[Federal Register Volume 90, Number 139 (Wednesday, July 23, 2025)]
[Notices]
[Pages 34681-34696]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-13804]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103499; File No. SR-NYSEARCA-2024-98]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Amendment No. 1 to a Proposed Rule Change To Amend NYSE Arca Rule
8.500-E (Trust Units) and To List and Trade Shares of the Bitwise 10
Crypto Index ETF Under Amended NYSE Arca Rule 8.500-E
July 18, 2025.
On November 14, 2024, NYSE Arca, Inc. (``NYSE Arca'') filed with
the Securities and Exchange Commission (``Commission''), pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\
and Rule 19b-4 thereunder,\2\ a proposed rule change to list and trade
shares of the Bitwise 10 Crypto Index ETF. The proposed rule change was
published for comment in the Federal Register on December 3, 2024.\3\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 101775 (Nov. 27,
2024), 89 FR 95853. Comments on the proposed rule change are
available at: https://www.sec.gov/comments/sr-nysearca-2024-98/srnysearca202498.htm.
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On January 14, 2025, pursuant to Section 19(b)(2) of the Exchange
Act,\4\ the Commission designated a longer period within which to
approve the proposed rule change, disapprove the proposed rule change,
or institute proceedings to determine whether to disapprove the
proposed rule change.\5\ On March 3, 2025, the Commission initiated
proceedings under Section 19(b)(2)(B) of the Act \6\ to determine
whether to approve or disapprove the proposed rule change.\7\ On May
28, 2025, pursuant to Section 19(b)(2) of the Exchange Act,\8\ the
Commission designated a longer period for Commission action on
proceedings to determine whether to approve or disapprove the proposed
rule change.\9\
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\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 102186, 90 FR 7199
(Jan. 21, 2025) (designating Mar. 3, 2025, as the date by which the
Commission shall either approve, disapprove, or institute
proceedings to determine whether to disapprove the proposed rule
change).
\6\ 15 U.S.C. 78s(b)(2)(B).
\7\ See Securities Exchange Act Release No. 102514, 90 FR 11559
(Mar. 7, 2025).
\8\ 15 U.S.C. 78s(b)(2).
\9\ See Securities Exchange Act Release No. 103140, 90 FR 23574
(June 3, 2025).
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On July 17, 2025, the Exchange filed with the Commission Amendment
No. 1 to proposed rule change as described in Items I and II below,
which Items have been prepared by the Exchange. Amendment No. 1
replaces and supersedes the proposed rule change as originally filed.
The Commission is publishing this notice to solicit comments on the
proposed rule change, as modified by Amendment No. 1, from interested
persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend NYSE Arca Rule 8.500-E (Trust Units)
and to list and trade shares of the Bitwise 10 Crypto Index ETF (the
``Trust'') under NYSE Arca Rule 8.500-E, as amended. This Amendment No.
1 to SR-NYSEARCA-2024-98 replaces SR-NYSEARCA-2024-98 as originally
filed and supersedes such filing in its entirety.\10\ 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.
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\10\ This Amendment No. 1 proposes to list and trade shares of
the Trust under Rule 8.500-E, as amended in this filing, instead of
under proposed Rule 8.800-E. This Amendment No. 1 also reflects the
name of the Trust as the Bitwise 10 Crypto Index ETF, instead of the
Bitwise 10 Crypto Index Fund.
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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 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 III 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
Rule 8.500-E
Currently, Rule 8.500-E provides for the listing and trading of
Trust Units, which are defined in Rule 8.500-E(b)(2) as securities
issued by a trust or other similar entity that is constituted as a
commodity pool that holds investments comprising or otherwise based on
any combination of futures contracts, options on futures contracts,
forward contracts, swap contracts, commodities and/or securities.
The Exchange first proposes to amend Rule 8.500-E(b)(1), which
currently provides that the term ``commodity,'' as used in this Rule,
is defined in Section 1(a)(4) of the Commodity Exchange Act. The
Exchange proposes to update the reference to Section 1(a)(4) with a
reference to Section 1a(9), to accurately reflect the current section
reference for the definition of a commodity in the Commodity Exchange
Act.
The Exchange next proposes to amend the definition of Trust Units
in Rule 8.500-E(b)(2). Specifically, the Exchange proposes that Rule
8.500-E(b)(2) would provide that Trust Units
[[Page 34682]]
may be issued by a trust, limited liability company, or other similar
entity. The Exchange also proposes to specify, by adding the phrase
``if applicable,'' that the requirement that an entity issuing Trust
Units be constituted as a commodity pool will continue to apply, but
only with respect to entities that are required to be organized as
commodity pools, and to add the word ``and'' following the term
commodity pool to clarify that all entities issuing Trust Units would
hold investments as enumerated in Rule 8.500-E(b)(2). The Exchange
believes that these proposed changes to broaden the types of entities
that could issue Trust Units would afford prospective issuers
additional flexibility and encourage the listing and trading of
additional series of Trust Units, to the benefit of the investing
public.
The Exchange also proposes to amend Rule 8.500-E(c), which
currently provides that the Exchange may list and trade Trust Units
based on an underlying asset, commodity, security or portfolio. The
Exchange proposes to amend Rule 8.500-E(c) to provide that the Exchange
may list and trade Trust Units based on an underlying asset, commodity,
security, and/or portfolio, which may be represented by an index or
portfolio of any of the foregoing. These proposed changes are intended
to clarify that Trust Units may be based on an underlying asset,
commodity, security, portfolio, or combination thereof, as well as to
specify that the underlying components of a series of Trust Units may
be represented by an index or portfolio based on an asset, commodity,
security, and/or portfolio.
The Exchange further proposes to amend Rule 8.500-E(d)(2)(ii),
which currently provides that, upon termination of a trust, the
Exchange requires that Trust Units issued in connection with such trust
be removed from Exchange listing and that a trust will terminate in
accordance with the provisions of the prospectus. Consistent with the
proposed change described above to amend Rule 8.500-E to permit Trust
Units to be issued by a trust, limited liability company, or similar
entity, the Exchange proposes conforming changes in Rule 8.500-
E(d)(2)(ii). Specifically, the Exchange proposes that Rule 8.500-
E(d)(2)(ii) would provide that, upon termination of a trust, limited
liability company, or other similar entity, the Exchange would require
that Trust Units issued in connection with such trust, limited
liability company, or other entity be removed from Exchange listing.
Rule 8.500-E(d)(2)(ii), as proposed, would also provide that a trust,
limited liability company, or other entity issuing Trust Units pursuant
to Rule 8.500-E would terminate in accordance with the provisions of
the prospectus associated with such series of Trust Units.
The Exchange next proposes to add a new subheading in Rule 8.500-
E(d)(3), which currently sets forth continued listing requirements
pertaining to the term of a trust issuing Trust Units. The Exchange
proposes that Rule 8.500-E(d)(3) would be titled ``Trust Units Issued
by a Trust,'' and that the current text of Rule 8.500-E(d)(3) be
designated as new subparagraph (i) to Rule 8.500-E(d)(3). The Exchange
further proposes that current Rule 8.500-E(d)(4) (relating to the
trustee of a trust issuing Trust Units) be designated as new
subparagraph (ii) to Rule 8.500-E(d)(3) and that subparagraphs (i) and
(ii) under current Rule 8.500-E(d)(4) be renumbered as new
subparagraphs (A) and (B), respectively, below new Rule 8.500-
E(d)(3)(ii). In addition, to reflect the consolidation of current Rules
8.500-E(d)(3) and (d)(4), the Exchange proposes to renumber current
Rule 8.500-E(d)(5) as Rule 8.500-E(d)(4). The Exchange does not propose
any changes to the text of these rules. These proposed changes are
intended to clarify the applicability of the requirements set forth in
current Rules 8.500-E(d)(3) and (4) to series of Trust Units issued by
a trust, specifically.
The Exchange also proposes to amend Rule 8.500-E(e), relating to
limitation of Exchange liability. Specifically, the Exchange proposes
to amend the first sentence of Rule 8.500-E(e) to add a reference to
underlying index value, such that Rule 8.500-E(e) would provide that
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
portfolio or index value. This proposed change is consistent with the
proposed change to Rule 8.500-E(c) described above to specify that that
the underlying components of a series of Trust Units may be represented
by an index or portfolio based on an asset, commodity, security, and/or
portfolio.
The Exchange further proposes to amend Commentary .03 to Rule
8.500-E to specify, consistent with the proposed change to Rule 8.500-
E(c) described above to provide that a series of Trust Units may be
based on an index, that the Exchange will file separate proposals under
Section 19(b) of the Securities Exchange Act of 1934 before listing and
trading separate and distinct Trust Units designated on different
underlying investments, commodities, assets, indices, and/or
portfolios, and that all statements or representations contained in
such rule filing regarding the description of the index or portfolio or
reference asset will constitute continued listing requirements.
Finally, the Exchange also proposes to amend Rule 5.3-E to include
Trust Units listed pursuant to Rule 8.500-E among the derivative or
special purpose securities that are subject to a limited set of
corporate governance and disclosure policies and to amend Rule 5.3-E(e)
to include Trust Units listed pursuant to Rule 8.500-E among the
derivative or special purpose securities to which the requirements
concerning shareholder/annual meetings do not apply.
Bitwise 10 Crypto Index ETF
The Exchange proposes to list and trade shares (``Shares'') of the
Trust \11\ under NYSE Arca Rule 8.500-E, as amended.
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\11\ The Trust is a Delaware statutory trust. Shares of the
Trust currently trade under the symbol BITW on OTCQX. On February
20, 2025, the Trust filed with the Commission an Annual Report on
Form 10-K for the fiscal year ended December 31, 2024. On June 10,
2025, the Trust filed with the Commission a registration statement
on Form S-3 (the ``Registration Statement'').
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According to the Registration Statement, the Trust will not be
registered as an investment company under the Investment Company Act of
1940,\12\ and is not required to register thereunder. The Trust is not
a commodity pool for purposes of the Commodity Exchange Act.\13\
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\12\ 15 U.S.C. 80a-1.
\13\ 17 U.S.C. 1.
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The Exchange represents that the Shares satisfy the requirements of
proposed NYSE Arca Rule 8.500-E, as proposed to be amended in this
filing, and thereby qualify for listing on the Exchange.
Operation of the Trust \14\
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\14\ The description of the operation of the Trust, the Shares,
and digital asset markets contained herein is based, in part, on the
Registration Statement. See note 11, supra.
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The Trust will issue the Shares which, according to the
Registration Statement, represent units of undivided beneficial
ownership of the Trust. The Trust is a Delaware statutory trust and
will operate pursuant to a trust agreement (the ``Trust Agreement'')
between Bitwise Investment Advisers, LLC (the ``Sponsor'' or
``Bitwise'') and Delaware Trust Company, as the Trust's trustee (the
``Trustee''). Coinbase Custody Trust Company, LLC will maintain custody
of the Trust's assets (the ``Custodian''). The Bank of New
[[Page 34683]]
York Mellon will be the custodian for the Trust's cash holdings (in
such role, the ``Cash Custodian''), as well as the Trust's
administrator (in such role, the ``Administrator'') and transfer agent
(in such role, the ``Transfer Agent'').
According to the Registration Statement, the investment objective
of the Trust is to invest in a portfolio of digital assets (each, a
``Portfolio Asset'' and, collectively, ``Portfolio Assets'') that
tracks the Bitwise 10 Large Cap Crypto Index (the ``Index''). The Index
is administered by Bitwise Index Services, LLC, an affiliate of the
Sponsor (the ``Index Provider'').\15\ The Trust rebalances monthly
alongside the rebalance of the Index to stay current with any changes
to the Index. The weighting of each Portfolio Asset is generally
expected to be the same as the weighting of the components of the
Index, except when the Sponsor determines to exclude one or more
digital assets from the Portfolio Assets and/or rebalance the weighting
of the Portfolio Assets in the rules-based circumstances described
further below. As of June 30, 2025, the Trust's Portfolio Assets and
respective weightings are:
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\15\ The Sponsor represents that it will maintain a firewall
between it and the personnel responsible for the maintenance of the
Index or who have access to information concerning changes and
adjustments to the Index.
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Weight
Portfolio asset Symbol (%)
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Bitcoin........................................... BTC 78.72
Ether............................................. ETH 11.10
XRP............................................... XRP 4.97
Solana............................................ SOL 3.03
Cardano........................................... ADA 0.78
SUI............................................... SUI 0.35
Chainlink......................................... LINK 0.32
Avalanche......................................... AVAX 0.28
Litecoin.......................................... LTC 0.24
Polkadot.......................................... DOT 0.19
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To determine the Trust's Net Asset Value (``NAV'') at the end of
every Business Day,\16\ the Sponsor will rely on a third-party
valuation vendor, CF Benchmarks Ltd. (the ``Valuation Vendor''), to
calculate and publish the U.S. dollar price for each Portfolio Asset
(each, a ``Reference Price'' and, collectively, the ``Reference
Prices'') as of 4 p.m. E.T. using prices from several different digital
asset trading platforms selected by the Valuation Vendor.\17\ Each
Reference Price aggregates the trade flow of several major digital
asset trading platforms during an observation window between 3 p.m. and
4 p.m. E.T. into the U.S. dollar price of one of each Portfolio Asset
at 4 p.m. E.T. The Reference Price calculation is designed based on the
IOSCO Principals for Financial Benchmarks.
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\16\ For purposes of this filing, a ``Business Day'' is defined
as any day on which the New York Stock Exchange is scheduled to be
open for trading.
\17\ Digital asset trading platforms considered by the Valuation
Vendor currently include Bitstamp, Coinbase, Gemini, itBit, LMAX,
and Kraken. The Valuation Vendor's selection of digital asset
trading platforms from which the Reference Prices may be derived is
further discussed below.
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The Trust's only assets will be Portfolio Assets and cash.\18\ The
Trust does not seek to hold any digital assets other than Portfolio
Assets and has expressly disclaimed ownership of any such assets in the
event the Trust ever involuntarily comes into possession of such
assets.\19\ The Trust will not use derivatives that may subject the
Trust to counterparty and credit risks. The Trust will process
creations and redemptions in cash. The Trust's only recurring ordinary
expense is expected to be the Sponsor's unitary management fee (the
``Management Fee''), which will accrue daily and will be payable
monthly in arrears. The Administrator will calculate the Management Fee
by applying an annualized rate to the NAV of the Trust's assets at the
end of each month. Financial institutions authorized to create and
redeem Shares (each, an ``Authorized Participant'') will deliver, or
cause to be delivered, cash in exchange for Shares of the Trust, and
the Trust will deliver cash to Authorized Participants when those
Authorized Participants redeem Shares of the Trust.
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\18\ The Trust will conduct creations and redemptions of its
Shares for cash. Authorized Participants (defined below) will
deliver cash to the Cash Custodian pursuant to creation orders for
Shares and the Cash Custodian will hold such cash until such time as
it can be converted to Portfolio Assets, which the Trust intends to
do on the same Business Day in which such cash is received by the
Cash Custodian. Additionally, the Trust will sell Portfolio Assets
in exchange for cash pursuant to redemption orders of its Shares. In
connection with such sales, an approved Digital Asset Trading
Counterparty (defined below) will send cash to the Cash Custodian.
The Cash Custodian will hold such cash until it can be distributed
to the redeeming Authorized Participant, which it intends to do on
the same Business Day in which it is received. In connection with
the purchases and sales of Portfolio Assets pursuant to its creation
and redemption activity, it is possible that the Trust may retain de
minimis amounts of cash as a result of rounding differences. The
Trust may also initially hold small amounts of cash to initiate
Trust operations in the immediate aftermath of its Registration
Statement being declared effective. Lastly, the Trust may also sell
Portfolio Assets and temporarily hold cash as part of a liquidation
of the Trust or to pay certain extraordinary expenses not assumed by
the Sponsor. Under the Trust Agreement, the Sponsor has agreed to
assume the normal operating expenses of the Trust, subject to
certain limitations. For example, the Trust will bear any
indemnification or litigation liabilities as extraordinary expenses.
In any event, in the ongoing course of business, the amounts of cash
retained by the Trust are not expected to constitute a material
portion of the Trust's holdings.
\19\ The Trust may, from time to time, passively receive, by
virtue of holding Portfolio Assets, certain additional digital
assets (``IR Assets'') or rights to receive IR Assets (``Incidental
Rights'') through a fork of a digital asset network or an airdrop of
assets. The Trust will not seek to acquire such IR Assets or
Incidental Rights. Pursuant to the terms of the Trust Agreement, the
Trust has disclaimed ownership in any such IR Assets and/or
Incidental Rights to make clear that such assets are not and shall
never be considered assets of the Trust and will not be taken into
account for purposes of determining the Trust's NAV or NAV per
Share. 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 Assets becomes subject to any proof-of-stake validation or
is used to earn additional assets or generate income or other
earnings.
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The Trust will not be actively managed.\20\ The Trust will not take
any actions to take advantage of, or mitigate, the impacts of
volatility in the prices of the Portfolio Assets.
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\20\ The Trust is a passive entity that is managed and
administered by the Sponsor and does not have any officers,
directors or employees. The Sponsor will retain limited discretion
to exclude digital assets from the Portfolio Assets and/or rebalance
the weighting of the Portfolio Assets only in certain rules-based
circumstances, as further discussed below.
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The Index
The Bitwise Crypto Index Committee (the ``Committee''), convened by
the Index Provider, is the governing body of the Index and is
responsible for developing, maintaining, and adjusting the methodology
by which the Index is constructed (the ``Index Methodology'').\21\ The
Index is comprised of ten digital assets (the ``Index Components'') and
is designed to track the performance of the ten largest digital assets
that currently trade publicly on Eligible Digital Asset Trading
Platforms,\22\ as selected and
[[Page 34684]]
weighted by free-float market capitalization. The market capitalization
of a digital asset is calculated by multiplying its price \23\ times
its free-float-adjusted or ``circulating'' \24\ supply. The proportion
of each digital asset in the Index is based on this adjusted market
capitalization.
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\21\ The full Index Methodology is available at https://bitwiseinvestments.com/indexes/methodology.
\22\ The Committee determines which trading platforms qualify as
Eligible Digital Asset Trading Platforms. To qualify as an Eligible
Digital Asset Trading Platform, a venue must: (1) provide an open
platform for exchanging at least one digital asset for either
another digital asset or for a fiat currency; (2) not be domiciled
in a country, region, or locality that implements meaningful capital
controls on international investors; (3) not be subject to
extraordinary regulatory or legal action that is likely to lead to
unusual pricing, significantly disrupt institutional access to the
market, or disrupt fiat withdrawals; (4) charge fees for trading;
(5) have a functioning, secure, and reliable application programming
interface (API) allowing for the timely ingestion of trade and
volume data; (6) have no significant downtime, withdrawal, or known
security issues; (7) account for more than 1.0% of the combined
trailing 30-day dollar trading volume of all digital assets on
entities that meet the prior listed rules; and (8) in the opinion of
the Committee, have significant real spot trading volume. The list
of Eligible Digital Asset Trading Platforms is reviewed on an annual
basis. As of January 17, 2025, the date that the Committee performed
its 2025 annual review of Eligible Digital Asset Trading Platforms,
the list of Eligible Digital Asset Trading Platforms included
Bitstamp, BitFlyer, Coinbase, Gemini, Kraken, itBit, and LMAX.
\23\ Based on the Lukka Prime price, which is a fair market
value spot price for cryptocurrencies available directly from Lukka
as well as via major market data vendors.
\24\ According to the Registration Statement, circulating supply
is the best approximation of the number of coins available on public
markets. Circulating supply is derived by taking the total number of
existing digital assets native to a specific Blockchain and
subtracting the number of coins verifiably burned, locked, or
reserved (for example, by a foundation).
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The Index will only consider for eligibility as Index Components
digital assets that, in the determination of the Committee, satisfy the
following criteria:
The digital asset must be a cryptographically secured
digital bearer instrument;
The digital asset must have a price that is not pegged to
another digital asset, fiat currency, group of those currencies, or
hard asset;
The digital asset must be freely traded \25\ and can be
freely held for the foreseeable future;
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\25\ The Committee considers assets to be freely traded if they
may be traded by U.S. investors and do not have trading restrictions
at Eligible Digital Asset Trading Platforms.
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The digital asset must trade on an Eligible Digital Asset
Trading Platform, without withdrawal issues specific to that digital
asset; \26\
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\26\ For example, digital asset trading platforms have
previously suspended withdrawals in digital assets due to suspicious
activity, suspected hacks, technical issues, or pending upgrades or
degraded performance to the blockchain underlying the digital asset.
The Committee considers the withdrawal capabilities at Eligible
Digital Asset Trading Platform to assess the liquidity of a digital
asset.
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The digital asset must be custodied by a third-party
custodian regulated as a federally chartered bank or as a state trust
company, that meets additional security practices, insurance
requirements, and business practice requirements as determined by the
Committee; \27\
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\27\ The list of approved custodians is reviewed and updated on
an annual basis, or at the discretion of the Committee. As of
January 17, 2025, the date that the Committee performed its 2025
annual review of eligible custodians, the list of approved
custodians included Anchorage, BitGo, Coinbase Custody, Fidelity
Digital Assets, and Gemini Custody.
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The digital asset must have no known security
vulnerabilities, including critical bugs, undue exposure to 51 attacks,
or other factors, as determined by the Committee;
The digital asset must not face undue risk of being deemed
a security under U.S. federal securities laws in the opinion of the
Committee, given present knowable facts and circumstances; \28\
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\28\ The Committee conducts a risk-based assessment that
considers whether the digital asset may be deemed a security under
U.S. federal securities laws and whether it is subject to regulatory
action that may imperil the value of the digital asset. Such
assessment does not preclude legal or regulatory action based on the
presence of a security. The Committee does not engage in legal
analysis of any digital assets or perform any analysis of digital
assets based upon any legal standards. The Committee reviews the
following information to make this determination: (1) public
information to determine if the Commission, any other U.S.
regulatory agency, or any court has made any statements regarding
the digital asset; (2) public information regarding how the digital
asset markets view the digital asset, including whether the digital
asset has been listed on entities such as Coinbase or other U.S.
digital asset trading platforms that would have had access to a
reasonable amount of information when making their determinations to
list the digital asset; (3) public information to undertake
reasonable diligence into the structure and technology of the
digital asset, including reviewing the digital asset's whitepaper if
available and speaking with the sponsor of the digital asset; and
(4) any other information gained from reputable sources that may
impact the Committee's view of the digital asset, including a review
of any websites associated with the digital asset's development. If
the Committee adds a digital asset to the Index, but later becomes
aware of new information that causes the Committee to revalue the
risk profile of such digital asset, the Committee will review such
information and determine whether the digital asset should be
removed from the Index.
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The digital asset must have traded more than 1 of its
free-float-adjusted market capitalization on Eligible Digital Asset
Trading Platforms over the past 30 days; and
The digital asset must have maintained a unit price
greater than $0.01 for the past 30 consecutive days.
The Index is reconstituted on a monthly basis at 4 p.m. E.T. on the
last Business Day of each month. As of June 30, 2025, the Index
included the following digital assets, and their weights were as
follows: \29\
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\29\ The weighting of the Trust's Portfolio Assets will differ
slightly from the weightings of the Index Components due to the need
for the Trust to implement actual rebalance transactions, unlike the
Index. The transactions undertaken by the Trust to align the
Portfolio Assets with the Index Components may create transaction
costs, fees, and trading slippage, which may cause the Trust's
performance to deviate slightly from the Index's performance.
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Weight
Digital asset (%)
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Bitcoin...................................................... 77.58
Ether........................................................ 11.14
XRP.......................................................... 5.02
Solana....................................................... 3.07
Cardano...................................................... 0.78
Sui.......................................................... 0.35
Chainlink.................................................... 0.34
Avalanche.................................................... 0.28
Litecoin..................................................... 0.24
Polkadot..................................................... 0.19
------------------------------------------------------------------------
To the extent a digital asset meets the Index's eligibility
requirements at a future date, it would be considered for inclusion in
the Index in connection with a future rebalancing. Digital assets will
lose eligibility and be removed from the Index at the next monthly
reconstitution event if they violate any of the eligibility
requirements described above for 30 consecutive days.\30\
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\30\ Under extraordinary circumstances, digital assets may lose
eligibility to be Index Components and be removed from the Index on
a same-day basis by a unanimous vote of the quorum of members of the
Committee. Such emergency removals will take place at 4 p.m. E.T.
following the conclusion of such decision by the Committee and will
be publicly available on the Sponsor's website. If a digital asset
is removed from the Index under such circumstances, the remaining
Index Components will be rebalanced.
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The Index is calculated on a daily basis and published on the
Sponsor's website. Should any material change be made to the Index
Methodology that results in a material change to the composition of the
Index and, as part of the Trust's monthly rebalancing process, results
in a material change to the composition of the Trust (which the Sponsor
generally considers to be a change of 10% or more to the Trust or the
Index holdings, but in any event, is also determined at the Trust's
discretion), the Trust will notify shareholders of such material change
by filing a Form 8-K with the Commission.
The Index will implement a rule that will limit the Index
Components and weightings thereof such that at least 85% of the weight
of the Index Components will consist, as of 4 p.m. E.T. on each trading
day, of commodities that are the primary investment underlying
exchange-traded products previously approved by the Commission to list
and trade on a national securities exchange (``Approved Components'').
This rule will be in effect prior to such time that Shares of the Trust
begin trading on the Exchange and will be described in the Index
Methodology, which is publicly available on the Index Provider's
website.
The Portfolio Assets and Index Components
The Portfolio Assets will consist of the Index Components except
that the Sponsor may determine to exclude a particular Index Component
and/or rebalance the weighting of the Portfolio
[[Page 34685]]
Assets in its discretion under certain specified circumstances further
described below. The weighting of each Portfolio Asset is generally
expected to be the same as the weighting of the Index Components in the
Index, except when the Sponsor determines to exclude one or more
digital assets from the Portfolio Assets and/or rebalance the weighting
of the Portfolio Assets in the rules-based circumstances set forth
below, in which case the weightings of the Portfolio Assets are
generally expected to be calculated proportionally to the respective
Index Components for the remaining Index Components.
The Sponsor represents that it will ensure, on an initial and
continuing basis, that, as of 4 p.m. E.T. on every trading day, at
least 85% of the Portfolio Assets consist of Approved Components and
that no more than 15% of the Portfolio Assets will be non-Approved
Components.\31\ Specifically:
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\31\ The Exchange notes that this requirement is similar to
Commentary .01(d)(1) to Rule 8.600-E regarding Managed Fund Shares,
which permits portfolio holdings of series of Managed Fund Shares to
be in listed derivatives provided that, in the aggregate, at least
90% of the weight of such holdings invested in futures, exchange-
traded options, and listed swaps consist of, on both an initial and
continued basis, futures, options, and swaps for which the Exchange
may obtain information via the Intermarket Surveillance Group
(``ISG'') from other members or affiliates of the ISG or for which
the principal market is a market with which the Exchange has a
comprehensive surveillance sharing agreement (``CSSA''). Here, the
Exchange proposes that 85% of the Trust's holdings consist of
Approved Components. As of the date of this filing, the Commission
has approved exchange-traded products based on spot Bitcoin and
Ether in view of listing exchanges' ability to obtain information
via CSSA from the CME, a U.S. regulated market whose Bitcoin and
Ether futures markets consistently have been highly correlated to
spot Bitcoin and spot Ether, respectively, to assist in surveilling
for fraudulent and manipulative acts and practices. See Spot Bitcoin
ETP Approval Order and Spot Ether ETP Approval Order, note 29,
infra. The Exchange represents that its procedures are reasonably
designed to surveil for fraudulent and manipulative acts and
practices with respect to trading of the Trust's Shares on the
Exchange. In addition, the Exchange believes that the allocation
structure proposed by the Sponsor mitigates certain risks with
respect to trading of the Trust's Shares because the Trust will be
rebalanced if necessary, on a daily basis, to ensure that a majority
of the Portfolio Assets are Approved Components for which the
Commission has found that there are sufficient means of preventing
fraud and manipulation. The Sponsor notes that, as of the date of
this filing, the Index Components that meet this standard are
Bitcoin and Ether, which as of June 30, 2025 made up approximately
78% and 11% of the Index, respectively.
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To the extent the Trust's composition is or is anticipated
to be less than 85% Approved Components as of 4 p.m. E.T. on a given
trading day,\32\ the Sponsor will promptly notify the Exchange.
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\32\ The Sponsor represents that it does not intend for the
Portfolio Assets to consist of less than 85% Approved Components
intra-day or expect that the Portfolio Assets will deviate from at
least 85% Approved Components and will monitor the allocation of the
Portfolio Assets.
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In addition, as soon as practicable and in any event by no
later than the beginning of the NYSE Arca Core Trading Session on the
following trading day, the Sponsor will rebalance the Trust's portfolio
according to the methodology described in the Registration Statement
such that at least 85% of the Portfolio Assets will consist of Approved
Components.
Moreover, if it is anticipated that, as of 4 p.m. E.T. on
a given trading day, the Portfolio Assets will not consist of at least
85% Approved Components by the start of the next NYSE Arca Core Trading
Session, the Sponsor will notify the Exchange as soon as practicable
(and, in any event, no later than 9:15 a.m. E.T.), and the Exchange
will halt trading in the Shares until at least 85% of the Portfolio
Assets consist of Approved Components.
The Sponsor will retain discretion to exclude individual digital assets
from the Portfolio Assets and/or rebalance the weighting of the
Portfolio Assets only in the following circumstances:
The Sponsor may exclude a digital asset or rebalance the
weighting of an existing Portfolio Asset to the extent its inclusion as
a Portfolio Asset or projected weighting would exceed a threshold that
could, in the Sponsor's sole discretion, require the Trust to register
as an investment company under the Investment Company Act or require
the Sponsor to register as an investment adviser under the Investment
Advisers Act, or conflict with any continued listing requirement
(including that the Portfolio Assets consist of 85% Approved Components
as noted above);
None or few of the Authorized Participants or service
providers has the ability to trade or otherwise support a digital
asset;
The Sponsor believes, based on current guidance, that use
or trading of the digital asset raises or potentially raises
significant governmental, policy, or regulatory concerns or is subject
or likely subject to a specialized regulatory regime, such as the U.S.
federal securities or commodities laws or similar laws in other
significant jurisdictions;
The digital asset's underlying code contains, or may
contain, significant flaws or vulnerabilities;
There is limited or no reliable information regarding, or
concerns over the intentions of, the core developers of the digital
asset; or
Any of the existing criteria used by the Index for
inclusion in the Index is found by the Sponsor to prohibit the
inclusion of the digital asset in the Index, in which case, the Sponsor
may, in its sole discretion, cause the Portfolio Assets to deviate from
the Index Components until such time as the Index has taken similar
action.
The Trust does not intend for the Portfolio Assets to deviate from
the Index Components, and the Trust anticipates that such deviation
would likely occur only if the Trust was unable to hold a particular
digital asset included in the Index, if the Trust determined that
holding that particular digital asset would result in significant harm
to shareholders, or if the holding of that digital asset would cause
the Portfolio Assets to consist of less than 85% Approved Components.
The Sponsor will monitor the weightings of the Portfolio Assets and
Index Components daily and may exclude individual digital assets from
the Portfolio Assets and/or rebalance the weighting of the Portfolio
Assets to ensure that at least 85% of the holdings will consist of
Approved Components.\33\
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\33\ The Sponsor notes that, as of the date of this filing, the
Index Components and Portfolio Assets that are Approved Components
are bitcoin and ether, which make up approximately 89% of the Trust
and Index.
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Background on Current Portfolio Assets
Bitcoin
Bitcoin is the most well-recognized digital asset in the world. As
of June 30, 2025, bitcoin is the largest digital asset in the world by
market capitalization. Bitcoin was invented in 2008 by a pseudonymous
software developer, or a group of software developers, under the name
Satoshi Nakamoto. Nakamoto published a white paper titled ``Bitcoin: A
Peer-to-Peer Electronic Cash System'' on October 31, 2008, which
provided the technical outline for launching the bitcoin network. The
network went live on January 3, 2009, when Nakamoto mined the first
block of transactions, known as the ``Genesis Block.''
The software underlying the Bitcoin Blockchain determines a number
of key and independent parameters. At the heart of the system lies the
algorithm that enforces that all ledgers converge over time (commonly
known as the ``Consensus Algorithm''). Other important portions of the
system include the rules that deem a transaction valid, a programming
language that allows for different types of transactions to be
executed, and the process through which new digital assets are minted
(commonly known as ``Mining''), and others. The network strictly
enforces the total amount of units issued to converge towards 21
[[Page 34686]]
million by the year 2140 through a predetermined schedule.
New bitcoin is created when Miners process blocks of transactions.
In the bitcoin network, this occurs roughly every ten minutes. The
Blockchain periodically adjusts the difficulty of settling transactions
to ensure that cadence remains approximately accurate. The amount of
new bitcoin created each time a block of bitcoin transactions is
processed is predetermined by the software underlying the bitcoin
Blockchain. Initially, the Miner that settled a block of transactions
on the bitcoin Blockchain received 50 bitcoin. That reward was and is
programmed to be cut in half roughly every four years; currently,
Miners receive 3.125 bitcoin for each block of settled transactions.
The bitcoin network is known for being extremely decentralized, as
it is maintained by a network of computers that, joined together,
represents the largest supercomputer in the world. Some believe that
this makes bitcoin more secure and resistant to attacks compared to
other Blockchain networks.
Ether
Ether is the native digital asset of Ethereum, the second largest
Blockchain network ranked by market capitalization as of June 30, 2025.
Ether was described in a white paper in late 2013, and an online
crowdsale to fund development took place between July and August 2014.
The network went live in July 2015.
Ether was specifically designed to power smart contracts, which are
computer programs intended to enforce the performance of a contract
that parties can codify and agree upon with minimal or no need of
trusted intermediaries.
Ether's script language, the programming language that developers
use for creating Blockchain applications, is significantly more
flexible than bitcoin's language. This allows the creation of programs
that do general computation instead of only the relatively simple
conditional payments that are possible with bitcoin. As such, a whole
ecosystem of different applications including asset issuance,
decentralized financial applications, identity management, and others
are able to be and have been developed on top of the Ethereum network.
However, Ether's more permissive programming language makes the network
inherently less secure because it can increase the odds that a
catastrophic bug in one smart contract could affect the whole network.
Due to Ether's focus on enabling innovation on its Blockchain
system, events like hard forks are significantly more common in Ether
than in bitcoin. For example, on September 15, 2022, Ether transitioned
from a proof-of-work network to a proof-of-stake network. This
infrastructure upgrade was known as ``The Merge.'' This was only one of
several hard forks the Ethereum Blockchain has undergone since
inception. Some consider Ether's stance as an advantage, while others
perceive it as a risk, especially as the project grows larger and the
cost of potential mistakes rises.
XRP
XRP is a digital asset that was created by Chris Larsen, Jed
McCaleb, Arthur Britto, and David Schwartz (the ``XRP Creators'') in
2012. Built out of the frustrations of bitcoin's utility for payments,
the XRP ledger (the ledger to which XRP is native) is designed to be a
global real-time payment and settlement system. The XRP Creators
developed this unique digital asset to solve the scalability concerns
that they believed were inherent in the structure of bitcoin. In
particular, XRP was created to improve the efficiency of payments. To
this end, the open source code (available at https://github.com/ripple/rippled/) was designed to maximize speed, scalability, and stability.
For example, the XRP ledger can accommodate 4,400 transactions per
second. This is, in part, because XRP is not mined like bitcoin, but is
designed for the ledgers to close in seconds based on a system of
consensus. Further, because of the consensus methodology underlying the
XRP design, network transaction fees are substantially lower than
bitcoin, typically less than $0.01. Given the unique qualities of XRP
and the natural suitability of this digital asset to solve the friction
experience with payments, the XRP Creators started a company, calling
it Ripple, to further develop the ecosystem around XRP and build
software solutions to address the friction in sending, processing, and
sourcing liquidity for global payments. Thus, the company, Ripple,
began as, and continues to be, a payments software company. Today,
Ripple is focused on designing and deploying state-of-the-art and
industry-leading software to enable banks and financial institutions to
more easily effect cross-border payments. For maximum efficiency,
Ripple's software can integrate XRP to solve liquidity and value
transfer challenges.
Solana
Solana is a decentralized blockchain network with a focus on
secure, low-fee, high-speed transactions that are paid for using SOL,
which is the Solana Blockchain's native digital asset. By leveraging
proof-of-history and other breakthrough innovations, Solana allows for
greater throughput than many other Blockchains, with the ability to
scale at the rate of Moore's Law. Solana, like Ether, is home to
several use cases including gaming, decentralized finance, and non-
fungible token marketplaces.
Cardano
Cardano is a proof-of-stake Blockchain and smart contract platform
that facilitates secure payments and enables developers to build
decentralized applications. Grounded in research and academia, the
protocol and its token were named after 16th and 19th century
polymaths, and its programming language, Haskell, is commonly used in
the traditional finance and security sectors.
Sui
Sui is a high-performance Layer 1 blockchain developed by Mysten
Labs, launched in 2023. Designed to support the next generation of
decentralized applications and digital asset ownership, Sui focuses on
providing extremely fast finality and high throughput with low fees.
Sui introduces a novel approach to data structures and execution, built
around the Move programming language (originally created for Meta's
Diem project). Unlike traditional blockchains that process all
transactions in a single global sequence, Sui can execute many simple
transactions in parallel thanks to its ``object-centric'' data model.
This parallel execution aims to boost scalability and reduce
bottlenecks. Sui uses a delegated proof-of-stake (DPoS) consensus
mechanism for complex transactions requiring ordering, while simpler
transactions can bypass full consensus altogether.
Chainlink
Chainlink is a network that connects smart contracts with real
world data. Blockchain networks are unaware of what happens outside of
those networks, and therefore whenever a Blockchain application needs
to interact with external data, it needs a reliable data source to do
so. These data sources are known in the industry as ``Oracles.''
Relying on one Oracle creates a single point of failure, and Chainlink
aims to solve this issue by providing a decentralized network of
multiple
[[Page 34687]]
Oracles that can evaluate the same data. The accuracy of this data can
be important if this data is used to trigger activity on a smart
contract or other Blockchain application. Chainlink provides price
reference data feeds for decentralized finance, and also allows users
to create their own Oracle networks. Larger enterprises can also use
Chainlink to sell their data to smart contracts that need them to
trigger a certain condition. Current use cases for Chainlink include
stable digital assets, decentralized lending and borrowing, and asset
management.
Avalanche
Avalanche is a Blockchain ecosystem that is home to several
applications across a variety of use cases including, but not limited
to, gaming and decentralized finance. Avalanche's design makes it
relatively easy for developers to deploy applications to and from
Ether. Avalanche was designed to be a faster and cheaper alternative to
other Blockchains for purposes of a better user and developer
experience. For example, the network leverages its different built-in
Blockchains for enhanced transaction speeds at economically feasible
costs. To that end, some of its built-in Blockchains are dedicated to
specific use cases and/or applications to avoid network congestion the
popularity of other applications can cause.
Litecoin
Litecoin is a decentralized, open-source cryptocurrency launched in
2011 by former Google engineer Charlie Lee. Designed as a ``lighter''
alternative to Bitcoin, it aims to provide faster and cheaper peer-to-
peer payments while maintaining strong security and decentralization.
Litecoin is based on the Bitcoin codebase but makes key technical
adjustments. Most notably, it uses the Scrypt proof-of-work algorithm
instead of Bitcoin's SHA-256, which was intended to make mining more
accessible to a broader range of participants early on. Litecoin
processes blocks roughly every 2.5 minutes (compared to Bitcoin's 10
minutes), resulting in faster transaction confirmations. Its total
supply is capped at 84 million coins--four times Bitcoin's limit.
Polkadot
Polkadot is a proof-of-stake Blockchain that leverages a newer
infrastructure design to that of Solana's and Ether's. For purposes of
enhanced performance, Polkadot splits up the workload by hosting
various independent blockchains on top of one central blockchain, known
as the Relay Chain. The purpose of the Relay Chain is to provide
ecosystem support, notably in terms of security and interoperability.
Custody of the Trust's Portfolio Assets
The Custodian will maintain custody of the Portfolio Assets, other
than that which is maintained in a trading account (the ``Trading
Balance'') with Coinbase, Inc. (the ``Prime Execution Agent,'' which is
an affiliate of the Custodian). The Custodian will maintain an account
that holds the Trust's Portfolio Assets (the ``Trust Digital Asset
Account'') and will facilitate the transfer of Portfolio Assets
required for the operation of the Trust. The Trading Balance will only
be used in the limited circumstances in which the Trust is using the
Agent Execution Model (as defined below) to effectuate the purchases
and sales of Portfolio Assets. The Custodian provides safekeeping of
Portfolio Assets using a multi-layer cold storage security platform
designed to provide offline security of the Portfolio Assets held by
the Custodian.
Valuation of the Trust's Portfolio Assets and Determination of NAV
The net assets of the Trust and its Shares are valued on a daily
basis by the Valuation Vendor. The Trust uses the Reference Prices to
calculate its NAV.
The Sponsor, in its sole discretion, may cause the Trust to price
its portfolio based upon an index, benchmark, or standard other than
the Reference Prices at any time, with prior notice to the
shareholders, if investment conditions change or the Sponsor believes
that another index, benchmark, or standard better aligns with the
Trust's investment objective and strategy. The Sponsor may make this
decision for a number of reasons, including, but not limited to, a
determination that the Reference Prices differ materially from the
global market price of the Portfolio Assets and/or that third parties
are able to purchase and sell Portfolio Assets on public or private
markets not included among the CME CF Constituent Trading Platforms (as
defined below), and such transactions may take place at prices
materially higher or lower than the Reference Prices. The Sponsor,
however, is under no obligation whatsoever to make such changes in any
circumstance. In the event that the Sponsor intends to establish the
Trust's NAV by reference to an index, benchmark, or standard other than
Reference Prices, it will provide shareholders with notice in a
prospectus supplement and/or through a current report on Form 8-K or in
the Trust's annual or quarterly reports.\34\
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\34\ The Sponsor will provide notice of any such changes in the
Trust's periodic or current reports and, if the Sponsor makes such a
change other than on an ad hoc or temporary basis, will file a
proposed rule change with the Commission.
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The Trust's only assets will be Portfolio Assets and, under limited
circumstances, cash. The Trust's NAV and NAV per Share will be
determined by the Administrator once each Exchange trading day as of 4
p.m. E.T., or as soon thereafter as practicable. The Administrator will
calculate the NAV by multiplying the Portfolio Assets held by the Trust
by their respective Reference Prices for such day, adding any
additional receivables and subtracting the accrued but unpaid
liabilities of the Trust. The NAV per Share is calculated by dividing
the NAV by the number of Shares then outstanding. The Valuation Vendor
will determine the price of the Trust's Portfolio Assets by reference
to the Reference Prices on the CME CF Constituent Trading Platforms.
Intraday Trust Value
The Trust uses the real-time prices published by the Valuation
Vendor for each Portfolio Asset (the ``Real-Time Reference Prices'') to
calculate an Indicative Trust Value (``ITV''). One or more major market
data vendors will disseminate the ITV, updated every 15 seconds each
trading day 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 p.m. E.T.). The ITV will be calculated throughout the trading day by
using the prior day's holdings at the close of business and the Real-
Time Reference Prices for the Portfolio Assets published by the
Valuation Vendor. The ITV will be widely disseminated by one or more
major market data vendors during the NYSE Arca Core Trading Session.
Creation and Redemption of Shares
The Trust creates and redeems Shares from time to time, but only in
one or more Creation Units, which will initially consist of at least
10,000 Shares, but may be subject to change (``Creation Unit''). A
Creation Unit is only made in exchange for delivery to the Trust or the
distribution by the Trust of an amount of cash, equivalent to the value
of Portfolio Assets represented by the Creation Unit being created or
redeemed, the amount of which is representative of the combined NAV of
the number of Shares included in the Creation Units being created or
redeemed determined as of 4 p.m. E.T. on the day the order to create or
redeem
[[Page 34688]]
Creation Units is properly received. Except when aggregated in Creation
Units or under extraordinary circumstances permitted under the Trust
Agreement, the Shares are not redeemable securities.
Authorized Participants are the only persons that may place orders
to create and redeem Creation Units. Authorized Participants must be
(1) registered broker-dealers or other securities market participants,
such as banks and other financial institutions, that are not required
to register as broker-dealers to engage in securities transactions
described below, and (2) Depository Trust Company (``DTC'')
participants. To become an Authorized Participant, a person must enter
into an Authorized Participant Agreement with the Trust and/or the
Trust's marketing agent (the ``Marketing Agent'').
When purchasing or selling Portfolio Assets in response to the
purchase of Creation Units or the redemption of Creation Units, which
will be processed in cash, the Trust would do so pursuant to either (1)
a ``Trust-Directed Trade Model,'' or (2) an ``Agent Execution Model,''
which are each described in more detail below.
The Trust intends to utilize the Trust-Directed Trade Model for all
purchases and sales of Portfolio Assets and would only utilize the
Agent Execution Model in the event that no digital asset trading
counterparty approved by the Sponsor (a ``Digital Asset Trading
Counterparty'') \35\ is able to effectuate the Trust's purchase or sale
of Portfolio Assets. Under the Trust-Directed Trade Model, in
connection with receipt of a purchase order or redemption order, the
Sponsor, on behalf of the Trust, would be responsible for acquiring
Portfolio Assets from an approved Digital Asset Trading Counterparty in
an amount equal to the Basket Amount (as defined below). When seeking
to purchase Portfolio Assets on behalf of the Trust, the Sponsor will
seek to purchase Portfolio Assets at commercially reasonable prices and
terms from any of the approved Digital Asset Trading
Counterparties.\36\ Once agreed upon, the transaction will generally
occur on an ``over-the-counter'' basis.
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\35\ The Digital Asset Trading Counterparties with which the
Sponsor will engage in Portfolio Asset transactions are unaffiliated
third parties that are not acting as agents of the Trust, the
Sponsor or the Authorized Participant, and all transactions will be
done on an arms-length basis. There is no contractual relationship
between the Trust, the Sponsor or the Digital Asset Trading
Counterparty.
\36\ The Sponsor will maintain ownership and control of the
Portfolio Assets in a manner consistent with good delivery
requirements for spot commodity transactions.
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Whether utilizing the Trust-Directed Trade Model or the Agent
Execution Model, 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 Portfolio 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
Portfolio Assets as part of the creation or redemption process.
Additionally, under either the Trust-Directed Trade Model or the Agent
Execution Model, the Trust will create Shares by receiving Portfolio
Assets from a third party that is not the Authorized Participant and is
not affiliated with the Sponsor or the Trust, and the Trust--not the
Authorized Participant--is responsible for selecting the third party to
deliver the Portfolio Assets. The third party will not be acting as an
agent of the Authorized Participant with respect to the delivery of the
Portfolio Assets to the Trust or acting at the direction of the
Authorized Participant with respect to the delivery of the Portfolio
Assets to the Trust. Additionally, the Trust will redeem Shares by
delivering Portfolio Assets to a third party that is not the Authorized
Participant and is not affiliated with the Sponsor or the Trust, and
the Trust--not the Authorized Participant--is responsible for selecting
the third party to receive the Portfolio Assets. Finally, the third
party will not be acting as an agent of the Authorized Participant with
respect to the receipt of Portfolio Assets from the Trust or acting at
the direction of the Authorized Participant with respect to the receipt
of Portfolio Assets from the Trust.
Acquiring and Selling Portfolio Assets Pursuant to Creation and
Redemption of Shares Under the Trust-Directed Trade Model
Under the Trust-Directed Trade Model, on any Business Day, an
Authorized Participant may create Shares by placing an order to
purchase one or more Creation Units with the Transfer Agent through the
Marketing Agent. Such orders are subject to approval by the Marketing
Agent and the Transfer Agent. To be processed on the date submitted,
creation orders must be placed before 4 p.m. E.T. or the close of
regular trading on the Exchange, whichever is earlier, but may be
required to be placed earlier at the discretion of the Sponsor. A
purchase order will be effective on the date it is received by the
Transfer Agent and approved by the Marketing Agent (``Purchase Order
Date'').
Creation Units are processed in cash. By placing a purchase order,
an Authorized Participant agrees to deposit, or cause to be deposited,
an amount of cash equal to the value of the quantity of Portfolio
Assets attributable to each Share of the Trust (net of accrued but
unpaid expenses and liabilities) multiplied by the number of Shares
(10,000) comprising a Creation Unit (such quantity, the ``Basket
Amount''). That cash amount is derived by multiplying the Basket Amount
by the value of Portfolio Assets ascribed by the Reference Price. The
Sponsor will cause to be published each Business Day, prior to the
commencement of trading on the Exchange, the Basket Amount relating to
a Creation Unit applicable for such Business Day. However, the
Authorized Participant is also responsible for any additional cash
required to account for the price at which the Trust agrees to purchase
the requisite amount of Portfolio Assets from a Digital Asset Trading
Counterparty to the extent it is greater than the Reference Price on
each Purchase Order Date.
Prior to the delivery of Creation Units, the Authorized Participant
must also have wired to the Transfer Agent the nonrefundable
transaction fee due for the creation order. Authorized Participants may
not withdraw a creation request. If an Authorized Participant fails to
consummate the foregoing, the order may be cancelled.
Following the acceptance of a purchase order, the Authorized
Participant must wire the cash amount described above to the Cash
Custodian, and the Digital Asset Trading Counterparty must deposit the
required amount of Portfolio Assets with the Custodian by the end of
the day E.T. on the Business Day following the Purchase Order Date. The
Portfolio Assets will be purchased from Digital Asset Trading
Counterparties that are not acting as agents of the Trust or agents of
the Authorized Participant. These transactions will be done on an arms-
length basis, and there is no contractual relationship between the
Trust, the Sponsor, or the Digital Asset Trading Counterparty to
acquire such Portfolio Assets. Prior to any movement of cash from the
Cash Custodian to the Digital Asset Trading Counterparty or movement of
Shares from the Transfer Agent to the Authorized Participant's DTC
account to settle the transaction, the Portfolio Assets must be
deposited at the Custodian.
The Digital Asset Trading Counterparty must deposit the required
amount of Portfolio Assets by end of day E.T. on the Business Day
following the
[[Page 34689]]
Purchase Order Date prior to any movement of cash from the Cash
Custodian or Shares from the Transfer Agent. Upon receipt of the
deposit amount of Portfolio Assets at the Custodian from the Digital
Asset Trading Counterparty, the Custodian will notify the Sponsor that
the Portfolio Assets have been received. The Sponsor will then notify
the Transfer Agent that the Portfolio Assets have been received, and
the Transfer Agent will direct DTC to credit the number of Shares
ordered to the Authorized Participant's DTC account and will wire the
cash previously sent by the Authorized Participant to the Digital Asset
Trading Counterparty to complete settlement of the Purchase Order and
the acquisition of the Portfolio Assets by the Trust, as described
above.
As between the Trust and the Authorized Participant, the expense
and risk of the difference between the value of Portfolio Assets
calculated by the Administrator for daily valuation using the Reference
Price and the price at which the Trust acquires the Portfolio Assets
will be borne solely by the Authorized Participant to the extent that
the Trust pays more for Portfolio Assets than the price used by the
Trust for daily valuation. Any such additional cash amount will be
included in the amount of cash calculated by the Administrator on the
Purchase Order Date, communicated to the Authorized Participant on the
Purchase Order Date, and wired by the Authorized Participant to the
Cash Custodian on the day following the Purchase Order Date. If the
Digital Asset Trading Counterparty fails to deliver the Portfolio
Assets to the Custodian, no cash is sent from the Cash Custodian to the
Digital Asset Trading Counterparty, no Shares are transferred to the
Authorized Participant's DTC account, the cash is returned to the
Authorized Participant, and the Purchase Order is cancelled.
Under the Trust-Directed Trade Model and according to the
Registration Statement, the procedures by which an Authorized
Participant can redeem one or more Creation Units mirror the procedures
for the creation of Creation Units. On any Business Day, an Authorized
Participant may place an order with the Transfer Agent through the
Marketing Agent to redeem one or more Creation Units. To be processed
on the date submitted, redemption orders must be placed before 4 p.m.
E.T. or the close of regular trading on the Exchange, whichever is
earlier, or earlier as determined by the Sponsor. A redemption order
will be effective on the date it is received by the Transfer Agent and
approved by the Marketing Agent (``Redemption Order Date''). The
redemption procedures allow Authorized Participants to redeem Creation
Units and do not entitle an individual shareholder to redeem any Shares
in an amount less than a Creation Unit, or to redeem Creation Units
other than through an Authorized Participant. In connection with
receipt of a redemption order accepted by the Marketing Agent and
Transfer Agent, the Sponsor, on behalf of the Trust, is responsible for
selling the Portfolio Assets to an approved Digital Asset Trading
Counterparty in an amount equal to the Basket Amount.
The redemption distribution from the Trust will consist of a
transfer to the redeeming Authorized Participant, or its agent, of the
amount of cash the Trust received in connection with a sale of the
Basket Amount of Portfolio Assets to a Digital Asset Trading
Counterparty made pursuant to the redemption order. The Sponsor will
cause to be published each Business Day, prior to the commencement of
trading on the Exchange, the redemption distribution amount relating to
a Creation Unit applicable for such Business Day. The redemption
distribution amount is derived by multiplying the Basket Amount by the
value of Portfolio Assets ascribed by the Reference Prices. However, as
between the Trust and the Authorized Participant, the expense and risk
of the difference between the value of Portfolio Assets ascribed by the
Reference Prices and the price at which the Trust sells the Portfolio
Assets will be borne solely by the Authorized Participant to the extent
that the Trust receives less for Portfolio Assets than the value
ascribed by the Reference Prices. Prior to the delivery of Creation
Units, the Authorized Participant must also have wired to the Transfer
Agent the nonrefundable transaction fee due for the redemption order.
The redemption distribution due from the Trust will be delivered by
the Transfer Agent to the Authorized Participant once the Cash
Custodian has received the cash from the Digital Asset Trading
Counterparty. The Custodian will not send the Basket Amount of
Portfolio Assets to the Digital Asset Trading Counterparty until the
Cash Custodian has received the cash from the Digital Asset Trading
Counterparty and is instructed by the Sponsor to make such transfer.
Once the Digital Asset Trading Counterparty has sent the cash to the
Cash Custodian in an agreed upon amount to settle the agreed upon sale
of the Basket Amount of Portfolio Assets, the Transfer Agent will
notify the Sponsor. The Sponsor will then notify the Custodian to
transfer the Portfolio Assets to the Digital Asset Trading
Counterparty, and the Transfer Agent will wire the cash proceeds to the
Authorized Participant once the Trust's DTC account has been credited
with the Shares represented by the Creation Unit from the redeeming
Authorized Participant. Once the Authorized Participant has delivered
the Shares represented by the Creation Unit to be redeemed to the
Trust's DTC account, the Cash Custodian will wire the requisite amount
of cash to the Authorized Participant. If the Trust's DTC account has
not been credited with all of the Shares of the Creation Unit to be
redeemed, the redemption distribution will be delayed until such time
as the Transfer Agent confirms receipt of all such Shares. If the
Digital Asset Trading Counterparty fails to deliver the cash to the
Cash Custodian, the transaction will be cancelled, and no transfer of
Portfolio Assets or Shares will occur.
Acquiring and Selling Portfolio Assets Pursuant To Creation and
Redemption of Shares Under the Agent Execution Model
Under the Agent Execution Model, the Prime Execution Agent, acting
in an agency capacity, would conduct Portfolio Assets purchases and
sales on behalf of the Trust with third parties through its Coinbase
Prime service pursuant to the Prime Execution Agent Agreement. To
utilize the Agent Execution Model, the Trust may maintain some
Portfolio Assets or cash in the Trading Balance with the Prime
Execution Agent. The Prime Execution Agent Agreement provides that the
Trust does not have an identifiable claim to any particular Portfolio
Assets (and cash); rather, the Trust's Trading Balance represents an
entitlement to a pro rata share of the Portfolio Assets (and cash) the
Prime Execution Agent holds on behalf of customers who hold similar
entitlements against the Prime Execution Agent. In this way, the
Trust's Trading Balance represents an omnibus claim on the Prime
Execution Agent's Portfolio Assets (and cash) held on behalf of the
Prime Execution Agent's customers.
To avoid having to pre-fund purchases or sales of Portfolio Assets
in connection with cash creations and redemptions and sales of
Portfolio Assets to pay Trust expenses not assumed by the Sponsor, to
the extent applicable, the Trust may borrow Portfolio Assets or cash as
trade credit (``Trade Credit'') from Coinbase Credit, Inc. (the ``Trade
Credit Lender'') on a short-term basis pursuant to the Coinbase Credit
Committed Trade
[[Page 34690]]
Financing Agreement (the ``Trade Financing Agreement'').
On the day of the Purchase Order Date, the Trust would enter into a
transaction to buy Portfolio Assets through the Prime Execution Agent
for cash. Because the Trust's Trading Balance may not be funded with
cash on the Purchase Order Date for the purchase of Portfolio Assets in
connection with the Purchase Order under the Agent Execution Model, the
Trust may borrow Trade Credits in the form of cash from the Trade
Credit Lender pursuant to the Trade Financing Agreement or may require
the Authorized Participant to deliver the required cash for the
Purchase Order on the Purchase Order Date. The extension of Trade
Credits on the Purchase Order Date allows the Trust to purchase
Portfolio Assets through the Prime Execution Agent on the Purchase
Order Date, with such Portfolio Assets being deposited in the Trust's
Trading Balance.
On the day following the Purchase Order Date (the ``Purchase Order
Settlement Date''), the Trust would deliver Shares to the Authorized
Participant in exchange for cash received from the Authorized
Participant. Where applicable, the Trust would use the cash to repay
the Trade Credits borrowed from the Trade Credit Lender. On the
Purchase Order Settlement Date for a Purchase Order utilizing the Agent
Execution Model, the Portfolio Assets associated with the Purchase
Order and purchased on the Purchase Order Date is swept from the
Trust's Trading Balance with the Prime Execution Agent to the Trust
Digital Asset Account with the Custodian pursuant to a regular end-of-
day sweep process. Transfers of Portfolio Assets into the Trust's
Trading Balance are off-chain transactions and transfers from the
Trust's Trading Balance to the Trust Digital Asset Account are ``on-
chain'' transactions represented on the Portfolio Assets blockchains,
as applicable. Any financing fee owed to the Trade Credit Lender is
deemed part of trade execution costs and embedded in the trade price
for each transaction.
For a Redemption Order utilizing the Agent Execution Model, on the
day of the Redemption Order Date the Trust would enter into a
transaction to sell Portfolio Assets through the Prime Execution Agent
for cash. The Trust's Trading Balance with the Prime Execution Agent
may not be funded with Portfolio Assets on trade date for the sale of
Portfolio Assets in connection with the redemption order under the
Agent Execution Model, when Portfolio Assets remains in the Trust
Digital Asset Account with the Custodian at the point of intended
execution of a sale of Portfolio Assets. In those circumstances the
Trust may borrow Trade Credits in the form of Portfolio Assets from the
Trade Credit Lender, which allows the Trust to sell Portfolio Assets
through the Prime Execution Agent on the Redemption Order Date, and the
cash proceeds are deposited in the Trust's Trading Balance with the
Prime Execution Agent. On the business day following the Redemption
Order Date (the ``Redemption Order Settlement Date'') for a redemption
order utilizing the Agent Execution Model where Trade Credits were
utilized, the Trust delivers cash to the Authorized Participant in
exchange for Shares received from the Authorized Participant. In the
event Trade Credits were used, the Trust will use the Portfolio Assets
that are moved from the Trust Digital Asset Account with the Custodian
to the Trading Balance with the Prime Execution Agent to repay the
Trade Credits borrowed from the Trade Credit Lender.
For a redemption of Creation Units utilizing the Agent Execution
Model, the Sponsor would instruct the Custodian to prepare to transfer
the Portfolio Assets associated with the redemption order from the
Trust Digital Asset Account with the Custodian to the Trust's Trading
Balance with the Prime Execution Agent. On the Redemption Order
Settlement Date, the Trust would enter into a transaction to sell
Portfolio Assets through the Prime Execution Agent for cash, and the
Prime Execution Agent credits the Trust's Trading Balance with the
cash. On the same day, the Authorized Participant would deliver the
necessary Shares to the Trust and the Trust delivers cash to the
Authorized Participant.
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
with a regulated market of significant size related to the underlying
commodity to be held.\37\ However, the Commission recently approved the
listing and trading of shares of spot 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.\38\ 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.\39\ 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.\40\
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\37\ 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.
\38\ 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; SRNYSEARCA-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'').
\39\ See Spot Bitcoin ETP Approval Order, 89 FR at 3010; Spot
Ether ETP Approval Order, 89 FR at 46938.
\40\ 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 Trust is structured and will operate in a manner materially the
same as the Spot Bitcoin ETPs and Spot Ether ETPs,\41\ and the
Portfolio Assets
[[Page 34691]]
currently primarily consist of Bitcoin and Ether, and at least 85% of
the Portfolio Assets will consist of Approved Components as described
above. 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 and
Spot Ether ETP Approval Order, listing and trading Shares of the Trust
would be consistent with the requirements of the Act.
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\41\ The Sponsor is also the sponsor of the Bitwise Bitcoin ETF
and the Bitwise Ethereum ETF, which were approved pursuant to the
Spot Bitcoin ETP Approval Order and Spot Ether ETP Approval,
respectively, and which are both currently listed and traded on NYSE
Arca.
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The Sponsor acknowledges that the Portfolio Assets currently
include minority positions in digital assets that are not bitcoin or
ether, but believes that, given that the Trust will be rebalanced, if
necessary, so that, on a daily basis, Approved Components will comprise
at least 85% of the Portfolio Assets at the start of every NYSE Arca
Core Trading Session, listing and trading Shares of the Trust would be
consistent with the requirements of the Act. Nonetheless, for purposes
of the Trust's proposal, the Sponsor anticipates that the Commission
may have certain concerns about the Trust's digital assets other than
bitcoin and ether, as articulated in prior spot digital asset ETP
proposal disapproval orders,\42\ and addresses them below.
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\42\ See Securities Exchange Act Release Nos. 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 Fund) (the ``Winklevoss
Order''); 87267 (October 9, 2019), 84 FR 55382 (October 16, 2019)
(SR-NYSEArca-2019-01) (Order Disapproving a Proposed Rule Change, as
Modified by Amendment No. 1, Relating to the Listing and Trading of
Shares of the Bitwise Bitcoin ETF Fund Under NYSE Arca Rule 8.201-E)
(the ``Bitwise Order''); 88284 (February 26, 2020), 85 FR 12595
(March 3, 2020) (SR-NYSEArca-2019-39) (Order Disapproving a Proposed
Rule Change, as Modified by Amendment No. 1, to Amend NYSE Arca Rule
8.201-E (Commodity-Based Trust Shares) and to List and Trade Shares
of the United States Bitcoin and Treasury Investment Trust Under
NYSE Arca Rule 8.201-E) (the ``Wilshire Phoenix Order''); 83904
(August 22, 2018), 83 FR 43934 (August 28, 2018) (SR-NYSEArca-2017-
139) (Order Disapproving a Proposed Rule Change to List and Trade
the Shares of the ProShares Bitcoin ETF and the ProShares Short
Bitcoin ETF); 83912 (August 22, 2018), 83 FR 43912 (August 28, 2018)
(SR-NYSEArca-2018-02) (Order Disapproving a Proposed Rule Change
Relating to Listing and Trading of the Direxion Daily Bitcoin Bear
1X Shares, Direxion Daily Bitcoin 1.25X Bull Shares, Direxion Daily
Bitcoin 1.5X Bull Shares, Direxion Daily Bitcoin 2X Bull Shares, and
Direxion Daily Bitcoin 2X Bear Shares Under NYSE Arca Rule 8.200-E);
83913 (August 22, 2018), 83 FR 43923 (August 28, 2018) (SR-CboeBZX-
2018-01) (Order Disapproving a Proposed Rule Change to List and
Trade the Shares of the GraniteShares Bitcoin ETF and the
GraniteShares Short Bitcoin ETF).
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The Commission has recognized 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.\43\ In evaluating the
effectiveness of this type of resistance, the Commission does not apply
a ``cannot be manipulated'' standard. Instead, the Commission requires
that such resistance to fraud and manipulation be novel and beyond
those protections that exist in traditional commodity markets or equity
markets for which the Commission has long required surveillance-sharing
agreements in the context of listing derivative securities
products.\44\ The Sponsor believes the Trust's use of the Reference
Prices provided by the Valuation Vendor to value the Portfolio Assets
and to determine NAV and ITV for the Trust, in tandem with the Trust's
cash create and redeem structure represents a novel means to prevent
fraud and manipulation from impacting the price of the Shares, by
offering protections beyond those that exist in traditional commodity
markets and consistent with those that exist in equity markets.
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\43\ See Winklevoss Order, 84 FR at 37580, 37582-91; Bitwise
Order, 84 FR at 55383, 55385-406; Wilshire Phoenix Order, 85 FR at
12597.
\44\ See Winklevoss Order, 84 FR at 37582; Wilshire Phoenix
Order, 85 FR at 12597.
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As described in more detail below, the Sponsor believes that its
use of Reference Prices accomplishes these objectives in the following
ways:
1. The Valuation Vendor calculates the Reference Prices for the
Portfolio Assets exclusively through trading activity on spot digital
asset trading platforms that are ``CME CF Constituent Trading
Platforms.''
``CME CF Constituent Trading Platforms'' are identified by the
Valuation Vendor and must meet the following eligibility criteria, as
determined by the Valuation Vendor, which obtains information directly
from each CME CF Constituent Trading Platform:
The average daily volume of the venue's Relevant Pair \45\
spot trading contributed during the observation window for the
Reference Price (i.e., 3 p.m. to 4 p.m. E.T.) must exceed 3% for two
consecutive calendar quarters.
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\45\ Relevant Pair is defined as each Portfolio Asset versus the
quote for that asset in U.S. Dollar terms.
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The venue has policies to ensure fair and transparent
market conditions at all times and has processes in place to identify
and impede illegal, unfair, or manipulative trading practices.
The venue does not impose undue barriers to entry or
restrictions on market participants, and utilizing the venue does not
expose market participants to undue credit risk, operational risk,
legal risk, or other risks.
The venue complies with applicable laws and regulations,
including, but not limited to, capital markets regulations, money
transmission regulations, client money custody regulations, know-your-
client (KYC) regulations, and anti-money laundering (AML) regulations.
The venue cooperates with inquiries and investigations of
regulators and the Administrator upon request and must execute data
sharing agreements with the CME Group.
The CME CF Oversight Committee (the ``Oversight Committee''), an
independent committee, oversees the Valuation Vendor and is responsible
for reviewing trading venues under consideration to be CME CF
Constituent Trading Platforms to evaluate whether they meet the
eligibility criteria above. The Oversight Committee also reviews
tradings venues for continued compliance with these criteria on an
annual basis, and the Valuation Vendor's trading platform selection
process has been continuously audited since 2020.\46\ As of the date of
this filing, the CME CF Constituent Trading Platforms are Bitstamp,
Coinbase, Gemini, Kraken, itBit and LMAX.\47\ The Sponsor believes that
the Valuation Vendor's enforcement of the rigorous criteria applicable
to the CME CF Constituent Trading Platforms acts as a first line of
defense against manipulation of the Shares by taking steps to ensure
that only data from spot trading platforms equipped to detect and
impede market manipulation is included in the calculation of the
Reference Prices that will determine the Trust's NAV and ITV.
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\46\ The latest IASE 300 Reasonable Assurance Auditors Report by
KPMG is publicly available on the Valuation Vendor's website:
https://www.cfbenchmarks.com/legal/audit.
\47\ The Sponsor notes that, given the rigorous application of
the selection criteria described above, the list of CME CF
Constituent Exchanges has never included FTX.com, FTX.US,
Binance.com, or Binance.US.
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2. The Reference Prices are administered and provided by the
Valuation Vendor, which is an Administrator of Benchmarks under the UK
Benchmarks Regime (``BMR'').
[[Page 34692]]
The Valuation Vendor received its regulatory authorization pursuant
to the BMR in 2019 and has held this regulatory authorization
continuously since then. The Valuation Vendor's compliance with the
BMR's comprehensive regulation of financial benchmarks has been audited
since 2020.\48\ The Sponsor believes that the Valuation Vendor is the
leading provider of benchmarks and indices for regulated financial
products that reference digital assets in the US and internationally.
Reference prices provided by the Valuation Vendor underpin derivatives
contracts regulated by the Commodity Futures Trading Commission and
listed by CME Group, as well as exchange-traded funds offered by
BlackRock, Franklin Templeton, and the Sponsor under the regulatory
purview of the Commission. In addition, to ensure compliance with BMR
Article 14, the Valuation Vendor conducts surveillance of its
benchmarks. When a surveillance alert is triggered, the Valuation
Vendor conducts an investigation, including seeking further information
from CME CF Constituent Trading Platforms. Each such investigation is
memorialized in a report shared with the CME CF Cryptocurrency
Committee. The UK Financial Conduct Authority (``FCA'') has regulatory
oversight of this process, which is also subject to audit. The Sponsor
believes that the Valuation Vendor's robust surveillance efforts would
allow it to promptly address manipulation or attempted manipulation of
Reference Prices through a regulatory filing with the UK FCA and,
accordingly, that this surveillance of the underlying spot trading
platforms constitutes a second line of defense against manipulation in
the Shares.
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\48\ See note 46, supra.
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3. The Valuation Vendor has in place information sharing agreements
with the CME CF Constituent Trading Platforms, from which it draws
pricing data to construct its benchmarks.
These agreements allow the Valuation Vendor to obtain identifying
information of any perpetrators of actual or attempted benchmark
manipulation of any Reference Prices from the CME CF Constituent
Trading Platforms. This identifying information can then be shared with
the UK FCA for potential enforcement action under the provisions of the
Market Abuse Regime (MAR), which specifically proscribes benchmark
manipulation as a criminal offense in the UK. The Sponsor believes that
the availability of this information to the Valuation Vendor supports
enforcement and sanction efforts in response to actual or attempted
manipulation in digital asset markets, and provides a third line of
defense against any potential manipulation in the Shares.
* * * * *
Finally, the Sponsor believes that the cash creation and redemption
structure of the Trust also underscores the protections that the
Reference Prices afford to the Trust. The Trust's Shares will have
their NAV and ITV determined by the Reference Prices and, because all
shares in the Trust will be created and redeemed and secondary traded
with cash (not physical digital assets), any attempts to manipulate
Shares would have to involve transactions on the spot trading platforms
that are CME CF Constituent Trading Platforms to be able to influence
the price of the Shares. The Sponsor believes that the Valuation
Vendor's surveillance of the CME CF Constituent Trading Platforms to
detect such activity and the information sharing mechanisms in place
between the Valuation Vendor and the CME CF Constituent Trading
Platforms would both deter such activity and facilitate enforcement
action should it occur.
Availability of Information
The Trust's website (https://www.bitwiseinvestments.com/), which
will be publicly available at no charge, 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 \49\ 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 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 and disclose the Portfolio Assets,
including: (i) the name of each Portfolio Asset; (ii) the quantity of
each Portfolio Asset; and (iii) the weighting of each Portfolio Asset.
The Trust's website will also include a form of the prospectus for the
Trust that may be downloaded.
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\49\ 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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One or more major market data vendors will provide the ITV per
Share 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 p.m. E.T.).\50\ The ITV will be calculated
using the same methodology as the NAV per Share of the Trust (as
described above), specifically by using the prior day's closing NAV per
Share as a base and updating that value during the NYSE Arca Core
Trading Session based on the Real-Time Reference Prices to reflect
changes in the value of the Trust's NAV during the trading day.
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\50\ The IFV on a per Share basis disseminated during the NYSE
Arca Core Trading Session should not be viewed as a real-time update
of the NAV, which is calculated once a day.
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The ITV disseminated during the NYSE Arca 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 ITV will be widely disseminated on a per Share basis every 15
seconds during the NYSE Arca Core Trading Session by one or more major
market data vendors. In addition, the ITV will be available through on-
line information services.
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'').
Quotation and last sale information for the Portfolio Assets will
be widely disseminated through a variety of major market data vendors.
In addition, real-time price (and volume) data for the Portfolio Assets
is available by subscription major market data vendors. The spot price
of the Portfolio Assets is available on a 24-hour basis from major
market data vendors. Information relating to trading, including price
and volume information, will be available from major market data
vendors and from the trading platforms on which the Portfolio Assets
are traded. The normal trading hours for digital asset trading
platforms are 24-hours per day, 365-days per year.
On each business day, the Sponsor will publish the Reference
Prices, the Trust's NAV, and the NAV per Share on the Trust's website
as soon as practicable after its determination. If the NAV and NAV per
Share have been calculated using a price per Portfolio
[[Page 34693]]
Asset other than the Reference Prices, the publication on the Trust's
website will note the valuation methodology used and the price per
Portfolio Asset resulting from such calculation.
The Trust will provide website disclosure of its NAV daily. The
website disclosure of the Trust's NAV will occur at the same time as
the disclosure by the Administrator of the NAV to Authorized
Participants so that all market participants are provided such
portfolio information at the same time. Therefore, the same portfolio
information will be provided on the public website as well as in
electronic files provided to Authorized Participants. Accordingly, each
investor will have access to the current NAV of the Trust through the
Trust's website, as well as from one or more major market data vendors.
The value of the Reference Prices will be calculated or available
on at least a 15-second delayed basis through major market data
vendors. The value and composition of the Index, as well as additional
information regarding the Index such as the Index Methodology, is
publicly available on a continuous basis on the Index Provider's
website.
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 closing price and trading
volume information for the Shares will be published daily in the
financial section of newspapers.
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.\51\ 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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\51\ 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 ITV or Reference Prices
occurs.\52\ If the interruption to the dissemination of the ITV or
Reference Prices persists past the trading day in which it occurred,
the Exchange will halt trading no later than the beginning of the Core
Trading Session 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.
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\52\ A limit up/limit down condition in the futures market would
not be considered an interruption requiring the Trust to be halted.
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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. Shares will trade on
the NYSE Arca Marketplace from 4 a.m. to 8 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 8.500-E, as amended. The trading
of the Shares will be subject to NYSE Arca Rule 8.500-E(f), which sets
forth certain restrictions on Equity Trading Permit Holders (``ETP
Holders'') acting as registered Market Makers in Trust Units to
facilitate surveillance. The Exchange represents that, for initial and
continued listing, the Trust will be required to comply with Rule 10A-3
under the Act,\53\ 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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\53\ 17 CFR 240.10A-3.
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Surveillance
The Exchange represents that trading in the Shares of the Trust
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.\54\ 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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\54\ 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 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 regarding trading in the Shares with other markets and
other entities that are members of the ISG. The Exchange or FINRA, on
behalf of the Exchange, or both, may obtain trading information
regarding trading in the Shares and Portfolio Asset derivatives from
such markets and other entities. In addition, the Exchange may obtain
information regarding trading in the Shares and Portfolio Asset
derivatives from markets and other entities with which the Exchange has
in place a CSSA.\55\ The Exchange is also able to obtain information
from ETP Holders acting as registered Market Makers regarding their
trading (as principal or agent) in the Shares and any underlying
Portfolio Assets, options on Portfolio Assets, or any other Portfolio
Asset derivatives.
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\55\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all Portfolio Assets
may trade on markets that are members of ISG or with which the
Exchange has in place a CSSA, but that, consistent with this
proposed rule change, at least 85% of the Portfolio Assets will
consist of Approved Components as detailed above.
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In addition, under Rule 8.500-E(f), 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
[[Page 34694]]
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
regulatory organizations to the extent the Exchange has such an
agreement with that regulatory organization.
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 or portfolio or reference asset, (b)
limitations on 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 ceases to comply 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).
Information Bulletin
At or 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 Creation Units; (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 ITV
and NAV is disseminated; (4) the possibility that trading spreads and
the resulting premium or discount on the Shares may widen during the
Opening and Late Trading Sessions, when an updated ITV will not be
calculated or publicly disseminated; (5) the requirement that ETP
Holders deliver a prospectus to investors purchasing newly issued
Shares prior to or concurrently with the confirmation of a transaction
and (6) trading information. The Exchange notes that investors
purchasing Shares directly from the Trust will receive a prospectus.
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 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) \56\ 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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\56\ 15 U.S.C. 78f(b)(5).
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The Exchange believes the proposed changes to Rule 8.500-E would
promote just and equitable principles of trade, remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and, in general, protect investors and the public
interest because they would expand the universe of issuers that could
issue Trust Units, thereby facilitating the listing and trading of
additional series of Trust Units. The proposed changes to Rule 8.500-E
would also promote clarity and specificity in the Exchange's rules,
including with respect to the permissible holdings underlying series of
Trust Units. The Exchange believes the proposed change could promote
competition by supporting the availability of additional exchange-
traded products, to the benefit of all market participants. Except for
the changes described above, all other requirements of Rule 8.500-E
remain unchanged and would continue to apply to Trust Units listed and
traded on the Exchange.
The Exchange also believes that the proposed addition of Trust
Units to the enumerated derivative and special purpose securities that
are subject to the provisions of Rule 5.3-E (Corporate Governance and
Disclosure Policies) and Rule 5.3-E(e) (Shareholder/Annual Meetings)
would promote just and equitable principles of trade and remove
impediments to and perfect the mechanism of a free and open market and
a national market system by holding Trust Units to the same
requirements currently applicable to other similar derivative and
special purpose securities such as those listed pursuant to Rule 8.201-
E.
With respect to the proposed listing and trading of Shares of the
Trust, 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 8.500-E, as
amended. The Exchange further believes that the proposed allocation of
Portfolio Assets to include at least 85% Approved Components, as
described above, would remove impediments to and perfect the mechanism
of a free and open market and a national market system because, at the
start of each NYSE Arca Core Trading Session, at least 85% of the
Portfolio Assets will consist of Approved Components for which the
Commission has found that there are sufficient means of preventing
fraud and manipulation. The Exchange has in place certain surveillance
procedures that are adequate to properly monitor trading in the Shares
on the Exchange in all trading sessions and to deter and detect
violations of Exchange rules and applicable federal securities laws
applicable to the Shares of the Trust trading on the Exchange. 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 Portfolio Asset derivatives from such markets. In
addition, the Exchange may obtain information regarding trading in the
Shares and Portfolio Asset derivatives from markets with which the
Exchange has in place a CSSA. Also, pursuant to NYSE Arca Rule 8.500-
E(f), the Exchange is able to obtain information from ETP Holders
regarding their trading (as principal or agent) in the Shares and any
underlying Portfolio Assets, options on Portfolio Assets, or any
Portfolio Asset derivatives.
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
[[Page 34695]]
manner as the Spot Bitcoin ETPs and Spot 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 and Spot Ether ETP Approval Order, the Exchange's
ability to obtain information regarding trading in the Shares and
futures from other markets that are members of the ISG (including the
CME) would assist the Exchange in detecting and deterring misconduct.
In particular, the CME bitcoin futures market and CME ether futures
market 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 also designed to prevent fraudulent and
manipulative acts and practices because the Trust's use of Reference
Prices to calculate its NAV is designed to mitigate the impact of
instances of fraud and manipulation on a reference price for the
Portfolio Assets. As noted above, the Reference Prices for the
Portfolio Assets are calculated by the Valuation Vendor based
exclusively on trading activity at the CME CF Constituent Trading
Platforms, each of which must meet robust eligibility criteria designed
to protect the Reference Prices against fraud and manipulation. In
addition, the Valuation Vendor is an Administrator of Benchmarks under
the BMR that, among other things, conducts surveillance of its
benchmarks to detect and investigate potential manipulation. The
Valuation Vendor also has information sharing agreements with each of
the CME CF Constituent Trading Platforms that support access to
identifying information for perpetrators of actual or attempted
manipulation to aid in pursuing regulatory action against those actors.
The layers of defense provided by the Trust's use of Reference Prices
to calculate NAV, in conjunction with the Trust's use of cash creations
and redemptions, constitute a novel means to detect, prevent, and
respond to fraud, attempted fraud, and similar wrongdoing, including
market manipulation, consistent with the requirements of the Act.
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 price and market information
available on public websites and through professional and subscription
services for the Portfolio Assets. Investors may obtain, on a 24-hour
basis, Portfolio Asset pricing information based on the spot price for
the Portfolio Assets from various financial information service
providers. The closing price and settlement prices of the Portfolio
Assets are readily available from the CME CF Constituent Trading
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 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 is available to all market participants. Quotation and last-sale
information regarding the Shares will be disseminated through the
facilities of the CTA. The ITV 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 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 ITV or the value of the Index occurs. If the interruption to the
dissemination of the ITV or the value of the Index persists past the
trading day in which it occurred, the Exchange will halt trading no
later than the beginning of the NYSE Arca Core Trading Session on 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 and may obtain information
via ISG 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, ITV, 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 that would 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. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change, as modified by Amendment No. 1, is consistent with the Act.
Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-NYSEARCA-2024-98 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-2024-98. 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
[[Page 34696]]
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-2024-98 and should be submitted on or before August 13,
2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\57\
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\57\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-13804 Filed 7-22-25; 8:45 am]
BILLING CODE 8011-01-P