[Federal Register Volume 86, Number 143 (Thursday, July 29, 2021)]
[Notices]
[Pages 40883-40885]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-16121]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92476; File No. SR-CboeBZX-2021-029]


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 Shares of the Kryptoin Bitcoin 
ETF Trust Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares

July 23, 2021.
    On April 9, 2021, 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 shares (``Shares'') of the Kryptoin Bitcoin ETF Trust 
(``Trust'') under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares. 
The proposed rule change was published for comment in the Federal 
Register on April 28, 2021.\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. 91646 (April 22, 
2021), 86 FR 22485 (April 28, 2021) (``Notice''). Comments on the 
proposed rule change can be found at: https://www.sec.gov/comments/sr-cboebzx-2021-029/srcboebzx2021029.htm.
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    On June 9, 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\ 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. 92131 (June 9, 
2021), 86 FR 31772 (June 15, 2021). The Commission designated July 
27, 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

    As described in more detail in the Notice,\7\ the Exchange proposes 
to list

[[Page 40884]]

and trade the Shares of the Trust under BZX Rule 14.11(e)(4), which 
governs the listing and trading of Commodity-Based Trust Shares on the 
Exchange.
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    \7\ See Notice, supra note 3.
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    The investment objective of the Trust would be to provide exposure 
to bitcoin at a price that is reflective of the actual bitcoin market 
where investors purchase and sell bitcoin, less the expense of the 
Trust's operation.\8\ The Trust would hold bitcoin and it would 
calculate the Trust's net asset value (``NAV'') daily based on the 
value of bitcoin as reflected by the CF Bitcoin US Settlement Price 
(``Reference Rate''). The administrator of the Reference Rate is CF 
Benchmarks Ltd. The Reference Rate aggregates the trade flow of several 
bitcoin platforms. The current platform composition of the Reference 
Rate is Bitstamp, Coinbase, Gemini, itBit and Kraken. In calculating 
the Reference Rate, the methodology creates a joint list of certain 
trade prices and sizes from the constituent platforms between 3:00 p.m. 
E.T. and 4:00 p.m. E.T. The methodology then divides this list into 12 
equally-sized time intervals of 5 minutes and it calculates the volume-
weighted median trade price for each of those time intervals. The 
Reference Rate is the arithmetic mean of these 12 volume-weighted 
median trade prices.\9\
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    \8\ Kryptoin Investment Advisors, LLC (``Sponsor'') is the 
sponsor of the Trust, Delaware Trust Company is the trustee, and The 
Bank of New York Mellon will be the administrator 
(``Administrator'') and transfer agent. Foreside Fund Services, LLC 
will be the marketing agent in connection with the creation and 
redemption of ``baskets'' of Shares, and the Sponsor will provide 
assistance in the marketing of the Shares. Gemini Trust Company, 
LLC, a third-party regulated custodian (``Custodian''), will be 
responsible for custody of the Trust's bitcoin. See id. at 22485 and 
22492-93.
    \9\ See id. at 22493.
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    Each Share will represent a fractional undivided beneficial 
interest in the bitcoin held by the Trust. The Trust's assets will 
consist of bitcoin held by the Custodian on behalf of the Trust. The 
Trust generally does not intend to hold cash or cash equivalents. 
However, there may be situations where the Trust will unexpectedly hold 
cash on a temporary basis.\10\
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    \10\ See id. at 22492.
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    The Administrator will determine the NAV and NAV per Share of the 
Trust, on each day that the Exchange is open for regular trading, after 
4:00 p.m. E.T. The NAV of the Trust is the aggregate value of the 
Trust's assets less its liabilities (which include estimated accrued 
but unpaid fees and expenses). In determining the Trust's NAV, the 
Administrator values the bitcoin held by the Trust on the basis of the 
price of bitcoin as determined by the Reference Rate.\11\
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    \11\ See id. at 22494.
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    The Trust will provide information regarding the Trust's bitcoin 
holdings, as well as an Intraday Indicative Value (``IIV'') per Share 
updated every 15 seconds, as calculated by the Exchange or a third-
party financial data provider during the Exchange's Regular Trading 
Hours (9:30 a.m. to 4:00 p.m. E.T.). The IIV will be calculated by 
using the prior day's closing NAV per Share as a base and updating that 
value during Regular Trading Hours to reflect changes in the value of 
the Trust's bitcoin holdings during the trading day.\12\
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    \12\ See id. at 22493.
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    When the Trust sells or redeems its Shares, it will do so in ``in-
kind'' transactions in blocks of 50,000 Shares. Authorized participants 
will deliver, or facilitate the delivery of, bitcoin to the Trust's 
account with the Custodian in exchange for Shares when they purchase 
Shares, and the Trust, through the Custodian, will deliver bitcoin to 
such authorized participants when they redeem Shares with the 
Trust.\13\
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    \13\ See id.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBZX-2021-029 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \14\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of proceedings is 
appropriate at this time in view of the legal and policy issues raised 
by the proposed rule change, as discussed below. 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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    \14\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\15\ 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'' and ``to protect investors and the 
public interest.'' \16\
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    \15\ Id.
    \16\ 15 U.S.C. 78f(b)(5).
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    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,\17\ 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 questions and asks commenters to submit 
data where appropriate to support their views:
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    \17\ See Notice, supra note 3.
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    1. What are commenters' views on whether the proposed Trust and 
Shares would be susceptible to manipulation? What are commenters' views 
generally on whether the Exchange's proposal is designed to prevent 
fraudulent and manipulative acts and practices? What are commenters' 
views generally with respect to the liquidity and transparency of the 
bitcoin markets, the bitcoin markets' susceptibility to manipulation, 
and thus the suitability of bitcoin as an underlying asset for an 
exchange-traded product?
    2. What are commenters' views of the Exchange's assertion that 
regulatory and financial landscapes relating to bitcoin and other 
digital assets have changed significantly since 2016? \18\ Are the 
changes that the Exchange identifies sufficient to support the 
determination that the proposed listing and trading of the Shares are 
consistent with the Act?
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    \18\ See id. at 22486-87.
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    3. The Exchange states that ``approving this proposal . . . [would] 
allow U.S. investors with access to bitcoin in a regulated and 
transparent exchange-traded vehicle that would act to limit risk'' 
associated with exposure through other means.\19\ Further, the Exchange 
asserts that ``the manipulation concerns previously articulated by the 
Commission are sufficiently mitigated to the point that they are 
outweighed by quantifiable investor protection issues.'' \20\ What are 
commenters' views regarding such assertions?
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    \19\ See id. at 22487.
    \20\ See id. at 22491.
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    4. According to the Exchange, ``[n]early every measurable metric 
related to [Chicago Mercantile Exchange's] Bitcoin Futures has trended 
consistently up since launch and/or accelerated upward in the past 
year.'' \21\ Based on data provided and the academic research cited by 
the Exchange, do commenters agree that the Chicago Mercantile Exchange 
(``CME'') now represents a regulated market of

[[Page 40885]]

significant size? \22\ What are commenters' views on whether there is a 
reasonable likelihood that a person attempting to manipulate the Shares 
would also have to trade on CME to manipulate the Shares? What of the 
Exchange's assertion that the combination of (a) CME bitcoin futures 
leading price discovery; (b) the overall size of the bitcoin market; 
and (c) the ability for market participants to buy or sell large 
amounts of bitcoin without significant market impact helps to prevent 
the Shares from becoming the predominant force on pricing in either the 
bitcoin spot or CME bitcoin futures markets? \23\
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    \21\ See id. at 22489.
    \22\ See id. at 22486.
    \23\ See id. at 22492.
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    5. What are commenters' views on the Exchange's statement, 
generally, that bitcoin is resistant to price manipulation and that 
other means to prevent fraudulent and manipulative acts and practices 
exist to justify dispensing with the requisite surveillance sharing 
agreement with a regulated market of significant size related to 
bitcoin? \24\ What of the Exchange's assertion in support of such 
statement that significant liquidity in the spot market and the impact 
of market orders on the overall price of bitcoin mean that attempting 
to move the price of bitcoin is costly? \25\ What of the assertion that 
offering only in-kind creations and redemptions provides unique 
protections against potential attempts to manipulate the Shares and 
that the price the Sponsor uses to value the Trust's bitcoin ``is not 
particularly important''? \26\
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    \24\ See id. at 22491 n.55.
    \25\ See id. at 22492.
    \26\ See id.
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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, and 
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.\27\
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    \27\ 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 August 19, 2021. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
September 2, 2021.
    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-CboeBZX-2021-029 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-CboeBZX-2021-029. 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-CboeBZX-2021-029 and should be submitted 
by August 19, 2021. Rebuttal comments should be submitted by September 
2, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-16121 Filed 7-28-21; 8:45 am]
BILLING CODE 8011-01-P


