[Federal Register Volume 86, Number 163 (Thursday, August 26, 2021)]
[Notices]
[Pages 47662-47664]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-18348]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92714; File No. SR-NYSEArca-2021-37]


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 First Trust SkyBridge 
Bitcoin ETF Trust Under NYSE Arca Rule 8.201-E

August 20, 2021.
    On May 6, 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 First Trust SkyBridge Bitcoin 
ETF Trust (``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 27, 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. 91962 (May 21, 
2021), 86 FR 28646 (May 27, 2021) (``Notice''). Comments on the 
proposed rule change can be found at: https://www.sec.gov/comments/sr-nysearca-2021-37/srnysearca202137.htm.
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    On July 7, 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. 92333 (July 7, 
2021), 86 FR 36826 (July 13, 2021). The Commission designated August 
25, 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 would be for the Shares to 
reflect the performance of the value of bitcoin, less

[[Page 47663]]

the Trust's liabilities and expenses.\8\ The Trust will not seek to 
reflect the performance of any benchmark or index. In order to pursue 
its investment objective, the Trust will seek to purchase and sell such 
number of bitcoin so that the total value of the bitcoin held by the 
Trust is as close to 100% of the net assets of the Trust as is 
reasonably practicable to achieve.\9\
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    \8\ See id. at 28652. First Trust Advisors L.P. is the sponsor 
of the Trust, and Delaware Trust Company is the trustee. The sub-
adviser for the Trust is SkyBridge Capital II, LLC. The Bank of New 
York Mellon (``Administrator'') is the transfer agent and the 
administrator of the Trust. The bitcoin custodian for the Trust is 
NYDIG Trust Company LLC (``Bitcoin Custodian''). See id. at 28646.
    \9\ See id. at 28652.
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    The Shares represent units of fractional undivided beneficial 
interest in, and ownership of, the Trust. The Trust will hold only 
bitcoins, which the Bitcoin Custodian will custody on behalf of the 
Trust. The Trust generally will not hold cash or cash equivalents; 
however, the Trust may hold cash and cash equivalents on a temporary 
basis to pay extraordinary expenses.\10\
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    \10\ See id. at 28652, 28654. The Administrator acts as 
custodian of the Trust's cash and cash equivalents. See id. at 
28654. While the Trust may from time to time incur certain 
extraordinary, non-recurring expenses that must be paid in U.S. 
dollars or other fiat currency, such events would only impact the 
amount of bitcoin represented by a Share of the Trust. See id. at 
28655.
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    The net asset value (``NAV'') of the Trust will be determined in 
accordance with Generally Accepted Accounting Principles as the total 
value of bitcoin held by the Trust, plus any cash or other assets, less 
any liabilities including accrued but unpaid expenses. The NAV of the 
Trust will be determined as of 4:00 p.m., E.T. on each day that the 
Shares trade on the Exchange (``Business Day'').\11\ The Trust will use 
the CF Bitcoin US Settlement Price (``Reference Rate'') to calculate 
the Trust's NAV.\12\ The Reference Rate 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 Reference Rate aggregates the 
trade flow of several bitcoin platforms 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 
platforms of the Reference Rate are Bitstamp, Coinbase, Gemini, itBit, 
and Kraken (``Constituent Platforms''). 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. and 4:00 p.m., 
E.T. The methodology then divides this list into a number of equally 
sized time intervals, and it calculates the volume-weighted median 
trade price for each of those time intervals. The Reference Rate is the 
equally weighted average of the volume-weighted median trade prices of 
all intervals.\13\
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    \11\ The Trust's daily activities will generally not be 
reflected in the NAV determined for the Business Day on which the 
transactions are effected (the trade date), but rather on the 
following Business Day. See id. at 28654.
    \12\ The Reference Rate is not affiliated with the Sponsor and 
is administered by CF Benchmarks Ltd. See id. at 28654.
    \13\ See id. at 28654-55.
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    The Trust's website, as well as one or more major market data 
vendors, will provide an intra-day 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 Core Trading 
Session (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 the Exchange's Core Trading Session to reflect changes in 
the value of the Trust's NAV during the trading day.\14\
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    \14\ See id. at 28659.
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    The Trust will issue and redeem Shares to Authorized Participants 
on an ongoing basis in blocks of 50,000 Shares (``Creation Units''). 
The creation and redemption of Creation Units will be effected in ``in-
kind'' transactions based on the quantity of bitcoin attributable to 
each Share. The creation and redemption of Creation Units require the 
delivery to the Trust, or the distribution by the Trust, of the number 
of bitcoins represented by the Creation Units being created or 
redeemed.\15\
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    \15\ See id. at 28658-59.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEArca-2021-37 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \16\ 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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    \16\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\17\ 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.'' \18\
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    \17\ Id.
    \18\ 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,\19\ 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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    \19\ 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 assertions that the 
regulatory and financial landscape relating to bitcoin and other 
digital assets have changed significantly since 2016? \20\ Are the 
changes that the Exchange identifies sufficient to support the 
determination that the proposal to list and trade the Shares is 
designed to protect investors and the public interest and is consistent 
with the other applicable requirements of Section 6(b)(5) of the Act?
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    \20\ See id. at 28647-48.
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    3. The Exchange states that the listing and trading of the Shares 
would provide ``an opportunity for U.S. investors to gain exposure to 
bitcoin in a regulated and transparent exchange-traded vehicle that 
limits risks'' and asserts that concerns regarding potential 
manipulation of a bitcoin exchange-traded product ``have been 
sufficiently mitigated and may be outweighed by growing and 
quantifiable investor protection concerns related to [over-the-counter 
bitcoin funds].'' \21\ What are

[[Page 47664]]

commenters' views regarding such assertions?
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    \21\ See id. at 28649.
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    4. The Exchange asserts that the Chicago Mercantile Exchange 
(``CME''), either alone as the sole market for bitcoin futures or as a 
group of markets together with the Constituent Platforms, represents a 
regulated market of significant size.\22\ Further, the Exchange states 
that CME is ``the primary market for bitcoin futures, and compares 
favorably with other markets that were deemed to be markets of 
significant size in precedents.'' \23\ Do commenters agree? What of the 
Exchange's assertion that, through CME CF Bitcoin Reference Rate, ``the 
CME and the Exchange 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\
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    \22\ See id. at 28656, 28661.
    \23\ See id. at 28656.
    \24\ See id. at 28657.
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    5. The Exchange states that any would-be manipulator of bitcoin 
prices would be reasonably likely to do so through the Commodity 
Futures Trading Commission-regulated bitcoin futures (``Bitcoin 
Futures'') market, i.e., CME.\25\ Among other things, the Exchange 
asserts that, ``because the Bitcoin Futures market is in effect the 
`cheapest' route to manipulate bitcoin, it is highly likely such 
manipulators would attempt to do so there rather than any spot 
market.'' \26\ Do commenters agree with this assertion?
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    \25\ See id. at 28656-57.
    \26\ See id. at 28657.
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    6. What are commenters' views on the Exchange's assertion that (a) 
Bitcoin Futures' important role in price discovery; (b) the overall 
size of the bitcoin market; (c) the ability for market participants to 
buy or sell large amounts of bitcoin without significant market impact; 
and (d) the results from a study conducted by CF Benchmarks regarding 
``slippage'' help demonstrate that the Shares would not become the 
predominant force on pricing in either the bitcoin spot or Bitcoin 
Futures markets? \27\
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    \27\ See id. at 28658.
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    7. What are commenters' views on the Exchange's 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 increasingly expensive? \28\ What are commenters' 
views on whether ``offering only in-kind creation and redemption will 
provide 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''? \29\ What are commenters' 
views on the assertion that because the Reference Rate is determined 
exclusively based on its Constituent Platforms, ``use of the Reference 
Rate would mitigate the effects of potential manipulation of the 
bitcoin market''? \30\
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    \28\ See id.
    \29\ See id.
    \30\ See id. at 28661.
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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.\31\
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    \31\ 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 16, 2021. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal 
September 30, 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-2021-37 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-2021-37. 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-2021-37 and should be submitted 
by September 16, 2021. Rebuttal comments should be submitted by 
September 30, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
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    \32\ 17 CFR 200.30-3(a)(57).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021-18348 Filed 8-25-21; 8:45 am]
BILLING CODE 8011-01-P


