[Federal Register Volume 87, Number 91 (Wednesday, May 11, 2022)]
[Notices]
[Pages 28848-28855]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-10065]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94853; File No. SR-NASDAQ-2021-066]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order 
Granting Approval of a Proposed Rule Change, as Modified by Amendment 
Nos. 1 and 2, To List and Trade Shares of the Valkyrie XBTO Bitcoin 
Futures Fund Under Nasdaq Rule 5711(g)

May 5, 2022.

I. Introduction

    On August 23, 2021, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to list and trade shares 
(``Shares'') of the Valkyrie XBTO Bitcoin Futures Fund (``Trust'') 
under Nasdaq Rule 5711(g) (Commodity Futures Trust Shares). On August 
25, 2021, the Exchange filed Amendment No. 1 to the proposed rule 
change. The proposed rule change, as modified by Amendment No. 1, was 
published for comment in the Federal Register on September 9, 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. 92865 (Sept. 2, 
2021), 86 FR 50570 (``Notice'').
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    On September 29, 2021, pursuant to Section 19(b)(2) of the Exchange 
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\ On December 7, 2021, the Commission instituted 
proceedings under Section 19(b)(2)(B) of the Exchange Act \6\ to 
determine whether to approve or disapprove the proposed rule change.\7\ 
On February 25, 2022, the Commission designated a longer period for 
Commission action on the proposed rule change.\8\ On April 12, 2022, 
the Exchange filed partial Amendment No. 2 to the proposed rule 
change.\9\ The Commission has received no comments on the proposed rule 
change.
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    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 93172, 86 FR 55071 
(Oct. 5, 2021).
    \6\ 15 U.S.C. 78s(b)(2)(B).
    \7\ See Securities Exchange Act Release No. 93731, 86 FR 70882 
(Dec. 13, 2021).
    \8\ See Securities Exchange Act Release No. 94316, 87 FR 12211 
(Mar. 3, 2022).
    \9\ In Amendment No. 2, the Exchange clarified, among other 
things, that under no circumstances will the Trust hold and/or 
invest in any assets other than bitcoin futures contracts traded on 
the Chicago Mercantile Exchange, Inc., cash, and Money Market 
Instruments (as defined below), and provided additional 
representations that are commonly made by and/or required for 
futures-based exchange-traded products listed under Nasdaq Rule 
5711(g) (Commodity Futures Trust Shares). Because Amendment No. 2 
does not materially alter the substance of the proposed rule change, 
Amendment No. 2 is not subject to notice and comment. The full text 
of Amendment No. 2 is available on the Commission's website at: 
https://www.sec.gov/comments/sr-nasdaq-2021-066/srnasdaq2021066-20125377-284868.pdf (``Amendment No. 2'').
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    When an exchange files a proposed rule change,\10\ the Commission 
must determine whether the proposed rule change is consistent with the 
statutory provisions, and the rules and regulations, that apply to 
national securities exchanges.\11\ As discussed further below, the 
Commission is approving the proposed rule change, as modified by 
Amendment Nos. 1 and 2. In approving this proposed rule change, 
however, the Commission emphasizes--as it has with previous orders 
regarding bitcoin-related ETPs \12\--that its action does not rest on 
an evaluation of whether bitcoin, or blockchain technology more 
generally, has utility or value as an innovation or an investment.
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    \10\ Such filings are made under Section 19(b)(1) of the 
Exchange Act, 15 U.S.C. 78s(b)(1), and Exchange Act Rule 19b-4, 17 
CFR 240.19b-4.
    \11\ See Exchange Act Section 19(b)(2)(C), 15 U.S.C. 
78s(b)(2)(C).
    \12\ See, e.g., Order Disapproving a Proposed Rule Change, as 
Modified by Amendment No. 1, To Amend NYSE Arca Rule 8.201-E 
(Commodity-Based Trust Shares) and To List and Trade Shares of the 
United States Bitcoin and Treasury Investment Trust Under NYSE Arca 
Rule 8.201-E, Securities Exchange Act Release No. 88284 (Feb. 26, 
2020), 85 FR 12595, 12597 (Mar. 3, 2020) (SR-NYSEArca-2019-39) 
(``USBT Order''); Order Disapproving a Proposed Rule Change To List 
and Trade Shares of the NYDIG Bitcoin ETF Under NYSE Arca Rule 
8.201-E (Commodity-Based Trust Shares), Securities Exchange Act 
Release No. 94395 (Mar. 10, 2022), 87 FR 14932, 14934 (Mar. 16, 
2022) (SR-NYSEArca-2021-57) (``NYDIG Order'').
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II. Description of the Proposed Rule Change, as Modified by Amendment 
Nos. 1 and 2

    As described in more detail in the Notice and Amendment No. 2,\13\ 
the Exchange proposes to list and trade the Shares of the Trust under 
Nasdaq Rule 5711(g), which governs the listing and trading of Commodity 
Futures Trust Shares on the Exchange.
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    \13\ See Notice, supra note 3; Amendment No. 2, supra note 9.
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    The investment objective of the Trust is for the Shares to reflect 
the performance of bitcoin \14\ as represented by the CME CF Bitcoin 
Reference Rate (``CME CF BRR''), less the Trust's liabilities and 
expenses.\15\ The CME CF BRR aggregates the trade flow of major bitcoin 
spot platforms during a specific calculation window into a one-a-day 
reference rate of the U.S. dollar price of bitcoin.\16\ The Trust will 
pursue its investment objective by holding bitcoin futures that are 
cash-settled and traded on the Chicago Mercantile Exchange, Inc. (the 
``CME''), which was self-certified with the Commodity Futures

[[Page 28849]]

Trading Commission (the ``CFTC'').\17\ The Trust will not invest in or 
hold spot bitcoin.\18\ In addition to the Trust's investments in CME 
bitcoin futures, the Trust expects to have significant holdings of cash 
and high-quality, short-term debt instruments that have remaining 
terms-to maturity of less than 397 days, and include only U.S. Treasury 
securities and repurchase agreements (``Money Market 
Instruments'').\19\
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    \14\ Bitcoins are digital assets that are issued and transferred 
via a decentralized, open-source protocol used by a peer-to-peer 
computer network through which transactions are recorded on a public 
transaction ledger known as the ``bitcoin blockchain.'' The bitcoin 
protocol governs the creation of new bitcoins and the cryptographic 
system that secures and verifies bitcoin transactions. See, e.g., 
Notice, 86 FR at 50571.
    \15\ See id. at 50574. Valkyrie Funds LLC (``Sponsor'') serves 
as the Trust's sponsor and commodity pool operator; Vident 
Investment Advisory, LLC (``Sub-Advisor'') serves as the Trust's 
sub-advisor and commodity trading advisor; and XBTO Trading, LLC is 
the research provider for the Sponsor and the Sub-Advisor. Delaware 
Trust Company serves as the trustee for the Trust. The Sponsor is 
currently considering third-party service providers for the roles of 
administrator, transfer agent, custodian, and marketing agent. See 
id. at 50571.
    \16\ See id. at 50573 n.8. According to the Exchange, 
calculation rules are geared toward maximum transparency and real-
time replicability in underlying spot markets, including Bitstamp, 
Coinbase, Gemini, itBit, and Kraken. See id.
    \17\ See id. at 50574.
    \18\ See Amendment No. 2, supra note 9, at 3.
    \19\ See id.; Notice, 86 FR at 50574.
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    The net asset value (``NAV'') of the Trust will be determined in 
accordance with Generally Accepted Accounting Principles. The NAV per 
Share will be determined by dividing the NAV of the Trust by the number 
of Shares outstanding. The NAV of the Trust is typically determined as 
of 4:00 p.m. E.T. on each day the Shares trade on the Exchange 
(``Business Day''). The Trust's daily activities are generally not 
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.\20\
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    \20\ See Notice, 86 FR at 50574.
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    The Trust will issue and redeem Shares on a continuous basis at NAV 
per Share in large, specified blocks of Shares (``Creation Units'') in 
transactions with broker-dealers and large institutional investors that 
have entered into participation agreements (``Authorized 
Participants''). The Exchange currently anticipates that a Creation 
Unit will consist of 50,000 Shares, although this number may change 
from time to time.\21\ In addition, the Shares will generally be 
created and redeemed in cash.\22\
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    \21\ See id. at 50579-80. Upon the request of an Authorized 
Participant made at the time of a redemption order, the Sponsor at 
its sole discretion may determine, in addition to delivering 
redemption proceeds, to transfer futures contracts to the Authorized 
Participant pursuant to an exchange of a futures contract for a 
related position or to a block trade sale of futures contracts to 
the Authorized Participant. See id. at 50580.
    \22\ See Amendment No. 2, supra note 9, at 4.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment Nos. 1 and 2, is consistent with the 
Exchange Act and rules and regulations thereunder applicable to a 
national securities exchange.\23\ In particular, the Commission finds 
that the proposed rule change, as modified by Amendment Nos. 1 and 2, 
is consistent with Section 6(b)(5) of the Exchange Act,\24\ which 
requires, among other things, that the Exchange's rules be designed to 
``prevent fraudulent and manipulative acts and practices,'' to 
``promote just and equitable principles of trade,'' to ``remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system,'' and, ``in general, to protect investors and 
the public interest.'' The Commission also finds, with respect to the 
dissemination of quotation and last trade information for the proposed 
ETP, that the proposed rule change, as modified by Amendment Nos. 1 and 
2, is consistent with Section 11A(a)(1)(C)(iii) of the Exchange 
Act,\25\ which sets forth Congress' finding that it is in the public 
interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers, and investors of information with respect to 
quotations for and transactions in securities.
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    \23\ In approving this proposed rule change, as modified by 
Amendment Nos. 1 and 2, the Commission notes that it has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \24\ 15 U.S.C. 78f(b)(5).
    \25\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    When considering whether Nasdaq's proposal to list and trade the 
Shares is designed to prevent fraudulent and manipulative acts and 
practices, the Commission applies the same standard it used in orders 
considering previous proposals to list bitcoin-based commodity trusts 
and bitcoin-based trust issued receipts.\26\ As the Commission has 
explained, an exchange that lists bitcoin-based exchange-traded 
products (``ETPs'') can meet its obligations under Exchange Act Section 
6(b)(5) by demonstrating that the exchange has a comprehensive 
surveillance-sharing agreement with a regulated market of significant 
size related to the underlying or reference bitcoin assets.\27\ The 
Winklevoss Order

[[Page 28850]]

applied this standard to a commodity-trust ETP based on spot bitcoin, 
and the Commission has found that this standard is also appropriate 
for, and has applied the standard to, proposed ETPs based on bitcoin 
futures.\28\
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    \26\ See Order Setting Aside Action by Delegated Authority and 
Disapproving a Proposed Rule Change, as Modified by Amendments No. 1 
and 2, To List and Trade Shares of the Winklevoss Bitcoin Trust, 
Securities Exchange Act Release No. 83723 (July 26, 2018), 83 FR 
37579 (Aug. 1, 2018) (SR-BatsBZX-2016-30) (``Winklevoss Order''); 
USBT Order, 85 FR 12595; Order Disapproving a Proposed Rule Change 
To List and Trade Shares of the WisdomTree Bitcoin Trust Under BZX 
Rule 14.11(e)(4), Commodity-Based Trust Shares, Securities Exchange 
Act Release No. 93700 (Dec. 1, 2021), 86 FR 69322 (Dec. 7, 2021) 
(SR-CboeBZX-2021-024) (``WisdomTree Order''); Order Disapproving 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, Securities Exchange Act Release No. 93860 (Dec. 22, 2021), 
86 FR 74166 (Dec. 29, 2021) (SR-CboeBZX-2021-029) (``Kryptoin 
Order''); Order Disapproving a Proposed Rule Change To List and 
Trade Shares of the Valkyrie Bitcoin Fund Under NYSE Arca Rule 
8.201-E (Commodity-Based Trust Shares), Securities Exchange Act 
Release No. 93859 (Dec. 22, 2021), 86 FR 74156 (Dec. 29, 2021) (SR-
NYSEArca-2021-31) (``Valkyrie Order''); Order Disapproving a 
Proposed Rule Change To List and Trade Shares of the First Trust 
SkyBridge Bitcoin ETF Trust Under NYSE Arca Rule 8.201-E, Securities 
Exchange Act Release No. 94006 (Jan. 20, 2022), 87 FR 3869 (Jan. 25, 
2022) (SR-NYSEArca-2021-37) (``Skybridge Order''); Order 
Disapproving a Proposed Rule Change To List and Trade Shares of the 
Wise Origin Bitcoin Trust Under BZX Rule 14.11(e)(4), Commodity-
Based Trust Shares, Securities Exchange Act Release No. 94080 (Jan. 
27, 2022), 87 FR 5527 (Feb. 1, 2022) (SR-CboeBZX-2021-029) (``Wise 
Origin Order''); NYDIG Order, 87 FR 14932; Order Disapproving 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, Securities Exchange Act Release No. 94396 (Mar. 10, 2022), 
87 FR 14912 (Mar. 16, 2022) (SR-CboeBZX-2021-052) (``Global X 
Order''); Order Disapproving a Proposed Rule Change, as Modified by 
Amendment No. 1, To List and Trade Shares of the ARK 21Shares 
Bitcoin ETF Under BZX Rule 14.11(e)(4), Commodity-Based Trust 
Shares, Securities Exchange Act Release No. 94571 (Mar. 31, 2022), 
87 FR 20014 (Apr. 6, 2022) (SR-CboeBZX-2021-051) (``ARK 21Shares 
Order''). See also Order Disapproving a Proposed Rule Change, as 
Modified by Amendment No. 1, Relating to the Listing and Trading of 
Shares of the SolidX Bitcoin Trust Under NYSE Arca Equities Rule 
8.201, Securities Exchange Act Release No. 80319 (Mar. 28, 2017), 82 
FR 16247 (Apr. 3, 2017) (SR-NYSEArca-2016-101) (``SolidX Order''). 
The Commission also notes that orders were issued by delegated 
authority on the following matters: Order Disapproving a Proposed 
Rule Change To List and Trade the Shares of the ProShares Bitcoin 
ETF and the ProShares Short Bitcoin ETF, Securities Exchange Act 
Release No. 83904 (Aug. 22, 2018), 83 FR 43934 (Aug. 28, 2018) (SR-
NYSEArca-2017-139) (``ProShares Order''); Order Disapproving a 
Proposed Rule Change To List and Trade the Shares of the 
GraniteShares Bitcoin ETF and the GraniteShares Short Bitcoin ETF, 
Securities Exchange Act Release No. 83913 (Aug. 22, 2018), 83 FR 
43923 (Aug. 28, 2018) (SR-CboeBZX-2018-001) (``GraniteShares 
Order''); Order Disapproving a Proposed Rule Change To List and 
Trade Shares of the VanEck Bitcoin Trust Under BZX Rule 14.11(e)(4), 
Commodity-Based Trust Shares, Securities Exchange Act Release No. 
93559 (Nov. 12, 2021), 86 FR 64539 (Nov. 18, 2021) (SR-CboeBZX-2021-
019) (``VanEck Order''); Order Granting Approval of a Proposed Rule 
Change, as Modified by Amendment No. 2, To List and Trade Shares of 
the Teucrium Bitcoin Futures Fund Under NYSE Arca Rule 8.200-E, 
Commentary .02 (Trust Issued Receipts), Securities Exchange Act 
Release No. 94620 (Apr. 6, 2022), 87 FR 21676 (Apr. 12, 2022) (SR-
NYSEArca-2021-053) (``Teucrium Order'').
    \27\ See USBT Order, 85 FR at 12596. In the context of 
derivative securities products such as commodity-trust ETPs, the 
Commission has long recognized the importance of comprehensive 
surveillance-sharing agreements to detect and deter fraudulent and 
manipulative activity. See, e.g., streetTRACKS Gold Shares, 
Securities Exchange Act Release No. 50603 (Oct. 28, 2004), 69 FR 
64614, 64618-19 (Nov. 5, 2004) (SR-NYSE-2004-22); iShares Silver 
Trust, Securities Exchange Act Release No. 53521 (Mar. 20, 2006), 71 
FR 14967, 14968, 14973-74 (Jan 26, 2005) (SR-Amex-2004-38); JPM XF 
Physical Copper Trust, Securities Exchange Act Release No. 68440 
(Dec. 14, 2012), 77 FR 75468, 75469-70, 75272, 75485-86 (Dec. 20, 
2012) (SR-NYSEArca-2012-28). See also Winklevoss Order, 83 FR at 
37592 n.202 and accompanying text (discussing previous Commission 
approvals of commodity-trust ETPs). And the Commission's approval 
orders for commodity-futures ETPs consistently note the ability of 
an ETP listing exchange to share surveillance information either 
through surveillance-sharing agreements or through membership by the 
listing exchange and the relevant futures exchange in the 
Intermarket Surveillance Group. See, e.g., Securities Exchange Act 
Release No. 53105 (Jan. 11, 2006), 71 FR 3129, 3136 (Jan. 19, 2006) 
(SR-Amex-2005-059); Securities Exchange Act Release No. 53582 (Mar. 
31, 2006), 71 FR 17510, 17518 (Apr. 6, 2006) (SR-Amex-2005-127); 
Securities Exchange Act Release No. 54013 (June 16, 2006), 71 FR 
36372, 36378-79 (June 26, 2006) (SR-NYSE-2006-17). See also 
GraniteShares Order, 83 FR at 43925-27 nn.35-39 and accompanying 
text (discussing previous Commission approvals of commodity-futures 
ETPs).
    \28\ See ProShares Order, 83 FR at 43936; GraniteShares Order, 
83 FR at 43925; Teucrium Order, 87 FR at 21677.
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    In the analysis below, the Commission examines whether the proposed 
rule change, as modified by Amendment Nos. 1 and 2, is consistent with 
Section 6(b)(5) of the Exchange Act by addressing: in Section III.A 
whether Nasdaq has entered into a comprehensive surveillance-sharing 
agreement with a regulated market of significant size related to the 
underlying bitcoin assets (here, CME bitcoin futures contracts); in 
Section III.B assertions that allowing investors to obtain exposure to 
bitcoin futures contracts through a bitcoin futures-based ETP would be 
beneficial; and in Section III.C whether the proposed ETP is consistent 
with other standards for commodity-futures ETPs. Based on its analysis, 
the Commission concludes that the proposed rule change, as modified by 
Amendment Nos. 1 and 2, is consistent with the statutory requirements 
of Exchange Act Sections 6(b)(5) and 11A(a)(1)(C)(iii).
    As discussed in more detail below, the approval is based on a 
finding that the CME is a ``significant market'' related to CME bitcoin 
futures contracts, which would be the exclusive non-cash holdings of 
the proposed ETP. The Commission emphasizes that its approval of this 
proposal is based on the specific facts and circumstances of the 
proposal.\29\
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    \29\ The Commission is not suggesting that either the 
development of the CME bitcoin futures market or the approval of 
this proposal would require the Commission to approve a proposed 
rule change seeking to list and trade shares of an ETP holding spot 
bitcoin as an asset or ETPs related to other digital assets. See, 
e.g., GraniteShares Order, 83 FR at 43931. Other proposed ETPs will 
continue to be assessed on their particular facts and circumstances 
and on whether those proposals are consistent with the requirements 
of the Exchange Act.
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A. Comprehensive Surveillance-Sharing Agreement With a Regulated Market 
of Significant Size Related to CME Bitcoin Futures Contracts

    As stated above, an exchange that lists a bitcoin-based ETP can 
meet its obligations under Exchange Act Section 6(b)(5) by 
demonstrating that the exchange has a comprehensive surveillance-
sharing agreement with a regulated market of significant size related 
to the underlying bitcoin assets.\30\ When disapproving the earliest 
proposals for bitcoin-based ETPs, the Commission recognized that 
``regulated bitcoin-related markets are in the early stages of their 
development,'' but that ``[o]ver time, regulated bitcoin-related 
markets may continue to grow and develop'' in a way that would make it 
possible for a bitcoin-based ETP to satisfy the requirements of the 
Exchange Act.\31\ The Commission previously stated that, for example, 
``existing or newly created bitcoin futures markets'' that are 
regulated may achieve significant size, and an ETP listing exchange may 
be able to demonstrate in a proposed rule change that it will be able 
to address the risk of fraud and manipulation by entering into a 
surveillance-sharing agreement with a regulated market of significant 
size.\32\
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    \30\ See supra note 27.
    \31\ See Winklevoss Order, 83 FR at 37580.
    \32\ See id.; USBT Order, 85 FR at 12598.
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    With respect to the proposed ETP, the underlying bitcoin assets are 
CME bitcoin futures contracts. The relevant analysis, therefore, is 
whether Nasdaq has a comprehensive surveillance-sharing agreement with 
a regulated market of significant size related to CME bitcoin futures 
contracts. As discussed below, taking into consideration the direct 
relationship between the regulated market with which Nasdaq has a 
surveillance-sharing agreement and the assets held by the proposed 
ETP--including the current state of the CME bitcoin futures market and 
the trading of exchange-traded funds registered under the Investment 
Company Act of 1940 (``1940 Act'') that hold CME bitcoin futures 
(``Bitcoin Futures ETFs'')--the Commission concludes that the Exchange 
has the requisite surveillance-sharing agreement. The Commission notes 
that in the Teucrium Order it recently approved NYSE Arca, Inc.'s 
proposal to list and trade shares of an ETP that similarly would hold 
CME bitcoin futures contracts as its only non-cash holdings.\33\
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    \33\ See Teucrium Order, 87 FR at 21676.
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Comprehensive Surveillance-Sharing Agreements With the CME, a Regulated 
Market
    The Commission has emphasized that it is essential for an exchange 
listing a derivative securities product to enter into a surveillance-
sharing agreement with markets trading the underlying assets for the 
listing exchange to have the ability to obtain information necessary to 
detect, investigate, and deter fraud and market manipulation, as well 
as violations of exchange rules and applicable federal securities laws 
and rules.\34\ Comprehensive surveillance-sharing agreements ``provide 
a necessary deterrent to manipulation because they facilitate the 
availability of information needed to fully investigate a manipulation 
if it were to occur.'' \35\ The hallmarks of a surveillance-sharing 
agreement are that the agreement provides for the sharing of 
information about market trading activity, clearing activity, and 
customer identity; that the parties to the agreement have reasonable 
ability to obtain access to and produce requested information; and that 
no existing rules, laws, or practices would impede one party to the 
agreement from obtaining this information from, or producing it to, the 
other party.\36\
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    \34\ See Amendment to Rule Filing Requirements for Self-
Regulatory Organizations Regarding New Derivative Securities 
Products, Securities Exchange Act Release No. 40761 (Dec. 8, 1998), 
63 FR 70952, 70959 (Dec. 22, 1998).
    \35\ Id. See also Winklevoss Order, 83 FR at 37594; ProShares 
Order, 83 FR at 43936; GraniteShares Order, 83 FR at 43924; USBT 
Order, 85 FR at 12596.
    \36\ See Winklevoss Order, 83 FR at 37592-93 (discussing Letter 
from Brandon Becker, Director, Division of Market Regulation, 
Commission, to Gerard D. O'Connell, Chairman, Intermarket 
Surveillance Group (June 3, 1994), available at http://www.sec.gov/divisions/marketreg/mr-noaction/isg060394.htm).
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    As the Commission has stated, it considers two markets to have a 
comprehensive surveillance-sharing agreement with one another if they 
are both members of the Intermarket Surveillance Group (``ISG''), even 
if they do not have a separate bilateral surveillance-sharing 
agreement.\37\ Accordingly, based on the common membership of Nasdaq 
and the CME in the ISG,\38\ Nasdaq has the equivalent of a 
comprehensive surveillance-sharing agreement with the CME. Moreover, as 
the Commission has previously recognized, the CFTC regulates the CME 
futures market, including the CME bitcoin futures market, and thus that 
market is ``regulated.'' \39\
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    \37\ See id. at 37580 n.19.
    \38\ See Notice, 86 FR at 50576.
    \39\ See, e.g., WisdomTree Order, 86 FR at 69330; Wise Origin 
Order, 87 FR at 5534.

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[[Page 28851]]

Whether the CME Is a Market of Significant Size Related to CME Bitcoin 
Futures Contracts
    In the Winklevoss Order, the Commission stated that the term 
``significant market'' or ``market of significant size'' includes a 
market (or group of markets) as to which (1) there is a reasonable 
likelihood that a person attempting to manipulate the ETP would also 
have to trade on that market to successfully manipulate the ETP, so 
that a surveillance-sharing agreement would assist in detecting and 
deterring misconduct, and (2) it is unlikely that trading in the ETP 
would be the predominant influence on prices in that market.\40\ The 
Commission explained that this definition is illustrative and not 
exclusive, and that there could be other types of ``significant 
markets'' and ``markets of significant size.'' \41\
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    \40\ See Winklevoss Order, 83 FR at 37594.
    \41\ See id.
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(1) Prong 1
    The first prong of the analysis addresses whether the surveillance-
sharing agreement on which the ETP listing exchange proposes to rely 
would assist in detecting and deterring fraudulent or manipulative 
misconduct related to the assets held by the ETP. In the present 
proposal, the proposed ETP's only non-cash holdings will be CME bitcoin 
futures contracts. Moreover, the proposed ``significant'' regulated 
market (i.e., the CME) with which the listing exchange has a 
surveillance-sharing agreement is the same market on which these assets 
trade. As the Commission previously recognized in the Teucrium Order, 
the CME's surveillance can reasonably be relied upon to capture the 
effects on the CME bitcoin futures market caused by a person attempting 
to manipulate the proposed futures ETP by manipulating the price of CME 
bitcoin futures contracts, whether that attempt is made by directly 
trading on the CME bitcoin futures market or indirectly by trading 
outside of the CME bitcoin futures market, such that when the CME 
shares its surveillance information with Nasdaq, the information would 
assist in detecting and deterring fraudulent or manipulative misconduct 
related to the non-cash assets held by the proposed ETP.\42\ 
Accordingly, for the present proposal, it is unnecessary for Nasdaq to 
establish a reasonable likelihood that a would-be manipulator would 
have to trade on the CME itself to manipulate the proposed ETP.\43\
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    \42\ See Teucrium Order, 87 FR at 21679. See also Notice, 86 FR 
at 50574 (stating that ``[l]ike other futures products on the CME, 
[CME bitcoin futures] are subject to oversight by the CFTC, and the 
CME itself is empowered to enforce its own rulebook as it relates to 
the [CME bitcoin futures]'' and ``has a surveillance team that 
monitors the trading of [CME bitcoin futures] at all times''); 50579 
(stating that as a Designated Contract Market (``DCM''), the CME 
must ``certify that it has the ability to prevent manipulation, 
price distortion, and disruptions of the cash-settlement process 
through market surveillance, compliance, and enforcement practices 
and procedures''). This reasoning, however, does not extend to spot 
bitcoin ETPs. Spot bitcoin markets are not currently ``regulated.'' 
See, e.g., USBT Order, 85 FR at 12604; NYDIG Order, 87 FR at 14936 
nn.65-67. If an exchange seeking to list a spot bitcoin ETP relies 
on the CME as the regulated market with which it has a comprehensive 
surveillance-sharing agreement, because the assets held by a spot 
bitcoin ETP would not be traded on the CME, that proposal would be 
significantly different from the current proposal. Because of this 
important difference, with respect to a spot bitcoin ETP, there 
would be reason to question whether a surveillance-sharing agreement 
with the CME would, in fact, assist in detecting and deterring 
fraudulent and manipulative misconduct affecting the price of the 
spot bitcoin held by that ETP. If, however, an exchange proposing to 
list and trade a spot bitcoin ETP identifies the CME as the 
regulated market with which it has a comprehensive surveillance-
sharing agreement, the exchange could overcome the Commission's 
concern by demonstrating that there is a reasonable likelihood that 
a person attempting to manipulate the spot bitcoin ETP would have to 
trade on the CME in order to manipulate the ETP, because such 
demonstration would help establish that the exchange's surveillance-
sharing agreement with the CME would have the intended effect of 
aiding in the detection and deterrence of fraudulent and 
manipulative misconduct related to the spot bitcoin held by the ETP. 
See Teucrium Order, 87 FR at 21679 n.46.
    \43\ In addition, when considering past proposals for spot 
bitcoin ETPs, the Commission has discussed whether there is a lead-
lag relationship between the regulated market (e.g., the CME) and 
the market on which the assets held by the ETP would have traded 
(i.e., spot bitcoin platforms), as part of an analysis of whether a 
would-be manipulator of the spot bitcoin ETP would need to trade on 
the regulated market to effect such manipulation. See, e.g., USBT 
Order, 85 FR at 12612. For the present proposal, because of the 
direct relationship between the regulated market (i.e., the CME) and 
the only non-cash assets held by the proposed ETP (i.e., CME bitcoin 
futures contracts) establishing a ``lead-lag'' relationship between 
the CME and non-CME markets is also unnecessary. See Teucrium Order, 
87 FR at 21679 n.47.
---------------------------------------------------------------------------

    Nasdaq, however, makes several arguments in support of its 
assertion that it is reasonably likely that a person attempting to 
manipulate the proposed ETP would have to trade on the CME bitcoin 
futures market to successfully manipulate the proposed ETP.\44\ First, 
Nasdaq states that the CME bitcoin futures market has grown 
considerably since Commission disapprovals of a bitcoin futures ETP in 
August 2018 and a spot bitcoin ETP in January 2020, as evidenced by 
empirical data on trading volume and open interest.\45\ Nasdaq further 
states that ``because the [CME bitcoin futures] market has grown to 
resemble other futures markets, a lead-lag relationship that exists in 
other mature futures markets has also likely developed between the [CME 
bitcoin futures] market and the bitcoin spot market.'' \46\ Second, 
Nasdaq argues that observations made by the Staff of the Commission's 
Division of Investment Management regarding the maturity of the bitcoin 
futures market ``is strong evidence that concerns previously raised 
regarding price manipulation in that market have been significantly 
reduced.'' \47\ Finally, Nasdaq argues that the majority of academic 
literature concerning the lead-lag relationship between the bitcoin 
futures market and the spot bitcoin market, including studies with more 
recent data, ``supports the proposition that price discovery does take 
place in the [CME bitcoin futures] market and therefore a lead-lag 
relationship exists between the spot and futures markets.'' \48\ Nasdaq 
discusses two more recent studies,\49\ and concludes that this research 
``build[s] upon the already emerging academic consensus . . . that the 
[CME bitcoin futures] market does lead the spot market such that a 
would-be manipulator would necessarily conclude that it must trade in 
the futures market to successfully manipulate the spot price of 
bitcoin.'' \50\
---------------------------------------------------------------------------

    \44\ See Notice, 86 FR at 50575-78.
    \45\ See id. at 50576.
    \46\ Id. at 50577.
    \47\ Id. (citing Staff Statement on Funds Registered Under the 
Investment Company Act Investing in the Bitcoin Futures Market (May 
11, 2021), available at: https://www.sec.gov/news/public-statement/staff-statement-investing-bitcoin-futures-market#_ftnref5) (``Staff 
Statement'').
    \48\ Id.
    \49\ See id. at 50577-78 (discussing Y. Hu, Y. Hou & L. Oxley, 
What role do futures markets play in Bitcoin pricing? Causality, 
cointegration and price discovery from a time-varying perspective, 
72 Int'l Rev. of Fin. Analysis 101569 (2020) (``Hu, Hou & Oxley''); 
and J. Wu, K. Xu, X. Zheng & J. Chen, Fractional cointegration in 
bitcoin spot and futures markets, 41 J. Futures Mkts. 1478 (2021) 
(``Wu et al.'')).
    \50\ Id. at 50578 (citing B. Kapar & J. Olmo, An analysis of 
price discovery between Bitcoin futures and spot markets, 174 Econ. 
Letters 62 (2019) (``Kapar & Olmo''); E. Akyildirim, S. Corbet, P. 
Katsiampa, N. Kellard & A. Sensoy, The development of Bitcoin 
futures: Exploring the interactions between cryptocurrency 
derivatives, 34 Fin. Res. Letters 101234 (2020) (``Akyildirim et 
al.''); A. Chang, W. Herrmann & W. Cai, Efficient Price Discovery in 
the Bitcoin Markets, Wilshire Phoenix, Oct. 14, 2020, available at: 
https://www.wilshirephoenix.com/efficient-price-discovery-in-the-bitcoin-markets/ (``Wilshire Phoenix''). See also id. at 50577 
(citing J. Hung, H. Liu & J. Yang, Trading activity and price 
discovery in Bitcoin futures markets, 62 J. Empirical Finance 107 
(2021) (``Hung, Liu & Yang'').
---------------------------------------------------------------------------

    The Commission disagrees with much of Nasdaq's reasoning. Nasdaq's 
assertions about the general upward trends in trading volume and open 
interest of CME bitcoin futures do not establish whether it is 
reasonably likely that a would-be manipulator would

[[Page 28852]]

have to trade on the CME to successfully manipulate the proposed 
ETP.\51\ In addition, as Nasdaq recognized, the Staff Statement did not 
reach a conclusion that the CME bitcoin futures market is a 
``significant market'' or a ``market of significant size'' related to 
bitcoin in the context of the requirements of Section 6(b)(5) of the 
Exchange Act,\52\ nor did it even undertake such an assessment. 
Moreover, the evidence in the record for this proposal does not support 
a finding that the CME leads bitcoin price discovery.\53\ As Nasdaq 
recognizes, studies indicate that price discovery takes place in the 
bitcoin spot market.\54\ Moreover, the literature discussed by Nasdaq 
in its filing has been previously considered by the Commission.\55\ As 
discussed in past Commission orders, the ``mixed results'' of price 
discovery analyses, including the studies discussed by Nasdaq in its 
filing, fail to demonstrate that the CME bitcoin futures market 
constitutes a market of significant size vis-[agrave]-vis the bitcoin 
spot market.\56\
---------------------------------------------------------------------------

    \51\ The Commission has previously considered and rejected 
similar arguments in the context of spot bitcoin ETPs. See, e.g., 
USBT Order, 85 FR at 12612; GlobalX Order, 87 FR at 14919; NYDIG 
Order, 87 FR at 14938.
    \52\ See Notice, 86 FR at 50577.
    \53\ See also USBT Order, 85 FR at 12612; WisdomTree Order, 86 
FR at 69331; Wise Origin Order, 87 FR at 5535; GlobalX Order, 87 FR 
at 14920; NYDIG Order, 87 FR at 14938; Teucrium Order, 87 FR at 
21679.
    \54\ See Notice, 86 FR at 50577 (citing Hung, Liu & Yang). See 
also C. Alexander & D. Heck, Price discovery in Bitcoin: The impact 
of unregulated markets, 50 J. Financial Stability 100776 (2020) 
(finding that, in a multi-dimensional setting, including the main 
price leaders within futures, perpetuals, and spot markets, CME 
bitcoin futures have a very minor effect on price discovery; and 
that faster speed of adjustment and information absorption occurs on 
the unregulated spot and derivatives platforms than on CME bitcoin 
futures).
    \55\ See supra notes 49-50 and accompanying text.
    \56\ See, e.g., GlobalX Order, 87 FR at 14920 n.119 (concluding 
that papers on the lead-lag relationship and price discovery between 
bitcoin spot and futures markets, including the Wu et al. paper, the 
Hung, Liu & Yang paper, and the Akyildirim et al. paper, show that 
the academic literature is unsettled); NYDIG Order, 87 FR at 14938 
(stating that Hu, Hou & Oxley's Granger causality analysis had 
findings that are ``concededly mixed'' and that issues the 
Commission previously raised in the USBT Order about an unpublished 
version of that paper had not been addressed). See also USBT Order, 
85 FR at 12613 n.244 (discussing that the use of daily price data, 
as opposed to intraday prices, by Kapar & Olmo and Hu, Hou & Oxley 
(in an unpublished version of the paper) may not be able to 
distinguish which market incorporates new information faster); 
WisdomTree Order, 86 FR at 69331 n.143 (concluding that the papers 
cited by a commenter, including the Wilshire Phoenix working paper, 
evidence the unsettled nature of the academic literature).
---------------------------------------------------------------------------

    However, none of these deficiencies in Nasdaq's arguments 
concerning whether there is a reasonable likelihood that a would-be 
manipulator of the proposed ETP would have to trade on the CME 
conflicts with the Commission's determination that, because the only 
non-cash assets held by the proposed ETP (i.e., CME bitcoin futures 
contracts) are traded on the CME itself, Nasdaq's surveillance-sharing 
agreement with the CME can reasonably be relied upon to assist in 
detecting and deterring fraudulent or manipulative misconduct related 
to those assets. Thus the first prong of the standard for ``market of 
significant size'' has been established.
(2) Prong 2
    As discussed above, in determining whether the CME bitcoin futures 
market constitutes a ``market of significant size'' related to CME 
bitcoin futures contracts, the Commission has also considered as a 
second prong of the analysis whether trading in the proposed ETP would 
be unlikely to be the predominant influence on prices in the CME 
bitcoin futures market.\57\ Based on the facts and circumstances here, 
the Commission finds that this second prong has been satisfied.
---------------------------------------------------------------------------

    \57\ See Winklevoss Order, 83 FR at 37594; USBT Order, 85 FR at 
12596-97.
---------------------------------------------------------------------------

    Nasdaq asserts that trading in the Shares would not be the 
predominant force on prices in the CME bitcoin futures market (or spot 
market) because of the significant volume in the CME bitcoin futures 
market, the size of bitcoin's market capitalization, which is 
approximately $1 trillion, and the significant liquidity available in 
the spot market.\58\ Nasdaq states that, since the GraniteShares Order 
and the USBT Order were issued, there has been steady and robust growth 
observed in the CME bitcoin futures market.\59\ For example, according 
to Nasdaq, the daily average trading volume for CME bitcoin futures was 
$117 million or 3,629 contracts for the week including August 24, 2018, 
as compared to $354.75 million or 7,731 contracts for the week 
including February 26, 2020, and to $2.412 billion or 12,610 contracts 
for the week ending May 28, 2021.\60\ Additionally, according to 
Nasdaq, the daily average open interest in CME bitcoin futures was 
$95.4 million or 2,956 contracts for the week including August 24, 
2018, as compared to $250.25 million or 5,407 contracts for the week 
including February 26, 2020, and to $1.6626 billion or 8,677 contracts 
for the week ending May 28, 2021.\61\
---------------------------------------------------------------------------

    \58\ See Notice, 86 FR at 50578.
    \59\ See id. at 50576.
    \60\ See id.
    \61\ See id.
---------------------------------------------------------------------------

    Nasdaq also states that the spot market for bitcoin is very 
liquid.\62\ According to Nasdaq, in February 2021, for example, the 
cost to buy or sell $5 million worth of bitcoin averaged roughly 10 
basis points, with a market impact of 30 basis points.\63\ For a $10 
million market order, the cost to buy or sell was roughly 20 basis 
points, with a market impact of 50 basis points.\64\ Stated another 
way, Nasdaq provides that a market participant could enter a market buy 
or sell order for $10 million and only move the market 0.5%.\65\ Nasdaq 
further asserts that more strategic purchases or sales (such as using 
limit orders and executing through OTC bitcoin desks) would likely have 
a less obvious impact on the market, which Nasdaq states is consistent 
with the ability of MicroStrategy, Tesla, and Square to collectively 
purchase billions of dollars in bitcoin without resulting in 
significant price movements.\66\
---------------------------------------------------------------------------

    \62\ See id. at 50578.
    \63\ See id. According to Nasdaq, these statistics are based on 
samples of bitcoin liquidity in U.S. dollars (excluding stablecoins 
or Euro liquidity) based on executable quotes on Coinbase Pro, 
Gemini, Bitstamp, Kraken, LMAX Exchange, Binance US, and OK Coin 
during February 2021. See id. at 50578 n.47.
    \64\ See id. at 50578.
    \65\ See id.
    \66\ See id.
---------------------------------------------------------------------------

    Nasdaq also provides the results from a study conducted by CF 
Benchmarks (``CF Benchmarks Analysis'') to determine the extent of 
``slippage'' (i.e., the difference between the expected price of a 
trade and the price at which the trade was actually executed), which, 
according to the Exchange, offers further evidence that trading in the 
Shares in unlikely to be the predominant influence in either the 
bitcoin spot or futures market.\67\ According to Nasdaq, the CF 
Benchmarks Analysis simulates the purchase of 50 bitcoins a day for 686 
days (an amount chosen, according to the Exchange, specifically to 
replicate hypothetical trades by a bitcoin ETP) and found that the 
maximum amount of slippage on a particular day was 0.3%, with the 
remainder of values between 0% and 0.15%.\68\ According to Nasdaq, the 
CF Benchmarks Analysis demonstrates that, during the observation 
period, the slippage was largely negligible or, at most, minor.\69\ 
Nasdaq argues that, while the CF Benchmarks Analysis focuses on the

[[Page 28853]]

impact of a hypothetical ETP in the bitcoin spot market, arbitrage 
mechanisms in the spot and futures market dictate that it would be 
unlikely for a bitcoin futures ETP such as the Trust to overrun the CME 
bitcoin futures market without also overrunning the bitcoin spot 
market. Accordingly, the Exchange explains that the CF Benchmarks 
Analysis further bolsters its contention that the Trust and other 
similar ETPs would be unlikely to overrun the market.\70\ Nasdaq 
finally concludes that the combination of CME bitcoin futures leading 
price discovery, the overall size of the bitcoin market, and the 
ability for market participants, including authorized participants 
creating and redeeming in-kind with the Trust, to buy or sell large 
amounts of bitcoin without significant market impact will help prevent 
the Shares from becoming the predominant force on pricing in either the 
bitcoin spot or CME bitcoin futures markets.\71\
---------------------------------------------------------------------------

    \67\ See id. (citing CF Benchmarks, ``An Analysis of the 
Suitability of the CME CF BRR for the Creation of Regulated 
Financial Products,'' December 2020 (available at: https://docsend.com/view/kizk7rarzaba6jxf)).
    \68\ See id.
    \69\ See id.
    \70\ See id.
    \71\ See id.
---------------------------------------------------------------------------

    The Commission has considered and rejected nearly identical 
arguments as provided above in past disapproval orders of spot bitcoin 
ETPs.\72\ Moreover, as stated in the Teucrium Order, the Commission 
finds arguments centered around the relationship between the bitcoin 
spot market and the CME bitcoin futures market to be inapposite where, 
as here, the proposed ``significant'' market (i.e., the CME bitcoin 
futures market) is the same as the market on which the proposed ETP's 
only non-cash assets (i.e., CME bitcoin futures contracts) trade.\73\
---------------------------------------------------------------------------

    \72\ See, e.g., WisdomTree Order, 86 FR at 69332; Skybridge 
Order, 87 FR at 3878-80; Wise Origin Order, 87 FR at 5536-37.
    \73\ See Teucrium Order, 87 FR at 21680.
---------------------------------------------------------------------------

    Nonetheless, the Commission concludes that it is unlikely that 
trading in the proposed ETP would be the predominant influence on 
prices in the CME bitcoin futures market. In the Teucrium Order, the 
Commission stated that the CME bitcoin futures market has sufficiently 
developed to support ETPs seeking exposure to bitcoin by holding CME 
bitcoin futures contracts.\74\ As the order explained, the maturation 
of the CME bitcoin futures market since its inception in 2017--
including, but not limited to, its overall size, volume, and liquidity, 
as well as number of years since its commencement--and evidence from 
the recent introduction of the 1940 Act-registered Bitcoin Futures ETFs 
help support the conclusion that trading in an ETP that would hold CME 
bitcoin futures is not likely to be the predominant influence on prices 
in the CME bitcoin futures market. \75\ Here, the proposed ETP also 
holds CME bitcoin futures contracts as its only non-cash holdings. The 
Commission, therefore, reaches the same conclusion--that trading in the 
proposed ETP is not likely to be the predominant influence on prices in 
the CME bitcoin futures market. Thus the second prong of the standard 
for ``market of significant size'' has been established.
---------------------------------------------------------------------------

    \74\ See id. at 21681.
    \75\ See id. Among other things, the Commission considered that 
the CME bitcoin futures market began offering trading in bitcoin 
futures contracts in 2017 and, as of March 2022, trading in the 
standard-sized CME bitcoin futures contract was $38.9 billion. The 
Commission also stated that, since the launch of 1940 Act-registered 
Bitcoin Futures ETFs in October 2021, the Commission has neither 
observed any disruption to the CME bitcoin futures market, nor any 
evidence that the Bitcoin Futures ETFs have exerted a dominant 
influence on CME bitcoin futures prices. See id.
---------------------------------------------------------------------------

    The Commission, accordingly, concludes that the CME is a 
``significant market'' related to CME bitcoin futures contracts, and 
thus that the Exchange has entered into the requisite surveillance-
sharing agreement. Nasdaq may, therefore, rely on this surveillance-
sharing agreement to demonstrate that its proposal to list and trade 
the Shares is designed to prevent fraudulent and manipulative acts and 
practices, as required by Section 6(b)(5) of the Exchange Act.\76\
---------------------------------------------------------------------------

    \76\ The Commission has recognized that a listing exchange could 
demonstrate that other means to prevent fraudulent and manipulative 
acts and practices are sufficient to justify dispensing with a 
comprehensive surveillance-sharing agreement with a regulated market 
of significant size, including by demonstrating that the bitcoin 
market as a whole or the underlying bitcoin market is uniquely and 
inherently resistant to fraud and manipulation. See USBT Order, 85 
FR at 12587 n.23. Such resistance to fraud and manipulation must be 
novel and beyond those protections that exist in traditional 
commodities or securities markets. See id. at 12597. Moreover, in 
the context of previous spot bitcoin ETP proposals that have 
attempted to demonstrate that other means besides surveillance-
sharing agreements are sufficient to prevent fraudulent and 
manipulative acts and practices, the Commission has consistently 
rejected arguments made by the listing exchanges. See supra note 26. 
In this proposal, Nasdaq likewise asserts that, with respect to the 
proposed ETP, there are other means to prevent fraudulent and 
manipulative acts and practices sufficient to justify dispensing 
with the requisite surveillance-sharing requirement. See Notice, 86 
FR at 50578-79. Because Nasdaq has the requisite surveillance 
sharing agreement, the Commission does not need to reach the 
separate question of whether Nasdaq has demonstrated that there are 
other means, besides the surveillance-sharing agreement, that would 
be sufficient to prevent fraudulent and manipulative acts and 
practices.
---------------------------------------------------------------------------

B. Exposure to Bitcoin Futures Contracts Through a Bitcoin Futures-
Based ETP

    Nasdaq states that, despite growing investor interest in bitcoin, 
the primary means for investors to gain access to bitcoin exposure 
remains either through CME bitcoin futures or a direct investment 
through bitcoin platforms or over-the-counter trading.\77\ Nasdaq 
asserts that, for regular investors simply wishing to express an 
investment view in bitcoin, investment through CME bitcoin futures is 
complex and requires active management. Moreover, direct investment in 
bitcoin brings with it significant inconvenience, complexity, expense, 
and risk.\78\ Directly holding bitcoin requires investors to retain and 
protect their private keys, which, if lost or compromised, renders 
their bitcoin unavailable.\79\ According to Nasdaq, investment vehicles 
that invest directly in bitcoin, or investors that hold bitcoin through 
digital wallets or other storage mechanisms, must take extraordinary 
steps in order to protect their bitcoin, such as placing the bitcoin in 
``cold storage.'' \80\
---------------------------------------------------------------------------

    \77\ See Notice, 86 FR at 50582.
    \78\ See id.
    \79\ See id.
    \80\ See id.
---------------------------------------------------------------------------

    Nasdaq asserts that the Shares, instead, would represent a 
significant innovation in the bitcoin market by providing an 
inexpensive and simple vehicle for investors to gain exposure to 
bitcoin in a secure and easily accessible product that is familiar and 
transparent.\81\ As compared to a direct investment in bitcoin, the 
proposed ETP would enhance the security afforded to investors.\82\ 
Further, the Trust would not face risks similar to investment vehicles 
that hold bitcoin directly because the Trust's exposure to bitcoin 
would be through cash-settled CME bitcoin futures.\83\
---------------------------------------------------------------------------

    \81\ See id.
    \82\ See id.
    \83\ See id.
---------------------------------------------------------------------------

    In essence, Nasdaq asserts that the risky nature of direct 
investment in spot bitcoin or a spot bitcoin ETP and the complex nature 
of direct investment in CME bitcoin futures compels approval of the 
proposed ETP. The Commission disagrees.\84\ Pursuant to Section 
19(b)(2) of the Exchange Act, the Commission must approve a proposed 
rule change filed by a national securities exchange if it finds that 
the proposed rule change is consistent with the applicable requirements 
of the Exchange Act, and it must disapprove the filing if it does not 
make such a finding.\85\ Thus, even if a proposed rule change purports 
to protect investors from a particular type of investment risk--such as 
the susceptibility of an asset to loss or

[[Page 28854]]

theft--the proposed rule change may still fail to meet the requirements 
under the Exchange Act.\86\
---------------------------------------------------------------------------

    \84\ The Commission has disagreed with similar arguments made in 
the context of a previous bitcoin futures-related ETP. See 
GraniteShares Order, 83 FR at 43931.
    \85\ See Exchange Act Section 19(b)(2)(C), 15 U.S.C. 
778s(b)(2)(C).
    \86\ See SolidX Order, 82 FR at 16259; WisdomTree Order, 86 FR 
at 69334; Wise Origin Order, 87 FR at 5538.
---------------------------------------------------------------------------

    Regardless of Nasdaq's assertions and for the reasons discussed 
herein--including that Nasdaq has demonstrated that it has a 
comprehensive surveillance-sharing agreement with a regulated market of 
significant size related to CME bitcoin futures contracts that will 
help prevent fraudulent and manipulative acts and practices,\87\ and 
that core aspects of the proposed ETP will be consistent with other 
commodity-futures ETPs that the Commission has approved, including with 
respect to the availability of pricing information, transparency of 
portfolio holdings, and types of surveillance procedures \88\--the 
Commission finds that the proposal is also consistent with the 
requirement under Section 6(b)(5) that the Exchange's rules be designed 
to protect investors and the public interest.\89\
---------------------------------------------------------------------------

    \87\ See supra Section III.A.
    \88\ See infra Section III.C.
    \89\ The Commission acknowledges that, compared to trading in 
unregulated spot bitcoin markets, trading a CME bitcoin futures-
based ETP on a national securities exchange may provide some 
additional protection to investors. See GraniteShares Order, 83 FR 
at 43931; USBT Order, 85 FR at 12615; Teucrium Order, 87 FR at 21682 
n.109.
---------------------------------------------------------------------------

C. Other Standards for Commodity-Futures ETPs

    Nasdaq's proposal sets forth aspects of the proposed ETP, including 
the availability of pricing information, transparency of portfolio 
holdings, and types of surveillance procedures, that are consistent 
with the other commodity-futures ETPs that the Commission has 
approved.\90\
---------------------------------------------------------------------------

    \90\ See, e.g., ProShares UltraPro 3X Natural Gas ETF and 
ProShares UltraPro 3X Short Natural Gas ETF, Securities Exchange Act 
Release No. 86532 (July 31, 2019), 84 FR 38312 (Aug. 6, 2019) (SR-
NYSEArca-2019-02); Teucrium Order, 87 FR at 21683-84.
---------------------------------------------------------------------------

    According to Nasdaq,\91\ quotation and last-sale information 
regarding the Shares will be disseminated through the facilities of the 
Consolidated Tape Association. Information regarding market price and 
trading of the Shares will be continually available on a real-time 
basis throughout the day on brokers' computer screens and other 
electronic services. Price information for CME bitcoin futures can be 
found on the CME's website. Intraday price quotations on Money Market 
Instruments of the type held by the Trust will be available from major 
broker-dealer firms and from third parties, which may provide prices 
free with a time delay, or ``live'' with a paid fee. For CME bitcoin 
futures, such intraday information will be available directly from the 
applicable listing venue. Intraday price information will also be 
available through subscription services, such as Bloomberg and Thomson 
Reuters, which can be accessed by authorized participants and other 
investors. Pricing information related to Money Market Instruments will 
be available through issuer websites and publicly available quotation 
services, such as Bloomberg, Markit, and Thomson Reuters. The CME CF 
BRR will be disseminated once daily at 4:00 p.m. London time and will 
be available on the CME's website. Information regarding the CME CF 
BRR, including rules and methodologies can also be found on the CME's 
website.
---------------------------------------------------------------------------

    \91\ See Notice, 86 FR at 50580, 50583; Amendment No. 2, supra 
note 9, at 4-5.
---------------------------------------------------------------------------

    The Trust's website will display the prior business day's NAV. On 
each business day, before commencement of trading in the Shares during 
Regular Trading Hours, the Trust will disclose on its website the 
portfolio holdings of the Trust. The Trust's website will also include 
a form of the prospectus for the Trust. The website will include the 
Shares' ticker symbol and CUSIP information, along with additional 
quantitative information updated on a daily basis.\92\ The website will 
also contain pricing information for the Shares. All information 
disclosed on the Trust's website will be publicly available at no 
charge.\93\
---------------------------------------------------------------------------

    \92\ The Trust's website will include: (1) The prior business 
day's NAV and the reported closing price; (2) the mid-point of the 
bid/ask price in relation to the NAV as of the time the NAV is 
calculated (``Bid/Ask Price'') and a calculation of the premium or 
discount of such price against such NAV; and (3) data in chart 
format displaying the frequency distribution of discounts and 
premiums of the daily Bid/Ask Price against the NAV, within 
appropriate ranges, for at least each of the four previous calendar 
quarters (or for the life of the Trust, if shorter).
    \93\ See Notice, 86 FR at 50580; Amendment No. 2, supra note 9, 
at 4, 7.
---------------------------------------------------------------------------

    The Trust's NAV will be calculated by the Sponsor once a day and 
will typically be determined as of 4:00 p.m. (Eastern time) on each day 
the Shares trade on the Exchange. The Exchange or a third-party 
financial data provider will calculate an intra-day indicative value 
(``IIV'') by using the prior day's closing NAV per Share as a base and 
updating that value during the Exchange's Regular Market Session (9:30 
a.m. to 4:00 p.m. (Eastern time)) to reflect changes in the value of 
the Trust's NAV during the trading day. The IIV will be widely 
disseminated on a per Share basis every 15 seconds during the 
Exchange's Regular Market Session by one or more major market data 
vendors. The NAV for the Trust will be disseminated daily to all market 
participants at the same time.\94\
---------------------------------------------------------------------------

    \94\ See Notice, 86 FR at 50574, 50580.
---------------------------------------------------------------------------

    The proposal also is reasonably designed to promote fair disclosure 
of information that may be necessary to price the Shares appropriately 
and to prevent trading in the Shares when a reasonable degree of 
transparency cannot be assured. If the Exchange becomes aware that the 
NAV with respect to the Shares is not disseminated to all market 
participants at the same time, it will halt trading in the Shares until 
such time as the NAV is available to all market participants. Further, 
if the IIV or the value of the underlying futures contract is not being 
disseminated as required, the Exchange may halt trading during the day 
in which an interruption to the dissemination of the IIV or the value 
of the underlying futures contract occurs. If the interruption to the 
dissemination of the IIV or the value of the underlying futures 
contract persists past the trading day in which it occurred, the 
Exchange will halt trading no later than the beginning of the trading 
day following the interruption. Trading in Shares of the Trust will be 
halted if conditions specified in Nasdaq Rule 4120(a)(9) or the circuit 
breaker parameters in Nasdaq Rules 4120(a)(11) and (12) have been 
reached. Trading also may be halted because of market conditions or for 
reasons that, in the view of the Exchange, make trading in the Shares 
inadvisable. The Exchange states that it has a general policy 
prohibiting the distribution of material, non-public information by its 
employees.\95\ Moreover, trading of the Shares will be subject to 
Nasdaq Rule 5711(g), which sets forth certain restrictions on 
registered Market Makers in the Shares to facilitate surveillance.\96\
---------------------------------------------------------------------------

    \95\ See id. at 50581.
    \96\ See id. at 50580-81.
---------------------------------------------------------------------------

    The Commission notes that the Exchange or the Financial Industry 
Regulatory Authority (``FINRA''), on behalf of the Exchange, or both, 
will communicate as needed regarding trading in the Shares and the 
underlying CME bitcoin futures with other markets and other entities 
that are members of the ISG, and the Exchange or FINRA, on behalf of 
the Exchange, or both, may obtain information regarding trading in the 
Shares and the underlying CME bitcoin futures from such markets and 
entities. In addition, the Exchange may obtain information regarding 
trading in

[[Page 28855]]

the Shares and the underlying CME bitcoin futures from other exchanges 
who are members or affiliates of the ISG or with which the Exchange has 
in place a comprehensive surveillance-sharing agreement (``CSSA'').\97\ 
The Exchange may also obtain information regarding trading in the spot 
bitcoin market from the exchanges with which the CME or the Exchange 
has entered into a CSSA.\98\
---------------------------------------------------------------------------

    \97\ For a list of the current members and affiliate members of 
ISG, see www.isgportal.org. According to the Exchange, not all 
components of the Disclosed Portfolio for the Trust may trade on 
markets that are members of the ISG or with which the Exchange has 
in place a CSSA. See Notice, 86 FR at 50581 n.68.
    \98\ See Notice, 86 FR at 50581; Amendment No. 2, supra note 9, 
at 5. For additional discussion of the CME bitcoin futures market 
and how surveillance-sharing between the Exchange and the CME via 
common membership in the ISG would assist in detecting and deterring 
manipulative conduct related to the Shares, see Section III.A above.
---------------------------------------------------------------------------

    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities.\99\ In support of 
this proposal, the Exchange represented that: \100\
---------------------------------------------------------------------------

    \99\ See Notice, 86 FR at 50581.
    \100\ See id.; Amendment No. 2.
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    (1) The Shares of the Trust will conform to the initial and 
continued listing criteria set forth in Nasdaq Rule 5711(g).
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) The Exchange believes that its surveillance procedures are 
adequate to properly monitor the trading of the Shares on the Exchange 
during all trading sessions and to deter and detect violations of 
Exchange rules and the applicable federal securities laws. Trading of 
Shares on the Exchange will be subject to the Exchange's surveillance 
procedures for derivative products.
    (4) Prior to the commencement of trading, the Exchange will inform 
its members in an Information Circular of the special characteristics 
and risks associated with trading in the Shares. Specifically, the 
Information Circular will discuss the following: (a) The procedures for 
purchases and redemptions of Shares in Creation Units (and that Shares 
are not individually redeemable); (b) Section 10 of Nasdaq General Rule 
9, which imposes suitability obligations on Nasdaq members with respect 
to recommending transactions in the Shares to customers; (c) how 
information regarding the IIV and the portfolio holdings is 
disseminated; (d) the risks involved in trading the Shares during the 
Pre-Market and Post-Market Sessions when an updated IIV will not be 
calculated or publicly disseminated; (e) the requirement that members 
deliver a prospectus to investors purchasing newly issued Shares prior 
to or concurrently with the confirmation of a transaction; and (f) 
trading information.
    (5) For initial and continued listing, the Trust will be in 
compliance with Rule 10A-3 under the Exchange Act.\101\
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    \101\ 17 CFR 240.10A-3.
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    (6) Under no circumstances will the Trust hold and/or invest in any 
assets other than CME bitcoin futures contracts, cash, and Money Market 
Instruments. The Trust will not invest in or hold spot bitcoin.
    (7) The Trust's investments will be consistent with the Trust's 
investment objective and will not be used to enhance leverage. That is, 
the Trust's investments will not be used to seek performance that is 
the multiple or inverse multiple (e.g., 2Xs, 3Xs, -2Xs, and -3Xs) of 
the Trust's benchmark.
    (8) A minimum of 100,000 Shares of the Trust will be outstanding at 
the commencement of trading on the Exchange.
    (9) The Exchange represents that all statements and representations 
made in the filing regarding (a) the description of the reference 
assets or trust holdings; (b) limitations on reference assets, or trust 
holdings; (c) dissemination and availability of the reference asset or 
intraday indicative values; or (d) the applicablilty of Nasdaq listing 
rules specified in the filing shall constitute continued listing 
standards. The Exchange will require the Trust to represent to the 
Exchange that it will advise the Exchange of any failure by the Trust 
to comply with the continued listing requirements, and, pursuant to its 
obligations under Section 19(g)(1) of the Exchange Act, the Exchange 
will surveil for compliance with the continued listing requirements. If 
the Trust is not in compliance with the applicable listing 
requirements, the Exchange will commence delisting procedures under the 
Nasdaq 5800 Series.

IV. Conclusion

    This approval order is based on all of the Exchange's 
representations and description of the Trust, including those set forth 
above and in Amendment No. 2. The Commission notes that the Shares must 
comply with the requirements of Nasdaq Rule 5711(g) to be listed and 
traded on the Exchange on an initial and continuing basis.
    For the reasons set forth above, the Commission finds, pursuant to 
Section 19(b)(2) of the Exchange Act,\102\ that the proposed rule 
change, as modified by Amendment Nos. 1 and 2, is consistent with the 
requirements of the Exchange Act and the rules and regulations 
thereunder applicable to a national securities exchange, and in 
particular, with Section 6(b)(5) and Section 11A(a)(1)(C)(iii) of the 
Exchange Act.\103\
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    \102\ 15 U.S.C. 78f(b)(2).
    \103\ 15 U.S.C. 78f(b)(5); 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\104\ that proposed rule change SR-NASDAQ-2021-066, as 
modified by Amendment Nos. 1 and 2, be, and hereby is, approved.
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    \104\ 15 U.S.C. 78f(b)(2).
    \105\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\105\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-10065 Filed 5-10-22; 8:45 am]
BILLING CODE 8011-01-P


