[Federal Register Volume 86, Number 48 (Monday, March 15, 2021)]
[Notices]
[Pages 14356-14358]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-05238]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91283; File No. SR-NYSEArca-2020-105]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting 
Proceedings To Determine Whether To Approve or Disapprove a Proposed 
Rule Change Relating To List and Trade the Shares of the Teucrium Water 
Fund Under NYSE Arca Rule 8.200-E, Commentary .02

March 9, 2021.
    On November 25, 2020, NYSE Arca, Inc. (``Exchange'' or ``NYSE 
Arca'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade the shares (``Shares'') of the 
Teucrium Water Fund (``Fund'') under NYSE Arca Rule 8.200-E, Commentary 
.02. The proposed rule change was published for comment in the Federal 
Register on December 14, 2020.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 90608 (December 8, 
2020), 85 FR 80854 (``Notice'').
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    On January 14, 2021, 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 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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    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 90927, 86 FR 6719 
(January 22, 2021). The Commission designated March 14, 2021, as the 
date by which it should approve, disapprove, or institute 
proceedings to determine whether to 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 Fund, including investment 
strategies, calculation of net asset value and indicative fund 
value, creation and redemption procedures, and additional background 
information about the water market and water futures contracts, 
among other things, can be found in the Notice and the registration 
statement filed with the Commission on Form S-1 (File No. 333-
248948) under the Securities Act of 1933, as applicable.
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    The Exchange proposes to list and trade the Shares of the Fund 
under NYSE Arca Rule 8.200-E, Commentary .02, which governs the listing 
and trading of Trust Issued Receipts on the Exchange.\8\ The Fund, 
which will be managed and controlled by Teucrium Trading, LLC 
(``Sponsor''), is a series of Teucrium Commodity Trust (``Trust'').\9\ 
U.S. Bank, N.A. will be the custodian for the Fund, and U.S. Bancorp 
Fund Services, LLC (``Administrator'') will be the administrator and 
transfer agent for the Fund.\10\ Foreside Fund Services,

[[Page 14357]]

LLC will serve as the distributor of the Shares (``Distributor'').\11\
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    \8\ See NYSE Arca Rule 8.200-E, Commentary .02. NYSE Arca Rule 
8.200-E permits the listing and trading of ``Trust Issued 
Receipts,'' defined as a security (1) that is issued by a trust that 
holds specific securities deposited with the trust; (2) that, when 
aggregated in some specified minimum number, may be surrendered to 
the trust by the beneficial owner to receive the securities; and (3) 
that pay beneficial owners dividends and other distributions on the 
deposited securities, if any are declared and paid to the trustee by 
an issuer of the deposited securities. Commentary .02 applies to 
Trust Issued Receipts that invest in ``Financial Instruments,'' 
which are defined as 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, 85 FR at 80854.
    \10\ See id.
    \11\ See id.
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    According to the Exchange, the investment objective of the Fund is 
for changes in the Shares' Net Asset Value (``NAV'') to reflect the 
changes of the price of water rights in the state of California, as 
measured by the Fund's Benchmark.\12\ The ``Benchmark'' is a weighted 
average of the closing settlement prices for three equally weighted 
Nasdaq Veles California Water index futures contracts (``Benchmark 
Component Futures Contracts'') that are traded on the Chicago 
Mercantile Exchange Inc. (``CME'').\13\ The Benchmark Component Futures 
Contracts are financially settled and trade eight consecutive quarterly 
contracts (March, June, September, and December) plus the two nearest 
serial months that are not included in the quarterly contracts.\14\ The 
Benchmark will have three components, consisting of equally weighted 
Benchmark Component Futures Contracts selected from the following 
contract months: May, June, July, August, and September.\15\ The 
Benchmark will always hold a June contract month.\16\ The Benchmark 
will roll upon the expiration of the February, May, June, July, and 
August contract months.\17\ The Benchmark is not designed to track the 
spot price of water or water rights.\18\
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    \12\ See id.
    \13\ See id.
    \14\ See id.
    \15\ See id.
    \16\ See id.
    \17\ See id.
    \18\ See Notice, 85 FR at 80855. According to the Exchange, the 
Nasdaq Veles California Water Index, which was designed to provide 
water market participants with a price for water through verifiable 
price discovery, sets a weekly benchmark spot price of water rights 
in California, based on the volume-weighted average of the 
transaction price in California's five largest and most actively 
traded water markets.
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    The Fund will seek to achieve its investment objective by investing 
in Benchmark Component Futures Contracts.\19\ Under normal market 
conditions, the Fund expects that 100% of the Fund's assets will be 
invested in Benchmark Component Futures Contracts and in cash and cash 
equivalents, such as short-term Treasury Bills, money market funds, 
demand deposit accounts, and commercial paper.\20\ The Fund may, to a 
lesser extent, obtain exposure to the Benchmark through investment in 
over-the-counter (``OTC'') swap agreements, OTC forward contracts, both 
exchange-listed and OTC options, exchange-listed futures, and exchange-
listed options on futures.\21\ Not more than 10% of the net assets of 
the Fund in the aggregate invested in exchange-traded futures contracts 
or exchange-traded options on futures shall consist of futures 
contracts or options on futures whose principal market is not a member 
of the Intermarket Surveillance Group (``ISG'') or is a market with 
which the Exchange does not have a comprehensive surveillance sharing 
agreement (``CSSA'').\22\
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    \19\ See id.
    \20\ See id.
    \21\ See id.
    \22\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Fund may trade on markets that are members of ISG or with which the 
Exchange has in place a CSSA.
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    The Fund's NAV per Share will be calculated by taking the current 
market value of its total assets, subtracting any liabilities, and 
dividing that total by the number of Shares.\23\ The Administrator will 
calculate the NAV once each trading day, as of the earlier of the close 
of the New York Stock Exchange or 4:00 p.m. Eastern Standard Time 
(``E.T.'').\24\ In order to provide updated information relating to the 
Fund for use by investors and market professionals, ICE Data Indices, 
LLC will calculate an updated ``Indicative Fund Value'' (``IFV''). The 
IFV will be calculated by using the prior day's closing NAV per Share 
of the Fund as a base and will be updated throughout the Exchange's 
Core Trading Session of 9:30 a.m. E.T. to 4:00 p.m. E.T. to reflect 
changes in the value of the Fund's water interests during the trading 
day. The IFV will be disseminated on a per-Share basis every 15 seconds 
during the Exchange's Core Trading Session and be widely disseminated 
by one or more major market data vendors during the NYSE Arca Core 
Trading Session.\25\
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    \23\ See Notice, 85 FR at 80856.
    \24\ See id.
    \25\ According to the Exchange, several major market data 
vendors display and/or make widely available IFVs taken from the CTA 
or other data feeds. In addition, the normal trading hours for Water 
Futures Contracts on CME are generally shorter than those of NYSE 
Arca. As a result, there is a gap in time at the beginning and the 
end of each day during which the Fund's Shares are traded on NYSE 
Arca, but real-time CME trading prices for Water Futures Contracts 
are not available. During such gaps, there will be no update to the 
IFV.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEArca-2020-105 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \26\ 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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    \26\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\27\ 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.'' \28\
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    \27\ Id.
    \28\ 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.\29\
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    \29\ 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 Ame2ndments 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 April 5, 2021. Any person who wishes to file a rebuttal 
to any other person's submission must file

[[Page 14358]]

that rebuttal by April 19, 2021. 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,\30\ 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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    \30\ See Notice, supra note 3.
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    1. What are commenters' views on whether the market in Benchmark 
Component Futures Contracts represents a significant market, i.e., a 
market of significant size?
    2. What are commenters' views on the possibility that the Fund 
could acquire a substantial portion of the market for some or all of 
the Benchmark Component Futures Contracts? What are commenters' views 
on whether such a concentration of holdings could affect the Fund's 
portfolio management, the liquidity of the Fund's portfolio, or the 
pricing of the Benchmark Component Futures Contracts?
    3. What are commenters' views on the risks of price manipulation 
and fraud in the underlying spot water markets and how these risks 
might affect the Benchmark Component Futures Contracts? What are 
commenters' views on how these risks might affect the Fund's NAV and 
trading in the Shares of the Fund? What are commenters' views on how an 
investor may evaluate the price of the Shares in light of these risks?
    4. In its proposal, the Exchange states that the Fund may obtain 
exposure to the Benchmark through investment in OTC swap agreements, 
OTC forward contracts, both exchange-listed and OTC options, exchange-
listed futures, and exchange-listed options on futures. What are 
commenters' views on the current availability and price transparency of 
the OTC financial instruments? What are commenters' views on the 
ability of the Fund to invest in these instruments if the underlying 
spot or futures water market experiences emergencies, disruptions, or 
significant volatility? What are commenters' views on the potential 
effect of manipulation in the underlying water markets on the pricing 
of the Fund's OTC water interests?
    5. What are commenters' views on whether the Fund would have the 
information necessary to adequately value, including fair value, the 
Fund's Benchmark Component Futures Contracts and other water interests 
when determining an appropriate NAV for the Fund?
    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 rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2020-105 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-2020-105. 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 (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 Number SR-NYSEArca-2020-105 and should be 
submitted by April 5, 2021. Rebuttal comments should be submitted by 
April 19, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
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    \31\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-05238 Filed 3-12-21; 8:45 am]
BILLING CODE 8011-01-P


