[Federal Register Volume 90, Number 47 (Wednesday, March 12, 2025)]
[Notices]
[Pages 11855-11865]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-03887]
[[Page 11855]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102534; File No. SR-NYSEARCA-2025-15]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change To List and Trade Shares of the Bitwise Bitcoin
and Ethereum ETF Under NYSE Arca Rule 8.201-E (Commodity-Based Trust
Shares)
March 6, 2025.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that on February 19, 2025, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade shares of the Bitwise
Bitcoin and Ethereum ETF (the ``Trust'') under NYSE Arca Rule 8.201-E
(Commodity-Based Trust Shares). The proposed rule change is available
on the Exchange's website at www.nyse.com, at the principal office of
the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade shares (``Shares'') of the
Trust \4\ pursuant to NYSE Arca Rule 8.201-E, which governs the listing
and trading of Commodity Based Trust Shares.\5\
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\4\ The Trust is a Delaware statutory trust. On November 26,
2024, the Trust filed with the Commission an initial registration
statement (the ``Registration Statement'') on Form S-1 under the
Securities Act of 1933 (15 U.S.C. 77a). The description of the
operation of the Trust herein is based, in part, on the most recent
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.
\5\ Commodity-Based Trust Shares are securities issued by a
trust that represents investors' discrete identifiable and undivided
beneficial ownership interest in the commodities deposited into the
trust.
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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,\6\ and is not required to register thereunder. The Trust is not a
commodity pool for purposes of the Commodity Exchange Act.\7\
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\6\ 15 U.S.C. 80a-1.
\7\ 17 U.S.C. 1.
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The Exchange represents that the Shares satisfy the requirements of
NYSE Arca Rule 8.201-E and thereby qualify for listing on the Exchange.
Operation of the Trust \8\
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\8\ The description of the operation of the Trust, the Shares,
and the bitcoin and ether markets contained herein is based, in
part, on the Registration Statement. See note 4, 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 bitcoin and ether (the ``Bitcoin and Ether Custodian'').
Bank of New York Mellon will be the custodian for the Trust's cash
holdings (in such role, the ``Cash Custodian''), the administrator of
the Trust (in such role, the ``Administrator''), and the transfer agent
for the Trust (in such role, the ``Transfer Agent'').
According to the Registration Statement, the investment objective
of the Trust is to seek to provide exposure to the value of bitcoin and
ether held by the Trust, less the expenses of the Trust's operations
and other liabilities. The Trust's allocation of its assets to bitcoin
and ether will approximate the relative market capitalization of
bitcoin and ether to one another.\9\ In seeking to achieve its
investment objective, the Trust will hold bitcoin and ether and
establish its Net Asset Value (``NAV'') at the end of every business
day by reference to the CME CF Bitcoin--New York Variant for its
bitcoin holdings (the ``Bitcoin Pricing Benchmark'') and to the CME CF
Ether--Dollar Reference Rate--New York Variant for its ether holdings
(the ``Ether Pricing Benchmark,'' and, with the Bitcoin Pricing
Benchmark, the ``Pricing Benchmarks'').\10\
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\9\ As of the date of this filing, the relative market
capitalization of bitcoin and ether is 83% bitcoin and 17% ether.
The Trust will calculate the market capitalization of bitcoin and
ether by multiplying the Pricing Benchmarks by the current
circulating supply of bitcoin and ether respectively, as determined
by the Sponsor, and will calculate the relative market
capitalization by dividing each of bitcoin and ether's market
capitalization by the combined market capitalization of both.
\10\ The Pricing Benchmarks are calculated by CF Benchmarks Ltd.
(the ``Benchmark Provider'') based on an aggregation of executed
trade flow of major bitcoin and ether trading platforms. As further
discussed below, the Pricing Benchmarks are designed to provide a
daily, 4:00 p.m. Eastern Time (``E.T.'') reference rate of the U.S.
dollar price of one bitcoin or one ether that may be used to develop
financial products.
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The Trust's only assets will be bitcoin, ether, and cash.\11\ The
Trust does not seek to hold any non-bitcoin or non-ether crypto assets
and has
[[Page 11856]]
expressly disclaimed ownership of any such assets in the event the
Trust ever involuntarily comes into possession of such assets.\12\ 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 management fee (the ``Sponsor Fee''),
which will accrue daily and will be payable in bitcoin and ether
monthly in arrears. The Administrator will calculate the Sponsor Fee on
a daily basis by applying an annualized rate to the Trust's total
bitcoin and ether holdings, and the amount of bitcoin and ether payable
in respect of each daily accrual shall be determined by reference to
the Pricing Benchmarks. 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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\11\ The Trust conducts 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 bitcoin or ether, 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 bitcoin and ether 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 bitcoin and ether 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 bitcoin and ether 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.
\12\ The Trust may, from time to time, passively receive, by
virtue of holding bitcoin or ether, certain additional digital
assets (``IR Assets'') or rights to receive IR Assets (``Incidental
Rights'') through a fork of the Bitcoin network or Ethereum 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 Bitcoin and Ether
Custodian, nor any other person associated with the Trust will,
directly or indirectly, engage in action where any portion of the
Trust's ether becomes subject to the Ethereum proof-of-stake
validation or is used to earn additional ether or generate income or
other earnings.
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Custody of the Trust's Bitcoin and Ether
The Trust's Bitcoin and Ether Custodian will maintain custody of
all of the Trust's bitcoin and ether, 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 Bitcoin and Ether Custodian). The Bitcoin and Ether Custodian will
maintain an account that holds the Trust's bitcoin (the ``Trust Bitcoin
Account'') and an account that holds the Trust's ether (the ``Trust
Ether Account,'' and together with the Trust Bitcoin Account, the
``Trust Digital Asset Accounts''), and will facilitate the transfer of
bitcoin and ether 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 bitcoin or ether. The Bitcoin and
Ether Custodian provides safekeeping of bitcoin and ether using a
multi-layer cold storage security platform designed to provide offline
security of the bitcoin and ether held by the Bitcoin and Ether
Custodian.
Valuation of the Trust's Bitcoin and Ether
The net assets of the Trust and its Shares are valued on a daily
basis with reference to the Pricing Benchmarks, which are standardized
reference rates published by the Benchmark Provider designed to reflect
the performance of bitcoin and ether in U.S. dollars. The Bitcoin
Pricing Benchmark and Ether Pricing Benchmark were created to
facilitate financial products based on bitcoin and ether, respectively.
The Bitcoin Pricing Benchmark serves as a once-a-day benchmark rate of
the U.S. dollar price of bitcoin (USD/BTC), and the Ether Pricing
Benchmark serves as a once-a-day benchmark rate of the U.S. dollar
price of ether (USD/ETH), each calculated as of 4:00 p.m. E.T. The
Bitcoin Pricing Benchmark aggregates the trade flow of several major
bitcoin trading venues, and the Ether Pricing Benchmark aggregates the
trade flow of several major ether trading venues, each during an
observation window between 3:00 p.m. and 4:00 p.m. E.T. into the U.S.
dollar price of one bitcoin or ether, as applicable, at 4:00 p.m. E.T.
The Bitcoin Pricing Benchmark uses the same methodology as the CME
CF Bitcoin Reference Rate (``BRR''), which was designed by the CME
Group and the Benchmark Provider to facilitate the cash settlement of
bitcoin futures contracts traded on the Chicago Mercantile Exchange
(``CME'').\13\ The CME Group also publishes the CME CF Bitcoin Real
Time Index (the ``CME Bitcoin Real Time Price''), which is a continuous
measure of the U.S. dollar price of one bitcoin calculated once per
second. Similarly, the Ether Pricing Benchmark uses the same
methodology as the CME CF Ether-Dollar Reference Rate (``ERR''), which
was designed by the CME Group and the Benchmark Provider to facilitate
the cash settlement of ether futures contracts traded on the CME.\14\
The CME Group also publishes the CME CF Ether Real Time Index (the
``CME Ether Real Time Price''), which is a continuous measure of the
U.S. dollar price of one ether calculated once per second. Each of the
Pricing Benchmarks, BRR, ERR, CME Bitcoin Real Time Price, and CME
Ether Real Time Price are representative of the bitcoin or ether
trading activity, as applicable, on the Constituent Platforms,\15\
which include, as of the date of this filing, Bitstamp, Coinbase,
Gemini, itBit, LMAX, and Kraken.
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\13\ The only material difference between the Bitcoin Pricing
Benchmark and the BRR is that the BRR measures the U.S. dollar price
of one bitcoin as of 4:00 p.m. London time and the Bitcoin Pricing
Benchmark measures the U.S. dollar price of one bitcoin as of 4:00
p.m. E.T.
\14\ The only material difference between the Ether Pricing
Benchmark and ERR is that the ERR measures the U.S. dollar price of
one ether as of 4:00 p.m. London time, and the Ether Pricing
Benchmark measures the U.S. dollar price of one ether as of 4:00
p.m. E.T.
\15\ The ``Constituent Platforms'' are the bitcoin and ether
trading venues included in the Pricing Benchmarks.
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The Trust uses the Pricing Benchmarks to calculate its NAV, as
described below in ``Net Asset Value.''
The Sponsor, in its sole discretion, may cause the Trust to price
its portfolio based upon an index, benchmark, or standard other than
the Pricing Benchmarks 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 Pricing Benchmarks price of bitcoin or ether
differs materially from the global market price of bitcoin or ether
and/or that third parties are able to purchase and sell bitcoin or
ether on public or private markets not included among the Constituent
Platforms, and such transactions may take place at prices materially
higher or lower than the Pricing Benchmarks price. 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
the Pricing Benchmarks, 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.\16\
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\16\ 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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Net Asset Value
The Trust's only assets will be bitcoin and ether 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
4:00 p.m. E.T., or as soon thereafter as practicable.
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The Administrator will calculate the NAV by multiplying the number of
bitcoin and ether held by the Trust by the Bitcoin Pricing Benchmark or
Ether Pricing Benchmark, respectively, 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 Administrator
will determine the price of the Trust's bitcoin and ether by reference
to the Pricing Benchmarks, which are published and calculated as set
forth above.
Intraday Trust Value
The Trust uses the CME Bitcoin Real Time Price and CME Ether Real
Time Price 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 4:00 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 most recently reported price level of the CME
Bitcoin Real Time Price and CME Ether Real Time Price. 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 bitcoin and ether 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 4:00 p.m. E.T. on the day the order to create
or redeem 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'').
According to the Registration Statement, when purchasing or selling
bitcoin or ether 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 bitcoin and ether 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'') \17\ is able to effectuate the Trust's purchase or sale
of bitcoin or ether. 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
bitcoin and ether from an approved Digital Asset Trading Counterparty
in an amount equal to the Basket Amount (as defined below). When
seeking to purchase bitcoin and ether on behalf of the Trust, the
Sponsor will seek to purchase bitcoin and ether at commercially
reasonable prices and terms from any of the approved Digital Asset
Trading Counterparties.\18\ Once agreed upon, the transaction will
generally occur on an ``over-the-counter'' basis.
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\17\ The Digital Asset Trading Counterparties with which the
Sponsor will engage in bitcoin and ether 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.
\18\ The Sponsor will maintain ownership and control of bitcoin
and ether 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 bitcoin or ether as part of the
creation or redemption process or otherwise direct the Trust or a third
party with respect to purchasing, holding, delivering, or receiving
bitcoin or ether as part of the creation or redemption process.
Additionally, under either the Trust-Directed Trade Model or the Agent
Execution Model, the Trust will create Shares by receiving bitcoin and
ether 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 bitcoin and ether. The third party will not be acting as an
agent of the Authorized Participant with respect to the delivery of the
bitcoin and ether to the Trust or acting at the direction of the
Authorized Participant with respect to the delivery of the bitcoin and
ether to the Trust. Additionally, the Trust will redeem Shares by
delivering bitcoin and ether 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 bitcoin and ether.
Finally, the third party will not be acting as an agent of the
Authorized Participant with respect to the receipt of the bitcoin or
ether from the Trust or acting at the direction of the Authorized
Participant with respect to the receipt of the bitcoin or ether from
the Trust.
Acquiring and Selling Bitcoin and Ether Pursuant to Creation and
Redemption of Shares Under the Trust-Directed Trade Model
Under the Trust-Directed Trade Model and as set forth in the
Registration Statement, 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.
For purposes of processing creation and redemption orders, a ``business
day'' means any day other than a day when the Exchange is closed for
regular trading (``Business Day''). To be processed on the date
submitted, creation orders must be placed before 4:00 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 quantity of bitcoin and ether
attributable to each
[[Page 11858]]
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 bitcoin and ether
ascribed by the Pricing Benchmarks. 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 prices
at which the Trust agrees to purchase the requisite amount of bitcoin
and ether from a Digital Asset Trading Counterparty to the extent it is
greater than the Pricing Benchmarks' 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 bitcoin and ether with the Bitcoin and Ether
Custodian by the end of the day E.T. on the Business Day following the
Purchase Order Date. The bitcoin and ether 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 bitcoin and ether. 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
bitcoin and ether must be deposited at the Bitcoin and Ether Custodian.
The Digital Asset Trading Counterparty must deposit the required
amount of bitcoin and ether by end of day E.T. on the Business Day
following the 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 bitcoin and ether at the Bitcoin and Ether
Custodian from the Digital Asset Trading Counterparty, the Bitcoin and
Ether Custodian will notify the Sponsor that the bitcoin and ether have
been received. The Sponsor will then notify the Transfer Agent that the
bitcoin and ether 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
bitcoin and ether 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 bitcoin and ether
calculated by the Administrator for daily valuation using the Pricing
Benchmarks and the price at which the Trust acquires the bitcoin and
ether will be borne solely by the Authorized Participant to the extent
that the Trust pays more for bitcoin and ether 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 bitcoin and
ether to the Bitcoin and Ether 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 4:00
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 bitcoin and ether 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 bitcoin and ether 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 bitcoin and ether ascribed by the Pricing Benchmarks. However,
as between the Trust and the Authorized Participant, the expense and
risk of the difference between the value of bitcoin and ether ascribed
by the Pricing Benchmarks and the price at which the Trust sells the
bitcoin and ether will be borne solely by the Authorized Participant to
the extent that the Trust receives less for bitcoin and ether than the
value ascribed by the Pricing Benchmarks. 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 Bitcoin and Ether Custodian will not send the Basket
Amount of bitcoin and ether 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 bitcoin and ether, the Transfer Agent
will notify the Sponsor. The Sponsor will then notify the Bitcoin and
Ether Custodian to transfer the bitcoin and ether to the Digital Asset
Trading
[[Page 11859]]
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
bitcoin or ether or Shares will occur.
Acquiring and Selling Bitcoin and Ether 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 bitcoin and ether 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 bitcoin,
ether, 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 bitcoin or ether (and
cash); rather, the Trust's Trading Balance represents an entitlement to
a pro rata share of the bitcoin or ether (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
bitcoin or ether (and cash) held on behalf of the Prime Execution
Agent's customers.
To avoid having to pre-fund purchases or sales of bitcoin or ether
in connection with cash creations and redemptions and sales of bitcoin
or ether to pay Trust expenses not assumed by the Sponsor, to the
extent applicable, the Trust may borrow bitcoin, ether, 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 Financing Agreement (the ``Trade Financing
Agreement'').
On the day of the Purchase Order Date, the Trust would enter into a
transaction to buy bitcoin and ether 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 bitcoin and ether
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 bitcoin
and ether through the Prime Execution Agent on the Purchase Order Date,
with such bitcoin and ether 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 bitcoin and ether 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 Bitcoin and Ether Custodian pursuant to
a regular end-of-day sweep process. Transfers of bitcoin and ether 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 bitcoin and ether
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 bitcoin and ether through the Prime Execution Agent
for cash. The Trust's Trading Balance with the Prime Execution Agent
may not be funded with bitcoin and ether on trade date for the sale of
bitcoin and ether in connection with the redemption order under the
Agent Execution Model, when bitcoin and ether remains in the Trust
Digital Asset Account with the Bitcoin and Ether Custodian at the point
of intended execution of a sale of bitcoin and ether. In those
circumstances the Trust may borrow Trade Credits in the form of bitcoin
and ether from the Trade Credit Lender, which allows the Trust to sell
bitcoin and ether 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 bitcoin and ether that is moved from the Trust Digital Asset
Account with the Bitcoin and Ether 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 Bitcoin and Ether Custodian to
prepare to transfer the bitcoin and ether associated with the
redemption order from the Trust Digital Asset Account with the Bitcoin
and Ether 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 bitcoin and ether 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.
Background on Bitcoin
Bitcoin is the digital asset that is native to, and created and
transmitted through the operations of, the peer-to-peer ``Bitcoin
network,'' a decentralized network of computers that operates on
cryptographic protocols. No single entity owns or operates the Bitcoin
network, the infrastructure of which is collectively maintained by a
decentralized user base. The Bitcoin network allows people to exchange
tokens of value, called bitcoin, which are recorded on a public
transaction ledger known as the ``Bitcoin blockchain.'' Bitcoin can be
used to pay for goods and services, or it can be converted to fiat
currencies, such as the U.S. dollar, at rates determined on digital
asset trading platforms or in individual end-user-to-end-user
[[Page 11860]]
transactions under a barter system. Although nascent in use, bitcoin
may be used as a medium of exchange, unit of account or store of value.
The Bitcoin network is decentralized and does not require
governmental authorities or financial institution intermediaries to
create, transmit or determine the value of bitcoin. In addition, no
party may easily censor transactions on the Bitcoin network. As a
result, the Bitcoin network is often referred to as decentralized and
censorship resistant.
The value of bitcoin is determined by the supply of and demand for
bitcoin. New bitcoin are created and rewarded to the parties providing
the Bitcoin network's infrastructure (``miners'') in exchange for their
expending computational power to verifying transactions and add them to
the Bitcoin blockchain. The Bitcoin blockchain is effectively a
decentralized database that includes all blocks that have been solved
by miners and it is updated to include new blocks as they are solved.
Each bitcoin transaction is broadcast to the Bitcoin network and, when
included in a block, recorded in the Bitcoin blockchain. As each new
block records outstanding bitcoin transactions, and outstanding
transactions are settled and validated through such recording, the
Bitcoin blockchain represents a complete, transparent and unbroken
history of all transactions of the Bitcoin network.
The CME Bitcoin Futures Market
The CME Group announced the planned launch of bitcoin futures on
October 31, 2017. Trading began on December 17, 2017.\19\ Each contract
represents five bitcoin and is based on the CME CF Bitcoin Reference
Rate. The contracts trade and settle like other cash settled commodity
futures contracts.
---------------------------------------------------------------------------
\19\ See ``CME Group Announces Launch of Bitcoin Futures,''
October 31, 2017, available at https://www.cmegroup.com/media-room/press-releases/2017/10/31/cme_group_announceslaunchofbitcoinfutures.html. At the same time as
the launch of the CME Market, the Cboe Futures Exchange, LLC
announced and subsequently launched Cboe bitcoin futures. See ``CFE
to Commence Trading in Cboe Bitcoin (USD) Futures Soon,'' December
01, 2017, available at cdn.cboe.com/resources/release_notes/2017/Cboe-Bitcoin-USD-Futures-Launch-Notification.pdf. Each future was
cash settled, with the CME Market tracking the CME UK Reference Rate
and the Cboe bitcoin futures tracking a bitcoin trading platform
daily auction price. The Cboe Futures Exchange, LLC subsequently
discontinued its bitcoin futures market effective June 2019. ``Cboe
put the brakes on bitcoin futures,'' March 15, 2019, available at
https://www.reuters.com/article/us-cboe-bitcoin/cboe-puts-the-brakes-on-bitcoin-futures-idUSKCN1QW261. The Trust uses the CME US
Reference Rate to calculate its NAV.
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Nearly every measurable metric related to bitcoin futures has
trended up since launch. For example, there were 348,635 bitcoin
futures contracts traded in September 2024 (approximately $110.6
billion) compared to 192,620 ($26.0 billion) contracts, 279,859
contracts ($27.3 billion), 159,803 contracts ($34.8 billion), and
201,893 contracts ($10.8 billion) traded in September 2023, September
2022, September 2021, and September 2020, respectively.\20\
---------------------------------------------------------------------------
\20\ Data from CME Volume and Average Daily Volume Reports,
available at https://www.cmegroup.com/market-data/volume-open-interest.html#volumeTotals.
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Open interest was 39,590 bitcoin futures contracts in September
2024 (approximately $12.6 billion) compared to 15,014 contracts ($2.0
billion), 14,867 contracts ($1.4 billion), 7,276 contracts ($1.6
billion), and 7,487 contracts ($0.4 billion) traded in September 2023,
September 2022, September 2021, and September 2020, respectively.\21\
---------------------------------------------------------------------------
\21\ Data from CME Open Interest Reports, available at https://www.cmegroup.com/market-data/volume-open-interest.html#openInterestTools.
---------------------------------------------------------------------------
The number of large open interest holders \22\ has increased as
well, even in the face of heightened bitcoin price volatility, as
demonstrated in the figure that follows.\23\
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\22\ A large open interest holder in bitcoin futures is an
entity that holds at least 25 contracts, which is the equivalent of
125 bitcoin. At a price of approximately $64,300.87 per bitcoin on
9/24/2024, more than 115 firms had outstanding positions of greater
than $8.04 million in bitcoin futures. Data from The Block,
available at https://www.theblock.co/data/crypto-markets/cme-cots/large-open-interest-holders-of-cme-bitcoin-futures.
\23\ Data from 4/10/2018 to 10/22/24, from The Block.
[GRAPHIC] [TIFF OMITTED] TN12MR25.000
The Commodity Futures Trading Commission (``CFTC'') regulates the
CME bitcoin futures market, and both the Exchange and CME are members
of the Intermarket Surveillance Group (``ISG'').\24\
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\24\ For a list of the current members and affiliate members of
ISG, see https://www.isgportal.com/.
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[[Page 11861]]
Background on Ethereum
Ethereum is free software that is hosted on computers distributed
throughout the globe. Ethereum employs an array of computer code-based
logic, called a protocol, to create a unified understanding of
ownership, commercial activity, and economic logic. This allows users
to engage in commerce without the need to trust any of its participants
or counterparties. Ethereum code creates verifiable and unambiguous
rules that assign clear, strong property rights to create a platform
for unrestrained business formation and free exchange. No single
intermediary or entity operates or controls the Ethereum network, the
transaction validation and recordkeeping infrastructure of which is
collectively maintained by a disparate user base. The Ethereum network
allows people to exchange tokens of value, or ether, which are recorded
on a distributed, public recordkeeping system or ledger known as a
blockchain, and which can be used to pay for goods and services,
including computational power on the Ethereum network, or converted to
fiat currencies, such as the U.S. dollar, at rates determined on spot
trading platforms or in individual peer-to-peer transactions. By
combining the recordkeeping system of the Ethereum blockchain with a
flexible scripting language that can be used to implement a wide
variety of instructions, the Ethereum network is intended to act as a
public computational layer on top of which users can build their own
public software programs, as an alternative to centralized web
services. On the Ethereum network, ether is the unit of account that
users pay for the computational resources consumed by running programs
of their choice.
CME Ether Futures Market
CME began offering trading in ether futures on February 8,
2021.\25\ Each contract represents fifty ether and is based on the ERR.
The contracts trade and settle like other cash settled commodity
futures contracts.
---------------------------------------------------------------------------
\25\ See ``CME Group Announces Launch of Ether Futures,''
February 8, 2021, available at https://www.cmegroup.com/media-room/press-releases/2021/2/08/cme_group_announceslaunchofetherfutures.html.
---------------------------------------------------------------------------
Most measurable metrics related to CME ether futures have trended
up since launch. For example, there were 95,261 CME ether futures
contracts traded in September 2024 (approximately $12.4 billion)
compared to 78,571 contracts ($6.6 billion), 163,114 contracts ($10.9
billion), and 130,546 contracts ($19.5 billion) traded in September
2023, September 2022, and September 2021, respectively. In the first
month of trading, there were 11,637 billion contracts ($0.8 billion)
traded.\26\
---------------------------------------------------------------------------
\26\ Data from CME Volume and Average Daily Volume Reports,
available at https://www.cmegroup.com/market-data/volume-open-interest.html#volumeTotals.
---------------------------------------------------------------------------
Open interest was 6,746 CME ether futures contracts in September
2024 (approximately $875.1 million) compared to 4,577 contracts ($384.3
million), 5,035 contracts ($336.8 million), and 4,388 contracts ($656.8
million) in September 2023, September 2022, and September 2021,
respectively.\27\
---------------------------------------------------------------------------
\27\ Data from CME Open Interest Reports, available at https://www.cmegroup.com/market-data/volume-openinterest.html#openInterestTools.
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The number of large open interest holders \28\ has increased as
well, as demonstrated in the figure that follows.\29\
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\28\ A large open interest holder in ether futures is an entity
that holds at least 25 contracts, which is the equivalent of 1250
ether. Data from The Block, available at https://www.theblock.co/data/crypto-markets/cme-cots/large-open-interest-holders-of-cme-ether-futures.
\29\ Data from 4/10/2018 to 10/22/2024, from The Block.
[GRAPHIC] [TIFF OMITTED] TN12MR25.001
The CFTC regulates the CME ether futures market, and both the
Exchange and CME are members of the ISG.
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
[[Page 11862]]
related to the underlying commodity to be held.\30\ 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
Act.\31\ 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.\32\
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 comprehensive surveillance
sharing agreement (``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.\33\
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\30\ 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.
\31\ 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'').
\32\ See Spot Bitcoin ETP Approval Order, 89 FR at 3010; Spot
Ether ETP Approval Order, 89 FR at 46938.
\33\ See Spot Bitcoin ETP Approval Order, 89 FR at 3010; Spot
Ether ETP Approval Order, 89 FR at 46938-39.
---------------------------------------------------------------------------
The Commission also more recently approved the listing and trading
of shares of exchange-traded products that, like the Trust, hold both
spot bitcoin and spot ether in proportion to their market
capitalizations (the ``Spot Bitcoin/Ether ETPs'').\34\ In approving the
Spot Bitcoin/Ether ETPs, the Commission similarly found that there were
sufficient other means of preventing fraud and manipulation sufficient
to satisfy the requirements of Section 6(b)(5) of the Act given the
continued consistent correlation between the spot bitcoin market and
the CME bitcoin futures market and between the spot ether market and
the CME ether futures market.\35\ The Commission accordingly 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/Ether ETPs.
---------------------------------------------------------------------------
\34\ See Securities Exchange Act Release No. 101998 (December
19, 2024), 89 FR 106707 (December 30, 2024) (SR-NASDAQ-2024-028; SR-
CboeBZX-2024-091) (Order Granting Approval of a Proposed Rule
Change, as Modified by Amendment No. 1, To List and Trade Shares of
the Hashdex Nasdaq Crypto Index US ETF and Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment No. 1,
To List and Trade Shares of the Franklin Crypto Index ETF, a Series
of the Franklin Crypto Trust) (the ``Spot Bitcoin/Ether ETP Approval
Order'').
\35\ See Spot Bitcoin/Ether ETP Approval Order, 89 FR 106708.
---------------------------------------------------------------------------
The Trust is structured and will operate in a manner materially the
same as the Spot Bitcoin ETPs, Spot Ether ETPs, and Spot Bitcoin/Ether
ETPs.\36\ The Sponsor believes that the Exchange's ability to obtain
information regarding trading in bitcoin futures and ether futures from
the CME, which, like the Exchange, is a member of the ISG, would assist
the Exchange in detecting potential fraud or manipulation with respect
to trading in the Shares. The Sponsor thus believes that, for reasons
similar to those set forth in the Spot Bitcoin ETP Approval Order, Spot
Ether ETP Approval Order, and Spot Bitcoin/Ether Approval Order,
listing and trading Shares of the Trust would be consistent with the
requirements of the Act.
---------------------------------------------------------------------------
\36\ 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.
---------------------------------------------------------------------------
Availability of Information
The NAV per Share will be calculated and 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 ITV will be calculated every 15 seconds
throughout the Core Trading Session each trading day.
The Sponsor will cause information about the Shares to be posted to
the Trust's website (https://www.bitwiseinvestments.com/): (1) the NAV
and NAV per Share for each Exchange trading day, posted at end of day;
(2) the daily holdings of the Trust, before 9:30 a.m. E.T. on each
Exchange trading day; (3) the Trust's effective prospectus, in a form
available for download; and (4) the Shares' ticker and CUSIP
information, along with additional quantitative information updated on
a daily basis for the Trust. For example, the Trust's website will
include (1) the prior Business Day's trading volume, the prior Business
Day's reported NAV and closing price, and a calculation of the premium
and discount of the closing price or mid-point of the bid/ask spread at
the time of NAV calculation (``Bid/Ask Price'') against the NAV per
Share; and (2) data in chart format displaying the frequency
distribution of discounts and premiums of the daily closing price or
Bid/Ask Price against the NAV per Share, within appropriate ranges, for
at least each of the four previous calendar quarters. The Trust's
website will be publicly available prior to the public offering of
Shares and accessible at no charge.
Investors may obtain on a 24-hour basis bitcoin and ether pricing
information based on the Pricing Benchmarks, BRR, ERR, CME Bitcoin Real
Time Price, CME Ether Real Time Price, spot bitcoin market prices,
bitcoin futures prices, spot ether market prices, and ether futures
prices from various financial information service providers. Current
bitcoin spot market prices and ether spot market prices are also
available with bid/ask spreads from bitcoin and ether trading
platforms, including the Constituent Platforms of the Pricing
Benchmarks.
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
[[Page 11863]]
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.\37\ 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.
---------------------------------------------------------------------------
\37\ See NYSE Arca Rule 7.12-E.
---------------------------------------------------------------------------
The Exchange may halt trading during the day in which an
interruption to the dissemination of the ITV, CME Bitcoin Real Time
Price, CME Ether Real Time Price, or Pricing Benchmarks (if the
Exchange becomes aware that the Pricing Benchmarks are not being
published) occurs.\38\ If the interruption to the dissemination of the
ITV, CME Bitcoin Real Time Price, CME Ether Real Time Price, or Pricing
Benchmarks 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 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.
---------------------------------------------------------------------------
\38\ A limit up/limit down condition in the futures market would
not be considered an interruption requiring the Trust to be halted.
---------------------------------------------------------------------------
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 4:00 a.m. to 8:00 p.m. E.T. in
accordance with NYSE Arca Rule 7.34-E (Early, Core, and Late Trading
Sessions). The Exchange has appropriate rules to facilitate
transactions in the Shares during all trading sessions. As provided in
NYSE Arca Rule 7.6-E, the minimum price variation (``MPV'') for quoting
and entry of orders in equity securities traded on the NYSE Arca
Marketplace is $0.01, with the exception of securities that are priced
less than $1.00 for which the MPV for order entry is $0.0001.
The Shares will conform to the initial and continued listing
criteria under NYSE Arca Rule 8.201-E. The trading of the Shares will
be subject to NYSE Arca Rule 8.201-E(g), which sets forth certain
restrictions on Equity Trading Permit (``ETP'') Holders acting as
registered Market Makers in Commodity-Based Trust Shares to facilitate
surveillance.\39\ The Exchange represents that, for initial and
continued listing, the Trust will be in compliance with Rule 10A-3
under the Act,\40\ 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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\39\ Under NYSE Arca Rule 8.201-E(g), an ETP Holder acting as a
registered Market Maker in the Shares is required to provide the
Exchange with information relating to its accounts for trading in
the underlying commodity, related futures or options on futures, or
any other related derivatives. Commentary .04 of NYSE Arca Rule
11.3-E requires an ETP Holder acting as a registered Market Maker,
and its affiliates, in the Shares to establish, maintain and enforce
written policies and procedures reasonably designed to prevent the
misuse of any material nonpublic information with respect to such
products, any components of the related products, any physical asset
or commodity underlying the product, applicable currencies,
underlying indexes, related futures or options on futures, and any
related derivative instruments (including the Shares). As a general
matter, the Exchange has regulatory jurisdiction over its ETP
Holders and their associated persons, which include any person or
entity controlling an ETP Holder. To the extent the Exchange may be
found to lack jurisdiction over a subsidiary or affiliate of an ETP
Holder that does business only in commodities or futures contracts,
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.
\40\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------
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
FINRA on behalf of the Exchange, which are designed to detect
violations of Exchange rules and applicable federal securities
laws.\41\ 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 applicable to trading on the Exchange.
---------------------------------------------------------------------------
\41\ 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.
---------------------------------------------------------------------------
The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares with other
markets and other entities that are members of the ISG, and the
Exchange or FINRA, on behalf of the Exchange, or both, may obtain
trading information regarding trading in the Shares, bitcoin
derivatives, and ether derivatives from such markets and other
entities. In addition, the Exchange may obtain information regarding
trading in the Shares, bitcoin derivatives, and ether derivatives from
markets and other entities that are members of ISG or with which the
Exchange has in place a CSSA. The Exchange is also able to obtain
information regarding trading in the Shares and any underlying bitcoin,
bitcoin derivatives, ether, or ether derivatives in connection with ETP
Holders' proprietary trades or customer trades effected through ETP
Holders on any relevant market. Under NYSE Arca Rule 8.201-E(g), an ETP
Holder acting as a registered Market Maker in the Shares is required to
provide the Exchange with information relating to its accounts for
trading in any underlying commodity, related futures or options on
futures, or any other related derivatives. Commentary .04 of NYSE Arca
Rule 11.3-E requires an ETP Holder acting as a registered Market Maker,
and its affiliates, in the Shares to establish, maintain and enforce
written policies and procedures reasonably designed to prevent the
misuse of any material nonpublic information with respect to such
products, any components of the related products, any physical asset or
commodity underlying the product, applicable currencies, underlying
indexes, related futures or options on futures, and any related
derivative instruments (including the Shares). As a general matter, the
Exchange has regulatory jurisdiction over its ETP Holders and their
associated persons, which include any person or entity controlling an
ETP Holder. To the extent the Exchange may be found to lack
jurisdiction over a subsidiary or affiliate of an ETP Holder that does
business only in commodities or futures contracts and that subsidiary
or affiliate is a member of another regulatory organization, the
Exchange could obtain information regarding the activities of such
subsidiary or affiliate through surveillance sharing agreements with
regulatory organizations to the extent the Exchange has such an
agreement with an organization of
[[Page 11864]]
which the subsidiary or affiliate is a member.
In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
All statements and representations made in this filing regarding
(a) the description of the index, portfolio, or reference asset of the
Trust, (b) limitations on index or portfolio holdings or reference
assets, or (c) the applicability of Exchange listing rules specified in
this rule filing shall constitute continued listing requirements for
listing the Shares on the Exchange.
The Sponsor has represented to the Exchange that it will advise the
Exchange of any failure by the Trust to comply with the continued
listing requirements, and, pursuant to its obligations under Section
19(g)(1) of the Act, the Exchange will monitor for compliance with the
continued listing requirements. If the Trust is not in compliance with
the applicable listing requirements, the Exchange will commence
delisting procedures under NYSE Arca Rule 5.5-E(m).
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its
ETP Holders in an ``Information Bulletin'' of the special
characteristics and risks associated with trading the Shares.
Specifically, the Information Bulletin will discuss the following: (1)
the procedures for creations of Shares in 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 members
deliver a prospectus to investors purchasing newly issued Shares prior
to or concurrently with the confirmation of a transaction and (6)
trading information.
In addition, the Information Bulletin will reference that the Trust
is subject to various fees and expenses as described in the annual
report. 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) \42\ 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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\42\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices and to protect
investors and the public interest in that the Shares will be listed and
traded on the Exchange pursuant to the initial and continued listing
criteria in NYSE Arca Rule 8.201-E. The Exchange has in place
surveillance procedures that are adequate to properly monitor Exchange
trading in the Shares in all trading sessions and to deter and detect
attempted manipulation of the Shares or other violations of Exchange
rules and applicable federal securities laws. The Exchange or FINRA, on
behalf of the Exchange, or both, will communicate as needed regarding
trading in the Shares, bitcoin derivatives, and ether derivatives 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, bitcoin derivatives, and ether
derivatives from such markets. In addition, the Exchange may obtain
information regarding trading in the Shares, bitcoin derivatives, and
ether derivatives from markets that are members of ISG or with which
the Exchange has in place a CSSA. The Exchange is also able to obtain
information regarding trading in the Shares and any underlying bitcoin,
bitcoin derivatives, ether, or ether derivatives through ETP Holders,
in connection with such ETP Holders' proprietary trades or customer
trades effected through ETP Holders on any relevant market.
The proposed rule change is also designed to prevent fraudulent and
manipulative acts and practices because the Trust is structured
similarly to and will operate in materially the same manner as the Spot
Bitcoin ETPs, Spot Ether ETPs, and Spot Bitcoin/Ether ETPs previously
approved by the Commission. The Exchange further believes that the
proposed rule change is designed to prevent fraudulent and manipulative
acts and practices because, as noted by the Commission in the Spot
Bitcoin ETP Approval Order, Spot Ether ETP Approval Order, and Spot
Bitcoin/Ether ETP Approval Order, the Exchange's ability to obtain
information regarding trading in the Shares and futures from 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.
Quotation and last-sale information regarding the Shares will be
disseminated through the facilities of the CTA. The Trust's website
will also include a form of the prospectus for the Trust that may be
downloaded. The website will include the Shares' ticker and CUSIP
information, along with additional quantitative information updated on
a daily basis for the Trust. The Trust's website will include (1) daily
trading volume, the prior Business Day's reported NAV and closing
price, and a calculation of the premium and discount of the closing
price or mid-point of the Bid/Ask Price against the NAV per Share; and
(ii) data in chart format displaying the frequency distribution of
discounts and premiums of the daily closing price or Bid/Ask Price
against the NAV per Share, within appropriate ranges, for at least each
of the four previous calendar quarters. The Trust's website will be
publicly available prior to the public offering of Shares and
accessible at no charge.
Trading in Shares of the Trust will be halted if the circuit
breaker parameters in NYSE Arca Rule 7.12-E have been reached or
because of market conditions or for reasons that, in the view of the
Exchange, make trading in the Shares inadvisable.
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 a
new type of exchange-traded product based on the price of bitcoin and
ether 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 that are adequate to properly
monitor trading in the Shares in all trading sessions and to deter and
detect violations of Exchange
[[Page 11865]]
rules and applicable federal securities laws.
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 Commodity-
Based Trust Shares based on the price of bitcoin and ether 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. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-NYSEARCA-2025-15 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-NYSEARCA-2025-15. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-NYSEARCA-2025-15 and should
be submitted on or before April 2, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\43\
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\43\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2025-03887 Filed 3-11-25; 8:45 am]
BILLING CODE 8011-01-P