated cold storage Portfolio
Digital Assets addresses for the Trust which are separate from the
Portfolio Digital Assets addresses that the
[[Page 31547]]
Custodian uses for its other customers and which are directly
verifiable via the Solana blockchain. The Custodian will safeguard the
private keys to the Portfolio Digital Assets associated with the
Trust's Portfolio Digital Assets account. The Custodian will at all
times record and identify in its books and records that such Portfolio
Digital Assets constitutes the property of the Trust. The Custodian
will not withdraw the Trust's Portfolio Digital Assets from the Trust's
account with the Custodian, or loan, hypothecate, pledge or otherwise
encumber the Trust's Portfolio Digital Assets, without the Trust's
instruction. If the custody agreement terminates, the Sponsor may
appoint another custodian, and the Trust may enter into a custodian
agreement with such custodian.
Creation and Redemption of Shares
When the Trust sells or redeems its Shares, it will do so in cash
transactions in 10,000 Share increments (a Creation Basket) that are
based on the amount of Portfolio Digital Assets held by the Trust on a
per Creation Basket basis. According to the Registration Statement, on
any business day, an authorized participant may place an order to
create one or more Creation Baskets. Purchase orders must be placed by
4:00 p.m. ET, or the close of regular trading on the Exchange,
whichever is earlier. The day on which an order is received is
considered the purchase order date. The total deposit of cash required
is based on the combined NAV of the number of Shares included in the
Creation Baskets being created determined as of 4:00 p.m. ET on the
date the order to purchase is properly received. The Administrator
determines the quantity of Portfolio Digital Assets associated with a
Creation Basket for a given day by dividing the number of Portfolio
Digital Assets held by the Trust as of the opening of business on that
business day, adjusted for the amount of Portfolio Digital Assets
constituting estimated accrued but unpaid fees and expenses of the
Trust as of the opening of business on that business day, by the
quotient of the number of Shares outstanding at the opening of business
divided by the number of Shares in a Creation Basket.
The 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 the Portfolio Digital Assets 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 the Portfolio
Digital Assets as part of the creation or redemption process.
The Trust will create Shares by receiving the Portfolio Digital
Assets from a third party that is not the authorized participant and
the Trust--not the authorized participant--is responsible for selecting
the third party to facilitate the delivery of Portfolio Digital Assets.
Further, the third party will not be acting as an agent of the
authorized participant with respect to the delivery of the Portfolio
Digital Assets to the Trust or acting at the direction of the
authorized participant with respect to the delivery of the Portfolio
Digital Assets to the Trust. When fulfilling a redemption request, the
Trust will redeem shares by delivering the Portfolio Digital Assets to
a third party that is not the authorized participant and the Trust--not
the authorized participant--is responsible for selecting such third
party to receive the Portfolio Digital Assets. Further, the third party
will not be acting as an agent of the authorized participant with
respect to the receipt of the Portfolio Digital Assets from the Trust
or acting at the direction of the authorized participant with respect
to the receipt of the Portfolio Digital Assets from the Trust.
The procedures by which an authorized participant can redeem one or
more Creation Baskets mirror the procedures for the creation of
Creation Baskets.
The Sponsor will maintain ownership and control of the Portfolio
Digital Assets in a manner consistent with good delivery requirements
for spot commodity transactions.
Rule 14.11(e)(4)--Commodity-Based Trust Shares
The Shares will be subject to BZX Rule 14.11(e)(4), which sets
forth the initial and continued listing criteria applicable to
Commodity-Based Trust Shares. The Exchange represents that, for initial
and continued listing, the Trust must be in compliance with Rule 10A-3
under the Act. A minimum of 100,000 Shares will be outstanding at the
commencement of listing on the Exchange. The Exchange will obtain a
representation that the NAV will be calculated daily and that the NAV
and information about the assets of the Trust will be made available to
all market participants at the same time. The Exchange notes that, as
defined in Rule 14.11(e)(4)(C)(i), the Shares will be: (a) issued by a
trust that holds (1) four specified commodities \23\ deposited with the
trust, or (2) four specified commodities and, in addition to such
specified commodity, cash; (b) issued by such trust in a specified
aggregate minimum number in return for a deposit of a quantity of the
underlying commodities and/or cash; and (c) when aggregated in the same
specified minimum number, may be redeemed at a holder's request by such
trust which will deliver to the redeeming holder the quantity of the
underlying commodities and/or cash.
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\23\ For purposes of Rule 14.11(e)(4), the term commodity takes
on the definition of the term as provided in the Commodity Exchange
Act.
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Upon termination of the Trust, the Shares will be removed from
listing. The Trustee, CSC Delaware Trust Company, is a trust company
having substantial capital and surplus and the experience and
facilities for handling corporate trust business, as required under
Rule 14.11(e)(4)(E)(iv)(a) and that no change will be made to the
trustee without prior notice to and approval of the Exchange. The
Exchange also notes that, pursuant to Rule 14.11(e)(4)(F), neither the
Exchange nor any agent of the Exchange shall have any liability for
damages, claims, losses or expenses caused by any errors, omissions or
delays in calculating or disseminating any underlying commodity value,
the current value of the underlying commodity required to be deposited
to the Trust in connection with issuance of Commodity-Based Trust
Shares; resulting from any negligent act or omission by the Exchange,
or any agent of the Exchange, or any act, condition or cause beyond the
reasonable control of the Exchange, its agent, including, but not
limited to, an act of God; fire; flood; extraordinary weather
conditions; war; insurrection; riot; strike; accident; action of
government; communications or power failure; equipment or software
malfunction; or any error, omission or delay in the reports of
transactions in an underlying commodity. Finally, as required in Rule
14.11(e)(4)(G), the Exchange notes that any registered market maker
(``Market Maker'') in the Shares must file with the Exchange in a
manner prescribed by the Exchange and keep current a list identifying
all accounts for trading in an underlying commodity, related commodity
futures or options on commodity futures, or any other related commodity
derivatives, which the registered Market Maker may have or over which
it may exercise investment discretion. No registered Market Maker shall
trade in an underlying commodity, related commodity futures or options
on
[[Page 31548]]
commodity futures, or any other related commodity derivatives, in an
account in which a registered Market Maker, directly or indirectly,
controls trading activities, or has a direct interest in the profits or
losses thereof, which has not been reported to the Exchange as required
by this Rule. In addition to the existing obligations under Exchange
rules regarding the production of books and records (see, e.g., Rule
4.2), the registered Market Maker in Commodity-Based Trust Shares shall
make available to the Exchange such books, records or other information
pertaining to transactions by such entity or registered or non-
registered employee affiliated with such entity for its or their own
accounts for trading the underlying physical commodity, related
commodity futures or options on commodity futures, or any other related
commodity derivatives, as may be requested by the Exchange.
The Exchange is able to obtain information regarding trading in the
Shares and the underlying Portfolio Digital Assets or any other
derivative of the Portfolio Digital Assets through members acting as
registered Market Makers, in connection with their proprietary or
customer trades.
As a general matter, the Exchange has regulatory jurisdiction over
its Members and their associated persons, which include any person or
entity controlling a Member. To the extent the Exchange may be found to
lack jurisdiction over a subsidiary or affiliate of a Member that does
business only in commodities or futures contracts, the Exchange could
obtain information regarding the activities of such subsidiary or
affiliate through surveillance sharing agreements with regulatory
organizations of which such subsidiary or affiliate is a member.
Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares. The Exchange will halt trading in the Shares
under the conditions specified in BZX Rule 11.18. Trading may be halted
because of market conditions or for reasons that, in the view of the
Exchange, make trading in the Shares inadvisable. These may include:
(1) the extent to which trading is not occurring in the Portfolio
Digital Assets underlying the Shares; or (2) whether other unusual
conditions or circumstances detrimental to the maintenance of a fair
and orderly market are present. Trading in the Shares also will be
subject to Rule 14.11(e)(4)(E)(ii), which sets forth circumstances
under which trading in the Shares may be halted.
If the IIV is not being disseminated as required, the Exchange may
halt trading during the day in which the interruption to the
dissemination of the IIV occurs. If the interruption to the
dissemination of the IIV persists past the trading day in which it
occurred, the Exchange will halt trading no later than the beginning of
the trading day following the interruption.
In addition, if the Exchange becomes aware that the NAV with
respect to the Shares is not disseminated to all market participants at
the same time, it will halt trading in the Shares until such time as
the NAV is available to all market participants.
Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. BZX will allow
trading in the Shares during all trading sessions on the Exchange. The
Exchange has appropriate rules to facilitate transactions in the Shares
during all trading sessions. As provided in BZX Rule 11.11(a) the
minimum price variation for quoting and entry of orders in securities
traded on the Exchange is $0.01 where the price is greater than $1.00
per share or $0.0001 where the price is less than $1.00 per share. The
Shares of the Trust will conform to the initial and continued listing
criteria set forth in BZX Rule 14.11(e)(4).
Surveillance
The Exchange represents that its surveillance procedures are
adequate to properly monitor the trading of the Shares on the Exchange
during all trading sessions and to deter and detect violations of
Exchange rules and the applicable federal securities laws. Trading of
the Shares through the Exchange will be subject to the Exchange's
surveillance procedures for derivative products, including Commodity-
Based Trust Shares. FINRA conducts certain cross-market surveillances
on behalf of the Exchange pursuant to a regulatory services agreement.
The Exchange is responsible for FINRA's performance under this
regulatory services agreement.
The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares or any other
derivative of the Portfolio Digital Assets with other markets and other
entities that are members of the ISG, and the Exchange, or FINRA, on
behalf of the Exchange, or both, may obtain trading information
regarding trading in the Shares or any other derivative of the
Portfolio Digital Assets from such markets and other entities.\24\ The
Exchange may obtain information regarding trading in the Shares or any
other derivative of the Portfolio Digital Assets via ISG, from other
exchanges who are members or affiliates of the ISG, or with which the
Exchange has entered into a comprehensive surveillance sharing
agreement.
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\24\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com.
---------------------------------------------------------------------------
In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
The Sponsor has represented to the Exchange that it will advise the
Exchange of any failure by the Trust or the Shares to comply with the
continued listing requirements, and, pursuant to its obligations under
Section 19(g)(1) of the Exchange Act, the Exchange will surveil for
compliance with the continued listing requirements. If the Trust or the
Shares are not in compliance with the applicable listing requirements,
the Exchange will commence delisting procedures under Exchange Rule
14.12.
Information Circular
Prior to the commencement of trading, the Exchange will inform its
members in an Information Circular of the special characteristics and
risks associated with trading the Shares. Specifically, the Information
Circular will discuss the following: (i) the procedures for the
creation and redemption of Creation Baskets (and that the Shares are
not individually redeemable); (ii) BZX Rule 3.7, which imposes
suitability obligations on Exchange members with respect to
recommending transactions in the Shares to customers; (iii) how
information regarding the IIV and the Trust's NAV are disseminated;
(iv) the risks involved in trading the Shares outside of Regular
Trading Hours \25\ when an updated IIV will not be calculated or
publicly disseminated; (v) the requirement that members deliver a
prospectus to investors purchasing newly issued Shares prior to or
concurrently with the confirmation of a transaction; and (vi) trading
information. The Information Circular will also reference the fact that
there is no regulated source of last sale information regarding the
Portfolio Digital Assets, and that the Commission has no jurisdiction
over the trading of
[[Page 31549]]
the Portfolio Digital Assets as a commodity.
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\25\ Regular Trading Hours is the time between 9:30 a.m. and
4:00 p.m. Eastern Time.
---------------------------------------------------------------------------
In addition, the Information Circular will advise members, prior to
the commencement of trading, of the prospectus delivery requirements
applicable to the Shares. Members purchasing the Shares for resale to
investors will deliver a prospectus to such investors. The Information
Circular will also discuss any exemptive, no-action and interpretive
relief granted by the Commission from any rules under the Act.
2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act \26\ in general and Section 6(b)(5) of the Act \27\ in
particular in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system and, in general, to protect investors and the
public interest.
---------------------------------------------------------------------------
\26\ 15 U.S.C. 78f.
\27\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Commission has approved numerous series of Trust Issued
Receipts,\28\ including Commodity-Based Trust Shares,\29\ to be listed
on U.S. national securities exchanges. In order for any proposed rule
change from an exchange to be approved, the Commission must determine
that, among other things, the proposal is consistent with the
requirements of Section 6(b)(5) of the Act, specifically including: (i)
the requirement that a national securities exchange's rules are
designed to prevent fraudulent and manipulative acts and practices;
\30\ and (ii) the requirement that an exchange proposal be designed, in
general, to protect investors and the public interest. The Exchange
believes that this proposal is consistent with the requirements of
Section 6(b)(5) of the Act and that this filing sufficiently
demonstrates that potential policy concerns under the Act are
sufficiently mitigated to the point that they are outweighed by
quantifiable investor protection issues that would be resolved by
approving this proposal.
---------------------------------------------------------------------------
\28\ See Exchange Rule 14.11(f).
\29\ Commodity-Based Trust Shares, as described in Exchange Rule
14.11(e)(4), are a type of Trust Issued Receipt.
\30\ Much like bitcoin and ETH, the Exchange believes that PENGU
is resistant to price manipulation and that ``other means to prevent
fraudulent and manipulative acts and practices'' exist to justify
dispensing with the requisite surveillance sharing agreement. The
geographically diverse and continuous nature of PENGU trading render
it difficult and prohibitively costly to manipulate the price of
PENGU. The fragmentation across platforms and the capital necessary
to maintain a significant presence on each trading platform make
manipulation of PENGU prices through continuous trading activity
challenging. To the extent that there are trading platforms engaged
in or allowing wash trading or other activity intended to manipulate
the price of PENGU on other markets, such pricing does not normally
impact prices on other trading platforms because participants will
generally ignore markets with quotes that they deem non-executable.
Moreover, the linkage between PENGU markets and the presence of
arbitrageurs in those markets means that the manipulation of the
price of PENGU on any single venue would require manipulation of the
global PENGU price in order to be effective. Arbitrageurs must have
funds distributed across multiple trading platforms in order to take
advantage of temporary price dislocations, thereby making it
unlikely that there will be strong concentration of funds on any
particular trading platforms or OTC platform. Further, the speed and
relatively inexpensive nature of transactions on the Solana Network
allow arbitrageurs to quickly move capital between trading platforms
where price dislocations may occur. As a result, the potential for
manipulation on a trading platform would require overcoming the
liquidity supply of such arbitrageurs who are effectively
eliminating any cross-market pricing differences.
---------------------------------------------------------------------------
More recently, the Commission has applied the Winklevoss Test while
also recognizing that the ``regulated market of significant size''
standard is not the only means for satisfying Section 6(b)(5) of the
Act. In the specifically providing that a listing exchange could
demonstrate that ``other means to prevent fraudulent and manipulative
acts and practices'' are sufficient to justify dispensing with the
requisite surveillance-sharing agreement.\31\ While there are currently
several futures markets for the PENGU, in the Spot Bitcoin ETF Approval
Order and Spot ETH ETF Approval Order the Commission determined that
the CME bitcoin futures market and CME ETH futures market,
respectively, were not of ``significant size'' related to the spot
market. Instead, the Commission found that sufficient ``other means''
of preventing fraud and manipulation had been demonstrated that
justified dispensing with a surveillance-sharing agreement of
significant size. The Exchange and Sponsor believe that this proposal
provides for other means of preventing fraud and manipulation justify
dispensing with a surveillance-sharing agreement of significant size.
---------------------------------------------------------------------------
\31\ See Winklevoss Order at 37580. The Commission has also
specifically noted that it ``is not applying a `cannot be
manipulated' standard; instead, the Commission is examining whether
the proposal meets the requirements of the Exchange Act and,
pursuant to its Rules of Practice, places the burden on the listing
exchange to demonstrate the validity of its contentions and to
establish that the requirements of the Exchange Act have been met.''
Id. at 37582.
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The Exchange believes that the proposal is designed to protect
investors and the public interest. Over the past months years, U.S.
investor exposure to PENGU has grown into millions of dollars with a
fully diluted market cap of greater than $563 million. The Exchange
believes that approving this proposal (and comparable proposals)
provides the Commission with the opportunity to allow U.S. investors
with access to the Portfolio Digital Assets in a regulated and
transparent exchange-traded vehicle that would act to limit risk to
U.S. investors.
The Exchange believes that the policy concerns are mitigated by the
fact that the size of the market for the primary underlying reference
asset ($563+ million fully diluted value) and the nature of the PENGU
ecosystem reduces its susceptibility to manipulation. The
geographically diverse and continuous nature of the Portfolio Digital
Assets trading makes it difficult and prohibitively costly to
manipulate the price of the Portfolio Digital Assets and, in many
instances, the Portfolio Digital Asset markets can be less susceptible
to manipulation than the equity, fixed income, and commodity futures
markets. There are a number of reasons this is the case, including that
there is not inside information about revenue, earnings, corporate
activities, or sources of supply; manipulation of the price on any
single venue would require manipulation of the global Portfolio Digital
Asset prices in order to be effective; a substantial over-the-counter
market provides liquidity and shock-absorbing capacity; the Portfolio
Digital Asset's 24/7/365 nature provides constant arbitrage
opportunities across all trading venues; and it is unlikely that any
one actor could obtain a dominant market share.
Further, the Portfolio Digital Assets are arguably less susceptible
to manipulation than other commodities that underlie ETPs; there may be
inside information relating to the supply of the physical commodity
such as the discovery of new sources of supply or significant
disruptions at mining facilities that supply the commodity that simply
are inapplicable as it relates to certain cryptoassets, including the
Portfolio Digital Assets. Further, the Exchange believes that the
fragmentation across the Portfolio Digital Asset trading platforms and
increased adoption of the Portfolio Digital Assets, as displayed
through increased user engagement and trading volumes, and the Solana
Network make manipulation of the Portfolio Digital
[[Page 31550]]
Asset prices through continuous trading activity more difficult.
Moreover, the linkage between the Portfolio Digital Asset markets and
the presence of arbitrageurs in those markets means that the
manipulation of the price of the Portfolio Digital Asset prices on any
single venue would require manipulation of the global the Portfolio
Digital Asset prices in order to be effective. Arbitrageurs must have
funds distributed across multiple spot trading platforms in order to
take advantage of temporary price dislocations, thereby making it
unlikely that there will be strong concentration of funds on any
particular spot trading platform. As a result, the potential for
manipulation on a particular spot trading platform would require
overcoming the liquidity supply of such arbitrageurs who are
effectively eliminating any cross-market pricing differences. For all
of these reasons, the Portfolio Digital Assets are not particularly
susceptible to manipulation, especially as compared to other approved
ETP reference assets.
Commodity-Based Trust Shares
The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed on the Exchange pursuant to the initial and
continued listing criteria in Exchange Rule 14.11(e)(4). The Exchange
believes that its surveillance procedures are adequate to properly
monitor the trading of the Shares on the Exchange during all trading
sessions and to deter and detect violations of Exchange rules and the
applicable federal securities laws. Trading of the Shares through the
Exchange will be subject to the Exchange's surveillance procedures for
derivative products, including Commodity-Based Trust Shares. The issuer
has represented to the Exchange that it will advise the Exchange of any
failure by the Trust or the Shares to comply with the continued listing
requirements, and, pursuant to its obligations under Section 19(g)(1)
of the Exchange Act, the Exchange will surveil for compliance with the
continued listing requirements. If the Trust or the Shares are not in
compliance with the applicable listing requirements, the Exchange will
commence delisting procedures under Exchange Rule 14.12. The Exchange
may obtain information regarding trading in the Shares or any other
derivative of the Portfolio Digital Assets via ISG, from other
exchanges who are members or affiliates of the ISG, or with which the
Exchange has entered into a comprehensive surveillance sharing
agreement.
Availability of Information
The Trust will provide information regarding the Trust's Portfolio
Digital Assets holdings as well as additional data regarding the Trust.
The website for the Trust, which will be publicly accessible at no
charge, will contain the following information: (a) the current NAV per
Share daily and the prior business day's NAV per Share and the reported
BZX Official Closing Price; \32\ (b) the BZX Official Closing Price in
relation to the NAV per Share as of the time the NAV is calculated and
a calculation of the premium or discount of such price against such NAV
per Share; (c) data in chart form displaying the frequency distribution
of discounts and premiums of the BZX Official Closing Price against the
NAV per Share, within appropriate ranges for each of the four previous
calendar quarters (or for the life of the Trust, if shorter); (d) the
prospectus; and (e) other applicable quantitative information. The
aforementioned information will be published as of the close of
business and available on the Sponsor's website at https://canary.capital, or any successor thereto. The NAV for the Trust will be
calculated by the Administrator once a day and will be disseminated
daily to all market participants at the same time. Quotation and last-
sale information regarding the Shares will be disseminated through the
facilities of the Consolidated Tape Association (``CTA''). The Trust
will also disseminate its holdings on a daily basis on its website.
---------------------------------------------------------------------------
\32\ As defined in Rule 11.23(a)(3), the term ``BZX Official
Closing Price'' shall mean the price disseminated to the
consolidated tape as the market center closing trade.
---------------------------------------------------------------------------
The IIV will be updated during Regular Trading Hours to reflect
changes in the value of the Trust's Portfolio Cryptocurrencies during
the trading day. The IIV disseminated during Regular Trading Hours
should not be viewed as an actual real-time update of the NAV, which
will be calculated only once at the end of each trading day. The IIV
may differ from the NAV because NAV is calculated, using the closing
value of the Portfolio Digital Assets, once a day at 4 p.m. ET, whereas
the IIV draws prices from the last trade on each constituent platform
for each benchmark price in an effort to produce a relevant, real-time
price. The Trust will provide an IIV per Share updated every 15
seconds, as calculated by the Exchange or a third-party financial data
provider during the Exchange's Regular Trading Hours (9:30 a.m. to 4:00
p.m. E.T.). The IIV will be widely disseminated on a per Share basis
every 15 seconds during the Exchange's Regular Trading Hours through
the facilities of the CTA and Consolidated Quotation System (CQS) high
speed lines. In addition, the IIV will be available through on-line
information services, such as Bloomberg and Reuters.
The price of the Portfolio Cryptocurrencies will be made available
by one or more major market data vendors, updated at least every 15
seconds during Regular Trading Hours.
Quotation and last sale information for the Portfolio
Cryptocurrencies is widely disseminated through a variety of major
market data vendors, including Bloomberg and Reuters. Information
relating to trading, including price and volume information, in the
Portfolio Cryptocurrencies is available from major market data vendors
and from the trading platforms on which the Portfolio Cryptocurrencies
are traded. Depth of book information is also available from the
Portfolio Cryptocurrencies trading platforms. The normal trading hours
for the Portfolio Cryptocurrencies trading platforms are 24 hours per
day, 365 days per year.
Information regarding market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. Information
regarding the previous day's BZX Official Closing Price and trading
volume information for the Shares will be published daily in the
financial section of newspapers. Quotation and last-sale information
regarding the Shares will be disseminated through the facilities of the
CTA.
In sum, the Exchange believes that this proposal is consistent with
the requirements of Section 6(b)(5) of the Act, that on the whole the
manipulation concerns previously articulated by the Commission are
sufficiently mitigated to the point that they are outweighed by
investor protection issues that would be resolved by approving this
proposal.
For the above reasons, the Exchange believes that the proposed rule
change is consistent with the requirements of Section 6(b)(5) of the
Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. The Exchange notes that the
proposed rule change, rather will facilitate the listing and trading of
an additional exchange-traded
[[Page 31551]]
product that will enhance competition among both market participants
and listing venues, to the benefit of investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
A. by order approve or disapprove such proposed rule change, or
B. institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change, as modified by Amendment No. 2, is consistent with the Act.
Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-CboeBZX-2025-081 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-CboeBZX-2025-081. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-CboeBZX-2025-081 and should
be submitted on or before August 4, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
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\33\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-13065 Filed 7-11-25; 8:45 am]
BILLING CODE 8011-01-P