[Federal Register Volume 86, Number 224 (Wednesday, November 24, 2021)]
[Notices]
[Pages 67094-67096]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-25625]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93608; File No. SR-CboeBZX-2021-052]


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 Global X Bitcoin 
Trust Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares

November 18, 2021.
    On August 3, 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 
Global X Bitcoin 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 August 23, 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. 92689 (Aug. 17, 
2021), 86 FR 47176 (``Notice''). Comments on the proposed rule 
change can be found at: https://www.sec.gov/comments/sr-cboebzx-2021-052/srcboebzx2021052.htm.
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    On September 29, 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

[[Page 67095]]

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. 93174, 86 FR 55043 
(Oct. 5, 2021). The Commission designated November 21, 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 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 reflect the 
performance of the price of bitcoin less the expenses of the Trust's 
operations. The Trust is not actively managed and will not seek to 
reflect the performance of any benchmark or index.\8\ 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 hold cash on a temporary basis.\9\
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    \8\ See id. at 47184-85. Global X Digital Assets, LLC 
(``Sponsor'') is the sponsor of the Trust, and Delaware Trust 
Company is the trustee. The Sponsor will select the administrator, 
transfer agent, and marketing agent in connection with the creation 
and redemption of the Shares, and a third-party regulated custodian 
that will be responsible for custody of the Trust's bitcoin. See id. 
at 47177, 47184.
    \9\ See id. at 47184.
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    In seeking to achieve its investment objective, the Trust would 
hold bitcoin and value its assets daily in accordance with Generally 
Accepted Accounting Principles (``GAAP''), which, according to the 
Exchange, generally value bitcoin by reference to orderly transactions 
in the principal active market for bitcoin.\10\
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    \10\ See id. at 47185.
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    The net asset value (``NAV'') for the Trust will be calculated by 
the administrator once a day and will be disseminated daily to all 
market participants at the same time.\11\ The Sponsor will use fair 
value standards according to GAAP to value the assets and liabilities 
of the Trust.\12\ According to the Exchange, the fair value of an asset 
that is traded on a market is measured by reference to the orderly 
transactions on an active market. Among all active markets with orderly 
transactions, the market that is used to determine the fair value of an 
asset is the principal market (with exceptions), which is either the 
market on which the Trust actually transacts or, if there is sufficient 
evidence, the market with the most trading volume and level of activity 
for the asset.\13\ Where there is no active market with orderly 
transactions for an asset, the Sponsor's valuation committee will 
follow policies and procedures to determine the fair value.\14\
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    \11\ See id. at 47186.
    \12\ See id. at 47185.
    \13\ The Sponsor will first determine which markets are likely 
to be active markets with orderly transactions for bitcoin. Among 
the venues supporting active markets with orderly transactions, the 
Sponsor will determine to which such venues the Trust has access and 
refer to these as eligible venues. Eligible venues consist of 
eligible over-the-counter venues and eligible exchanges. The Sponsor 
will then determine the principal market for bitcoin as either the 
market that the Trust normally transacts in for bitcoin, or, if the 
Trust does not normally transact in any market or the Sponsor has 
sufficient evidence that a particular market has the highest trading 
volume and level of activity, such market. The Trust will not 
purchase or, barring the liquidation of the Trust or the Trust 
incurring certain extraordinary expenses or liabilities not 
contractually assumed by the Sponsor, sell bitcoin directly. As a 
result, the Sponsor expects that the principal market will generally 
be the market with the highest trading volume and level of activity, 
which the Sponsor expects will typically be an eligible exchange. 
The Sponsor will determine the principal market for bitcoin at least 
quarterly and more frequently as circumstances warrant. See id.
    \14\ See id.
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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. ET to 4:00 p.m. ET). 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.\15\
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    \15\ See id. at 47185-86.
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    When the Trust sells or redeems its Shares, it will do so in ``in-
kind'' transactions in blocks of Shares (in an amount to be 
determined). Authorized participants will deliver, or facilitate the 
delivery of, bitcoin to the Trust's account with the custodian when 
they purchase Shares, and the Trust, through the custodian, will 
deliver bitcoin to such authorized participants when they redeem Shares 
with the Trust.\16\
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    \16\ See id. at 47184.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBZX-2021-052 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 
regulatory and financial landscapes relating to

[[Page 67096]]

bitcoin and other digital assets have changed significantly since 2016? 
\21\ 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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    \21\ See id. at 47178-79.
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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.\22\ 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 that would be 
resolved by approving this proposal.'' \23\ What are commenters' views 
regarding such assertions?
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    \22\ See id. at 47179.
    \23\ See id. at 47183.
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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.'' \24\ Based on data provided and the academic research cited by 
the Exchange, do commenters agree that the Chicago Mercantile Exchange 
(``CME'')'s bitcoin futures market now represents a regulated market of 
significant size? \25\ 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 are 
commenters' views on 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 
would help to prevent the Shares from becoming the predominant force on 
pricing in either the bitcoin spot or CME bitcoin futures markets? \26\
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    \24\ See id. at 47181.
    \25\ See id. at 47181-84, 47188.
    \26\ See id. at 47188-89.
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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? \27\ What are commenters' views on 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? \28\ What are 
commenters' views on the Exchange's 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''? \29\
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    \27\ See id. at 47183 n.54.
    \28\ See id. at 47189.
    \29\ 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.\30\
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    \30\ 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 December 15, 2021. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
December 29, 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 [email protected]. Please include 
File Number SR-CboeBZX-2021-052 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-2021-052. 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-2021-052 and should be submitted 
by December 15, 2021. Rebuttal comments should be submitted by December 
29, 2021.
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    \31\ 17 CFR 200.30-3(a)(57).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-25625 Filed 11-23-21; 8:45 am]
BILLING CODE 8011-01-P


