[Federal Register Volume 88, Number 137 (Wednesday, July 19, 2023)]
[Notices]
[Pages 46342-46359]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-15252]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97905; File No. SR-NASDAQ-2023-016]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of a Proposed Rule Change To List and Trade Shares of 
the iShares Bitcoin Trust Under Nasdaq Rule 5711(d), Commodity-Based 
Trust Shares

July 13, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 29, 2023, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade shares of the iShares 
Bitcoin Trust (the ``Trust'') under Nasdaq Rule 5711(d) (``Commodity-
Based Trust Shares'').
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, at 
the principal office of the Exchange, and at the Commission's Public 
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade the Shares under Nasdaq 
Rule 5711(d),\3\ which governs the listing and trading of Commodity-
Based Trust Shares on the Exchange. iShares Delaware Trust Sponsor LLC, 
a Delaware limited liability company and an indirect subsidiary of 
BlackRock, Inc. (``BlackRock''), is the sponsor of the Trust (the 
``Sponsor''). The Shares will be registered with the SEC by means of 
the Trust's registration statement on Form S-1 (the ``Registration 
Statement'').\4\
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    \3\ The Commission approved Nasdaq Rule 5711 in Securities 
Exchange Act Release No. 66648 (March 23, 2012), 77 FR 19428 (March 
30, 2012) (SR-NASDAQ-2012-013).
    \4\ See Registration Statement on Form S-1, dated June 15, 2023 
filed with the Commission by the Sponsor on behalf of the Trust. The 
descriptions of the Trust contained herein are based, in part, on 
information in the Registration Statement. The Registration 
Statement in not yet effective and the Shares will not trade on the 
Exchange until such time that the Registration Statement is 
effective.
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Description of the Trust
    The Shares will be issued by the Trust, a Delaware statutory trust. 
The Trust will operate pursuant to a trust agreement (the ``Trust 
Agreement'') between the Sponsor, BlackRock Fund Advisors (the 
``Trustee'') as the trustee of the Trust and will appoint a Delaware 
Trustee of the Trust (the ``Delaware Trustee'') by such time that the 
Registration Statement is effective. The Trust issues Shares 
representing fractional undivided beneficial interests in its net 
assets. The assets of the Trust consist primarily of bitcoin held by a 
custodian on behalf of the Trust. Coinbase Custody Trust Company, LLC 
(the ``Bitcoin Custodian''), is the custodian for the Trust's bitcoin 
holdings; and Bank of New York Mellon is the custodian for the Trust's 
cash holdings (the ``Cash Custodian'' and together with the Bitcoin 
Custodian, the ``Custodians'') and the administrator of the Trust (the 
``Trust Administrator''). Under the Trust Agreement, the Trustee may 
delegate all or a portion of its duties to any agent, and has delegated 
the bulk of the day-to-day responsibilities to the Trust Administrator 
and certain other administrative and record-keeping functions to its 
affiliates and other agents. The Trust is not an investment company 
registered under the Investment Company Act of 1940, as amended (the 
``1940 Act'').
    The investment objective of the Trust is to reflect generally the 
performance of the price of bitcoin. The Trust seeks to reflect such 
performance before payment of the Trust's expenses and liabilities. The 
Shares are intended to constitute a simple means of making an 
investment similar to an investment in bitcoin rather than by 
acquiring, holding and trading bitcoin directly on a peer-to-peer or 
other basis or via a digital asset exchange. The Shares have been 
designed to remove the obstacles represented by the complexities and 
operational burdens involved in a direct investment in bitcoin, while 
at the same time having an intrinsic value that reflects, at any given 
time, the investment exposure to the bitcoin owned by the Trust at such 
time, less the Trust's expenses and liabilities. Although the Shares 
are not the exact equivalent of a direct investment in bitcoin, they 
provide investors with an alternative method of achieving investment 
exposure to bitcoin through the public securities market, which may be 
more familiar to them.
Custody of the Trust's Bitcoins
    An investment in the Shares is backed by bitcoin held by the 
Bitcoin Custodian on behalf of the Trust. The Bitcoin Custodian will 
keep custody of all of the Trust's bitcoin, other than that which is

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maintained in the Trading Balance with the Prime Broker, in accounts 
that are required to be segregated from the assets held by the Bitcoin 
Custodian as principal and the assets of its other customers (the 
``Vault Balance''), with any remainder of the Vault Balance held as 
part of a ``hot storage''.\5\ The Bitcoin Custodian will keep a 
substantial portion of the private keys associated with the Trust's 
bitcoin in ``cold storage'' \6\ or similarly secure technology (the 
``Cold Vault Balance'') The hardware, software, systems, and procedures 
of the Bitcoin Custodian may not be available or cost-effective for 
many investors to access directly.
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    \5\ A portion of the Trust's bitcoin holdings and cash holdings 
from time to time may be held with the Prime Broker, an affiliate of 
the Bitcoin Custodian, in the Trading Balance, in connection with 
in-kind creations and redemptions of Baskets and the sale of bitcoin 
to pay the Sponsor's Fee and Trust expenses not assumed by the 
Sponsor. These periodic holdings held in the Trading Balance with 
the Prime Broker represent an omnibus claim on the Prime Broker's 
bitcoins held on behalf of clients; these holdings exist across a 
combination of omnibus hot wallets, omnibus cold wallets, or in 
accounts in the Prime Broker's name on a trading venue (including 
third-party venues and the Prime Broker's own execution venue) where 
the Prime Broker executes orders to buy and sell bitcoin on behalf 
of its clients.
    \6\ The term ``cold storage'' refers to a safeguarding method by 
which the private keys corresponding to bitcoins stored on a digital 
wallet are removed from any computers actively connected to the 
internet. Cold storage of private keys may involve keeping such 
wallet on a non-networked computer or electronic device or storing 
the public key and private keys relating to the digital wallet on a 
storage device (for example, a USB thumb drive) or printed medium 
(for example, papyrus or paper) and deleting the digital wallet from 
all computers.
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Net Asset Value
    The net asset value of the Trust will be equal to the total assets 
of the Trust, including but not limited to, all bitcoin and cashless 
total liabilities of the Trust, each determined by the Trustee pursuant 
to policies established from time to time by the Trustee or its 
affiliates or otherwise described herein. The methodology used to 
calculate an index (the ``Index'') price to value bitcoin in 
determining the net asset value of the Trust may not be deemed 
consistent with U.S. generally accepted accounting principles 
(``GAAP'').
    The Sponsor has the exclusive authority to determine the Trust's 
net asset value, which it has delegated to the Trustee under the Trust 
Agreement. The Trustee has delegated to the Trust Administrator the 
responsibility to calculate the net asset value of the Trust and the 
NAV, based on a pricing source selected by the Trustee. In determining 
the Trust's net asset value, the Trust Administrator values the bitcoin 
held by the Trust based on the Index, unless otherwise determined by 
the Sponsor in its sole discretion. The CF Benchmarks Index shall 
constitute the Index, unless the CF Benchmarks Index is not available 
or the Sponsor in its sole discretion determines not to use the CF 
Benchmarks Index as the Index. If the CF Benchmarks Index is not 
available or the Sponsor determines, in its sole discretion, that the 
CF Benchmarks Index should not be used, the Trust's holdings may be 
fair valued in accordance with the policy approved by the Sponsor.
    The Trust's periodic financial statements may not utilize net asset 
value or NAV to the extent the methodology used to calculate the Index 
is deemed not to be consistent with GAAP. For purposes of the Trust's 
periodic financial statements, the Trust will utilize a pricing source 
that is consistent with GAAP, as of the financial statement measurement 
date. The Sponsor will determine in its sole discretion the valuation 
sources and policies used to prepare the Trust's financial statements 
in accordance with GAAP.
    The Sponsor may declare a suspension of the calculation of the NAV 
of the Trust under certain circumstances.
Net Asset Value Calculation and Index
    On each Business Day, as soon as practicable after 4:00 p.m. 
Eastern Time (``ET''), the Trust Administrator evaluates the bitcoin 
held by the Trust as reflected by the CF Benchmarks Index and 
determines the net asset value of the Trust and the NAV. For purposes 
of making these calculations, a Business Day means any day other than a 
day when Nasdaq is closed for regular trading.
    The CF Benchmarks Index employed by the Trust is calculated on each 
Business Day by aggregating the notional value of bitcoin trading 
activity across major bitcoin spot exchanges. The CF Benchmarks Index 
is designed based on the IOSCO Principles for Financial Benchmarks. The 
administrator of the CF Benchmarks Index is CF Benchmarks Ltd. (the 
``Index Administrator''). The CF Benchmarks Index serves as a once-a-
day benchmark rate of the U.S. dollar price of bitcoin (USD/BTC), 
calculated as of 4:00 p.m. ET. The CF Benchmarks Index aggregates the 
trade flow of several bitcoin exchanges, during an observation window 
between 3:00 p.m. and 4:00 p.m. ET into the U.S. dollar price of one 
bitcoin at 4:00 p.m. ET. Specifically, the CF Benchmarks Index is 
calculated based on the ``Relevant Transactions'' \7\ of all of its 
constituent bitcoin exchanges (``Constituent Exchanges''), which are 
currently Bitstamp, Coinbase, itBit, Kraken, Gemini, and LMAX (the 
``Constituent Platforms''), and which may change from time to time.
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    \7\ A ``Relevant Transaction'' is any cryptocurrency versus U.S. 
dollar spot trade that occurs during the observation window between 
3:00 p.m. and 4:00 p.m. ET on a Constituent Exchange in the BTC/USD 
pair that is reported and disseminated by a Constituent Exchange 
through its publicly available API and observed by the Index 
Administrator.
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    If the CF Benchmarks Index is not available or the Sponsor 
determines, in its sole discretion, that the CF Benchmarks Index should 
not be used, the Trust's holdings may be fair valued in accordance with 
the policy approved by the Sponsor.
    The Trust is intended to provide a way for Shareholders to obtain 
exposure to bitcoin by investing in the Shares rather than by 
acquiring, holding and trading bitcoin directly on a peer-to-peer or 
other basis or via a digital asset exchange. An investment in Shares of 
the Trust is not the same as an investment directly in bitcoin on a 
peer-to-peer or other basis or via a digital asset exchange.
Creation and Redemption of Shares
    The Trust issues and redeems baskets (``Baskets'') \8\ on a 
continuous basis. Baskets are only issued or redeemed in exchange for 
an amount of bitcoin determined by the Trustee on each day that Nasdaq 
is open for regular trading. No Shares are issued unless the Bitcoin 
Custodian or Prime Broker has allocated to the Trust's account the 
corresponding amount of bitcoin. The amount of bitcoin necessary for 
the creation of a Basket, or to be received upon redemption of a 
Basket, will decrease over the life of the Trust, due to the payment or 
accrual of fees and other expenses or liabilities payable by the Trust. 
Baskets may be created or redeemed only by Authorized Participants, who 
pay BlackRock Investments, LLC (``BRIL''), an affiliate of the Trustee 
that has been retained by the Trust to perform certain order

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processing, Authorized Participant communications, and related services 
in connection with the issuance and redemption of Baskets (``ETF 
Services''), a transaction fee for each order to create or redeem 
Baskets.
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    \8\ The Trust issues and redeems Shares only in blocks of 40,000 
or integral multiples thereof. A block of 40,000 Shares is called a 
``Basket.'' These transactions take place in exchange for bitcoin. 
Baskets will be offered continuously at the net asset value per 
Share (``NAV'') for 40,000 Shares on the day that an order to create 
a Basket is accepted by the Trust. The Trust may change the number 
of Shares in a Basket. Only registered broker-dealers that become 
authorized participants by entering into a contract with the Sponsor 
and the Trustee (``Authorized Participants'') may purchase or redeem 
Baskets. Shares will be offered to the public from time to time at 
varying prices that will reflect the price of bitcoin and the 
trading price of the Shares on Nasdaq at the time of the offer.
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Overview of the Bitcoin Industry
    Bitcoin is a digital asset that is created and transmitted through 
the operations of the peer-to-peer Bitcoin Network, a decentralized 
network of computers that operates on cryptographic protocols. No 
single entity owns or operates the Bitcoin network, the infrastructure 
of which is collectively maintained by its user base. The Bitcoin 
network allows people to exchange tokens of value, called bitcoin, 
which are recorded on a public transaction ledger known as the Bitcoin 
blockchain. Bitcoin can be used to pay for goods and services, or it 
can be converted to fiat currencies, such as the U.S. dollar, at rates 
determined on bitcoin exchanges that enable trading in bitcoin or in 
individual end-user-to-end-user transactions under a barter system.
    The Bitcoin network is commonly understood to be decentralized and 
does not require governmental authorities or financial institution 
intermediaries to create, transmit or determine the value of bitcoin. 
Rather, bitcoin is created and allocated by the Bitcoin network 
protocol through a ``mining'' process. The value of bitcoin is 
determined by the supply of and demand for bitcoin-on-bitcoin exchanges 
or in private end-user-to-end-user transactions.
    New bitcoins are created and rewarded to the miners of a block in 
the Bitcoin blockchain for verifying transactions. The Bitcoin 
blockchain is a shared database that includes all blocks that have been 
solved by miners and it is updated to include new blocks as they are 
solved. Each bitcoin transaction is broadcast to the Bitcoin network 
and, when included in a block, recorded in the Bitcoin blockchain. As 
each new block records outstanding bitcoin transactions, and 
outstanding transactions are settled and validated through such 
recording, the Bitcoin blockchain represents a complete, transparent 
and unbroken history of all transactions of the Bitcoin network.
History of Bitcoin
    The Bitcoin network was initially contemplated in a whitepaper that 
also described bitcoin and the operating software to govern the Bitcoin 
network. The whitepaper was purportedly authored by Satoshi Nakamoto. 
However, no individual with that name has been reliably identified as 
bitcoin's creator, and the general consensus is that the name is a 
pseudonym for the actual inventor or inventors. The first bitcoins were 
created in 2009 after Nakamoto released the Bitcoin network source code 
(the software and protocol that created and launched the Bitcoin 
network). The Bitcoin network has been under active development since 
that time by a loose group of software developers who have come to be 
known as core developers.
Overview of Bitcoin Network Operations
    In order to own, transfer or use bitcoin directly on the Bitcoin 
network (as opposed to through an intermediary, such as an exchange), a 
person generally must have internet access to connect to the Bitcoin 
network. Bitcoin transactions may be made directly between end-users 
without the need for a third-party intermediary. To prevent the 
possibility of double-spending bitcoin, a user must notify the Bitcoin 
network of the transaction by broadcasting the transaction data to its 
network peers. The Bitcoin network provides confirmation against 
double-spending by memorializing every transaction in the Bitcoin 
blockchain, which is publicly accessible and transparent. This 
memorialization and verification against double-spending is 
accomplished through the Bitcoin network mining process, which adds 
``blocks'' of data, including recent transaction information, to the 
Bitcoin blockchain.
Overview of Bitcoin Transfers
    Prior to engaging in bitcoin transactions directly on the Bitcoin 
network, a user generally must first install on its computer or mobile 
device a Bitcoin network software program that will allow the user to 
generate a private and public key pair associated with a bitcoin 
address commonly referred to as a ``wallet.'' The Bitcoin network 
software program and the bitcoin address also enable the user to 
connect to the Bitcoin network and transfer bitcoin to, and receive 
bitcoin from, other users.
    Each Bitcoin network address, or wallet, is associated with a 
unique ``public key'' and ``private key'' pair. To receive bitcoin, the 
bitcoin recipient must provide its public key to the party initiating 
the transfer. This activity is analogous to a recipient for a 
transaction in U.S. dollars providing a routing address in wire 
instructions to the payor so that cash may be wired to the recipient's 
account. The payor approves the transfer to the address provided by the 
recipient by ``signing'' a transaction that consists of the recipient's 
public key with the private key of the address from where the payor is 
transferring the bitcoin. The recipient, however, does not make public 
or provide to the sender its related private key.
    Neither the recipient nor the sender reveals their private keys in 
a transaction because the private key authorizes transfer of the funds 
in that address to other users. Therefore, if a user loses his or her 
private key, the user may permanently lose access to the bitcoin 
contained in the associated address. Likewise, bitcoin is irretrievably 
lost if the private key associated with them is deleted and no backup 
has been made. When sending bitcoin, a user's Bitcoin network software 
program must validate the transaction with the associated private key. 
The resulting digitally validated transaction is sent by the user's 
Bitcoin network software program to the Bitcoin network to allow 
transaction confirmation.
    Some bitcoin transactions are conducted ``off-blockchain'' and are 
therefore not recorded in the Bitcoin blockchain. Some ``off-blockchain 
transactions'' involve the transfer of control over, or ownership of, a 
specific digital wallet holding bitcoin or the reallocation of 
ownership of certain bitcoin in a digital wallet containing assets 
owned by multiple persons, such as a digital wallet maintained by a 
digital assets exchange. In contrast to on-blockchain transactions, 
which are publicly recorded on the Bitcoin blockchain, information and 
data regarding off-blockchain transactions are generally not publicly 
available. Therefore, off-blockchain transactions are not truly bitcoin 
transactions in that they do not involve the transfer of transaction 
data on the Bitcoin network and do not reflect a movement of bitcoin 
between addresses recorded in the Bitcoin blockchain. For these 
reasons, off-blockchain transactions are subject to risks as any such 
transfer of bitcoin ownership is not protected by the protocol behind 
the Bitcoin network or recorded in, and validated through, the 
blockchain mechanism.
Summary of a Bitcoin Transaction
    In a bitcoin transaction directly on the Bitcoin network between 
two parties (as opposed to through an intermediary, such as a 
custodian), the following circumstances must initially be in place: (i) 
the party seeking to send bitcoin must have a Bitcoin network public 
key, and the Bitcoin network must recognize that public key as having 
sufficient bitcoin for the transaction; (ii) the receiving party must 
have a Bitcoin network public key; and (iii) the spending party must 
have internet

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access with which to send its spending transaction.
    The receiving party must provide the spending party with its public 
key and allow the Bitcoin blockchain to record the sending of bitcoin 
to that public key. After the provision of a recipient's Bitcoin 
network public key, the spending party must enter the address into its 
Bitcoin network software program along with the number of bitcoin to be 
sent. The number of bitcoin to be sent will typically be agreed upon 
between the two parties based on a set number of bitcoin or an agreed 
upon conversion of the value of fiat currency to bitcoin. Since every 
computation on the Bitcoin network requires the payment of bitcoin, 
including verification and memorialization of bitcoin transfers, there 
is a transaction fee involved with the transfer, which is based on 
computation complexity and not on the value of the transfer and is paid 
by the payor with a fractional number of bitcoin.
    After the entry of the Bitcoin network address, the number of 
bitcoin to be sent and the transaction fees, if any, to be paid, will 
be transmitted by the spending party. The transmission of the spending 
transaction results in the creation of a data packet by the spending 
party's Bitcoin network software program, which is transmitted onto the 
decentralized Bitcoin network, resulting in the distribution of the 
information among the software programs of users across the Bitcoin 
network for eventual inclusion in the Bitcoin blockchain.
    As discussed in greater detail below, Bitcoin network miners record 
transactions when they solve for and add blocks of information to the 
Bitcoin blockchain. When a miner solves for a block, it creates that 
block, which includes data relating to (i) the solution to the block, 
(ii) a reference to the prior block in the Bitcoin blockchain to which 
the new block is being added and (iii) transactions that have occurred 
but have not yet been added to the Bitcoin blockchain. The miner 
becomes aware of outstanding, unrecorded transactions through the data 
packet transmission and distribution discussed above.
    Upon the addition of a block included in the Bitcoin blockchain, 
the Bitcoin network software program of both the spending party and the 
receiving party will show confirmation of the transaction on the 
Bitcoin blockchain and reflect an adjustment to the bitcoin balance in 
each party's Bitcoin network public key, completing the bitcoin 
transaction. Once a transaction is confirmed on the Bitcoin blockchain, 
it is irreversible.
Creation of a New Bitcoin
    New bitcoins are created through the mining process. The process by 
which bitcoin is ``mined'' results in new blocks being added to the 
Bitcoin blockchain and new bitcoin tokens being issued to the miners. 
Computers on the Bitcoin network engage in a set of prescribed complex 
mathematical calculations in order to add a block to the Bitcoin 
blockchain and thereby confirm bitcoin transactions included in that 
block's data. The Bitcoin network is designed in such a way that the 
reward for adding new blocks to the Bitcoin blockchain decreases over 
time. Once new bitcoin tokens are no longer awarded for adding a new 
block, miners will only have transaction fees to incentivize them, and 
as a result, it is expected that miners will need to be better 
compensated with higher transaction fees to ensure that there is 
adequate incentive for them to continue mining.
Limits on Bitcoin Supply
    Under the source code that governs the Bitcoin network, the supply 
of new bitcoin is mathematically controlled so that the number of 
bitcoin grows at a limited rate pursuant to a pre-set schedule. The 
number of bitcoin awarded for solving a new block is automatically 
halved after every 210,000 blocks are added to the Bitcoin blockchain, 
approximately every 4 years. Currently, the fixed reward for solving a 
new block is 6.25 bitcoin per block and this is expected to decrease by 
half to become 3.125 bitcoin in approximately early 2024. This 
deliberately controlled rate of bitcoin creation means that the number 
of bitcoin in existence will increase at a controlled rate until the 
number of bitcoin in existence reaches the pre-determined 21 million 
bitcoin. However, the 21 million supply cap could be changed in a hard 
fork. A hard fork could change the source code to the Bitcoin network, 
including the 21 million bitcoin supply cap.
Background
    The Commission has historically approved or disapproved exchange 
filings to list and trade series of Trust Issued Receipts, including 
spot based Commodity-Based Trust Shares, on the basis of whether the 
listing exchange has in place a comprehensive surveillance sharing 
agreement with a regulated market of significant size related to the 
underlying commodity to be held.\9\ Prior orders from the Commission 
have pointed out that in every prior approval order for Commodity-Based 
Trust Shares, there has been a derivatives market that represents the 
regulated market of significant size, generally a Commodity Futures 
Trading Commission regulated futures market.\10\ Further to this point,

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the Commission's prior orders have noted that the spot commodities and 
currency markets for which it has previously approved spot exchange 
traded products (``ETPs'') are generally unregulated and that the 
Commission relied on the underlying futures market as the regulated 
market of significant size that formed the basis for approving the 
series of Currency and Commodity-Based Trust Shares, including gold, 
silver, platinum, palladium, copper, and other commodities and 
currencies. The Commission specifically noted in the Winklevoss Order 
that the First Gold Approval Order ``was based on an assumption that 
the currency market and the spot gold market were largely 
unregulated.'' \11\
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    \9\ See Securities Exchange Act Release No. 83723 (July 26, 
2018), 83 FR 37579 (August 1, 2018). This proposal was subsequently 
disapproved by the Commission. See Securities Exchange Act Release 
No. 83723 (July 26, 2018), 83 FR 37579 (August 1, 2018) (the 
``Winklevoss Order'').
    \10\ See streetTRACKS Gold Shares, Exchange Act Release No. 
50603 (Oct. 28, 2004), 69 FR 64614, 64618-19 (Nov. 5, 2004) (SR-
NYSE-2004-22) (the ``First Gold Approval Order''); iShares COMEX 
Gold Trust, Exchange Act Release No. 51058 (Jan. 19, 2005), 70 FR 
3749, 3751, 3754-55 (Jan. 26, 2005) (SR-Amex-2004-38); iShares 
Silver Trust, Exchange Act Release No. 53521 (Mar. 20, 2006), 71 FR 
14967, 14968, 14973-74 (Mar. 24, 2006) (SR-Amex-2005-072); ETFS Gold 
Trust, Exchange Act Release No. 59895 (May 8, 2009), 74 FR 22993, 
22994-95, 22998, 23000 (May 15, 2009) (SR-NYSEArca-2009-40); ETFS 
Silver Trust, Exchange Act Release No. 59781 (Apr. 17, 2009), 74 FR 
18771, 18772, 18775-77 (Apr. 24, 2009) (SR-NYSEArca-2009-28); ETFS 
Palladium Trust, Exchange Act Release No. 61220 (Dec. 22, 2009), 74 
FR 68895, 68896 (Dec. 29, 2009) (SR-NYSEArca-2009-94) (notice of 
proposed rule change included NYSE Arca's representation that 
``[t]he most significant palladium futures exchanges are the NYMEX 
and the Tokyo Commodity Exchange,'' that ``NYMEX is the largest 
exchange in the world for trading precious metals futures and 
options,'' and that NYSE Arca ``may obtain trading information via 
the Intermarket Surveillance Group,'' of which NYMEX is a member, 
Exchange Act Release No. 60971 (Nov. 9, 2009), 74 FR 59283, 59285-
86, 59291 (Nov. 17, 2009)); ETFS Platinum Trust, Exchange Act 
Release No. 61219 (Dec. 22, 2009), 74 FR 68886, 68887-88 (Dec. 29, 
2009) (SR-NYSEArca-2009-95) (notice of proposed rule change included 
NYSE Arca's representation that ``[t]he most significant platinum 
futures exchanges are the NYMEX and the Tokyo Commodity Exchange,'' 
that ``NYMEX is the largest exchange in the world for trading 
precious metals futures and options,'' and that NYSE Arca ``may 
obtain trading information via the Intermarket Surveillance Group,'' 
of which NYMEX is a member, Exchange Act Release No. 60970 (Nov. 9, 
2009), 74 FR 59319, 59321, 59327 (Nov. 17, 2009)); Sprott Physical 
Gold Trust, Exchange Act Release No. 61496 (Feb. 4, 2010), 75 FR 
6758, 6760 (Feb. 10, 2010) (SR-NYSEArca-2009-113) (notice of 
proposed rule change included NYSE Arca's representation that the 
COMEX is one of the ``major world gold markets,'' that NYSE Arca 
``may obtain trading information via the Intermarket Surveillance 
Group,'' and that NYMEX, of which COMEX is a division, is a member 
of the Intermarket Surveillance Group, Exchange Act Release No. 
61236 (Dec. 23, 2009), 75 FR 170, 171, 174 (Jan. 4, 2010)); Sprott 
Physical Silver Trust, Exchange Act Release No. 63043 (Oct. 5, 
2010), 75 FR 62615, 62616, 62619, 62621 (Oct. 12, 2010) (SR-
NYSEArca-2010-84); ETFS Precious Metals Basket Trust, Exchange Act 
Release No. 62692 (Aug. 11, 2010), 75 FR 50789, 50790 (Aug. 17, 
2010) (SR-NYSEArca-2010-56) (notice of proposed rule change included 
NYSE Arca's representation that ``the most significant gold, silver, 
platinum and palladium futures exchanges are the COMEX and the 
TOCOM'' and that NYSE Arca ``may obtain trading information via the 
Intermarket Surveillance Group,'' of which COMEX is a member, 
Exchange Act Release No. 62402 (Jun. 29, 2010), 75 FR 39292, 39295, 
39298 (July 8, 2010)); ETFS White Metals Basket Trust, Exchange Act 
Release No. 62875 (Sept. 9, 2010), 75 FR 56156, 56158 (Sept. 15, 
2010) (SR-NYSEArca-2010-71) (notice of proposed rule change included 
NYSE Arca's representation that ``the most significant silver, 
platinum and palladium futures exchanges are the COMEX and the 
TOCOM'' and that NYSE Arca ``may obtain trading information via the 
Intermarket Surveillance Group,'' of which COMEX is a member, 
Exchange Act Release No. 62620 (July 30, 2010), 75 FR 47655, 47657, 
47660 (Aug. 6, 2010)); ETFS Asian Gold Trust, Exchange Act Release 
No. 63464 (Dec. 8, 2010), 75 FR 77926, 77928 (Dec. 14, 2010) (SR-
NYSEArca-2010-95) (notice of proposed rule change included NYSE 
Arca's representation that ``the most significant gold futures 
exchanges are the COMEX and the Tokyo Commodity Exchange,'' that 
``COMEX is the largest exchange in the world for trading precious 
metals futures and options,'' and that NYSE Arca ``may obtain 
trading information via the Intermarket Surveillance Group,'' of 
which COMEX is a member, Exchange Act Release No. 63267 (Nov. 8, 
2010), 75 FR 69494, 69496, 69500-01 (Nov. 12, 2010)); Sprott 
Physical Platinum and Palladium Trust, Exchange Act Release No. 
68430 (Dec. 13, 2012), 77 FR 75239, 75240-41 (Dec. 19, 2012) (SR-
NYSEArca-2012–111) (notice of proposed rule change included 
NYSE Arca's representation that ``[f]utures on platinum and 
palladium are traded on two major exchanges: The New York Mercantile 
Exchange . . . and Tokyo Commodities Exchange'' and that NYSE Arca 
``may obtain trading information via the Intermarket Surveillance 
Group,'' of which COMEX is a member, Exchange Act Release No. 68101 
(Oct. 24, 2012), 77 FR 65732, 65733, 65739 (Oct. 30, 2012)); APMEX 
Physical--1 oz. Gold Redeemable Trust, Exchange Act Release No. 
66930 (May 7, 2012), 77 FR 27817, 27818 (May 11, 2012) (SR-NYSEArca-
2012-18) (notice of proposed rule change included NYSE Arca's 
representation that NYSE Arca ``may obtain trading information via 
the Intermarket Surveillance Group,'' of which COMEX is a member, 
and that gold futures are traded on COMEX and the Tokyo Commodity 
Exchange, with a cross-reference to the proposed rule change to list 
and trade shares of the ETFS Gold Trust, in which NYSE Arca 
represented that COMEX is one of the ``major world gold markets,'' 
Exchange Act Release No. 66627 (Mar. 20, 2012), 77 FR 17539, 17542-
43, 17547 (Mar. 26, 2012)); JPM XF Physical Copper Trust, Exchange 
Act Release No. 68440 (Dec. 14, 2012), 77 FR 75468, 75469-70, 75472, 
75485-86 (Dec. 20, 2012) (SR-NYSEArca-2012-28); iShares Copper 
Trust, Exchange Act Release No. 68973 (Feb. 22, 2013), 78 FR 13726, 
13727, 13729-30, 13739-40 (Feb. 28, 2013) (SR-NYSEArca-2012-66); 
First Trust Gold Trust, Exchange Act Release No. 70195 (Aug. 14, 
2013), 78 FR 51239, 51240 (Aug. 20, 2013) (SR-NYSEArca-2013-61) 
(notice of proposed rule change included NYSE Arca's representation 
that FINRA, on behalf of the exchange, may obtain trading 
information regarding gold futures and options on gold futures from 
members of the Intermarket Surveillance Group, including COMEX, or 
from markets ``with which [NYSE Arca] has in place a comprehensive 
surveillance sharing agreement,'' and that gold futures are traded 
on COMEX and the Tokyo Commodity Exchange, with a cross-reference to 
the proposed rule change to list and trade shares of the ETFS Gold 
Trust, in which NYSE Arca represented that COMEX is one of the 
``major world gold markets,'' Exchange Act Release No. 69847 (June 
25, 2013), 78 FR 39399, 39400, 39405 (July 1, 2013)); Merk Gold 
Trust, Exchange Act Release No. 71378 (Jan. 23, 2014), 79 FR 4786, 
4786-87 (Jan. 29, 2014) (SR-NYSEArca-2013-137) (notice of proposed 
rule change included NYSE Arca's representation that ``COMEX is the 
largest gold futures and options exchange'' and that NYSE Arca ``may 
obtain trading information via the Intermarket Surveillance Group,'' 
including with respect to transactions occurring on COMEX pursuant 
to CME and NYMEX's membership, or from exchanges ``with which [NYSE 
Arca] has in place a comprehensive surveillance sharing agreement,'' 
Exchange Act Release No. 71038 (Dec. 11, 2013), 78 FR 76367, 76369, 
76374 (Dec. 17, 2013)); Long Dollar Gold Trust, Exchange Act Release 
No. 79518 (Dec. 9, 2016), 81 FR 90876, 90881, 90886, 90888 (Dec. 15, 
2016) (SR-NYSEArca-2016-84).
    \11\ See Winklevoss Order at 37592.
---------------------------------------------------------------------------

    As such, the regulated market of significant size test does not 
require that the spot bitcoin market be regulated in order for the 
Commission to approve this proposal, and precedent makes clear that an 
underlying market for a spot commodity or currency being a regulated 
market would actually be an exception to the norm. These largely 
unregulated currency and commodity markets do not provide the same 
protections as the markets that are subject to the Commission's 
oversight, but the Commission has consistently looked to surveillance 
sharing agreements with the underlying futures market in order to 
determine whether such products were consistent with the Act. With this 
in mind, the Bitcoin Futures market, as defined below, is the proper 
market to consider in determining whether there is a related regulated 
market of significant size.
    Further to this point, the Exchange notes that the Commission has 
recently approved proposals related to the listing and trading of funds 
that would primarily hold Bitcoin Futures that are registered under the 
Securities Act of 1933 instead of the 1940 Act.\12\ In the Teucrium 
Approval, the Commission found the Bitcoin Futures market to be a 
regulated market of significant size as it relates to Bitcoin Futures, 
an odd tautological truth that is also inconsistent with prior 
disapproval orders for ETPs that would hold actual bitcoin instead of 
derivatives contracts (``Spot Bitcoin ETPs'') that use the exact same 
pricing methodology as the Bitcoin Futures. As further discussed below, 
both the Exchange and the Sponsor believe that this proposal and the 
included analysis are sufficient to establish that the Bitcoin Futures 
market represents a regulated market of significant size as it relates 
both to the Bitcoin Futures market and to the spot bitcoin market and 
that this proposal should be approved.
---------------------------------------------------------------------------

    \12\ See Exchange Act Release No. 94620 (April 6, 2022), 87 FR 
21676 (April 12, 2022) (the ``Teucrium Approval'') and 94853 (May 5, 
2022) (collectively, with the Teucrium Approval, the ``Bitcoin 
Futures Approvals'').
---------------------------------------------------------------------------

Bitcoin Futures ETFs
    The Exchange and Sponsor applaud the Commission for allowing the 
launch of exchange-traded funds (``ETFs'') registered under the 1940 
Act and the recent Bitcoin Futures Approvals that provide exposure to 
bitcoin primarily through Bitcoin Futures (``Bitcoin Futures ETFs''). 
Allowing such products to list and trade is a productive first step in 
providing U.S. investors and traders with transparent, exchange listed 
tools for expressing a view on bitcoin. The Bitcoin Futures Approvals, 
however, have created a logical inconsistency in the application of the 
standard the Commission applies when considering bitcoin ETP proposals.
    As discussed further below, the standard applicable to bitcoin ETPs 
is whether the listing exchange has in place a comprehensive 
surveillance sharing agreement with a regulated market of significant 
size in the underlying asset. Previous disapproval orders have made 
clear that a market that constitutes a regulated market of significant 
size is generally a futures and/or options market based on the 
underlying reference asset rather than the spot commodity markets, 
which are often unregulated.\13\ Leaving aside the analysis of that 
standard until later in

[[Page 46347]]

this proposal,\14\ the Exchange believes that the below rationale that 
the Commission applied to a Bitcoin Futures ETF should result in the 
Commission approving this and other Spot Bitcoin ETP proposals:
---------------------------------------------------------------------------

    \13\ See Winklevoss Order at 37593, specifically footnote 202, 
which includes the language from numerous approval orders for which 
the underlying futures markets formed the basis for approving series 
of ETPs that hold physical metals, including gold, silver, 
palladium, platinum, and precious metals more broadly; and 37600, 
specifically where the Commission provides that ``when the spot 
market is unregulated--the requirement of preventing fraudulent and 
manipulative acts may possibly be satisfied by showing that the ETP 
listing market has entered into a surveillance-sharing agreement 
with a regulated market of significant size in derivatives related 
to the underlying asset.'' As noted above, the Exchange believes 
that these citations are particularly helpful in making clear that 
the spot market for a spot commodity ETP need not be ``regulated'' 
in order for a spot commodity ETP to be approved by the Commission, 
and in fact that it's been the common historical practice of the 
Commission to rely on such derivatives markets as the regulated 
market of significant size because such spot commodities markets are 
largely unregulated.
    \14\ As further outlined below, both the Exchange and the 
Sponsor believe that the Bitcoin Futures market represents a 
regulated market of significant size and that this proposal and 
others like it should be approved on this basis.

    The CME ``comprehensively surveils futures market conditions and 
price movements on a real time and ongoing basis in order to detect 
and prevent price distortions, including price distortions caused by 
manipulative efforts.'' Thus, 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. As such, when the CME shares its 
surveillance information with Arca, the information would assist in 
detecting and deterring fraudulent or manipulative misconduct 
---------------------------------------------------------------------------
related to the non cash assets held by the proposed ETP.15

    Bitcoin Futures pricing is based on pricing from spot bitcoin 
markets. The statement from the Teucrium Approval that ``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. . .indirectly by trading outside of the CME 
bitcoin futures market,'' makes clear that the Commission believes that 
CME's surveillance can capture the effects of trading on the relevant 
spot markets on the pricing of Bitcoin Futures. If CME is able to 
detect such attempts at manipulation in the complex and interconnected 
spot bitcoin market, how would such an ability to detect attempted 
manipulation and the utility in sharing that information with the 
listing exchange apply only to Bitcoin Futures ETFs and not Spot 
Bitcoin ETPs? Stated a different way, given that there is significant 
trading volume on numerous bitcoin exchanges that are not part of the 
CME CF Bitcoin Reference Rate and that arbitrage opportunities across 
bitcoin exchanges means that such trading volume will influence spot 
bitcoin prices across the market and, despite this, the Commission 
still believes that CME can detect attempted manipulation of the 
Bitcoin Futures through ``trading outside of the CME bitcoin futures 
market,'' it is clear that such ability would apply equally to both 
Bitcoin Futures ETFs and Spot Bitcoin ETPs. To take it a step further, 
such an ability would also seem to be a strong indication that the CME 
Bitcoin Futures market represents a regulated market of significant 
size. To be clear, the Exchange agrees with the Commission on this 
point (and the implications of their conclusions) and notes that the 
pricing mechanism applicable to the Shares is similar to the CME CF 
Bitcoin Reference Rate, as further discussed below.
    The Exchange also notes that a Bitcoin Futures ETF may also be more 
susceptible to potential manipulation than a Spot Bitcoin ETP that 
offers only in-kind creation and redemption because Bitcoin Futures 
pricing (and thus the value of the underlying holdings of a Bitcoin 
Futures ETF) is based on a single price derived from spot bitcoin 
pricing, while shares of a Spot Bitcoin ETP would represent interest in 
bitcoin directly and authorized participants for a Spot Bitcoin ETP (as 
proposed herein) would be able to source bitcoin from any exchange and 
create or redeem with the applicable trust regardless of the price of 
the underlying index. As such, the Exchange believes that, in addition 
to the CME Bitcoin Futures market representing a regulated market of 
significant size as it relates to the spot bitcoin market, in-kind Spot 
Bitcoin ETPs are likely less susceptible to manipulation than Bitcoin 
Futures ETFs because of the underlying creation and redemption 
arbitrage mechanism that will operate in the same manner as it does for 
all other ETFs.
    In addition to potentially being more susceptible to manipulation 
than a Spot Bitcoin ETP, the structure of Bitcoin Futures ETFs provides 
negative outcomes for buy and hold investors as compared to a Spot 
Bitcoin ETP.\16\ Specifically, the cost of rolling Bitcoin Futures 
contracts will cause the Bitcoin Futures ETFs to typically lag the 
performance of bitcoin itself and, at over a billion dollars in assets 
under management, would cost U.S. investors significant amounts of 
money on an annual basis compared to Spot Bitcoin ETPs. Such rolling 
costs would not be required for Spot Bitcoin ETPs that hold bitcoin. 
While Bitcoin Futures ETFs represent a useful trading tool, they are 
clearly a sub-optimal structure for U.S. investors that are looking for 
long-term exposure to bitcoin that will, based on the calculations 
above, unnecessarily cost U.S. investors significant amounts of money 
every year compared to Spot Bitcoin ETPs and the Exchange believes that 
any proposal to list and trade a Spot Bitcoin ETP should be reviewed by 
the Commission with this important investor protection context in mind.
---------------------------------------------------------------------------

    \16\ See e.g., ``Bitcoin ETF's Success Could Come at 
Fundholders' Expense,'' Wall Street Journal (October 24, 2021), 
available at: https://www.wsj.com/articles/bitcoin-etfs-success-could-come-at-fundholders-expense-11635080580; ``Physical Bitcoin 
ETF Prospects Accelerate,'' ETF.com (October 25, 2021), available 
at: https://www.etf.com/sections/blog/physical-bitcoin-etf-prospects-shine.
---------------------------------------------------------------------------

    Based on the foregoing, the Exchange and Sponsor believe that any 
objective review of the proposals to list Spot Bitcoin ETPs compared to 
the Bitcoin Futures ETFs and the Bitcoin Futures Approvals would lead 
to the conclusion that Spot Bitcoin ETPs should be available to U.S. 
investors and, as such, this proposal and other comparable proposals to 
list and trade Spot Bitcoin ETPs should be approved by the Commission. 
Stated simply, U.S. investors will continue to lose significant amounts 
of money from holding Bitcoin Futures ETFs as compared to Spot Bitcoin 
ETPs, losses which could be prevented by the Commission approving Spot 
Bitcoin ETPs. Additionally, any concerns related to preventing 
fraudulent and manipulative acts and practices related to Spot Bitcoin 
ETPs would apply equally to the spot markets underlying the futures 
contracts held by a Bitcoin Futures ETF. While the 1940 Act does offer 
certain investor protections, those protections do not relate to 
mitigating potential manipulation of the holdings of an ETF in a way 
that warrants distinction between Bitcoin Futures ETFs and Spot Bitcoin 
ETPs and the SEC has granted approval for a Bitcoin Futures ETP that is 
not regulated by the 1940 Act.\17\ To be clear, both the Exchange and 
Sponsor believe that the Bitcoin Futures market is a regulated market 
of significant size and that such manipulation concerns are mitigated 
as described throughout this proposal. After issuing the Bitcoin 
Futures Approvals which conclude the CME Bitcoin Futures market is a 
regulated market of significant size as it relates to Bitcoin Futures, 
the only consistent outcome would be approving Spot Bitcoin ETPs on the 
basis that the Bitcoin Futures market is also a regulated market of 
significant size as it relates to the bitcoin spot market. Including in 
the analysis the significant and preventable losses to U.S. investors 
that comes with Bitcoin Futures ETFs, disapproving Spot Bitcoin ETPs 
seems even more arbitrary and capricious. Given the current landscape, 
approving this proposal (and others like it) and

[[Page 46348]]

allowing Spot Bitcoin ETPs to be listed and traded alongside Bitcoin 
Futures ETFs would establish a consistent regulatory approach, provide 
U.S. investors with choice in product structures for bitcoin exposure, 
and offer flexibility in the means of gaining exposure to bitcoin 
through transparent, regulated, U.S. exchange listed vehicles.
---------------------------------------------------------------------------

    \17\ See Teucrium Approval.
---------------------------------------------------------------------------

Spot and Proxy Exposure to Bitcoin
    Exposure to bitcoin through an ETP also presents certain advantages 
for retail investors compared to buying spot bitcoin directly. The most 
notable advantage from the Sponsor's perspective is the elimination of 
the need for an individual retail investor to either manage their own 
private keys or to hold bitcoin through a cryptocurrency exchange that 
lacks sufficient protections. Typically, retail exchanges hold most, if 
not all, retail investors' bitcoin in ``hot'' (internet connected) 
storage and do not make any commitments to indemnify retail investors 
or to observe any particular cybersecurity standard. Meanwhile, a 
retail investor holding spot bitcoin directly in a self-hosted wallet 
may suffer from inexperience in private key management (e.g., 
insufficient password protection, lost key, etc.), which point of 
failure could cause them to lose some or all of their bitcoin holdings. 
Thus, with respect to custody of the Trust's bitcoin assets, the Trust 
presents advantages from an investment protection standpoint for retail 
investors compared to owning spot bitcoin directly or via a digital 
asset exchange.
    Finally, some publicly traded companies with mostly unrelated 
businesses--such as Tesla (a car manufacturer) and MicroStrategy (an 
enterprise software company)--have announced significant investments in 
bitcoin. Without access to bitcoin exchange traded products, retail 
investors seeking investment exposure to bitcoin may end up purchasing 
shares in these companies in order to gain the exposure to bitcoin that 
they seek.\18\ In fact, mainstream financial news networks have written 
a number of articles providing investors with guidance for obtaining 
bitcoin exposure through publicly traded companies (such as 
MicroStrategy, Tesla, and bitcoin mining companies, among others) 
instead of dealing with the complications associated with buying spot 
bitcoin in the absence of a bitcoin ETP.\19\ Such public companies, 
however, are imperfect bitcoin proxies and provide investors with 
partial bitcoin exposure paired with a host of additional risks 
associated with whichever operating company they decide to purchase. 
Additionally, the disclosures provided by the aforementioned public 
companies with respect to risks relating to their bitcoin holdings are 
generally substantially smaller than the registration statement of a 
bitcoin ETP, including the Registration Statement, typically amounting 
to a few sentences of narrative description and a handful of risk 
factors.\20\ In other words, investors seeking bitcoin exposure through 
publicly traded companies are gaining only partial exposure to bitcoin 
and are not fully benefitting from the risk disclosures and associated 
investor protections that come from the securities registration 
process.
---------------------------------------------------------------------------

    \18\ In August 2017, the Commission's Office of Investor 
Education and Advocacy warned investors about situations where 
companies were publicly announcing events relating to digital coins 
or tokens in an effort to affect the price of the company's publicly 
traded common stock. See https://www.sec.gov/oiea/investor-alerts-and-bulletins/ia_icorelatedclaims.
    \19\ See e.g., ``7 public companies with exposure to bitcoin'' 
(February 8, 2021) available at: https://finance.yahoo.com/news/7-public-companies-with-exposure-to-bitcoin-154201525.html; and ``Want 
to get in the crypto trade without holding bitcoin yourself? Here 
are some investing ideas'' (February 19, 2021) available at: https://www.cnbc.com/2021/02/19/ways-to-invest-in-bitcoin-without-holding-the-cryptocurrency-yourself-.html.
    \20\ See, e.g., Tesla 10-K for the year ended December 31, 2020, 
which mentions bitcoin just nine times: https://www.sec.gov/ix?doc=/Archives/edgar/data/1318605/000156459021004599/tsla-10k_20201231.htm.

---------------------------------------------------------------------------

[[Page 46349]]

[GRAPHIC] [TIFF OMITTED] TN19JY23.196

Bitcoin Futures
    CME began offering trading in Bitcoin Futures in 2017. Each 
contract represents five bitcoin and is based on the CME CF Bitcoin 
Reference Rate.\21\ The contracts trade and settle like other cash 
settled commodity futures contracts. Nearly every measurable metric 
related to Bitcoin Futures has generally trended up since launch, 
although certain notional volume calculations have decreased roughly in 
line with the decrease in the price of bitcoin. For example, there were 
143,215 Bitcoin Futures contracts traded in April 2023 (approximately 
$20.7 billion) compared to 193,182 ($5 billion), 104,713 ($3.9 
billion), 118,714 ($42.7 billion), and 111,964 ($23.2 billion) 
contracts traded in April 2019, April 2020, April 2021, and April 2022, 
respectively.
---------------------------------------------------------------------------

    \21\ The CME CF Bitcoin Reference Rate is based on a publicly 
available calculation methodology based on pricing sourced from 
several crypto exchanges and trading platforms, including Bitstamp, 
Coinbase, Gemini, itBit, Kraken, and LMAX Digital.

---------------------------------------------------------------------------

[[Page 46350]]

[GRAPHIC] [TIFF OMITTED] TN19JY23.197

    The number of large open interest holders \22\ and unique accounts 
trading Bitcoin Futures have both increased, even in the face of 
heightened Bitcoin price volatility.
---------------------------------------------------------------------------

    \22\ A large open interest holder in Bitcoin Futures is an 
entity that holds at least 25 contracts, which is the equivalent of 
125 bitcoin. At a price of approximately $29,268.81 per bitcoin on 
4/30/2023, more than 100 firms had outstanding positions of greater 
than $3.65 million in Bitcoin Futures.

---------------------------------------------------------------------------

[[Page 46351]]

[GRAPHIC] [TIFF OMITTED] TN19JY23.198


[[Page 46352]]


Preventing Fraudulent and Manipulative Practices
    In order for any proposed rule change from an exchange to be 
approved, the Commission must determine that, among other things, the 
proposal is consistent with the requirements of Section 6(b)(5) of the 
Act, specifically including: (i) the requirement that a national 
securities exchange's rules are designed to prevent fraudulent and 
manipulative acts and practices; \23\ and (ii) the requirement that an 
exchange proposal be designed, in general, to protect investors and the 
public interest. The Exchange believes that this proposal is consistent 
with the requirements of Section 6(b)(5) of the Act and that this 
filing sufficiently demonstrates that the Bitcoin Futures market 
represents a regulated market of significant size and that, on the 
whole, 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\ The Exchange believes 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. The geographically 
diverse and continuous nature of bitcoin trading render it difficult 
and prohibitively costly to manipulate the price of bitcoin. The 
fragmentation across bitcoin platforms, the relatively slow speed of 
transactions, and the capital necessary to maintain a significant 
presence on each trading platform make manipulation of bitcoin 
prices through continuous trading activity challenging. To the 
extent that there are bitcoin exchanges engaged in or allowing wash 
trading or other activity intended to manipulate the price of 
bitcoin on other markets, such pricing does not normally impact 
prices on other exchange because participants will generally ignore 
markets with quotes that they deem non-executable. Moreover, the 
linkage between the bitcoin markets and the presence of arbitrageurs 
in those markets means that the manipulation of the price of bitcoin 
price on any single venue would require manipulation of the global 
bitcoin price in order to be effective. Arbitrageurs must have funds 
distributed across multiple trading platforms in order to take 
advantage of temporary price dislocations, thereby making it 
unlikely that there will be strong concentration of funds on any 
particular bitcoin exchange or OTC platform. As a result, the 
potential for manipulation on a trading platform would require 
overcoming the liquidity supply of such arbitrageurs who are 
effectively eliminating any cross-market pricing differences.
---------------------------------------------------------------------------

(i) Designed To Prevent Fraudulent and Manipulative Acts and Practices
    In order to meet this standard in a proposal to list and trade a 
series of Commodity-Based Trust Shares, the Commission requires that an 
exchange demonstrate that there is a comprehensive surveillance sharing 
agreement in place \24\ with a regulated market of significant size. 
Both the Exchange and CME are members of ISG.\25\ The only remaining 
issue to be addressed is whether the Bitcoin Futures market constitutes 
a market of significant size, which both the Exchange and the Sponsor 
believe that it does. The terms ``significant market'' and ``market of 
significant size'' include a market (or group of markets) as to which: 
(a) there is a reasonable likelihood that a person attempting to 
manipulate the ETP would also have to trade on that market to 
manipulate the ETP, so that a surveillance sharing agreement would 
assist the listing exchange in detecting and deterring misconduct; and 
(b) it is unlikely that trading in the ETP would be the predominant 
influence on prices in that market.\26\
---------------------------------------------------------------------------

    \24\ As previously articulated by the Commission, ``The standard 
requires such surveillance-sharing agreements since ``they provide a 
necessary deterrent to manipulation because they facilitate the 
availability of information needed to fully investigate a 
manipulation if it were to occur.'' 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 underlying securities 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. 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.'' The 
Commission has historically held that joint membership in the 
Intermarket Surveillance Group (``ISG'') constitutes such a 
surveillance sharing agreement. See Securities Exchange Act Release 
No. 88284 (February 26, 2020), 85 FR 12595 (March 3, 2020) (SR-
NYSEArca-2019-39) (the ``Wilshire Phoenix Disapproval'').
    \25\ For a list of the current members and affiliate members of 
ISG, see https://www.isgportal.com/.
    \26\ See Wilshire Phoenix Disapproval.
---------------------------------------------------------------------------

    The Commission has also recognized that the ``regulated market of 
significant size'' standard is not the only means for satisfying 
Section 6(b)(5) of the act, specifically providing that a listing 
exchange could demonstrate that ``other means to prevent fraudulent and 
manipulative acts and practices'' are sufficient to justify dispensing 
with the requisite surveillance sharing agreement.\27\
---------------------------------------------------------------------------

    \27\ See Winklevoss Order at 37580. The Commission has also 
specifically noted that it ``is not applying a `cannot be 
manipulated' standard; instead, the Commission is examining whether 
the proposal meets the requirements of the Exchange Act and, 
pursuant to its Rules of Practice, places the burden on the listing 
exchange to demonstrate the validity of its contentions and to 
establish that the requirements of the Exchange Act have been met.'' 
Id. at 37582.
---------------------------------------------------------------------------

(A) Reasonable Likelihood That a Person Attempting To Manipulate the 
ETP Would Also Have To Trade on That Market To Manipulate the ETP
    Bitcoin Futures represent a growing influence on pricing in the 
spot bitcoin market as has been laid out above and in other proposals 
to list and trade Spot Bitcoin ETPs. Pricing in Bitcoin Futures is 
based on pricing from spot bitcoin markets. As noted above, the 
statement from the Teucrium Approval that ``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 
. . . indirectly by trading outside of the CME bitcoin futures 
market,'' makes clear that the Commission believes that CME's 
surveillance can capture the effects of trading on the relevant spot 
markets on the pricing of Bitcoin Futures. While the Commission makes 
clear in the Teucrium Approval that the analysis only applies to the 
Bitcoin Futures market as it relates to an ETP that invests in Bitcoin 
Futures as its only non cash or cash equivalent holding, if CME's 
surveillance is sufficient to mitigate concerns related to trading in 
Bitcoin Futures for which the pricing is based directly on pricing from 
spot bitcoin markets, it's not clear how such a conclusion could apply 
only to ETPs based on Bitcoin Futures and not extend to Spot Bitcoin 
ETPs.
    Additionally, a Bitcoin Futures ETF is actually potentially more 
susceptible to manipulation than a Spot Bitcoin ETP where the 
underlying trust offers only in-kind creation and redemption. 
Specifically, the pricing of Bitcoin Futures is based on prices from 
spot bitcoin markets, while shares of a Spot Bitcoin ETP would 
represent an interest in bitcoin directly and authorized participants 
for a Spot Bitcoin ETP would be able to source bitcoin from any 
exchange and create or redeem with the applicable trust regardless of 
the price of the underlying index. Potential manipulation of a Bitcoin 
Futures ETF would require manipulation on the spot markets on which the 
pricing for Bitcoin Futures is based while the in-kind creation and 
redemption process and fungibility of bitcoin means that a would-be 
manipulator of a Spot Bitcoin ETP would need to manipulate the price 
across all bitcoin markets or risk simply providing arbitrage 
opportunities for authorized participants. Further to this point, this 
arbitrage opportunity also acts to reduce any incentives to manipulate 
the price of a Spot Bitcoin

[[Page 46353]]

ETP because the underlying trust will create and redeem shares at set 
rates of bitcoin per share without regard to the price that the ETP is 
trading at in the secondary market or the price of the underlying 
index. As such, the Exchange believes that part (a) of the significant 
market test outlined above is satisfied and that common membership in 
ISG between the Exchange and CME would assist the listing exchange in 
detecting and deterring misconduct in the Shares.
(B) Predominant Influence on Prices in Spot and Bitcoin Futures
    The Exchange and Sponsor also believe that trading in the Shares 
would not be the predominant force on prices in the Bitcoin Futures 
market or spot market for a number of reasons, including the in-kind 
creation and redemption process, the spot market arbitrage 
opportunities that such in-kind creation and redemption process 
creates, the significant volume in the Bitcoin Futures market, the size 
of bitcoin's market cap, and the significant liquidity available in the 
spot market. In addition to the Bitcoin Futures market data points 
cited above, the spot market for bitcoin is also very liquid. According 
to data from Kaiko, the average daily adjusted volume for spot bitcoin 
across USD denominated trading pairs from January 1, 2023, to May 31, 
2023, was $6.0 billion. According to data from Kaiko, the aggregate 2% 
bitcoin market depth on the bid and ask side for USD denominated 
trading pairs has been on average 6,875 BTC (approximately $167.2 
million), for the period between January 1, 2023, and May 31st, 2023. 
More strategic purchases or sales (such as using limit orders and 
executing through OTC bitcoin trade desks) would likely have less 
obvious impact on the market--which is consistent with MicroStrategy, 
Tesla, and Square being able to collectively purchase billions of 
dollars in bitcoin.
    As such, the combination of the in-kind creation and redemption 
process, the Bitcoin Futures 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 Bitcoin Futures markets, 
satisfying part (b) of the test outlined above.
(c) Other Means To Prevent Fraudulent and Manipulative Acts and 
Practices
SSA With Bitcoin Spot Market
    The Exchange is also proposing to take additional steps to those 
described above to supplement its ability to obtain information that 
would be helpful in detecting, investigating, and deterring fraud and 
market manipulation in the Commodity-Based Trust Shares.
    On June 8, 2023, the Exchange reached an agreement on terms with 
Coinbase, Inc. (``Coinbase'') to enter into a surveillance-sharing 
agreement (``Spot BTC SSA''), and the associated term sheet became 
effective as of June 16, 2023. Based on this agreement on terms, the 
Exchange and Coinbase will finalize and execute a definitive agreement 
that the parties expect to be executed prior to allowing trading of the 
Commodity-Based Trust Shares. Trading of Bitcoin on Coinbase represents 
a significant portion of US-based Bitcoin trading. The Sponsor has 
stated to the Exchange that, based on publicly available data reported 
by spot bitcoin platforms active in the U.S. market, trading on 
Coinbase has represented approximately 56% of US-dollar to Bitcoin 
trading on such U.S.-based platforms out of total YTD volume across 
these platforms of approximately U.S. $129 billion, as of June 28, 
2023.\28\
---------------------------------------------------------------------------

    \28\ This analysis is based on the following spot bitcoin 
platforms: Coinbase, Binance US, Kraken, Bitstamp, Gemini, and 
itBit.
---------------------------------------------------------------------------

    The Spot BTC SSA is expected to be a bilateral surveillance-sharing 
agreement between Nasdaq and Coinbase that is intended to supplement 
the Exchange's market surveillance program. The Spot BTC SSA is 
expected to have the hallmarks of a surveillance-sharing agreement 
between two members of the ISG, which would give the Exchange 
supplemental access to data regarding spot Bitcoin trades on Coinbase 
where the Exchange determines it is necessary as part of its 
surveillance program for the Commodity-Based Trust Shares. This means 
that the Exchange expects to receive market data for orders and trades 
from Coinbase, which it will utilize in surveillance of the trading of 
Commodity-Based Trust Shares. In addition, the Exchange can request 
further information from Coinbase related to spot bitcoin trading 
activity on the Coinbase exchange platform, if the Exchange determines 
that such information would be necessary to detect and investigate 
potential manipulation in the trading of the Commodity-Based Trust 
Shares.
In-Kind Creation and Redemption
    As noted above, the Commission also permits a listing exchange to 
demonstrate that ``other means to prevent fraudulent and manipulative 
acts and practices'' are sufficient to justify dispensing with the 
requisite surveillance sharing agreement. The Exchange and Sponsor 
believe that such conditions are present. Consistent with prior points 
above, offering only in-kind creation and redemption will provide 
unique protections against potential attempts to manipulate the Shares. 
While the Sponsor believes that the CF Benchmarks Index which it uses 
to value the Trust's bitcoin is itself resistant to manipulation based 
on the methodology further described below, the fact that creations and 
redemptions are only available in-kind makes the manipulability of the 
CF Benchmarks Index significantly less important. Specifically, because 
the Trust will not accept cash to buy bitcoin in order to create new 
shares or, barring a forced redemption of the Trust or under other 
extraordinary circumstances, be forced to sell bitcoin to pay cash for 
redeemed shares, the price that the Sponsor uses to value the Trust's 
bitcoin is not particularly important.\29\ When authorized participants 
are creating with the Trust, they need to deliver a certain number of 
bitcoin per share (regardless of the valuation used) and when they're 
redeeming, they can similarly expect to receive a certain number of 
bitcoin per share. As such, even if the price used to value the Trust's 
bitcoin is manipulated (which the Sponsor believes that its methodology 
is resistant to), the ratio of bitcoin per Share does not change and 
the Trust will either accept (for creations) or distribute (for 
redemptions) the same number of bitcoin regardless of the value. This 
not only mitigates the risk associated with potential manipulation, but 
also discourages and disincentivizes manipulation of the CF Benchmarks 
Index because there is little financial incentive to do so.
---------------------------------------------------------------------------

    \29\ While the CF Benchmarks Index will not be particularly 
important for the creation and redemption process, it will be used 
for calculating fees.
---------------------------------------------------------------------------

Availability of Information
    The website for the Trust, which will be publicly accessible at no 
charge, will contain the following information: (a) the prior business 
day's NAV; (b) the prior business day's Official Closing Price; (c) 
calculation of the premium or discount of such Official Closing Price 
against such NAV; (d) data in chart form

[[Page 46354]]

displaying the frequency distribution of discounts and premiums of the 
Official Closing Price against the NAV, within appropriate ranges for 
each of the four previous calendar quarters (or for the life of the 
Trust, if shorter); (e) the prospectus; and (f) other applicable 
quantitative information. The Trust Administrator will also disseminate 
the Trust's holdings on a daily basis on the Trust's website. The price 
of bitcoin will be made available by one or more major market data 
vendors, updated at least every 15 seconds during the Regular Market 
Session. Information about the CF Benchmarks Index, including key 
elements of how the CF Benchmarks Index is calculated, will be publicly 
available at https://www.cfbenchmarks.com/. Also, an estimated value 
that reflects an estimated intraday value of the Trust's portfolio (the 
``Intraday Indicative Value'' or ``IIV''), will be disseminated.
    One or more major market data vendors will provide an IIV per Share 
updated every 15 seconds, as calculated by the Exchange or a third-
party financial data provider during the Exchange's Regular Market 
Session (9:30 a.m. 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 the Exchange's Regular Market Session to reflect changes 
in the value of the Trust's NAV during the trading day.
    The IIV disseminated during the Exchange's Regular Market Session 
should not be viewed as an actual real time update of the NAV, which 
will be calculated only once at the end of each 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. In addition, the IIV will be available through 
online information services.
    The NAV for the Trust will be calculated by the Trust Administrator 
once a day and will be disseminated daily to all market participants at 
the same time. Quotation and last sale information regarding the Shares 
will be disseminated through the facilities of the Consolidated Tape 
Association (``CTA'').
Initial and Continued Listing
    The Shares will be subject to Nasdaq Rule 5711(d)(vi), which sets 
forth the initial and continued listing criteria applicable to 
Commodity-Based Trust Shares. The Exchange will obtain a representation 
that the Trust's NAV will be calculated daily and will be made 
available to all market participants at the same time. Upon termination 
of the Trust, the Shares will be removed from listing. The Delaware 
Trustee, will be a trust company having substantial capital and surplus 
and the experience and facilities for handling corporate trust 
business, as required under Nasdaq Rule 5711(d)(vi)(D) and no change 
will be made to the Delaware Trustee without prior notice to and 
approval of the Exchange.
    As required in Nasdaq Rule 5711(d)(vii), the Exchange notes that 
any registered market maker (``Market Maker'') in the Shares must file 
with the Exchange, in a manner prescribed by the Exchange, and keep 
current a list identifying all accounts for trading the underlying 
commodity, related futures or options on futures, or any other related 
derivatives, which the registered Market Maker may have or over which 
it may exercise investment discretion. No registered Market Maker in 
the Shares shall trade in the underlying commodity, related futures or 
options on futures, or any other related derivatives, in an account in 
which a registered Market Maker, directly or indirectly, controls 
trading activities, or has a direct interest in the profits or losses 
thereof, which has not been reported to the Exchange as required by 
Nasdaq Rule 5711(d). In addition to the existing obligations under 
Exchange rules regarding the production of books and records, the 
registered Market Maker in the Shares shall make available to the 
Exchange such books, records or other information pertaining to 
transactions by such entity or any limited partner, officer or approved 
person thereof, registered or non-registered employee affiliated with 
such entity for its or their own accounts in the underlying commodity, 
related futures or options on futures, or any other related 
derivatives, as may be requested by the Exchange.
Trading Rules
    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. The Exchange will 
allow trading in the Shares from 4:00 a.m. to 8:00 p.m. (ET). The 
Exchange has appropriate rules to facilitate transactions in the Shares 
during all trading sessions. The Shares of the Trust will conform to 
the initial and continued listing criteria set forth in Nasdaq Rule 
5711(d).
Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares. The Exchange will halt trading in the Shares 
under the conditions specified in Nasdaq Rules 4120 and 4121, including 
without limitation the conditions specified in Nasdaq Rule 4120(a)(9) 
and the trading pauses under Nasdaq Rules 4120(a)(11) and (12).
    Trading may be halted because of market conditions or for reasons 
that, in the view of the Exchange, make trading in the Shares 
inadvisable. These may include: (1) the extent to which trading is not 
occurring in the bitcoin underlying the Shares; or (2) whether other 
unusual conditions or circumstances detrimental to the maintenance of a 
fair and orderly market are present.
    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 the 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 bitcoin 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.
    In addition, 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.
Surveillance
    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. 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. In addition, the Exchange also 
has a general policy prohibiting the distribution of material, non-
public information by its employees.

[[Page 46355]]

    Additionally, on June 8, 2023, the Exchange reached an agreement on 
terms with Coinbase to enter into a Spot BTC SSA, and the associated 
term sheet became effective as of June 16, 2023. Based on this 
agreement on terms, the Exchange and Coinbase will finalize and execute 
a definitive agreement that the parties expect to be executed prior to 
allowing trading of the Commodity-Based Trust Shares. Trading of 
Bitcoin on Coinbase represents a significant portion of US-based 
Bitcoin trading. The Sponsor has stated to the Exchange that, based on 
publicly available data reported by spot bitcoin platforms active in 
the U.S. market, trading on Coinbase has represented approximately 56% 
of US-dollar to Bitcoin trading on such U.S.-based platforms out of 
total YTD volume across these platforms of approximately U.S. $129 
billion, as of June 28, 2023.\30\
---------------------------------------------------------------------------

    \30\ This analysis is based on the following spot bitcoin 
platforms: Coinbase, Binance US, Kraken, Bitstamp, Gemini, and 
itBit.
---------------------------------------------------------------------------

    The Spot BTC SSA is expected to be a bilateral surveillance-sharing 
agreement between Nasdaq and Coinbase that is intended to supplement 
the Exchange's market surveillance program. The Spot BTC SSA is 
expected to have the hallmarks of a surveillance-sharing agreement 
between two members of the ISG, which would give the Exchange 
supplemental access to data regarding spot Bitcoin trades on Coinbase 
where the Exchange determines it is necessary as part of its 
surveillance program for the Commodity-Based Trust Shares. This means 
that the Exchange expects to receive market data for orders and trades 
from Coinbase, which it will utilize in surveillance of the trading of 
Commodity-Based Trust Shares. In addition, the Exchange can request 
further information from Coinbase related to spot bitcoin trading 
activity on the Coinbase exchange platform, if the Exchange determines 
that such information would be necessary to detect and investigate 
potential manipulation in the trading of the Commodity-Based Trust 
Shares.
Information Circular
    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 the Shares. Specifically, the Information 
Circular will discuss the following: (1) the procedures for purchases 
and redemptions of Shares in Creation Units (and that Shares are not 
individually redeemable); (2) Section 10 of Nasdaq General Rule 9, 
which imposes suitability obligations on Nasdaq members with respect to 
recommending transactions in the Shares to customers; (3) how 
information regarding the IIV is disseminated; (4) 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; 
(5) the requirement that members deliver a prospectus to investors 
purchasing newly issued Shares prior to or concurrently with the 
confirmation of a transaction; and (6) trading information. The 
Information Circular will also discuss any exemptive, no action and 
interpretive relief granted by the Commission from any rules under the 
Act.
    Additionally, the Information Circular will reference that the 
Trust is subject to various fees and expenses described in the Draft 
Registration Statement. The Information Circular will also disclose the 
trading hours of the Shares. The Information Circular will disclose 
that information about the Shares will be publicly available on the 
Trust's website.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \31\ in general and Section 6(b)(5) of the Act \32\ in 
particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, 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.
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78f.
    \32\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission has approved numerous series of Trust Issued 
Receipts,\33\ including Commodity-Based Trust Shares,\34\ to be listed 
on U.S. national securities exchanges. In order for any proposed rule 
change from an exchange to be approved, the Commission must determine 
that, among other things, the proposal is consistent with the 
requirements of Section 6(b)(5) of the Act, specifically including: (i) 
the requirement that a national securities exchange's rules are 
designed to prevent fraudulent and manipulative acts and practices; and 
(ii) the requirement that an exchange proposal be designed, in general, 
to protect investors and the public interest. The Exchange believes 
that this proposal is consistent with the requirements of Section 
6(b)(5) of the Act because this filing sufficiently demonstrates that 
the standard that has previously been articulated by the Commission 
applicable to Commodity-Based Trust Shares has been met as outlined 
below.
---------------------------------------------------------------------------

    \33\ See Exchange Rule 5720.
    \34\ Commodity-Based Trust Shares, as described in Exchange Rule 
5711(d), are a type of Trust Issued Receipt.
---------------------------------------------------------------------------

Designed To Prevent Fraudulent and Manipulative Acts and Practices
    In order for a proposal to list and trade a series of Commodity-
Based Trust Shares to be deemed consistent with the Act, the Commission 
requires that an exchange demonstrate that there is a comprehensive 
surveillance-sharing agreement in place with a regulated market of 
significant size. Both the Exchange and CME are members of ISG.\35\ As 
such, the only remaining issue to be addressed is whether the Bitcoin 
Futures market constitutes a market of significant size, which the 
Exchange believes that it does. The terms ``significant market'' and 
``market of significant size'' include a market (or group of markets) 
as to which: (a) there is a reasonable likelihood that a person 
attempting to manipulate the ETP would also have to trade on that 
market to manipulate the ETP, so that a surveillance-sharing agreement 
would assist the listing exchange in detecting and deterring 
misconduct; and (b) it is unlikely that trading in the ETP would be the 
predominant influence on prices in that market.\36\
---------------------------------------------------------------------------

    \35\ For a list of the current members and affiliate members of 
ISG, see https://www.isgportal.com/.
    \36\ See Wilshire Phoenix Disapproval.
---------------------------------------------------------------------------

    The Commission has also recognized that the ``regulated market of 
significant size'' standard is not the only means for satisfying 
Section 6(b)(5) of the act, specifically providing that a listing 
exchange could demonstrate that ``other means to prevent fraudulent and 
manipulative acts and practices'' are sufficient to justify dispensing 
with the requisite surveillance-sharing agreement.\37\
---------------------------------------------------------------------------

    \37\ See Winklevoss Order at 37580. The Commission has also 
specifically noted that it ``is not applying a ``cannot be 
manipulated'' standard; instead, the Commission is examining whether 
the proposal meets the requirements of the Exchange Act and, 
pursuant to its Rules of Practice, places the burden on the listing 
exchange to demonstrate the validity of its contentions and to 
establish that the requirements of the Exchange Act have been met. 
Id. at 37582.

---------------------------------------------------------------------------

[[Page 46356]]

(a) Reasonable Likelihood That a Person Attempting To Manipulate the 
ETP Would Also Have To Trade on That Market To Manipulate the ETP
    Bitcoin Futures represent a growing influence on pricing in the 
spot bitcoin market as has been laid out above and in other proposals 
to list and trade Spot Bitcoin ETPs. Pricing in Bitcoin Futures is 
based on pricing from spot bitcoin markets. As noted above, the 
statement from the Teucrium Approval that ``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 
. . . indirectly by trading outside of the CME bitcoin futures 
market,'' makes clear that the Commission believes that CME's 
surveillance can capture the effects of trading on the relevant spot 
markets on the pricing of Bitcoin Futures. While the Commission makes 
clear in the Teucrium Approval that the analysis only applies to the 
Bitcoin Futures market as it relates to an ETP that invests in Bitcoin 
Futures as its only non-cash or cash equivalent holding, if CME's 
surveillance is sufficient to mitigate concerns related to trading in 
Bitcoin Futures for which the pricing is based directly on pricing from 
spot bitcoin markets, it's not clear how such a conclusion could apply 
only to ETPs based on Bitcoin Futures and not extend to Spot Bitcoin 
ETPs.
    Additionally, a Bitcoin Futures ETF is actually potentially more 
susceptible to manipulation than a Spot Bitcoin ETP where the 
underlying trust offers only in-kind creation and redemption. 
Specifically, the pricing of Bitcoin Futures is based on prices from 
spot bitcoin markets, while shares of a Spot Bitcoin ETP would 
represent an interest in bitcoin directly and authorized participants 
for a Spot Bitcoin ETP would be able to source bitcoin from any 
exchange and create or redeem with the applicable trust regardless of 
the price of the underlying index. Potential manipulation of a Bitcoin 
Futures ETF would require manipulation on the spot markets on which the 
pricing for Bitcoin Futures is based while the in-kind creation and 
redemption process and fungibility of bitcoin means that a would-be 
manipulator of a Spot Bitcoin ETP would need to manipulate the price 
across all bitcoin markets or risk simply providing arbitrage 
opportunities for authorized participants. Further to this point, this 
arbitrage opportunity also acts to reduce any incentives to manipulate 
the price of a Spot Bitcoin ETP because the underlying trust will 
create and redeem shares at set rates of bitcoin per share without 
regard to the price that the ETP is trading at in the secondary market 
or the price of the underlying index. As such, the Exchange believes 
that part (a) of the significant market test outlined above is 
satisfied and that common membership in ISG between the Exchange and 
CME would assist the listing exchange in detecting and deterring 
misconduct in the Shares.
(b) Predominant Influence on Prices in Spot and Bitcoin Futures
    The Exchange and Sponsor also believe that trading in the Shares 
would not be the predominant force on prices in the Bitcoin Futures 
market or spot market for a number of reasons, including the in-kind 
creation and redemption process, the spot market arbitrage 
opportunities that such in-kind creation and redemption process 
creates, the significant volume in the Bitcoin Futures market, the size 
of bitcoin's market cap, and the significant liquidity available in the 
spot market. In addition to the Bitcoin Futures market data points 
cited above, the spot market for bitcoin is also very liquid. According 
to data from Messari, the average daily adjusted real volume for spot 
bitcoin from January 1, 2023, to May 12, 2023 was $8.5 billion. 
According to data from Kaiko, the aggregate 1% bitcoin market depth on 
the bid and ask side has been on average 5,373 bitcoin (approximately 
$161 million), for the period between April 26, 2023 and May 12, 2023. 
More strategic purchases or sales (such as using limit orders and 
executing through OTC bitcoin trade desks) would likely have less 
obvious impact on the market--which is consistent with MicroStrategy, 
Tesla, and Square being able to collectively purchase billions of 
dollars in bitcoin.
    As such, the combination of the in-kind creation and redemption 
process, the Bitcoin Futures 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 Bitcoin Futures markets, 
satisfying part (b) of the test outlined above.
(c) Other Means To Prevent Fraudulent and Manipulative Acts and 
Practices
SSA With Bitcoin Spot Market
    The Exchange is also proposing to take additional steps to those 
described above to supplement its ability to obtain information that 
would be helpful in detecting, investigating, and deterring fraud and 
market manipulation in the Commodity-Based Trust Shares.
    Additionally, on June 8, 2023, the Exchange reached an agreement on 
terms with Coinbase to enter into a Spot BTC SSA, and the associated 
term sheet became effective as of June 16, 2023. Based on this 
agreement on terms, the Exchange and Coinbase will finalize and execute 
a definitive agreement that the parties expect to be executed prior to 
allowing trading of the Commodity-Based Trust Shares. Trading of 
Bitcoin on Coinbase represents a significant portion of US-based 
Bitcoin trading. The Sponsor has stated to the Exchange that, based on 
publicly available data reported by spot bitcoin platforms active in 
the U.S. market, trading on Coinbase has represented approximately 56% 
of US-dollar to Bitcoin trading on such U.S.-based platforms out of 
total YTD volume across these platforms of approximately U.S. $129 
billion, as of June 28, 2023.\38\
---------------------------------------------------------------------------

    \38\ This analysis is based on the following spot bitcoin 
platforms: Coinbase, Binance US, Kraken, Bitstamp, Gemini, and 
itBit.
---------------------------------------------------------------------------

    The Spot BTC SSA is expected to be a bilateral surveillance-sharing 
agreement between Nasdaq and Coinbase that is intended to supplement 
the Exchange's market surveillance program. The Spot BTC SSA is 
expected to have the hallmarks of a surveillance-sharing agreement 
between two members of the ISG, which would give the Exchange 
supplemental access to data regarding spot Bitcoin trades on Coinbase 
where the Exchange determines it is necessary as part of its 
surveillance program for the Commodity-Based Trust Shares. This means 
that the Exchange expects to receive market data for orders and trades 
from Coinbase, which it will utilize in surveillance of the trading of 
Commodity-Based Trust Shares. In addition, the Exchange can request 
further information from Coinbase related to spot bitcoin trading 
activity on the Coinbase exchange platform, if the Exchange determines 
that such information would be necessary to detect and investigate 
potential manipulation in the trading of the Commodity-Based Trust 
Shares.

[[Page 46357]]

In-Kind Creation and Redemption
    As noted above, the Commission also permits a listing exchange to 
demonstrate that ``other means to prevent fraudulent and manipulative 
acts and practices'' are sufficient to justify dispensing with the 
requisite surveillance-sharing agreement. The Exchange and Sponsor 
believe that such conditions are present. Consistent with prior points 
above, offering only in-kind creation and redemption will provide 
unique protections against potential attempts to manipulate the Shares. 
While the Sponsor believes that the CF Benchmarks Index which it uses 
to value the Trust's bitcoin is itself resistant to manipulation based 
on the methodology further described below, the fact that creations and 
redemptions are only available in-kind makes the manipulability of the 
CF Benchmarks Index significantly less important. Specifically, because 
the Trust will not accept cash to buy bitcoin in order to create new 
shares or, barring a forced redemption of the Trust or under other 
extraordinary circumstances, be forced to sell bitcoin to pay cash for 
redeemed shares, the price that the Sponsor uses to value the Trust's 
bitcoin is not particularly important.\39\ When authorized participants 
are creating with the Trust, they need to deliver a certain number of 
bitcoin per share (regardless of the valuation used) and when they're 
redeeming, they can similarly expect to receive a certain number of 
bitcoin per share. As such, even if the price used to value the Trust's 
bitcoin is manipulated (which the Sponsor believes that its methodology 
is resistant to), the ratio of bitcoin per Share does not change and 
the Trust will either accept (for creations) or distribute (for 
redemptions) the same number of bitcoin regardless of the value. This 
not only mitigates the risk associated with potential manipulation, but 
also discourages and disincentivizes manipulation of the CF Benchmarks 
Index because there is little financial incentive to do so.
---------------------------------------------------------------------------

    \39\ While the CF Benchmarks Index will not be particularly 
important for the creation and redemption process, it will be used 
for calculating fees.
---------------------------------------------------------------------------

    The Exchange also believes that reviewing this proposal through the 
lens of the Bitcoin Futures Approvals would also lead the Commission to 
approving this proposal. Previous disapproval orders have made clear 
that a market that constitutes a regulated market of significant size 
is generally a future and/or options market based on the underlying 
reference asset rather than the spot commodity markets, which are often 
unregulated.\40\ The Exchange believes that the following excerpt from 
the Teucrium Approval is particular informative:
---------------------------------------------------------------------------

    \40\ See Winklevoss Order at 37593, specifically footnote 202, 
which includes the language from numerous approval orders for which 
the underlying futures markets formed the basis for approving series 
of ETPs that hold physical metals, including gold, silver, 
palladium, platinum, and precious metals more broadly; and 37600, 
specifically where the Commission provides that ``when the spot 
market is unregulated--the requirement of preventing fraudulent and 
manipulative acts may possibly be satisfied by showing that the ETP 
listing market has entered into a surveillance-sharing agreement 
with a regulated market of significant size in derivatives related 
to the underlying asset.'' As noted above, the Exchange believes 
that these citations are particularly helpful in making clear that 
the spot market for a spot commodity ETP need not be ``regulated'' 
in order for a spot commodity ETP to be approved by the Commission, 
and in fact that it's been the common historical practice of the 
Commission to rely on such derivatives markets as the regulated 
market of significant size because such spot commodities markets are 
largely unregulated.
---------------------------------------------------------------------------

    The CME ``comprehensively surveils futures market conditions and 
price movements on a real-time and ongoing basis in order to detect and 
prevent price distortions, including price distortions caused by 
manipulative efforts.'' Thus, 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. As 
such, when the CME shares its surveillance information with Arca, the 
information would assist in detecting and deterring fraudulent or 
manipulative misconduct related to the non-cash assets held by the 
proposed ETP.\41\
---------------------------------------------------------------------------

    \41\ See Teucrium Approval at 21679.
---------------------------------------------------------------------------

    Bitcoin Futures pricing is based on pricing from spot bitcoin 
markets. The statement from the Teucrium Approval that ``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 . . . indirectly by trading outside of the 
CME bitcoin futures market,'' makes clear that the Commission believes 
that CME's surveillance can capture the effects of trading on the 
relevant spot markets on the pricing of Bitcoin Futures. If CME is able 
to detect such attempts at manipulation in the complex and 
interconnected spot bitcoin market, how would such an ability to detect 
attempted manipulation and the utility in sharing that information with 
the listing exchange apply only to Bitcoin Futures ETFs and not Spot 
Bitcoin ETPs? Stated a different way, given that there is significant 
trading volume on numerous bitcoin exchanges that are not part of the 
CME CF Bitcoin Reference Rate and that arbitrage opportunities across 
bitcoin exchanges means that such trading volume will influence spot 
bitcoin prices across the market and, despite this, the Commission 
still believes that CME can detect attempted manipulation of the 
Bitcoin Futures through ``trading outside of the CME bitcoin futures 
market,'' it is clear that such ability would apply equally to both 
Bitcoin Futures ETFs and Spot Bitcoin ETPs. To take it a step further, 
such an ability would also seem to be a strong indication that the CME 
Bitcoin Futures market represents a regulated market of significant 
size. To be clear, the Exchange agrees with the Commission on this 
point (and the implications of their conclusions) and notes that the 
pricing mechanism applicable to the Shares is similar to the CME CF 
Bitcoin Reference Rate.
Commodity-Based Trust Shares
    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed on the Exchange pursuant to the initial and 
continued listing criteria in Nasdaq Rule 5711(d). 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 the Shares through the 
Exchange will be subject to the Exchange's surveillance procedures for 
derivative products, including Commodity-Based Trust Shares. The issuer 
has represented to the Exchange that it will advise the Exchange of any 
failure by the Trust or the Shares 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 or the Shares are not in 
compliance with the applicable listing requirements, the Exchange will 
commence delisting procedures under the Nasdaq 5800 Series. The 
Exchange may obtain information regarding trading in the Shares and 
listed bitcoin derivatives via the ISG, from other exchanges who are 
members or affiliates of the ISG, or with

[[Page 46358]]

which the Exchange has entered into a comprehensive surveillance 
sharing agreement.
Availability of Information
    The Exchange also believes that the proposal promotes market 
transparency in that a large amount of information is currently 
available about bitcoin and will be available regarding the Trust and 
the Shares. In addition to the price transparency of the CF Benchmarks 
Index, the Trust will provide information regarding the Trust's bitcoin 
holdings as well as additional data regarding the Trust.
    The website for the Trust, which will be publicly accessible at no 
charge, will contain the following information: (a) the prior business 
day's NAV; (b) the prior business day's Official Closing Price; (c) 
calculation of the premium or discount of such Official Closing Price 
against such NAV; (d) data in chart form displaying the frequency 
distribution of discounts and premiums of the Official Closing Price 
against the NAV, within appropriate ranges for each of the four 
previous calendar quarters (or for the life of the Trust, if shorter); 
(e) the prospectus; and (f) other applicable quantitative information. 
The Trust Administrator will also disseminate the Trust's holdings on a 
daily basis on the Trust's website. The price of bitcoin will be made 
available by one or more major market data vendors, updated at least 
every 15 seconds during the Regular Market Session. Information about 
the CF Benchmarks Index, including key elements of how the CF 
Benchmarks Index is calculated, will be publicly available at https://www.cfbenchmarks.com/. Also, an estimated value that reflects an 
estimated intraday value of the Trust's portfolio (the ``Intraday 
Indicative Value'' or ``IIV''), will be disseminated.
    One or more major market data vendors will provide an IIV per Share 
updated every 15 seconds, as calculated by the Exchange or a third-
party financial data provider during the Exchange's Regular Market 
Session (9:30 a.m. 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 the Exchange's Regular Market Session to reflect changes 
in the value of the Trust's NAV during the trading day.
    The NAV for the Trust will be calculated by the Trust Administrator 
once a day and will be disseminated daily to all market participants at 
the same time. Quotation and last-sale information regarding the Shares 
will be disseminated through the facilities of the CTA.
    Quotation and last sale information for bitcoin is widely 
disseminated through a variety of major market data vendors, including 
Bloomberg and Reuters, as well as CF Benchmarks. Information relating 
to trading, including price and volume information, in bitcoin is 
available from major market data vendors and from the exchanges on 
which bitcoin are traded. Depth of book information is also available 
from bitcoin exchanges. The normal trading hours for bitcoin exchanges 
are 24 hours per day, 365 days per year.
    In sum, the Exchange believes that this proposal is consistent with 
the requirements of Section 6(b)(5) of the Act, that this filing 
sufficiently demonstrates that the CME Bitcoin Futures market 
represents a regulated market of significant size, and that on the 
whole the manipulation concerns previously articulated by the 
Commission are sufficiently mitigated to the point that they are 
outweighed by investor protection issues that would be resolved by 
approving this proposal.
    The Exchange believes that the proposal is, in particular, designed 
to protect investors and the public interest. Premium and discount 
volatility, high fees, rolling costs, insufficient disclosures, and 
technical hurdles are putting U.S. investor money at risk on a daily 
basis that could potentially be eliminated through access to a Spot 
Bitcoin ETP. As such, the Exchange believes that this proposal acts to 
limit the risk to U.S. investors that are increasingly seeking exposure 
to bitcoin by providing direct, 1-for-1 exposure to bitcoin in a 
regulated, transparent, exchange-traded vehicle, specifically by: (i) 
reducing premium volatility; (ii) reducing management fees through 
meaningful competition; (iii) providing an alternative to Bitcoin 
Futures ETFs which will eliminate roll cost; (iv) reducing risks 
associated with investing in operating companies that are imperfect 
proxies for bitcoin exposure; and (v) providing an alternative to 
custodying spot bitcoin. Finally, the Exchange notes that in addition 
to all of the arguments herein which it believes sufficiently 
establishes the Bitcoin Futures market as a regulated market of 
significant size, it is logically inconsistent to find that the CME 
Bitcoin Futures market is a significant market as it relates to the CME 
Bitcoin Futures market, but not a significant market as it relates to 
the bitcoin spot market for the numerous reasons laid out above.
    For the above reasons, the Exchange believes that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Act. The Exchange notes that the 
proposed rule change rather will facilitate the listing and trading of 
additional exchange-traded product that will enhance competition among 
both market participants and listing venues, to the benefit of 
investors and the marketplace.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will: (a) by order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments:

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NASDAQ-2023-016 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-NASDAQ-2023-016. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your

[[Page 46359]]

comments more efficiently, please use only one method. The Commission 
will post all comments on the Commission's internet website (https://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 a.m. and 3 p.m. Copies of the 
filing also will be available for inspection and copying at the 
principal office of the Exchange. Do not include personal identifiable 
information in submissions; you should submit only information that you 
wish to make available publicly. We may redact in part or withhold 
entirely from publication submitted material that is obscene or subject 
to copyright protection. All submissions should refer to file number 
SR-NASDAQ-2023-016 and should be submitted on or before August 9, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\42\
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    \42\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2023-15252 Filed 7-18-23; 8:45 am]
BILLING CODE 8011-01-P


