[Federal Register Volume 90, Number 158 (Tuesday, August 19, 2025)]
[Notices]
[Pages 40429-40438]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-15732]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103711; File No. SR-CboeBZX-2025-013]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of Amendment No. 1 and Designation of a Longer Period for
Commission Action on Proceedings To Determine Whether To Approve or
Disapprove a Proposed Rule Change, as Modified by Amendment No. 1, To
List and Trade Shares of Canary Marinade Solana ETF Under BZX Rule
14.11(e)(4), Commodity-Based Trust Shares
August 14, 2025.
On January 28, 2025, Cboe BZX Exchange, Inc. (``BZX'') 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 Canary Solana Trust \3\ under BZX Rule 14.11(e)(4),
Commodity-Based Trust Shares. The proposed rule change was published
for comment in the Federal Register on February 18, 2025.\4\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1 the Exchange proposes to change the name
of the trust to Canary Marinade Solana ETF. See Item I infra.
\4\ See Securities Exchange Act Release No. 102392 (Feb. 11,
2025), 90 FR 9756. Comments received on the proposed rule change are
available at: https://www.sec.gov/comments/sr-cboebzx-2025-013/srcboebzx2025013.htm.
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On March 11, 2025, pursuant to Section 19(b)(2) of the Act,\5\ 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.\6\ On May 19, 2025, the Commission initiated proceedings under
Section 19(b)(2)(B) of the Act \7\ to determine whether to approve or
disapprove the proposed rule change.\8\
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\5\ 15 U.S.C. 78s(b)(2).
\6\ See Securities Exchange Act Release No. 102588, 90 FR 12424
(Mar. 17, 2025). The Commission designated May 19, 2025, as the date
by which the Commission shall approve or disapprove, or institute
proceedings to determine whether to disapprove, the proposed rule
change.
\7\ 15 U.S.C. 78s(b)(2)(B).
\8\ See Securities Exchange Act Release No. 103065, 90 FR 22141
(May 23, 2025).
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On May 22, 2025, the Exchange filed Amendment No. 1 to the proposed
rule change, which replaces and supersedes the original filing. The
proposed rule change, as modified by Amendment No. 1, is described in
Items I and II below, which Items have been prepared by the Exchange.
The Commission is publishing this notice to solicit comments on the
proposed rule change, as modified by Amendment No. 1, from interested
persons, and to designate a longer period within which to issue an
order approving or disapproving the proposed rule change, as modified
by Amendment No. 1.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (``Commission'' or ``SEC'')
a proposed rule change to list and trade shares of the Canary Marinade
Solana ETF (the ``Trust''),\9\ under BZX Rule 14.11(e)(4), Commodity-
Based Trust Shares.
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\9\ The Trust was formed as a Delaware statutory trust on
October 17, 2024, and is operated as a grantor trust for U.S.
federal tax purposes. The Trust has no fixed termination date.
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The text of the proposed rule change is also available on the
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/) and at the Exchange's Office of the Secretary.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
This Amendment No. 1 to SR-CboeBZX-2025-013 amends and replaces in
its entirety the proposal as originally submitted on January 28, 2025.
The Exchange submits this Amendment No. 1 in order to clarify certain
points and add additional details to the proposal.
The Exchange proposes to list and trade the Shares under BZX Rule
14.11(e)(4),\10\ which governs the listing and trading of Commodity-
Based Trust Shares on the Exchange.\11\ Canary Capital Group LLC is the
sponsor of the Trust (the ``Sponsor''). The Shares will be registered
with the Commission by means of the Trust's registration statement on
Form S-1 (the ``Registration Statement'').\12\ According to the
Registration Statement, the Trust is neither an investment company
registered under the Investment
[[Page 40430]]
Company Act of 1940, as amended,\13\ nor a commodity pool for purposes
of the Commodity Exchange Act (``CEA''), and neither the Trust nor the
Sponsor is subject to regulation as a commodity pool operator or a
commodity trading adviser in connection with the Shares.
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\10\ The Commission approved BZX Rule 14.11(e)(4) in Securities
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148
(September 6, 2011) (SR-BATS-2011-018).
\11\ Any of the statements or representations regarding the
index composition, the description of the portfolio or reference
assets, limitations on portfolio holdings or reference assets,
dissemination and availability of index, reference asset, and
intraday indicative values, or the applicability of Exchange listing
rules specified in this filing to list a series of Other Securities
(collectively, ``Continued Listing Representations'') shall
constitute continued listing requirements for the Shares listed on
the Exchange.
\12\ See the Registration Statement on Form S-1, dated October
30, 2024, submitted by the Sponsor on behalf of the Trust. The
descriptions of the Trust, the Shares, and the Pricing Benchmark (as
defined below) contained herein are based, in part, on information
in the Registration Statement. The Registration Statement is not yet
effective, and the Shares will not trade on the Exchange until such
time that the Registration Statement is effective.
\13\ 15 U.S.C. 80a-1.
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Since 2017, the Commission has approved or disapproved exchange
filings to list and trade series of Trust Issued Receipts, including
spot-based Commodity-Based Trust Shares, on the basis of whether the
listing exchange has in place a comprehensive surveillance sharing
agreement with a regulated market of significant size related to the
underlying commodity to be held (the ``Winklevoss Test'').\14\ The
Commission has also consistently recognized that this not the exclusive
means by which an ETP listing exchange can meet this statutory
obligation.\15\ A listing exchange could, alternatively, demonstrate
that ``other means to prevent fraudulent and manipulative acts and
practices will be sufficient'' to justify dispensing with a
surveillance-sharing agreement with a regulated market of significant
size.\16\
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\14\ See Securities Exchange Act Release Nos. 78262 (July 8,
2016), 81 FR 78262 (July 14. 2016) (the ``Winklevoss Proposal'').
The Winklevoss Proposal was the first exchange rule filing proposing
to list and trade shares of an ETP that would hold spot bitcoin (a
``Spot Bitcoin ETP''). It was subsequently disapproved by the
Commission. See Securities Exchange Act Release No. 83723 (July 26,
2018), 83 FR 37579 (August 1, 2018) (the ``Winklevoss Order'');
99306 (January 10, 2024), 89 FR 3008 (January 17, 2024) (Self-
Regulatory Organizations; NYSE Arca, Inc.; The Nasdaq Stock Market
LLC; Cboe BZX Exchange, Inc.; Order Granting Accelerated Approval of
Proposed Rule Changes, as Modified by Amendments Thereto, To List
and Trade Bitcoin-Based Commodity-Based Trust Shares and Trust
Units) (the ``Spot Bitcoin ETP Approval Order''); 100224 (May 23,
2024), 89 FR 46937 (May 30, 2024) (Self-Regulatory Organizations;
NYSE Arca, Inc.; The Nasdaq Stock Market LLC; Cboe BZX Exchange,
Inc.; Order Granting Accelerated Approval of Proposed Rule Changes,
as Modified by Amendments Thereto, To List and Trade Shares of
Ether-Based Exchange-Traded Products) (the ``Spot ETH ETP Approval
Order'').
\15\ See Winklevoss Order, 83 FR at 37580; see Spot Bitcoin ETP
Approval Order, 89 FR at 3009; see Spot ETH ETP Approval Order 89 FR
at 46938.
\16\ The Exchange notes that that the Winklevoss Test was first
applied in 2017 in the Winklevoss Order, which was the first
disapproval order related to an exchange proposal to list and trade
a Spot Bitcoin ETP. All prior approval orders issued by the
Commission approving the listing and trading of series of Trust
Issued Receipts included no specific analysis related to a
``regulated market of significant size.''In the Winklevoss Order and
the Commission's prior orders approving the listing and trading of
series of Trust Issued Receipts have noted that the spot commodities
and currency markets for which it has previously approved spot ETPs
are generally unregulated and that the Commission relied on the
underlying futures market as the regulated market of significant
size that formed the basis for approving the series of Currency and
Commodity-Based Trust Shares, including gold, silver, platinum,
palladium, copper, and other commodities and currencies. The
Commission specifically noted in the Winklevoss Order that the
approval order issued related to the first spot gold ETP ``was based
on an assumption that the currency market and the spot gold market
were largely unregulated.'' See Winklevoss Order at 37592. As such,
the regulated market of significant size test does not require that
the spot market be regulated in order for the Commission to approve
this proposal, and precedent makes clear that an underlying market
for a spot commodity or currency being a regulated market would
actually be an exception to the norm. These largely unregulated
currency and commodity markets do not provide the same protections
as the markets that are subject to the Commission's oversight, but
the Commission has consistently looked to surveillance sharing
agreements with the underlying futures market in order to determine
whether such products were consistent with the Act.
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The Commission recently issued orders granting approval for
proposals to list bitcoin- and ether-based commodity trust shares and
bitcoin-based, ether-based, and a combination of bitcoin- and ether-
based trust issued receipts (these proposed funds are nearly identical
to the Trust, but proposed to hold bitcoin and/or ether, respectively,
instead of SOL) (``Spot Bitcoin ETPs'' and ``Spot ETH ETPs''). In both
the Spot Bitcoin ETP Approval Order and Spot ETH ETP Approval Order,
the Commission found that sufficient ``other means'' of preventing
fraud and manipulation had been demonstrated that justified dispensing
with a surveillance-sharing agreement of significant size.
Specifically, the Commission found that while the Chicago Mercantile
Exchange (``CME'') futures market for both bitcoin and ether were not
of ``significant size'' related to the spot market, the Exchange
demonstrated that other means could be reasonably expected to assist in
surveilling for fraudulent and manipulative acts and practices in the
specific context of the proposals.
As further discussed below, both the Exchange and the Sponsor
believe that this proposal and the included analysis are sufficient to
establish that the proposal is consistent with the Act itself and,
additionally, that there are sufficient ``other means'' of preventing
fraud and manipulation that warrant dispensing of the surveillance-
sharing agreement with a regulated market of significant size, as was
done with both Spot Bitcoin ETPs and Spot ETH ETPs, and that this
proposal should be approved.
Background
SOL is a digital asset that is created and transmitted through the
operations of the peer-to-peer Solana Network, a decentralized network
of computers that operates on cryptographic protocols. No single entity
is known to own or operate the Solana Network, the infrastructure of
which is understood to be collectively maintained by a decentralized
user base. The Solana Network allows people to exchange tokens of
value, called SOL, which are recorded on a public transaction ledger
known as a blockchain. SOL can be used to pay for goods and services,
including computational power on the Solana Network, or it can be
converted to fiat currencies, such as the U.S. dollar, at rates
determined on Digital Asset Trading Platforms or in individual end-
user-to-end-user transactions under a barter system. Furthermore, the
Solana Network was designed to allow users to write and implement smart
contracts--that is, general-purpose code that executes on every
computer in the network and can instruct the transmission of
information and value based on a sophisticated set of logical
conditions. Using smart contracts, users can create markets, store
registries of debts or promises, represent the ownership of property,
move funds in accordance with conditional instructions and create
digital assets other than SOL on the Solana Network. Smart contract
operations are executed on the Solana blockchain in exchange for
payment of SOL. Like the Ethereum network, the Solana Network is one of
a number of projects intended to expand blockchain use beyond just a
peer-to-peer money system.
The Solana protocol introduced the Proof-of-History (``PoH'')
timestamping mechanism. PoH automatically orders on-chain transactions
by creating a historical record that proves an event has occurred at a
specific moment in time. PoH is intended to provide a transaction
processing speed and capacity advantage over other blockchain networks
like Bitcoin and Ethereum, which rely on sequential production of
blocks and can lead to delays caused by validator confirmations. PoH is
a new blockchain technology that is not widely used. PoH may not
function as intended. For example, it may require more specialized
equipment to participate in the network and fail to attract a
significant number of users, or may be subject to outages or fail to
function as intended. In addition, there may be flaws in the
cryptography underlying PoH, including flaws that affect functionality
of the Solana Network or make the network vulnerable to attack.
In addition to the PoH mechanism described above, the Solana
Network uses a proof-of-stake consensus mechanism to incentivize SOL
holders to validate transactions. Unlike proof-of-work, in which miners
expend
[[Page 40431]]
computational resources to compete to validate transactions and are
rewarded coins in proportion to the amount of computational resources
expended, in proof-of-stake, validators risk or ``stake'' coins to
compete to be randomly selected to validate transactions and are
rewarded coins in proportion to the amount of coins staked. Any
malicious activity, such as disagreeing with the eventual consensus or
otherwise violating protocol rules, results in the forfeiture or
``slashing'' of a portion of the staked coins. Proof-of-stake is viewed
as more energy efficient and scalable than proof-of-work and is
sometimes referred to as ``virtual mining''.
The Solana protocol was first conceived by Anatoly Yakovenko in a
2017 whitepaper. Development of the Solana Network is overseen by the
Solana Foundation, a Swiss non-profit organization, and Solana Labs,
Inc., a Delaware corporation, which administered the original network
launch and token distribution.
Although the Solana Labs, Inc. and the Solana Foundation continue
to exert significant influence over the direction of the development of
Solana, the Solana Network, like the Ethereum network, is believed to
be decentralized and does not require governmental authorities or
financial institution intermediaries to create, transmit or determine
the value of SOL.
As noted above, this proposal is to list and trade shares of the
Trust that would hold spot SOL and, as described below, cause the Trust
to stake a portion of its SOL.
In light of these factors, among others, the Sponsor believes that
it is applying the proper legal standards in making a good faith
determination that it believes SOL is not presently and under these
circumstances a security under federal law in light of the
uncertainties inherent in applying the Howey and Reves tests.\17\ As
noted numerous times by the Commission as it relates to crypto assets,
a crypto asset is not itself a security, but rather can be an
investment contract (and thus a security) based on the full set of
contracts, expectations, and understanding centered on the sales and
distribution of the crypto asset.\18\ Thus, even where the facts and
circumstances dictate that an investment contract exists, the token is
not itself an investment contract and the investment contract does not
exist in perpetuity. The investment contract (and thus security)
analysis is a facts and circumstances dependent evaluation related to
all circumstances surrounding the buying or selling of the crypto
asset. In the Amended Binance Complaint, the Commission notes the
following:
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\17\ See SEC v. Ripple Labs, 2023 WL 4507900 at 15, (S.D.N.Y.
July 13, 2023) (``(XRP, as a digital token, is not in and of itself
a `contract, transaction[,] or scheme' that embodies the Howey
requirements of an investment contract.)''); SEC v. Terraform Labs,
2023 WL 4858299 at 33 (S.D.N.Y. July 31, 2023) (``To be sure, the
original UST and LUNA coins, as originally created and when
considered in isolation, might not then have been, by themselves,
investment contracts. Much as the orange groves in Howey would not
be considered securities if they were sold apart from the
cultivator's promise to share any profits derived by their
cultivation, the term ``security'' also cannot be used to describe
any crypto-assets that were not somehow intermingled with one of the
investment ``protocols,'' did not confer a ``right to . . .
purchase'' another security, or were otherwise not tied to the
growth of the Terraform blockchain ecosystem''); SEC v. Coinbase,
2024 WL 134037 at 29 (S.D.N.Y. March 27, 2024 at 29) (``As a
preliminary matter, the SEC does not appear to contest that tokens,
in and of themselves, are not securities.''); SEC v. Coinbase,
Transcript of Oral Arguments. (S.D.N.Y. Jan. 17, 2024) (MR.
COSTELLO: ``The token itself is not the security,'' at page 21) (MR.
COSTELLO: ``It's that network or ecosystem, that is what drives the
value of the token because the token as code is linked to that
ecosystem. It is tied to it. It cannot be separated from it. As the
value of that network or platform or ecosystem increases, so does
the value of the token. And the issuers and the project team, they
drive the value of the ecosystem. So your token being part of this
ecosystem is going up or down in value based entirely on what these
issuers and project team members are doing and continuing to do. So
it is their conduct that would be relevant for the Howey analysis,''
at page 19). See also CFTC v. Sam Ikkurty; In the U.S. District
Court for the Northern District of Illinois, Eastern Division, No.
22-cv-02465, July 1, 2024, which stated that ``OHM and Klima, two
non-Bitcoin virtual currencies . . . qualify as commodities,''
noting those virtual currencies fall into the same general class as
Bitcoin, on which there is regulated futures trading; CFTC v. My Big
Coin Pay, Inc., 334 F. Supp. 3d 492, 498 (D. Mass. 2018) (finding
non-Bitcoin virtual currency is a commodity because ``the CEA only
requires the existence of futures trading within a certain class
(e.g., ``natural gas'') in order for all items within that class
(e.g., ``West Coast'' natural gas) to be considered commodities.'').
\18\ See SEC v. Telegram Grp., Inc., 448 F. Supp. 3d 352, 379
(S.D.N.Y. 2020); SEC v. Binance Holdings Limited, No. 1-23-cv-01599,
(D.D.C. Sep 12, 2024) ECF No 273 (Plaintiff Securities and Exchange
Commission's Memorandum of Law in Support of Motion for Leave to
Amend the Complaint) (the ``Amended Binance Complaint).
Specifically, footnote 6 of the Amended Binance Complaint stated:
``As this Court noted and as the SEC reiterates, with its use of the
term ``crypto asset securities,'' the SEC is not referring to the
crypto asset itself as the security; rather, as the SEC has
consistently maintained since the very first crypto asset Howey case
the SEC litigated, the term is a shorthand. See Telegram, 448 F.
Supp. 3d 352, 379 (``While helpful as a shorthand reference, the
security in this case is not simply the [crypto asset], which is
little more than alphanumeric cryptographic sequence . . . [the]
security . . . [in] [t]his case . . . consists of the full set of
contracts, expectations, and understandings centered on the sales
and distribution of the [crypto asset].''). Nevertheless, to avoid
any confusion, the PAC no longer uses the shorthand term, and the
SEC regrets any confusion it may have invited in this regard. MTD
Order at 19-20. As the Court explained, the crypto asset is the
subject of the investment contract. Defendants appear to argue that,
even if the Ten Crypto Assets were offered and sold as securities
during the ICOs, they do not remain securities into perpetuity. The
SEC is not advancing this argument. The SEC's allegations with
respect to the Ten Crypto Assets at issue in secondary markets are
that that their promotions and economic realities have not changed
in any meaningful way under Howey, such that they continue to be
offered and sold as investment contracts.''
Defendants appear to argue that, even if the Ten Crypto Assets
were offered and sold as securities during the ICOs, they do not
remain securities into perpetuity. The SEC is not advancing this
argument. The SEC's allegations with respect to the Ten Crypto
Assets at issue in secondary markets are that that their promotions
and economic realities have not changed in any meaningful way under
Howey, such that they continue to be offered and sold as investment
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contracts.
This footnote is presented in the context of the argument that
transactions in Solana (among other assets) that occur on Binance's
platforms are investment contracts and thus represent securities
transactions. The Amended Binance Complaint also includes extensive
discussion about Binance's role in promoting the Ten Crypto Assets. A
broad reading of this footnote could lead one to believe that the Ten
Crypto Assets discussed therein are in every context considered an
investment contract and therefore in every context are a security.
However that reading would contradict other statements from both the
SEC and the courts, such as from Telegram: ``[the] security . . . [in]
[t]his case . . . consists of the full set of contracts, expectations,
and understandings centered on the sales and distribution of the
[crypto asset].'' The ``full set of contracts, expectations, and
understandings'' is critical and seems to be the basis for inclusion of
Binance's role in promoting the Ten Crypto Assets in the Amended
Binance Complaint. In this instance, the details about the vehicle
through which a crypto asset is being held and the way that vehicle
will be bought and sold seem to clearly be part of the ``full set of
contracts, expectations, and understandings'' and therefore would
warrant a separate investment contract analysis from cases like the
Amended Binance Complaint unless there was another instance to
analogize in which Solana had been deemed a security.
Here, however, the facts and circumstances are much different than
in any prior complaint, including the Amended Binance Complaint, and
therefore such prior determinations by the Commission that Solana is a
security under the specific applicable sets of facts and circumstances
should not apply as it relates to this rule filing and
[[Page 40432]]
the specific facts and circumstances presented herein.
Section 6(b)(5) and the Applicable Standards
The Commission has approved numerous series of Trust Issued
Receipts,\19\ including Commodity-Based Trust Shares,\20\ to be listed
on U.S. national securities exchanges. In order for any proposed rule
change from an exchange to be approved, the Commission must determine
that, among other things, the proposal is consistent with the
requirements of Section 6(b)(5) of the Act, specifically including: (i)
the requirement that a national securities exchange's rules are
designed to prevent fraudulent and manipulative acts and practices;
\21\ and (ii) the requirement that an exchange proposal be designed, in
general, to protect investors and the public interest. The Exchange
believes that this proposal is consistent with the requirements of
Section 6(b)(5) of the Act and that this filing sufficiently
demonstrates the manipulation concerns previously articulated by the
Commission are sufficiently mitigated to the point that they are
outweighed by quantifiable investor protection issues that would be
resolved by approving this proposal.
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\19\ See Exchange Rule 14.11(f).
\20\ Commodity-Based Trust Shares, as described in Exchange Rule
14.11(e)(4), are a type of Trust Issued Receipt.
\21\ Much like bitcoin and ETH, the Exchange believes that SOL
is resistant to price manipulation and that ``other means to prevent
fraudulent and manipulative acts and practices'' exist to justify
dispensing with the requisite surveillance sharing agreement. The
geographically diverse and continuous nature of SOL trading render
it difficult and prohibitively costly to manipulate the price of
SOL. The fragmentation across platforms and the capital necessary to
maintain a significant presence on each trading platform make
manipulation of SOL prices through continuous trading activity
challenging. To the extent that there are trading platforms engaged
in or allowing wash trading or other activity intended to manipulate
the price of SOL on other markets, such pricing does not normally
impact prices on other trading platforms because participants will
generally ignore markets with quotes that they deem non-executable.
Moreover, the linkage between SOL markets and the presence of
arbitrageurs in those markets means that the manipulation of the
price of SOL on any single venue would require manipulation of the
global SOL price in order to be effective. Arbitrageurs must have
funds distributed across multiple trading platforms in order to take
advantage of temporary price dislocations, thereby making it
unlikely that there will be strong concentration of funds on any
particular trading platforms or OTC platform. Further, the speed and
relatively inexpensive nature of transactions on the Solana network
allow arbitrageurs to quickly move capital between trading platforms
where price dislocations may occur. As a result, the potential for
manipulation on a trading platform would require overcoming the
liquidity supply of such arbitrageurs who are effectively
eliminating any cross-market pricing differences.
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As noted above, the Commission has recognized that the ``regulated
market of significant size'' standard is not the only means for
satisfying Section 6(b)(5) of the Act, specifically providing that a
listing exchange could demonstrate that ``other means to prevent
fraudulent and manipulative acts and practices'' are sufficient to
justify dispensing with the requisite surveillance-sharing
agreement.\22\ While there is currently no futures market for SOL, in
the Spot Bitcoin ETF Approval Order and Spot ETH ETF Approval Order the
Commission determined that the CME bitcoin futures market and CME ETH
future market, respectively, were not of ``significant size'' related
to the spot market. Instead, the Commission found that sufficient
``other means'' of preventing fraud and manipulation had been
demonstrated that justified dispensing with a surveillance-sharing
agreement of significant size. The Exchange and Sponsor believe that
this proposal provides for other means of preventing fraud and
manipulation justify dispensing with a surveillance-sharing agreement
of significant size.
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\22\ See Winklevoss Order at 37580. The Commission has also
specifically noted that it ``is not applying a `cannot be
manipulated' standard; instead, the Commission is examining whether
the proposal meets the requirements of the Exchange Act and,
pursuant to its Rules of Practice, places the burden on the listing
exchange to demonstrate the validity of its contentions and to
establish that the requirements of the Exchange Act have been met.''
Id. at 37582.
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Over the past several years, U.S. investor exposure to SOL, through
OTC SOL Funds and digital asset trading platforms, has grown into
billions of dollars. The Exchange believes that approving this proposal
(and comparable proposals) provides the Commission with the opportunity
to allow U.S. investors with access to SOL in a regulated and
transparent exchange-traded vehicle that would act to limit risk to
U.S. investors by: (i) reducing premium and discount volatility; (ii)
reducing management fees through meaningful competition; and (iii)
providing an alternative to custodying spot SOL.
The Exchange believes that the policy concerns are mitigated by the
fact that the Exchange believes that the underlying reference asset is
not susceptible to manipulation because the nature of the SOL ecosystem
makes manipulation of SOL difficult. The geographically diverse and
continuous nature of SOL trading makes it difficult and prohibitively
costly to manipulate the price of SOL and, in many instances, the SOL
market is generally less susceptible to manipulation than the equity,
fixed income, and commodity futures markets. There are a number of
reasons this is the case, including that there is not inside
information about revenue, earnings, corporate activities, or sources
of supply; manipulation of the price on any single venue would require
manipulation of the global SOL price in order to be effective; a
substantial over-the-counter market provides liquidity and shock-
absorbing capacity; SOL's 24/7/365 nature provides constant arbitrage
opportunities across all trading venues; and it is unlikely that any
one actor could obtain a dominant market share.
Further, SOL is arguably less susceptible to manipulation than
other commodities that underlie ETPs; there may be inside information
relating to the supply of the physical commodity such as the discovery
of new sources of supply or significant disruptions at mining
facilities that supply the commodity that simply are inapplicable as it
relates to certain cryptoassets, including SOL. Further, the Exchange
believes that the fragmentation across SOL trading platforms and
increased adoption of SOL, as displayed through increased user
engagement and trading volumes, and the Solana Network make
manipulation of SOL prices through continuous trading activity
unlikely. Moreover, the linkage between the SOL markets and the
presence of arbitrageurs in those markets means that the manipulation
of the price of SOL price on any single venue would require
manipulation of the global SOL price in order to be effective.
Arbitrageurs must have funds distributed across multiple SOL trading
platforms in order to take advantage of temporary price dislocations,
thereby making it unlikely that there will be strong concentration of
funds on any particular SOL trading platform. As a result, the
potential for manipulation on a particular SOL trading platform would
require overcoming the liquidity supply of such arbitrageurs who are
effectively eliminating any cross-market pricing differences. For all
of these reasons, SOL is not particularly susceptible to manipulation,
especially as compared to other approved ETP reference assets.
Canary Marinade Solana ETF
CSC Delaware Trust Company is the trustee (``Trustee''). A third
party will be the administrator (``Administrator'') and transfer agent
(``Transfer Agent'') and will be responsible for the custody of the
Trust's cash and cash equivalents \23\
[[Page 40433]]
(the ``Cash Custodian''). A third-party custodian (the ``Custodian''),
will be responsible for custody of the Trust's SOL.
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\23\ Cash equivalents are short-term instruments with maturities
of less than 3 months.
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According to the Registration Statement, each Share will represent
a fractional undivided beneficial interest in and ownership of the
Trust. The Trust's assets will only consist of SOL, cash, or cash and
cash equivalents.
According to the Registration Statement, the Trust will be neither
an investment company registered under the Investment Company Act of
1940, as amended,\24\ nor a commodity pool for purposes of the CEA, and
neither the Trust nor the Sponsor is subject to regulation as a
commodity pool operator or a commodity trading adviser in connection
with the Shares.
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\24\ 15 U.S.C. 80a-1.
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The Sponsor may stake, or cause to be staked, all or a portion of
the Trust's SOL through one or more trusted staking providers
(``Staking Providers''). The Sponsor intends for the initial Staking
Provider of the Trust to be Sous Vide Ltd. Dba Marinade Finance. In
consideration for any staking activity in which the Trust may engage,
the Trust would receive all or a portion of the staking rewards
generated through staking activities, which may be treated as income to
the Trust. The Trust will not acquire and will disclaim any incidental
right (``IR'') or IR asset received, for example as a result of forks
or airdrops, and such assets will not be taken into account for
purposes of determining NAV.
When the Trust sells or redeems its Shares, it will do so in cash
transactions in blocks of 500 Shares (a ``Creation Basket'') at the
Trust's net asset value (``NAV''). For creations, authorized
participants will deliver cash to the Trust's account with the Cash
Custodian in exchange for Shares. Upon receipt of an approved creation
order, the Sponsor, on behalf of the Trust, will submit an order to buy
the amount of SOL represented by a Creation Basket. Based off SOL
executions, the Cash Custodian will request the required cash from the
authorized participant; the Transfer Agent will only issue Shares when
the authorized participant has made delivery of the cash. Following
receipt by the Cash Custodian of the cash from an authorized
participant, the Sponsor, on behalf of the Trust, will approve an order
with one or more previously onboarded trading partners to purchase the
amount of SOL represented by the Creation Basket. This purchase of SOL
will normally be cleared through an affiliate of the Custodian
(although the purchase may also occur directly with the trading
partner) and the SOL will settle directly into the Trust's account at
the Custodian.\25\ Authorized participants may then offer Shares to the
public at prices that depend on various factors, including the supply
and demand for Shares, the value of the Trust's assets, and market
conditions at the time of a transaction. Shareholders who buy or sell
Shares during the day from their broker may do so at a premium or
discount relative to the NAV of the Shares of the Trust.
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\25\ For redemptions, the process will occur in the reverse
order. Upon receipt of an approved redemption order, the Sponsor, on
behalf of the Trust, will submit an order to sell the amount of SOL
represented by a Creation Basket and the cash proceeds will be
remitted to the authorized participant when the Shares are received
by the Transfer Agent.
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Investment Objective
According to the Registration Statement and as further described
below, the Trust's investment objective is to seek to track the
performance of SOL, as measured by the Pricing Benchmark, adjusted for
the Trust's expenses and other liabilities. In seeking to achieve its
investment objective, the Trust will hold SOL and will value its Shares
daily as of 4:00 p.m. ET using the same methodology used to calculate
the Pricing Benchmark. All of the Trust's SOL will be held by the
Custodian.
The Pricing Benchmark
As described in the Registration Statement, The Trust will use the
CME CF Solana-Dollar Reference Rate--New York Variant (the ``Pricing
Benchmark'') to calculate the Trust's NAV. The Trust will determine the
SOL Pricing Benchmark price and value its Shares daily based on the
value of SOL as reflected by the Pricing Benchmark. The Pricing
Benchmark will be calculated daily and aggregates the notional value of
SOL trading across major SOL spot trading platforms.
Net Asset Value
NAV means the total assets of the Trust (which includes all SOL and
cash and cash equivalents) less total liabilities of the Trust. The
Administrator determines the NAV of the Trust on each day that the
Exchange is open for regular trading, as promptly as practical after
4:00 p.m. ET based on the closing value of the Pricing Benchmark. The
NAV of the Trust is the aggregate value of the Trust's assets less its
estimated accrued but unpaid liabilities (which include accrued
expenses). In determining the NAV, the Administrator values the SOL
held by the Trust based on the closing value of the Pricing Benchmark
as of 4:00 p.m. ET. The Administrator also determines the NAV per
Share. The NAV for the Trust will be calculated by the Administrator
once a day and will be disseminated daily to all market participants at
the same time.
Availability of Information
In addition to the price transparency of the Pricing Benchmark, the
Trust will provide information regarding the Trust's SOL holdings as
well as additional data regarding the Trust. The website for the Trust,
which will be publicly accessible at no charge, will contain the
following information: (a) the current NAV per Share daily and the
prior business day's NAV per Share and the reported BZX Official
Closing Price; \26\ (b) the BZX Official Closing Price in relation to
the NAV per Share as of the time the NAV is calculated and a
calculation of the premium or discount of such price against such NAV
per Share; (c) data in chart form displaying the frequency distribution
of discounts and premiums of the BZX Official Closing Price against the
NAV per Share, within appropriate ranges for each of the four previous
calendar quarters (or for the life of the Trust, if shorter); (d) the
prospectus; and (e) other applicable quantitative information. The
aforementioned information will be published as of the close of
business and available on the Sponsor's website at Canary-capital.com,
or any successor thereto. The NAV for the Trust will be calculated by
the Administrator once a day and will be disseminated daily to all
market participants at the same time. Quotation and last-sale
information regarding the Shares will be disseminated through the
facilities of the Consolidated Tape Association (``CTA''). The Trust
will also disseminate its holdings on a daily basis on its website.
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\26\ As defined in Rule 11.23(a)(3), the term ``BZX Official
Closing Price'' shall mean the price disseminated to the
consolidated tape as the market center closing trade.
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The Intraday Indicative Value (``IIV'') will be updated during
Regular Trading Hours to reflect changes in the value of the Trust's
SOL holdings during the trading day. The IIV disseminated during
Regular Trading Hours should not be viewed as an actual real-time
update of the NAV, which will be calculated only once at the end of
each trading day. The IIV may differ from the NAV because NAV is
calculated, using the closing value of the Pricing Benchmark, once a
day at 4 p.m. ET,
[[Page 40434]]
whereas the IIV draws prices from the last trade on each constituent
platform in an effort to produce a relevant, real-time price). The
Trust will provide an IIV per Share updated every 15 seconds, as
calculated by the Exchange or a third-party financial data provider
during the Exchange's Regular Trading Hours (9:30 a.m. to 4:00 p.m.
E.T.). The IIV will be widely disseminated on a per Share basis every
15 seconds during the Exchange's Regular Trading Hours through the
facilities of the CTA and Consolidated Quotation System (CQS) high
speed lines. In addition, the IIV will be available through on-line
information services, such as Bloomberg and Reuters.
The price of SOL will be made available by one or more major market
data vendors, updated at least every 15 seconds during Regular Trading
Hours.
Quotation and last sale information for SOL is widely disseminated
through a variety of major market data vendors, including Bloomberg and
Reuters. Information relating to trading, including price and volume
information, in SOL is available from major market data vendors and
from the trading platforms on which SOL are traded. Depth of book
information is also available from SOL trading platforms. The normal
trading hours for SOL trading platforms are 24 hours per day, 365 days
per year.
Information regarding market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. Information
regarding the previous day's BZX Official Closing Price and trading
volume information for the Shares will be published daily in the
financial section of newspapers. Quotation and last-sale information
regarding the Shares will be disseminated through the facilities of the
CTA.
The Custodian
The Custodian's services (i) allow SOL to be deposited from a
public blockchain address to the Trust's SOL account; (ii) allow SOL to
be withdrawn from the SOL account to a public blockchain address as
instructed by the Trust; and (iii) allow SOL to be staked. The custody
agreement requires the Custodian to hold the Trust's SOL in cold
storage, unless required to facilitate withdrawals as a temporary
measure. The Custodian will use segregated cold storage SOL addresses
for the Trust which are separate from the SOL addresses that the
Custodian uses for its other customers and which are directly
verifiable via the SOL blockchain. The Custodian will safeguard the
private keys to the SOL associated with the Trust's SOL account. The
Custodian will at all times record and identify in its books and
records that such SOL constitutes the property of the Trust. The
Custodian will not withdraw the Trust's SOL from the Trust's account
with the Custodian, or loan, hypothecate, pledge or otherwise encumber
the Trust's SOL, without the Trust's instruction. If the custody
agreement terminates, the Sponsor may appoint another custodian and the
Trust may enter into a custodian agreement with such custodian.
Creation and Redemption of Shares
When the Trust sells or redeems its Shares, it will do so in cash
transactions in 500 Share increments (a Creation Basket) that are based
on the amount of SOL held by the Trust on a per Creation Basket basis.
According to the Registration Statement, on any business day, an
authorized participant may place an order to create one or more
Creation Baskets. Purchase orders must be placed by 4:00 p.m. ET, or
the close of regular trading on the Exchange, whichever is earlier. The
day on which an order is received is considered the purchase order
date. The total deposit of cash required is based on the combined NAV
of the number of Shares included in the Creation Baskets being created
determined as of 4:00 p.m. ET on the date the order to purchase is
properly received. The Administrator determines the quantity of SOL
associated with a Creation Basket for a given day by dividing the
number of SOL held by the Trust as of the opening of business on that
business day, adjusted for the amount of SOL constituting estimated
accrued but unpaid fees and expenses of the Trust as of the opening of
business on that business day, by the quotient of the number of Shares
outstanding at the opening of business divided by the number of Shares
in a Creation Basket.
The authorized participants will deliver only cash to create Shares
and will receive only cash when redeeming Shares. Further, authorized
participants will not directly or indirectly purchase, hold, deliver,
or receive SOL 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 SOL as part of the creation or
redemption process.
The Trust will create Shares by receiving SOL from a third party
that is not the authorized participant and the Trust--not the
authorized participant--is responsible for selecting the third party to
facilitate the delivery of SOL. Further, the third party will not be
acting as an agent of the authorized participant with respect to the
delivery of the SOL to the Trust or acting at the direction of the
authorized participant with respect to the delivery of the SOL to the
Trust. When fulfilling a redemption request, the Trust will redeem
shares by delivering SOL to a third party that is not the authorized
participant and the Trust--not the authorized participant--is
responsible for selecting such third party to receive the SOL. Further,
the third party will not be acting as an agent of the authorized
participant with respect to the receipt of the SOL from the Trust or
acting at the direction of the authorized participant with respect to
the receipt of the SOL from the Trust.
The procedures by which an authorized participant can redeem one or
more Creation Baskets mirror the procedures for the creation of
Creation Baskets.
The Sponsor will maintain ownership and control of SOL in a manner
consistent with good delivery requirements for spot commodity
transactions.
Rule 14.11(e)(4)--Commodity-Based Trust Shares
The Shares will be subject to BZX Rule 14.11(e)(4), which sets
forth the initial and continued listing criteria applicable to
Commodity-Based Trust Shares. The Exchange represents that, for initial
and continued listing, the Trust must be in compliance with Rule 10A-3
under the Act. A minimum of 100,000 Shares will be outstanding at the
commencement of listing on the Exchange. The Exchange will obtain a
representation that the NAV will be calculated daily and that the NAV
and information about the assets of the Trust will be made available to
all market participants at the same time. The Exchange notes that, as
defined in Rule 14.11(e)(4)(C)(i), the Shares will be: (a) issued by a
trust that holds (1) a specified commodity \27\ deposited with the
trust, or (2) a specified commodity and, in addition to such specified
commodity, cash; (b) issued by such trust in a specified aggregate
minimum number in return for a deposit of a quantity of the underlying
commodity and/or cash; and (c) when aggregated in the same specified
minimum number, may be redeemed at a holder's request by such trust
which will deliver to the
[[Page 40435]]
redeeming holder the quantity of the underlying commodity and/or cash.
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\27\ For purposes of Rule 14.11(e)(4), the term commodity takes
on the definition of the term as provided in the Commodity Exchange
Act.
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Upon termination of the Trust, the Shares will be removed from
listing. The Trustee, Delaware Trust Company, is a trust company having
substantial capital and surplus and the experience and facilities for
handling corporate trust business, as required under Rule
14.11(e)(4)(E)(iv)(a) and that no change will be made to the trustee
without prior notice to and approval of the Exchange. The Exchange also
notes that, pursuant to Rule 14.11(e)(4)(F), neither the Exchange nor
any agent of the Exchange shall have any liability for damages, claims,
losses or expenses caused by any errors, omissions or delays in
calculating or disseminating any underlying commodity value, the
current value of the underlying commodity required to be deposited to
the Trust in connection with issuance of Commodity-Based Trust Shares;
resulting from any negligent act or omission by the Exchange, or any
agent of the Exchange, or any act, condition or cause beyond the
reasonable control of the Exchange, its agent, including, but not
limited to, an act of God; fire; flood; extraordinary weather
conditions; war; insurrection; riot; strike; accident; action of
government; communications or power failure; equipment or software
malfunction; or any error, omission or delay in the reports of
transactions in an underlying commodity. Finally, as required in Rule
14.11(e)(4)(G), the Exchange notes that any registered market maker
(``Market Maker'') in the Shares must file with the Exchange in a
manner prescribed by the Exchange and keep current a list identifying
all accounts for trading in an underlying commodity, related commodity
futures or options on commodity futures, or any other related commodity
derivatives, which the registered Market Maker may have or over which
it may exercise investment discretion. No registered Market Maker shall
trade in an underlying commodity, related commodity futures or options
on commodity futures, or any other related commodity derivatives, in an
account in which a registered Market Maker, directly or indirectly,
controls trading activities, or has a direct interest in the profits or
losses thereof, which has not been reported to the Exchange as required
by this Rule. In addition to the existing obligations under Exchange
rules regarding the production of books and records (see, e.g., Rule
4.2), the registered Market Maker in Commodity-Based Trust Shares shall
make available to the Exchange such books, records or other information
pertaining to transactions by such entity or registered or non-
registered employee affiliated with such entity for its or their own
accounts for trading the underlying physical commodity, related
commodity futures or options on commodity futures, or any other related
commodity derivatives, as may be requested by the Exchange.
The Exchange is able to obtain information regarding trading in the
Shares and the underlying SOL or any other SOL derivative through
members acting as registered Market Makers, in connection with their
proprietary or customer trades.
As a general matter, the Exchange has regulatory jurisdiction over
its Members and their associated persons, which include any person or
entity controlling a Member. To the extent the Exchange may be found to
lack jurisdiction over a subsidiary or affiliate of a Member that does
business only in commodities or futures contracts, the Exchange could
obtain information regarding the activities of such subsidiary or
affiliate through surveillance sharing agreements with regulatory
organizations of which such subsidiary or affiliate is a member.
Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares. The Exchange will halt trading in the Shares
under the conditions specified in BZX Rule 11.18. Trading may be halted
because of market conditions or for reasons that, in the view of the
Exchange, make trading in the Shares inadvisable. These may include:
(1) the extent to which trading is not occurring in the SOL underlying
the Shares; or (2) whether other unusual conditions or circumstances
detrimental to the maintenance of a fair and orderly market are
present. Trading in the Shares also will be subject to Rule
14.11(e)(4)(E)(ii), which sets forth circumstances under which trading
in the Shares may be halted.
If the IIV or the value of the Pricing Benchmark is not being
disseminated as required, the Exchange may halt trading during the day
in which the interruption to the dissemination of the IIV or the value
of the Pricing Benchmark occurs. If the interruption to the
dissemination of the IIV or the value of the Pricing Benchmark persists
past the trading day in which it occurred, the Exchange will halt
trading no later than the beginning of the trading day following the
interruption.
In addition, if the Exchange becomes aware that the NAV with
respect to the Shares is not disseminated to all market participants at
the same time, it will halt trading in the Shares until such time as
the NAV is available to all market participants.
Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. BZX will allow
trading in the Shares during all trading sessions on the Exchange. The
Exchange has appropriate rules to facilitate transactions in the Shares
during all trading sessions. As provided in BZX Rule 11.11(a) the
minimum price variation for quoting and entry of orders in securities
traded on the Exchange is $0.01 where the price is greater than $1.00
per share or $0.0001 where the price is less than $1.00 per share. The
Shares of the Trust will conform to the initial and continued listing
criteria set forth in BZX Rule 14.11(e)(4).
Surveillance
The Exchange represents that its surveillance procedures are
adequate to properly monitor the trading of the Shares on the Exchange
during all trading sessions and to deter and detect violations of
Exchange rules and the applicable federal securities laws. Trading of
the Shares through the Exchange will be subject to the Exchange's
surveillance procedures for derivative products, including Commodity-
Based Trust Shares. FINRA conducts certain cross-market surveillances
on behalf of the Exchange pursuant to a regulatory services agreement.
The Exchange is responsible for FINRA's performance under this
regulatory services agreement.
The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares or any other SOL
derivative with other markets and other entities that are members of
the ISG, and the Exchange, or FINRA, on behalf of the Exchange, or
both, may obtain trading information regarding trading in the Shares or
any other SOL derivative from such markets and other entities.\28\ The
Exchange may obtain information regarding trading in the Shares or any
other SOL derivative via ISG, from other exchanges who are members or
affiliates of the ISG, or with which the Exchange has entered into a
comprehensive surveillance sharing agreement.
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\28\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com.
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In addition, the Exchange also has a general policy prohibiting the
[[Page 40436]]
distribution of material, non-public information by its employees.
The Sponsor has represented to the Exchange that it will advise the
Exchange of any failure by the Trust or the Shares to comply with the
continued listing requirements, and, pursuant to its obligations under
Section 19(g)(1) of the Exchange Act, the Exchange will surveil for
compliance with the continued listing requirements. If the Trust or the
Shares are not in compliance with the applicable listing requirements,
the Exchange will commence delisting procedures under Exchange Rule
14.12.
Information Circular
Prior to the commencement of trading, the Exchange will inform its
members in an Information Circular of the special characteristics and
risks associated with trading the Shares. Specifically, the Information
Circular will discuss the following: (i) the procedures for the
creation and redemption of Creation Baskets (and that the Shares are
not individually redeemable); (ii) BZX Rule 3.7, which imposes
suitability obligations on Exchange members with respect to
recommending transactions in the Shares to customers; (iii) how
information regarding the IIV and the Trust's NAV are disseminated;
(iv) the risks involved in trading the Shares outside of Regular
Trading Hours \29\ when an updated IIV will not be calculated or
publicly disseminated; (v) the requirement that members deliver a
prospectus to investors purchasing newly issued Shares prior to or
concurrently with the confirmation of a transaction; and (vi) trading
information. The Information Circular will also reference the fact that
there is no regulated source of last sale information regarding SOL,
and that the Commission has no jurisdiction over the trading of SOL as
a commodity.
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\29\ Regular Trading Hours is the time between 9:30 a.m. and
4:00 p.m. Eastern Time.
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In addition, the Information Circular will advise members, prior to
the commencement of trading, of the prospectus delivery requirements
applicable to the Shares. Members purchasing the Shares for resale to
investors will deliver a prospectus to such investors. The Information
Circular will also discuss any exemptive, no-action and interpretive
relief granted by the Commission from any rules under the Act.
2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act \30\ in general and Section 6(b)(5) of the Act \31\ in
particular in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system and, in general, to protect investors and the
public interest.
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\30\ 15 U.S.C. 78f.
\31\ 15 U.S.C. 78f(b)(5).
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The Commission has approved numerous series of Trust Issued
Receipts,\32\ including Commodity-Based Trust Shares,\33\ to be listed
on U.S. national securities exchanges. In order for any proposed rule
change from an exchange to be approved, the Commission must determine
that, among other things, the proposal is consistent with the
requirements of Section 6(b)(5) of the Act, specifically including: (i)
the requirement that a national securities exchange's rules are
designed to prevent fraudulent and manipulative acts and practices;
\34\ and (ii) the requirement that an exchange proposal be designed, in
general, to protect investors and the public interest. The Exchange
believes that this proposal is consistent with the requirements of
Section 6(b)(5) of the Act and that this filing sufficiently
demonstrates that on the whole, the manipulation concerns previously
articulated by the Commission are sufficiently mitigated to the point
that they are outweighed by quantifiable investor protection issues
that would be resolved by approving this proposal.
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\32\ See Exchange Rule 14.11(f).
\33\ Commodity-Based Trust Shares, as described in Exchange Rule
14.11(e)(4), are a type of Trust Issued Receipt.
\34\ The Exchange believes that SOL is resistant to price
manipulation and that ``other means to prevent fraudulent and
manipulative acts and practices'' exist to justify dispensing with
the requisite surveillance sharing agreement. The geographically
diverse and continuous nature of SOL trading render it difficult and
prohibitively costly to manipulate the price of SOL. The
fragmentation across SOL platforms, the relatively slow speed of
transactions, and the capital necessary to maintain a significant
presence on each trading platform make manipulation of SOL prices
through continuous trading activity challenging. To the extent that
there are SOL trading platforms engaged in or allowing wash trading
or other activity intended to manipulate the price of SOL on other
markets, such pricing does not normally impact prices on other
trading platforms because participants will generally ignore markets
with quotes that they deem non-executable. Moreover, the linkage
between the SOL markets and the presence of arbitrageurs in those
markets means that the manipulation of the price of SOL price on any
single venue would require manipulation of the global SOL price in
order to be effective. Arbitrageurs must have funds distributed
across multiple trading platforms in order to take advantage of
temporary price dislocations, thereby making it unlikely that there
will be strong concentration of funds on any particular SOL trading
platform or OTC platforms. As a result, the potential for
manipulation on a trading platform would require overcoming the
liquidity supply of such arbitrageurs who are effectively
eliminating any cross-market pricing differences.
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As noted above, the Commission has recognized that the ``regulated
market of significant size'' standard is not the only means for
satisfying Section 6(b)(5) of the act, specifically providing that a
listing exchange could demonstrate that ``other means to prevent
fraudulent and manipulative acts and practices'' are sufficient to
justify dispensing with the requisite surveillance-sharing
agreement.\35\ The Exchange and Sponsor believe that such conditions
are present.
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\35\ See Winklevoss Order at 37580. The Commission has also
specifically noted that it ``is not applying a `cannot be
manipulated' standard; instead, the Commission is examining whether
the proposal meets the requirements of the Exchange Act and,
pursuant to its Rules of Practice, places the burden on the listing
exchange to demonstrate the validity of its contentions and to
establish that the requirements of the Exchange Act have been met.''
Id. at 37582.
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The Exchange believes that the proposal is designed to protect
investors and the public interest. Over the past several years, U.S.
investor exposure to SOL has grown into the billions of dollars, mostly
through transactions in spot SOL on digital asset trading platforms.
The Exchange believes that approving this proposal (and comparable
proposals) provides the Commission with the opportunity to allow U.S.
investors with access to SOL in a regulated and transparent exchange-
traded vehicle that would act to limit risk to U.S. investors by: (i)
reducing premium and discount volatility; (ii) reducing management fees
through meaningful competition; and (iii) providing an alternative to
custodying spot SOL.
The Exchange believes that the policy concerns are mitigated by the
fact that the Exchange believes that the underlying reference asset is
not susceptible to manipulation because the nature of the SOL ecosystem
makes manipulation of SOL difficult. The geographically diverse and
continuous nature of SOL trading makes it difficult and prohibitively
costly to manipulate the price of SOL and, in many instances, the SOL
market is generally less susceptible to manipulation than the equity,
fixed income, and commodity futures markets. There are a number of
reasons this is the case, including that there is not inside
information about revenue, earnings, corporate activities, or sources
of supply; manipulation of the price on any single venue would
[[Page 40437]]
require manipulation of the global SOL price in order to be effective;
a substantial over-the-counter market provides liquidity and shock-
absorbing capacity; SOL's 24/7/365 nature provides constant arbitrage
opportunities across all trading venues; and it is unlikely that any
one actor could obtain a dominant market share.
Further, SOL is arguably less susceptible to manipulation than
other commodities that underlie ETPs; there may be inside information
relating to the supply of the physical commodity such as the discovery
of new sources of supply or significant disruptions at mining
facilities that supply the commodity that simply are inapplicable as it
relates to bitcoin. Further, the Exchange believes that the
fragmentation across SOL trading platforms, the relatively slow speed
of transactions, and the capital necessary to maintain a significant
presence on each trading platform make manipulation of SOL prices
through continuous trading activity unlikely. Moreover, the linkage
between the SOL markets and the presence of arbitrageurs in those
markets means that the manipulation of the price of SOL price on any
single venue would require manipulation of the global SOL price in
order to be effective. Arbitrageurs must have funds distributed across
multiple SOL trading platforms in order to take advantage of temporary
price dislocations, thereby making it unlikely that there will be
strong concentration of funds on any particular SOL trading platform.
As a result, the potential for manipulation on a particular SOL trading
platform would require overcoming the liquidity supply of such
arbitrageurs who are effectively eliminating any cross-market pricing
differences. For all of these reasons, SOL is not particularly
susceptible to manipulation, especially as compared to other approved
ETP reference assets.
Commodity-Based Trust Shares
The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed on the Exchange pursuant to the initial and
continued listing criteria in Exchange Rule 14.11(e)(4). The Exchange
believes that its surveillance procedures are adequate to properly
monitor the trading of the Shares on the Exchange during all trading
sessions and to deter and detect violations of Exchange rules and the
applicable federal securities laws. Trading of the Shares through the
Exchange will be subject to the Exchange's surveillance procedures for
derivative products, including Commodity-Based Trust Shares. The issuer
has represented to the Exchange that it will advise the Exchange of any
failure by the Trust or the Shares to comply with the continued listing
requirements, and, pursuant to its obligations under Section 19(g)(1)
of the Exchange Act, the Exchange will surveil for compliance with the
continued listing requirements. If the Trust or the Shares are not in
compliance with the applicable listing requirements, the Exchange will
commence delisting procedures under Exchange Rule 14.12. The Exchange
may obtain information regarding trading in the Shares and listed SOL
derivatives via the ISG, from other exchanges who are members or
affiliates of the ISG, or with which the Exchange has entered into a
comprehensive surveillance sharing agreement.
Availability of Information
In addition to the price transparency of the Pricing Benchmark, the
Trust will provide information regarding the Trust's SOL holdings as
well as additional data regarding the Trust. The website for the Trust,
which will be publicly accessible at no charge, will contain the
following information: (a) the current NAV per Share daily and the
prior business day's NAV per Share and the reported BZX Official
Closing Price; \36\ (b) the BZX Official Closing Price in relation to
the NAV per Share as of the time the NAV is calculated and a
calculation of the premium or discount of such price against such NAV
per Share; (c) data in chart form displaying the frequency distribution
of discounts and premiums of the BZX Official Closing Price against the
NAV per Share, within appropriate ranges for each of the four previous
calendar quarters (or for the life of the Trust, if shorter); (d) the
prospectus; and (e) other applicable quantitative information. The
aforementioned information will be published as of the close of
business and available on the Sponsor's website at https://www.canary.capital/, or any successor thereto. The NAV for the Trust
will be calculated by the Administrator once a day and will be
disseminated daily to all market participants at the same time.
Quotation and last-sale information regarding the Shares will be
disseminated through the facilities of the CTA. The Trust will also
disseminate its holdings on a daily basis on its website.
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\36\ As defined in Rule 11.23(a)(3), the term ``BZX Official
Closing Price'' shall mean the price disseminated to the
consolidated tape as the market center closing trade.
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The Intraday Indicative Value (``IIV'') will be updated during
Regular Trading Hours to reflect changes in the value of the Trust's
SOL holdings during the trading day. The IIV may differ from the NAV
because NAV is calculated, using the closing value of the Pricing
Benchmark, once a day at 4:00 p.m. Eastern time whereas the IIV draws
prices from the last trade on each constituent platform to produce a
relevant, real-time price. The IIV disseminated during Regular Trading
Hours should not be viewed as an actual real-time update of the NAV,
which will be calculated only once at the end of each trading day. The
Trust will provide an IIV per Share updated every 15 seconds, as
calculated by the Exchange or a third-party financial data provider
during the Exchange's Regular Trading Hours (9:30 a.m. to 4:00 p.m.
E.T.). The IIV will be widely disseminated on a per Share basis every
15 seconds during the Exchange's Regular Trading Hours through the
facilities of the CTA and CQS high speed lines. In addition, the IIV
will be available through on-line information services such as
Bloomberg and Reuters.
The price of SOL will be made available by one or more major market
data vendors, updated at least every 15 seconds during Regular Trading
Hours.
Quotation and last sale information for SOL is widely disseminated
through a variety of major market data vendors, including Bloomberg and
Reuters. Information relating to trading, including price and volume
information, in SOL is available from major market data vendors and
from the trading platforms on which SOL are traded. Depth of book
information is also available from SOL trading platforms. The normal
trading hours for SOL trading platforms are 24 hours per day, 365 days
per year.
Information regarding market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. Information
regarding the previous day's BZX Official Closing Price and trading
volume information for the Shares will be published daily in the
financial section of newspapers. Quotation and last-sale information
regarding the Shares will be disseminated through the facilities of the
CTA.
In sum, the Exchange believes that this proposal is consistent with
the requirements of Section 6(b)(5) of the Act, that on the whole the
manipulation concerns previously articulated by the Commission are
sufficiently mitigated to the point that they are outweighed by
[[Page 40438]]
investor protection issues that would be resolved by approving this
proposal.
The Exchange believes that the proposal is, in particular, designed
to protect investors and the public interest. The investor protection
issues for U.S. investors has grown significantly over the last several
years, through premium/discount volatility and management fees for OTC
SOL Funds. As discussed throughout, this growth investor protection
concerns need to be re-evaluated and rebalanced with the prevention of
fraudulent and manipulative acts and practices concerns that previous
disapproval orders have relied upon.
For the above reasons, the Exchange believes that the proposed rule
change is consistent with the requirements of Section 6(b)(5) of the
Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. The Exchange notes that the
proposed rule change, rather will facilitate the listing and trading of
an additional exchange-traded product that will enhance competition
among both market participants and listing venues, to the benefit of
investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Notice of Designation of a Longer Period for Commission Action
Section 19(b)(2) of the Act \37\ provides that, after initiating
proceedings to determine whether to disapprove a proposed rule change,
the Commission shall issue an order approving or disapproving the
proposed rule change not later than 180 days after the date of
publication of notice of filing of the proposed rule change. The
Commission may extend the period for issuing an order approving or
disapproving the proposed rule change, however, by not more than 60
days if the Commission determines that a longer period is appropriate
and publishes the reasons for such determination. The proposed rule
change was published for comment in the Federal Register on February
18, 2025.\38\ The 180th day after publication of the proposed rule
change is August 17, 2025. The Commission is extending the time period
for approving or disapproving the proposed rule change for an
additional 60 days.
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\37\ 15 U.S.C. 78s(b)(2).
\38\ See supra note 4 and accompanying text.
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The Commission finds that it is appropriate to designate a longer
period within which to issue an order approving or disapproving the
proposed rule change so that it has sufficient time to consider the
proposed rule change, as modified by Amendment No. 1, and the issues
raised therein. Accordingly, the Commission, pursuant to Section
19(b)(2) of the Act,\39\ designates October 16, 2025, as the date by
which the Commission shall either approve or disapprove the proposed
rule change, as modified by Amendment No. 1
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\39\ 15 U.S.C. 78s(b)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change, as modified by Amendment No. 1, is consistent with the Act.
Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-CboeBZX-2025-013 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-CboeBZX-2025-013. 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 filing also will be available for inspection
and copying at the principal office of the Exchange. Do not include
personal identifiable information in submissions; you should submit
only information that you wish to make available publicly. We may
redact in part or withhold entirely from publication submitted material
that is obscene or subject to copyright protection. All submissions
should refer to file number SR CboeBZX-2025-013 and should be submitted
on or before September 9, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\40\
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\40\ 17 CFR 200.30-3(a)(12) and (57).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2025-15732 Filed 8-18-25; 8:45 am]
BILLING CODE 8011-01-P