[Federal Register Volume 86, Number 154 (Friday, August 13, 2021)]
[Notices]
[Pages 44763-44765]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-17305]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92610; File No. SR-NYSEArca-2021-31]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting 
Proceedings To Determine Whether To Approve or Disapprove a Proposed 
Rule Change To List and Trade Shares of the Valkyrie Bitcoin Fund Under 
NYSE Arca Rule 8.201-E

August 9, 2021.
    On April 23, 2021, NYSE Arca, Inc. (``NYSE Arca'' 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 Valkyrie Bitcoin Fund 
(``Trust'') under NYSE Arca Rule 8.201-E (Commodity-Based Trust 
Shares). The proposed rule change was published for comment in the 
Federal Register on May 12, 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. 91771 (May 6, 2021), 
86 FR 26073 (May 12, 2021) (``Notice''). Comments on the proposed 
rule change can be found at: https://www.sec.gov/comments/sr-nysearca-2021-31/srnysearca202131.htm.
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    On June 22, 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. 92233 (June 22, 
2021), 86 FR 34107 (June 28, 2021). The Commission designated August 
10, 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 and trade the Shares of the Trust under NYSE Arca Rule 8.201-E, 
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 will be for the Shares to 
reflect the performance of the value of a bitcoin as represented by the 
CF Bitcoin US Settlement Price (``Index''), less the Trust's 
liabilities and expenses.\8\ The Fund will use the Index to calculate 
the Trust's net asset value (``NAV'').\9\ The Index serves as a once-a-
day benchmark rate of the U.S. dollar price of bitcoin (USD/BTC), 
calculated as of 4:00 p.m., E.T. The Index aggregates the trade flow of 
several bitcoin exchanges, 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 at 
4:00 p.m., E.T. The current constituent bitcoin exchanges of the Index 
are Bitstamp, Coinbase, Gemini, itBit, and Kraken (``Constituent 
Bitcoin Exchanges''). In calculating the Index, the methodology creates 
a joint list of certain trade prices and sizes from the Constituent 
Bitcoin Exchanges between 3:00 p.m. 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 Index is the arithmetic mean of these 
12 volume-weighted median trade prices.\10\
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    \8\ Valkyrie Digital Assets LLC is the sponsor of the Trust 
(``Sponsor'') and Delaware Trust Company is the trustee. Coinbase 
Custody Trust Company, LLC (``Custodian'') will act as custodian for 
the Trust's bitcoins. U.S. Bancorp Fund Services, LLC 
(``Administrator'') will act as the transfer agent and administrator 
of the Trust. See Notice, supra note 3, 86 FR at 26073.
    \9\ The Index is not affiliated with the Sponsor and is 
administered by CF Benchmarks Ltd. (``Benchmark Administrator''). 
See Notice, supra note 3, 86 FR at 26076.
    \10\ See id.
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    The Shares of the Trust represent units of fractional undivided 
beneficial interest in, and ownership of, the Trust. The Trust will 
only hold bitcoin. The Custodian will establish accounts that hold the 
bitcoins deposited with the Custodian on behalf of the Trust.\11\
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    \11\ See id. at 26073.
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    The Administrator will calculate the NAV of the Trust once each 
Exchange trading day. The Sponsor will publish the NAV and NAV per 
Share as soon as practicable after their determination and 
availability, and the NAV will be released after the end of the Core 
Trading Session (4:00 p.m., E.T.). The NAV of the Trust is not 
officially struck until later in the day (often by 5:30 p.m., E.T, and 
usually by 8:00 p.m., E.T.). The Trust's NAV per Share is calculated by 
taking the current market value of its total assets, less any 
liabilities of the Trust, and dividing that total by the total number 
of outstanding Shares. The bitcoin held by the Trust will be valued 
based on the price set by the Index.\12\
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    \12\ See id. at 26076.
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    The Trust will provide website disclosure of its bitcoin holdings 
daily.\13\ The Trust will also disseminate an intraday indicative value 
(``IIV'') per Share updated every 15 seconds by one of more major 
market data vendors during the Exchange's Core Trading Session 
(normally 9:30 a.m. to 4:00 p.m., E.T.). The IIV will be calculated by 
a third-party financial data provider using the prior day's closing NAV 
per Share of the Trust as a base and updating that value throughout the 
trading day to reflect changes in the most recently reported price 
level of the CME CF Bitcoin Real-Time Index (``BRTI''), as reported by 
CME Group, Inc., Bloomberg, L.P., or another reporting service.\14\
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    \13\ See id. at 26081.
    \14\ The BRTI is calculated in real time based on the universe 
of the currently unmatched limit orders to buy or sell in the BTC/
USD pair of all Constituent Bitcoin Exchanges. See id. at 26076.
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    The Trust will issue and redeem Shares to authorized participants 
on an ongoing basis in one or more ``Baskets'' of 50,000 Shares. The 
creation and redemption of a Basket requires the delivery to the Trust, 
or the distribution by the Trust, of the number of whole and fractional 
bitcoins represented by

[[Page 44764]]

each Basket being created or redeemed.\15\ Creation orders and 
redemption orders may be placed either ``in-kind'' or ``in-cash.'' 
Although the Trust will create Baskets only upon the receipt of 
bitcoins, and will redeem Baskets only by distributing bitcoins, an 
authorized participant may deposit cash with the Administrator, which 
will facilitate the purchase or sale of bitcoins through a liquidity 
provider on behalf of an authorized participant (``Conversion 
Procedures'').\16\
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    \15\ See id. at 26076-77.
    \16\ The Conversion Procedures will be facilitated by a single 
liquidity provider, which will be selected by the Sponsor on an 
order-by-order basis. In the event that an order cannot be filled in 
its entirety by a single liquidity provider, additional liquidity 
provider(s) will be selected by the Sponsor to fill the remaining 
amount. See id. at 26076-78.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEArca-2021-31 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \17\ 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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    \17\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\18\ 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.'' \19\
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    \18\ Id.
    \19\ 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,\20\ 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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    \20\ 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 the 
bitcoin ecosystem has matured considerably since the last time the 
Commission reviewed a proposal for a bitcoin exchange-traded product? 
\21\ Are the changes that the Exchange identifies sufficient to support 
the determination that the proposed listing and trading of the Shares 
is consistent with the Act?
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    \21\ See id. at 26078.
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    3. The Exchange states that the design choices within the 
methodology and framework of the Index are sufficiently resistant to 
market manipulation and that, to date, there has been no evidence that 
the Index has been subject to manipulation.\22\ What are commenters' 
views on these assertions regarding the Index, including the relevance 
of such assertions in determining whether the proposed listing and 
trading of the Shares is consistent with the Act?
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    \22\ See id. at 26078-79.
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    4. The Exchange states that the Chicago Mercantile Exchange 
(``CME'') participates in the oversight committee of the Index.\23\ The 
Exchange further states that the Constituent Bitcoin Exchanges ``(1) 
must enter into a data sharing agreement with the CME, (2) must 
cooperate with inquiries and investigations of regulators and the 
Benchmark Administrator and (3) must submit each of its clients to its 
Know-Your-Customer (``KYC'') procedures; therefore, the CME would be 
able, in the case of any suspicious trades, to discover all material 
trade information including the identities of the customers placing the 
trades.'' \24\ What are commenters' views on these assertions regarding 
the Index, including the relevance of such assertions in determining 
whether the proposed listing and trading of the Shares is consistent 
with the Act?
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    \23\ See id. at 26079.
    \24\ See id.
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    5. The Exchange states that the ``proposed rule change is designed 
to prevent fraudulent and manipulative acts and practices because, 
although the global Bitcoin market is not inherently resistant to fraud 
and manipulation, the Index used by the Trust to determine the value of 
its bitcoin assets and its NAV, serves as a benchmark mechanism 
sufficient to mitigate the impact of instances of fraud and 
manipulation on a reference price for Bitcoin.'' \25\ The Exchange 
further states that ``use of the Index would mitigate the effects of 
potential manipulation of the bitcoin market.'' \26\ What are 
commenters' views regarding such assertions?
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    \25\ See id. at 26080.
    \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 September 3, 2021. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
September 17, 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-NYSEArca-2021-31 on the subject line.

[[Page 44765]]

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-2021-31. 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-2021-31 and should be submitted 
by September 3, 2021. Rebuttal comments should be submitted by 
September 17, 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. 2021-17305 Filed 8-12-21; 8:45 am]
BILLING CODE 8011-01-P


