[Federal Register Volume 83, Number 69 (Tuesday, April 10, 2018)]
[Notices]
[Pages 15425-15427]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-07263]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82995; File No. SR-CboeBZX-2018-001]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove a 
Proposed Rule Change To List and Trade the Shares of the GraniteShares 
Bitcoin ETF and the GraniteShares Short Bitcoin ETF Under BZX Rule 
14.11(f)(4), Trust Issued Receipts

April 5, 2018.
    On January 5, 2018, Cboe BZX Exchange, Inc. (``BZX'' or 
``Exchange'') 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 the shares (``Shares'') of the 
GraniteShares Bitcoin ETF (``Long Fund'') and the GraniteShares Short 
Bitcoin ETF (``Short Fund'') (each a ``Fund'' and, collectively, 
``Funds'') issued by the GraniteShares ETP Trust (``Trust'') under BZX 
Rule 14.11(f)(4). The proposed rule change was published for comment in 
the Federal Register on January 18, 2018.\3\ On February 22, 2018, 
pursuant to Section 19(b)(2) of the Act,\4\ the Commission designated a 
longer period within which to approve the proposed rule change, 
disapprove the proposed rule change, or institute proceedings to 
determine whether to approve or disapprove the proposed rule change.\5\ 
The Commission has received no comment letters on the proposed rule 
change. This order institutes proceedings under Section 19(b)(2)(B) of 
the Act \6\ to determine whether to approve or disapprove the proposed 
rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 82484 (Jan. 11, 
2018), 83 FR 2704 (Jan. 18, 2018) (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 82759 (Feb. 22, 
2018), 83 FR 8719 (Feb. 28, 2018). The Commission designated April 
18, 2018 as the date by which the Commission shall approve or 
disapprove, or institute proceedings to determine whether to approve 
or disapprove, the proposed rule change.
    \6\ 15 U.S.C. 78s(b)(2)(B).
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I. Summary of the Proposal \7\
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    \7\ The Commission notes that additional information regarding 
the Trust, the Shares, and the Funds, including investment 
strategies, calculation of net asset value (``NAV'') and indicative 
fund value, creation and redemption procedures, and additional 
background information about bitcoin, the bitcoin network, and 
bitcoin futures contracts, among other things, can be found in the 
Notice (see supra note 3) and the registration statement filed with 
the Commission on Form S-1 (File No. 333-222109) under the 
Securities Act of 1933, as applicable.
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    The Exchange proposes to list and trade the Shares under BZX Rule 
14.11(f)(4), which governs the listing and trading of Trust Issued 
Receipts on the Exchange.\8\ Each Fund will be a series of the Trust, 
and the Trust and the Funds will be managed and controlled by 
GraniteShares Advisors LLC (``Sponsor''). Bank of New York Mellon will 
serve as administrator, custodian, and transfer agent for the Funds. 
Foreside Fund Services, LLC will serve as the distributor of the Shares 
(``Distributor''). The Trust will offer Shares of the Funds for sale 
through the Distributor in ``Creation Units'' in transactions with 
``Authorized Participants'' who have entered into agreements with the 
Distributor.\9\
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    \8\ Rule 14.11(f)(4) applies to Trust Issued Receipts that 
invest in ``Financial Instruments.'' The term ``Financial 
Instruments,'' as defined in Rule 14.11(f)(4)(A)(iv), means any 
combination of investments, including cash; securities; options on 
securities and indices; futures contracts; options on futures 
contracts; forward contracts; equity caps, collars, and floors; and 
swap agreements.
    \9\ See Notice, supra note 3, at 2707.
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    According to the Exchange, the Long Fund's investment objective 
will be to seek results (before fees and expenses) that, both for a 
single day and over time, correspond to the performance of lead month 
bitcoin futures contracts listed and traded on the Cboe Futures 
Exchange, Inc. (``Benchmark Futures Contract''). Conversely, the Short 
Fund's investment objective will be to seek results (before fees and 
expenses) that, on a daily basis, correspond to the inverse (-1x) of 
the daily performance of the Benchmark Futures Contracts for a single 
day. Each Fund generally intends to invest substantially all of its 
assets in the Benchmark Futures Contracts and cash and cash equivalents 
(which would be used to collateralize the Benchmark Futures Contracts), 
but may invest in other U.S. exchange listed bitcoin futures contracts, 
as available (together with Benchmark Futures

[[Page 15426]]

Contracts, collectively, ``Bitcoin Futures Contracts'').\10\
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    \10\ See Notice, supra note 3, at 2705-2706.
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    Further, the Exchange states that, in the event that position, 
price, or accountability limits are reached with respect to Bitcoin 
Futures Contracts, each Fund may invest in U.S. listed swaps on bitcoin 
or the Benchmark Futures Contracts (``Listed Bitcoin Swaps''). In the 
event that position, price, or accountability limits are reached with 
respect to Listed Bitcoin Swaps, each Fund may invest in over-the-
counter swaps on bitcoin or the Benchmark Futures Contracts (``OTC 
Bitcoin Swaps,'' and together with Listed Bitcoin Swaps, collectively, 
``Bitcoin Swaps'').\11\
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    \11\ See id. at 2706.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBZX-2018-001 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \12\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change. Institution of proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved. Rather, as described below, the 
Commission seeks and encourages interested persons to provide comments 
on the proposed rule change.
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    \12\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\13\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposed rule change's consistency with Section 6(b)(5) 
of the Act, which requires, among other things, that the rules of a 
national securities exchange be ``designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade,'' and ``to protect investors and the public 
interest.'' \14\
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    \13\ Id.
    \14\ 15 U.S.C. 78f(b)(5).
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III. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposal is 
consistent with Section 6(b)(5) or any other provision of the Act, or 
the rules and regulations thereunder. Although there do not appear to 
be any issues relevant to approval or disapproval that would be 
facilitated by an oral presentation of views, data, and arguments, the 
Commission will consider, pursuant to Rule 19b-4, any request for an 
opportunity to make an oral presentation.\15\
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    \15\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal should be approved or 
disapproved by May 1, 2018. Any person who wishes to file a rebuttal to 
any other person's submission must file that rebuttal by May 15, 2018. 
The Commission asks that commenters address the sufficiency of the 
Exchange's statements in support of the proposal, which are set forth 
in the Notice,\16\ in addition to any other comments they may wish to 
submit about the proposed rule change. In particular, the Commission 
seeks comment on the following:
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    \16\ See supra note 3.
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    1. In its proposal, the Exchange states that each Fund, in the 
event that position, price, or accountability limits are reached with 
respect to Bitcoin Futures Contracts, may also invest in Listed Bitcoin 
Swaps. What are commenters' views on the current availability of Listed 
Bitcoin Swaps for trading? What are commenters' views on the ability of 
the Funds to invest in Listed Bitcoin Swaps in the event that position, 
price, or accountability limits are reached with respect to Bitcoin 
Futures Contracts?
    2. In its proposal, the Exchange states that each Fund, in the 
event that position, price, or accountability limits are reached with 
respect to Listed Bitcoin Swaps, may also invest in OTC Bitcoin Swaps. 
What are commenters' views on the current availability of OTC Bitcoin 
Swaps for trading? What are commenters' views on the ability of the 
Funds to invest in OTC Bitcoin Swaps in the event that position, price, 
or accountability limits are reached with respect to Listed Bitcoin 
Swaps?
    3. What are commenters' views on whether the Funds would have the 
information necessary to adequately value, including fair value, the 
Bitcoin Futures Contracts and the Bitcoin Swaps when determining an 
appropriate end-of-day NAV for the Funds, taking into account any 
volatility, fragmentation, or general lack of regulation of the 
underlying bitcoin markets?
    4. What are commenters' views on the potential impact of 
manipulation in the underlying bitcoin markets on the Funds' NAV? What 
are commenters' views on the potential effect of such manipulation on 
the valuation of a Fund's Bitcoin Futures Contracts? What are 
commenters' views on the potential effect of such manipulation on the 
pricing of a Fund's Bitcoin Swaps?
    5. What are commenters' views on how the Funds' valuation policies 
would address the potential for the bitcoin blockchain to diverge into 
different paths (i.e., a ``fork'')?
    6. What are commenters' views on the price differentials and 
trading volumes across bitcoin trading platforms (including during 
periods of market stress) and on the extent to which these differing 
prices may affect the trading of the Bitcoin Futures Contracts and, 
accordingly, trading in the Shares of the Funds?
    7. What are commenters' views on how the substantial margin 
requirements for Bitcoin Futures Contracts, and the nature of liquidity 
and volatility in the market for Bitcoin Futures Contracts, might 
affect the Trust's ability to meet redemption orders? What are 
commenters' views on whether and how the margin requirements for 
Bitcoin Futures Contracts, and the nature of liquidity and volatility 
in the market for Bitcoin Futures Contracts, might affect a Fund's use 
of available cash to achieve its investment strategy?
    8. What are commenters' views on the possibility that the Funds--
along with other exchange-traded products with similar investment 
objectives--could acquire a substantial portion of the market for 
Bitcoin Futures Contracts or the Bitcoin Swaps? What are commenters' 
views on whether such a concentration of holdings could affect the 
Funds' portfolio management, the liquidity of the Funds' respective 
portfolios, or the pricing of the Bitcoin Futures Contracts or the 
Bitcoin Swaps? What are commenters' views on the Exchange's 
representation that it expects significant liquidity to exist in

[[Page 15427]]

the market for Bitcoin Futures Contracts?
    9. What are commenters' views on possible factors that might impair 
the ability of the arbitrage mechanism to keep the trading price of the 
Shares tied to the NAV of each Fund? With respect to the market for 
Bitcoin Futures Contracts, what are commenters' views on the potential 
impact on the arbitrage mechanism of the price volatility and the 
potential for trading halts? What are commenters' views on whether or 
how these potential impairments of the arbitrage mechanism may affect 
the Funds' ability to ensure adequate participation by Authorized 
Participants? What are commenters' views on the potential effects on 
investors if the arbitrage mechanism is impaired?
    10. What are commenters' views on the risks of price manipulation 
and fraud in the underlying bitcoin trading platforms and how these 
risks might affect the Bitcoin Futures Contracts market or the Bitcoin 
Swaps? What are commenters' views on how these risks might affect 
trading in the Shares of the Funds?
    11. What are commenters' views on how an investor may evaluate the 
price of the Shares in light of the risk of potential price 
manipulation and fraud in the underlying bitcoin trading platforms and 
in light of the potentially significant spread between the price of the 
Bitcoin Futures Contracts or the Bitcoin Swaps and the spot price of 
bitcoin?
    12. What are commenters' views on whether the two bitcoin futures 
exchanges represent a significant market, i.e., a market of significant 
size?
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File No. SR-CboeBZX-2018-001 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 No. SR-CboeBZX-2018-001. The 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 (http://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 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File No. SR-CboeBZX-2018-001 and should be submitted by 
May 1, 2018. Rebuttal comments should be submitted by May 15, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(57).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-07263 Filed 4-9-18; 8:45 am]
 BILLING CODE 8011-01-P


