
[Federal Register Volume 88, Number 186 (Wednesday, September 27, 2023)]
[Notices]
[Pages 66515-66526]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-20959]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98467; File No. SR-CboeBZX-2023-070]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of Proposed Rule Change To List and Trade Shares of the ARK 
21Shares Ethereum ETF Under BZX Rule 14.11(e)(4), Commodity-Based Trust 
Shares

September 21, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on September 6, 2023, Cboe BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing 
with the Securities and Exchange Commission (``Commission'' or ``SEC'') 
a proposed rule change to list and trade shares of the ARK 21Shares 
Ethereum ETF (the ``Trust''),\3\ under BZX Rule 14.11(e)(4), Commodity-
Based Trust Shares.
---------------------------------------------------------------------------

    \3\ The Trust was formed as a Delaware statutory trust on 
September 5, 2023 and is operated as a grantor trust for U.S. 
federal tax purposes. The Trust has no fixed termination date.
---------------------------------------------------------------------------

    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, 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 of the ARK 
21Shares Ethereum Trust \4\ under BZX Rule 14.11(e)(4),\5\ which 
governs the listing and trading of Commodity-Based Trust Shares on the 
Exchange.\6\
---------------------------------------------------------------------------

    \4\ On September 6, 2023 the Trust filed with the Commission an 
initial registration statement (the ``Registration Statement'') on 
Form S-1 under the Securities Act of 1933 (15 U.S.C. 77a). The 
description of the operation of the Trust herein is based, in part, 
on the Registration Statement. The Registration Statement is not yet 
effective and the Shares will not trade on the Exchange until such 
time that the Registration Statement is effective.
    \5\ The Commission approved BZX Rule 14.11(e)(4) in Securities 
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148 
(September 6, 2011) (SR-BATS-2011-018).
    \6\ All statements and representations made in this filing 
regarding (a) the description of the portfolio, (b) limitations on 
portfolio holdings or reference assets, or (c) the applicability of 
Exchange rules and surveillance procedures shall constitute 
continued listing requirements for listing the Shares on the 
Exchange.
---------------------------------------------------------------------------

    According to the Registration Statement, the Trust is neither an 
investment company registered under the Investment Company Act of 1940, 
as amended,\7\ nor a commodity pool for purposes of the Commodity 
Exchange Act (``CEA''), and neither the Trust nor the Sponsor is 
subject to regulation as a commodity pool operator or a commodity 
trading adviser in connection with the Shares.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 80a-1.
---------------------------------------------------------------------------

ARK 21Shares Ethereum Trust
    21Shares US LLC is the sponsor of the Trust (the ``Sponsor''). The 
Bank of New York Mellon will be the administrator (``Administrator'') 
and transfer agent (``Transfer Agent''). Foreside Global Services, LLC 
will be the marketing agent (``Marketing Agent'') in connection with 
the creation and redemption of ``Baskets'' of Shares. ARK Investment 
Management LLC (``ARK'') will provide assistance in the marketing of 
the Shares and serve as a sub-adviser. Coinbase Custody Trust Company, 
LLC, a third-party regulated custodian (the ``Custodian''), will be 
responsible for custody of the Trust's ether.
    According to the Registration Statement, each Share will represent 
a fractional undivided beneficial interest in the ether held by the 
Trust. The Trust's assets will consist of ether held by the Custodian 
on behalf of the Trust. The Trust generally does not intend to

[[Page 66516]]

hold cash or cash equivalents. However, there may be situations where 
the Trust will unexpectedly hold cash on a temporary basis.
    The Trust will be neither an investment company registered under 
the Investment Company Act of 1940, as amended,\8\ nor a commodity pool 
for purposes of the Commodity Exchange Act (``CEA''), and neither the 
Trust nor the Sponsor is subject to regulation as a commodity pool 
operator or a commodity trading adviser in connection with the Shares.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 80a-1.
---------------------------------------------------------------------------

    When the Trust sells or redeems its Shares, it will do so in ``in-
kind'' transactions in blocks of 5,000 Shares (a ``Creation Basket'') 
at the Trust's NAV. Authorized participants will deliver, or facilitate 
the delivery of, ether to the Trust's account with the Custodian in 
exchange for Shares when they purchase Shares, and the Trust, through 
the Custodian, will deliver ether to such authorized participants when 
they redeem Shares with the Trust. Authorized participants may then 
offer Shares to the public at prices that depend on various factors, 
including the supply and demand for Shares, the value of the Trust's 
assets, and market conditions at the time of a transaction. 
Shareholders who buy or sell Shares during the day from their broker 
may do so at a premium or discount relative to the NAV of the Shares of 
the Trust.
    As noted above, the Trust is designed to protect investors against 
the risk of losses through fraud and insolvency that arise by holding 
digital assets, including ether, on centralized platforms. 
Specifically, the Trust is designed to protect investors as follows:
(i) Assets of the Trust Protected From Insolvency
    The Trust's ether will be held by its Custodian,\9\ which is a New 
York chartered trust company overseen by the NYDFS and a qualified 
custodian under Rule 206-4 of the Investment Adviser Act. The Custodian 
will custody the Trust's ether pursuant to a custody agreement, which 
requires the Custodian to maintain the Trust's ether in segregated 
accounts that clearly identify the Trust as owner of the accounts and 
assets held on those accounts; the segregation will be both from the 
proprietary property of the Custodian and the assets of any other 
customer. Such an arrangement is generally deemed to be ``bankruptcy 
remote,'' that is, in the event of an insolvency of the Custodian, 
assets held in such segregated accounts would not become property of 
the Custodian's estate and would not be available to satisfy claims of 
creditors of the Custodian. In addition, according to the Registration 
Statement, the Custodian carries fidelity insurance, which covers 
assets held by the Custodian in custody from risks such as theft of 
funds. These arrangements provide significant protections to investors 
and could have mitigated the type of losses incurred by investors in 
the numerous crypto-related insolvencies, including Celsius, Voyager, 
BlockFi and FTX.
---------------------------------------------------------------------------

    \9\ According to the Registration Statement, the Trust's cash 
will be held at The Bank of New York Mellon pursuant to a cash 
custody agreement.
---------------------------------------------------------------------------

(ii) Trust's Transfer Agent Will Instruct Disposition of Trust's Ether
    According to the Registration Statement, except with respect to 
sale of ether from time to time to cover expenses of the Trust, the 
only time ether will move into or out from the Trust will be with 
respect to creations or redemptions of Shares of the Trust. Authorized 
Participants will deliver ether to the Trust's account with the 
Custodian or Subcustodian, as applicable, in exchange for Shares of the 
Trust, and the Trust, through the Custodian, will deliver ether to 
Authorized Participants when those Authorized Participants redeem 
Shares of the Trust. The creation and redemption procedures are 
administered by the Transfer Agent, the Bank of New York Mellon, an 
independent third party. In other words, according to the Registration 
Statement, with very limited exceptions, the Sponsor will not give 
instructions with respect to the transfer or disposition of the Trust's 
ether. Ether owned by the Trust will at all times be held by, and in 
the control of, the Custodian (or Subcustodian, as applicable), and 
transfer of such ether to or from the Custodian (or Subcustodian) will 
occur only in connection with creation and redemptions of Shares. This 
will provide safeguards against the movement of ether owned by the 
Trust by or to the Sponsor or affiliates of the Sponsor.
(iii) Trust's Assets Are Subject to Regular Audit
    According to the Registration Statement, audit trails exist for all 
movement of ether within Custodian-controlled ether wallets and are 
audited annually for accuracy and completeness by an independent 
external audit firm. In addition, the Trust will be audited by an 
independent registered public accounting firm on a regular basis.
(iv) Trust Is Subject to the Exchange's Obligations of Companies Listed 
on the Exchange and Applicable Corporate Governance Requirements
    The Trust will be subject to the obligations of companies listed on 
the Exchange set forth in BZX Rule 14.6, which require the listed 
companies to make public disclosure of material events and any 
notifications of deficiency by the Exchange, file and distribute period 
financial reports, engage independent public accountants registered 
with the Exchange, among other things. Such disclosures serve a key 
investor protection role. In addition, the Trust will be subject to the 
corporate governance requirements for companies listed on the Exchange 
set forth in BZX Rule 14.10.
Background
    Ethereum is a decentralized smart contract platform that 
revolutionized the world of blockchain technology beyond its initial 
use case of peer-to-peer payments. It introduced the idea of ``smart 
contracts,'' self-executing agreements with predefined rules, enabling 
developers and entrepreneurs worldwide to code and deploy decentralized 
applications on top of the Ethereum network. Ether (ETH), the native 
crypto asset of the network, is the fuel that allows Ethereum to 
operate in the same way that we use oil to propel vehicles, heat 
buildings, and produce electricity in the physical world. Users must 
pay a ``gas fee'' or a transaction tax in ether for every transaction 
they perform on the network. The term ``gas'' refers to the unit that 
measures the computational effort required to execute specific 
operations on the Ethereum blockchain. Thus, ether is analogous to a 
digital commodity powering the Ethereum network. For instance, an 
entire virtual economy has emerged with ether as the unit of account 
and medium of exchange. This phenomenon is similar to the spontaneous 
adoption of commodities like coffee and, most notably, precious metals 
like gold as money by various civilizations throughout history, except 
this time, in a digital-native realm.
    With more than 5,946 monthly active developers as of June 2023, 
Ethereum is the world's largest developer ecosystem. Moreover, the 
platform is explored and experimented with by various private banks and 
central banks globally. Since its launch in 2015, Ethereum has driven 
the evolution of the blockchain space with innovations, ranging from 
decentralized finance (DeFi), non-fungible tokens (NFTs), digital 
identity solutions, and the tokenizations of off-

[[Page 66517]]

chain, or as it's commonly referred to, ``real-world'' assets. Some of 
the most important innovations that have come out of DeFi include 
`stablecoins,' decentralized exchanges (DEXs), and automated lending 
protocols. Stablecoins maintain price parity with a target asset, such 
as the U.S. dollar. Decentralized exchanges (DEXs), such as Uniswap, 
allow users to trade assets without the need for an intermediary 
against an ``automated market-maker'' (AMM), settling trillions of 
dollars of value since their inception. As a final example, 
overcollateralized lending protocols like MakerDAO, Aave, or Compound 
have taken traditional credit risk out of the equation, relying instead 
on smart contract automation and operators to liquidate loans when the 
collateralization ratio falls below a predetermined threshold. These 
and many other DeFi innovations reveal one of the core value 
propositions of Ethereum--the ability to act as a credibly neutral 
settlement layer where developers can automate away the need for 
centralized intermediaries.
    Much like bitcoin, access for U.S. retail investors to gain 
exposure to ether via a transparent and U.S. regulated, U.S. exchange-
traded vehicle remains limited. Instead current options include: (i) 
facing the counter-party risk, legal uncertainty, technical risk, and 
complexity associated with accessing spot ether; or (ii) over-the-
counter ether funds (``OTC Ether Funds'') with high management fees and 
potentially volatile premiums and discounts.\10\ Meanwhile, investors 
in other countries are able to use more traditional exchange listed and 
traded products (including exchange-traded funds holding physical ETH) 
to gain exposure to ether. Similarly, investors across Europe have 
access to products which trade on regulated exchanges and provide 
exposure to a broad array of spot crypto assets. U.S. investors, by 
contrast, are left with fewer and more risky means of getting ether 
exposure.\11\
---------------------------------------------------------------------------

    \10\ The premium and discount for OTC ether Funds is known to 
move rapidly. For example, over the period of 12/21/20 to 1/21/21, 
the premium for the largest OTC Ether Fund went from 238.63% to 
5.1%. While the price of ether appreciated significantly during this 
period and NAV per share increased by 101.40%, the price per share 
decreased by 37.49%. This means that investors are buying shares of 
a fund that experiences significant volatility in its premium and 
discount outside of the fluctuations in price of the underlying 
asset. Even operating within the normal premium and discount range, 
it's possible for an investor to buy shares of an OTC ether Fund 
only to have those shares quickly lose 10% or more in dollar value 
excluding any movement of the price of ether. That is to say--the 
price of ether could have stayed exactly the same from market close 
on one day to market open the next, yet the value of the shares held 
by the investor decreased only because of the fluctuation of the 
premium. As more investment vehicles, including mutual funds and 
ETFs, seek to gain exposure to ether, the easiest option for a buy 
and hold strategy for such vehicles is often an OTC ether Fund, 
meaning that even investors that do not directly buy OTC ether Funds 
can be disadvantaged by extreme premiums (or discounts) and premium 
volatility.
    \11\ The Exchange notes that the list of countries above is not 
exhaustive and that securities regulators in a number of additional 
countries have either approved or otherwise allowed the listing and 
trading of Spot Ether ETPs.
---------------------------------------------------------------------------

    To this point, the lack of an ETP that holds spot ETH (a ``Spot 
Ether ETP'') exposes U.S. investor assets to significant risk because 
investors that would otherwise seek cryptoasset exposure through a Spot 
Ether ETP are forced to find alternative exposure through fewer and 
more risky means. For example, investors in OTC Ether Funds are not 
afforded the benefits and protections of regulated Spot Ether ETPs, 
resulting in retail investors suffering losses due to drastic movements 
in the premium/discount of OTC Ether Funds. Many retail investors 
likely suffered losses due to this premium/discount in OTC Ether Fund 
trading; all such losses could have been avoided if a Spot Ether ETP 
had been available. Additionally, many U.S. investors that held their 
digital assets in accounts at FTX,\12\ Celsius Network LLC,\13\ BlockFi 
Inc.\14\ and Voyager Digital Holdings, Inc.\15\ have become unsecured 
creditors in the insolvencies of those entities. If a Spot Ether ETP 
was available, it is likely that at least a portion of the billions of 
dollars tied up in those proceedings would still reside in the 
brokerage accounts of U.S. investors, having instead been invested in a 
transparent, regulated, and well-understood structure--a Spot Ether 
ETP. To this point, approval of a Spot Ether ETP would represent a 
major win for the protection of U.S. investors in the cryptoasset 
space. The Trust, like all other series of Commodity-Based Trust 
Shares, is designed to protect investors against the risk of losses 
through fraud and insolvency that arise by holding digital assets, 
including ether, on centralized platforms.
---------------------------------------------------------------------------

    \12\ See FTX Trading Ltd., et al., Case No. 22-11068.
    \13\ See Celsius Network LLC, et al., Case No. 22-10964.
    \14\ See BlockFi Inc., Case No. 22-19361.
    \15\ See Voyager Digital Holdings, Inc., et al., Case No. 22-
10943.
---------------------------------------------------------------------------

Applicable Standard
    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.\16\ With this in mind, the CME Ether 
Futures market, which launched in February 2021, is the proper market 
to consider in determining whether there is a related regulated market 
of significant size.
---------------------------------------------------------------------------

    \16\ 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''). 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 (the ``CFTC'') regulated futures market. Further 
to this point, the Commission's prior orders have noted that the 
spot commodities and currency markets for which it has previously 
approved spot 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 
approval order issued related to the first spot gold ETP ``was based 
on an assumption that the currency market and the spot gold market 
were largely unregulated.'' 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.
---------------------------------------------------------------------------

    The Commission has approved proposals related to the listing and 
trading of funds that would primarily hold CME Bitcoin Futures that are 
registered under the Securities Act of 1933 (``Bitcoin Futures 
ETPs''),\17\ finding that the CME Bitcoin Futures market represents a 
regulated market of significant size. Meanwhile, the Commission has 
continued to disapprove proposals to list and trade funds that would 
hold spot bitcoin (these proposed funds are nearly identical to the 
Trust, but proposed to hold bitcoin instead of ETH) (``Spot Bitcoin 
ETPs'') on the seemingly conflicting basis that the CME Bitcoin Futures 
market is not a regulated market of significant size. In the recently 
decided Grayscale Investments, LLC v

[[Page 66518]]

Securities and Exchange Commission,\18\ however, the court resolved 
this conflict by finding that the SEC had failed to provide a coherent 
explanation as to why it had approved the Bitcoin Futures ETPs while 
disapproving the proposal to list and trade shares of the Grayscale 
Bitcoin Trust (the ``Grayscale Bitcoin Trust Proposal'') and vacating 
the disapproval order.\19\
---------------------------------------------------------------------------

    \17\ See Exchange Act Release No. 94620 (April 6, 2022), 87 FR 
21676 (April 12, 2022) and 94853 (May 5, 2022) (collectively, the 
``Bitcoin Futures Approvals'').
    \18\ Grayscale Investments, LLC v. Securities and Exchange 
Commission, et al., Case No. 22-1142 (the ``Grayscale Order'').
    \19\ Id.
---------------------------------------------------------------------------

    As further discussed below, both the Exchange and the Sponsor 
believe that this proposal and the included analysis are sufficient to 
establish that the CME Ether Futures market represents a regulated 
market of significant size as it relates both to the CME Ether Futures 
market and to the spot ether market and that this proposal should be 
approved.
Investment Objective
    The investment objective of the Trust will be to seek to track the 
performance of ether, as measured by the performance of the CME CF 
Ether-Dollar Reference Rate--New York Variant (the ``Index''), adjusted 
for the Trust's expenses and other liabilities. In seeking to achieve 
its investment objective, the Trust will hold ether and will value the 
Shares daily based on the Index. The Trust will process all creations 
and redemptions in-kind in transactions with authorized participants. 
The Trust is not actively managed.
The Index
    The Fund will use the Index to calculate the Trust's NAV. The 
administrator of the Index is CF Benchmarks Ltd. (the ``Index 
Provider''). The Index currently uses substantially the same 
methodology as the CME CF Ether Dollar Reference Rate (``ERR''), 
including utilizing the same six ether exchanges, which is the 
underlying rate to determine settlement of CME Ether Futures contracts, 
except that the Index is calculated as of 4:00 p.m. ET, whereas the ERR 
is calculated as of 4:00 p.m. London time.
    The Index, which was introduced on November 14, 2016 is based on 
materially the same methodology (except calculation time) as the Index 
Provider's ERR, which was first introduced on May 14, 2018 and is the 
rate on which ether futures contracts are cash-settled in U.S. dollars 
at the CME. The Index is designed based on the IOSCO Principals for 
Financial Benchmarks. The administrator of the Index is the Index 
Provider. The Index is calculated daily and aggregates the notional 
value of ether trading activity across major ether spot exchanges.
    The Sponsor believes that the use of the Index is reflective of a 
reasonable valuation of the average spot price of ether and that 
resistance to manipulation is a priority aim of its design methodology. 
The methodology: (i) takes an observation period and divides it into 
equal partitions of time; (ii) then calculates the volume-weighted 
median of all transactions within each partition; and (iii) the value 
is determined from the arithmetic mean of the volume-weighted medians, 
equally weighted. By employing the foregoing steps, the Index thereby 
seeks to ensure that transactions in ether conducted at outlying prices 
do not have an undue effect on the value of a specific partition, large 
trades or clusters of trades transacted over a short period of time 
will not have an undue influence on the index level, and the effect of 
large trades at prices that deviate from the prevailing price are 
mitigated from having an undue influence on the benchmark level.
    In addition, the Sponsor notes that an oversight function is 
implemented by the Index Provider in seeking to ensure that the Index 
is administered through codified policies for Index integrity. Index 
data and the description of the Index are based on information made 
publicly available by the Index Provider on its website at https://www.cfbenchmarks.com. The Trust will determine the value its Shares 
daily based on the value of ether as reflected by the Index. The Index 
is calculated daily and aggregates the notional value of ether trading 
activity across major ether spot exchanges. The Index is designed based 
on the IOSCO Principals for Financial Benchmarks. The Trust also uses 
the ether price determined by the Index to calculate its ``Ether 
Holdings,'' which is the aggregate U.S. Dollar value of ether in the 
Trust, based on the ether price determined by the Index, less its 
liabilities and expenses. ``Ether Holdings per Share'' is calculated by 
dividing Ether Holdings by the number of Shares currently outstanding. 
Ether Holdings and Ether Holdings per Share are not measures calculated 
in accordance with GAAP. Ether Holdings is not intended to be a 
substitute for the Trust's NAV calculated in accordance with GAAP, and 
Ether Holdings per Share is not intended to be a substitute for the 
Trust's NAV per Share calculated in accordance with GAAP.
    The Index was created to facilitate financial products based on 
ether. It serves as a once-a-day benchmark rate of the U.S. dollar 
price of ether (USD/ETH), calculated as of 4:00 p.m. ET. The Index, 
which has been calculated and published since [], aggregates 
the trade flow of several ether exchanges, during an observation window 
between 3:00 p.m. and 4:00 p.m. ET into the U.S. dollar price of one 
ether at 4:00 p.m. ET. Specifically, the Index is calculated based on 
the ``Relevant Transactions'' (as defined below) of all of its 
constituent ether exchanges, which are currently Coinbase, Bitstamp, 
Kraken, itBit, LMAX Digital and Gemini (the ``Constituent Platforms''), 
as follows:
     All Relevant Transactions are added to a joint list, 
recording the time of execution, trade price and size for each 
transaction.
     The list is partitioned by timestamp into 12 equally-sized 
time intervals of five minute length.
     For each partition separately, the volume-weighted median 
trade price is calculated from the trade prices and sizes of all 
Relevant Transactions, i.e., across all Constituent Platforms. A 
volume-weighted median differs from a standard median in that a 
weighting factor, in this case trade size, is factored into the 
calculation.
     The Index is then determined by the equally-weighted 
average of the volume medians of all partitions.
    The Index does not include any futures prices in its methodology. 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. Eastern time on a Constituent Platform in the ETH/USD pair 
that is reported and disseminated by a Constituent Platform through its 
publicly available API and observed by the Index Provider. An oversight 
function is implemented by the Index Provider in seeking to ensure that 
the Index is administered through the Index Provider's codified 
policies for Index integrity.
    The Sponsor believes that the use of the Index is reflective of a 
reasonable valuation of the average spot price of ether and that 
resistance to manipulation is a priority aim of its design methodology. 
The methodology: (i) takes an observation period and divides it into 
equal partitions of time; (ii) then calculates the volume-weighted 
median of all transactions within each partition; and (iii) the value 
is determined from the arithmetic mean of the volume-weighted medians, 
equally weighted. By employing the foregoing steps, the Index thereby 
seeks to ensure that transactions in ether conducted at outlying prices 
do not have an undue effect on the value of a specific partition, large 
trades or clusters of

[[Page 66519]]

trades transacted over a short period of time will not have an undue 
influence on the index level, and the effect of large trades at prices 
that deviate from the prevailing price are mitigated from having an 
undue influence on the benchmark level.
Availability of Information
    In addition to the price transparency of the Index, the Trust will 
provide information regarding the Trust's ether holdings as well as 
additional data regarding the Trust. The Trust will provide an Intraday 
Indicative Value (``IIV'') per Share updated every 15 seconds, as 
calculated by the Exchange or a third-party financial data provider 
during the Exchange's Regular Trading Hours (9:30 a.m. to 4:00 p.m. 
E.T.). The IIV will be calculated by using the prior day's closing NAV 
per Share as a base and updating that value during Regular Trading 
Hours to reflect changes in the value of the Trust's ether holdings 
during the trading day.
    The IIV disseminated during Regular Trading Hours 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 Trading Hours by one or more major market data 
vendors. In addition, the IIV will be available through on-line 
information services.
    The website for the Trust, which will be publicly accessible at no 
charge, will contain the following information: (a) the current NAV per 
Share daily and the prior business day's NAV and the reported closing 
price; (b) the BZX Official Closing Price \20\ in relation to the NAV 
as of the time the NAV is calculated and a calculation of the premium 
or discount of such price against such NAV; (c) 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); (d) the prospectus; and (e) other applicable 
quantitative information. The Trust will also disseminate the Trust's 
holdings on a daily basis on the Trust's website. The price of ether 
will be made available by one or more major market data vendors, 
updated at least every 15 seconds during Regular Trading Hours. 
Information about the Index, including key elements of how the Index is 
calculated, will be publicly available at https://www.cfbenchmarks.com/.
---------------------------------------------------------------------------

    \20\ As defined in Rule 11.23(a)(3), the term ``BZX Official 
Closing Price'' shall mean the price disseminated to the 
consolidated tape as the market center closing trade.
---------------------------------------------------------------------------

    The NAV for the Trust will be calculated by the Administrator once 
a day and will be disseminated daily to all market participants at the 
same time. Quotation and last-sale information regarding the Shares 
will be disseminated through the facilities of the Consolidated Tape 
Association (``CTA'').
    Quotation and last sale information for ether is widely 
disseminated through a variety of major market data vendors, including 
Bloomberg and Reuters, as well as the Index. Information relating to 
trading, including price and volume information, in ether is available 
from major market data vendors and from the exchanges on which ether 
are traded. Depth of book information is also available from ether 
exchanges. The normal trading hours for ether exchanges are 24 hours 
per day, 365 days per year.
The Ether Custodian
    The Custodian carefully considers the design of the physical, 
operational and cryptographic systems for secure storage of the Trust's 
private keys in an effort to lower the risk of loss or theft. The 
Custodian utilizes a variety of security measures to ensure that 
private keys necessary to transfer digital assets remain uncompromised 
and that the Trust maintains exclusive ownership of its assets. The 
operational procedures of the Custodian are reviewed by third-party 
advisors with specific expertise in physical security. The devices that 
store the keys will never be connected to the internet or any other 
public or private distributed network--this is colloquially known as 
``cold storage.'' Only specific individuals are authorized to 
participate in the custody process, and no individual acting alone will 
be able to access or use any of the private keys. In addition, no 
combination of the executive officers of the Sponsor or the investment 
professionals managing the Trust, acting alone or together, will be 
able to access or use any of the private keys that hold the Trust's 
ether.
Net Asset Value
    NAV means the total assets of the Trust including, but not limited 
to, all ether and cash, if any, less total liabilities of the Trust, 
each determined on the basis of generally accepted accounting 
principles. The Administrator will determine the NAV of the Trust on 
each day that the Exchange is open for regular trading, as promptly as 
practical after 4:00 p.m. EST. The NAV of the Trust is the aggregate 
value of the Trust's assets less its estimated accrued but unpaid 
liabilities (which include accrued expenses). In determining the 
Trust's NAV, the Administrator values the ether held by the Trust based 
on the price set by the Index as of 4:00 p.m. EST. The Administrator 
also determines the NAV per Share.
Creation and Redemption of Shares
    According to the Registration Statement, on any business day, an 
authorized participant may place an order to create one or more 
baskets. Purchase orders must be placed by 4:00 p.m. Eastern Time, or 
the close of regular trading on the Exchange, whichever is earlier. The 
day on which an order is received is considered the purchase order 
date. The total deposit of ether required is an amount of ether that is 
in the same proportion to the total assets of the Trust, net of accrued 
expenses and other liabilities, on the date the order to purchase is 
properly received, as the number of Shares to be created under the 
purchase order is in proportion to the total number of Shares 
outstanding on the date the order is received. Each night, the Sponsor 
will publish the amount of ether that will be required in exchange for 
each creation order. The Administrator determines the required deposit 
for a given day by dividing the number of ether held by the Trust as of 
the opening of business on that business day, adjusted for the amount 
of ether constituting estimated accrued but unpaid fees and expenses of 
the Trust as of the opening of business on that business day, by the 
quotient of the number of Shares outstanding at the opening of business 
divided by 5,000. The procedures by which an authorized participant can 
redeem one or more Creation Baskets mirror the procedures for the 
creation of Creation Baskets.
Commodity-Based Trust Shares--Rule 14.11(e)(4)
    The Shares will be subject to BZX Rule 14.11(e)(4), 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 that these values and 
information about the assets of the Trust will be made available to all 
market participants at the same time. The Exchange notes that, as 
defined in Rule 14.11(e)(4)(C)(i), the Shares will be: (a) issued by a 
trust that holds a specified commodity \21\ deposited with

[[Page 66520]]

the trust; (b) issued by such trust in a specified aggregate minimum 
number in return for a deposit of a quantity of the underlying 
commodity; and (c) when aggregated in the same specified minimum 
number, may be redeemed at a holder's request by such trust which will 
deliver to the redeeming holder the quantity of the underlying 
commodity.
---------------------------------------------------------------------------

    \21\ For purposes of Rule 14.11(e)(4), the term commodity takes 
on the definition of the term as provided in the Commodity Exchange 
Act. The CFTC has stated that: ``Certain digital assets, including 
BTC, ETH, LTC, and at least two fiat-backed stablecoins, tether 
(``USDT'') and the Binance USD (``BUSD''), as well as other virtual 
currencies as alleged herein, are ``commodities,'' as defined under 
Section 1a(9) of the [Commodities Exchange] Act, 7 U.S.C. 1a(9).'' 
See Commodity Futures Trading Commission v. Changpeng Zhao, Binance 
Holdings Limited, Binance Holdings (IE) Limited, Binance (Services) 
Holdings Limited, and Samuel Lim, March 27, 2023 at 9.
---------------------------------------------------------------------------

    Upon termination of the Trust, the Shares will be removed from 
listing. The Trustee, Delaware Trust Company, is a trust company having 
substantial capital and surplus and the experience and facilities for 
handling corporate trust business, as required under Rule 
14.11(e)(4)(E)(iv)(a) and that no change will be made to the trustee 
without prior notice to and approval of the Exchange. The Exchange also 
notes that, pursuant to Rule 14.11(e)(4)(F), neither the Exchange nor 
any agent of the Exchange shall have any liability for damages, claims, 
losses or expenses caused by any errors, omissions or delays in 
calculating or disseminating any underlying commodity value, the 
current value of the underlying commodity required to be deposited to 
the Trust in connection with issuance of Commodity-Based Trust Shares; 
resulting from any negligent act or omission by the Exchange, or any 
agent of the Exchange, or any act, condition or cause beyond the 
reasonable control of the Exchange, its agent, including, but not 
limited to, an act of God; fire; flood; extraordinary weather 
conditions; war; insurrection; riot; strike; accident; action of 
government; communications or power failure; equipment or software 
malfunction; or any error, omission or delay in the reports of 
transactions in an underlying commodity. Finally, as required in Rule 
14.11(e)(4)(G), 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 in an underlying commodity, related commodity 
futures or options on commodity futures, or any other related commodity 
derivatives, which the registered Market Maker may have or over which 
it may exercise investment discretion. No registered Market Maker shall 
trade in an underlying commodity, related commodity futures or options 
on commodity futures, or any other related commodity 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 this Rule. In addition to the existing obligations under Exchange 
rules regarding the production of books and records (see, e.g., Rule 
4.2), the registered Market Maker in Commodity-Based Trust Shares shall 
make available to the Exchange such books, records or other information 
pertaining to transactions by such entity or registered or non-
registered employee affiliated with such entity for its or their own 
accounts for trading the underlying physical commodity, related 
commodity futures or options on commodity futures, or any other related 
commodity derivatives, as may be requested by the Exchange.
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 BZX Rule 11.18. 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 ether 
underlying the Shares; or (2) whether other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market are present. Trading in the Shares also will be subject to Rule 
14.11(e)(4)(E)(ii), which sets forth circumstances under which trading 
in the Shares may be halted.
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. BZX will allow 
trading in the Shares during all trading sessions on the Exchange. The 
Exchange has appropriate rules to facilitate transactions in the Shares 
during all trading sessions. As provided in BZX Rule 11.11(a) the 
minimum price variation for quoting and entry of orders in securities 
traded on the Exchange is $0.01 where the price is greater than $1.00 
per share or $0.0001 where the price is less than $1.00 per share.
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 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 
Exchange Rule 14.12. The Exchange may obtain information regarding 
trading in the Shares and ether Futures via the Intermarket 
Surveillance Group (``ISG''), from other exchanges who are members or 
affiliates of the ISG, or with which the Exchange has entered into a 
comprehensive surveillance sharing agreement.\22\
---------------------------------------------------------------------------

    \22\ For a list of the current members and affiliate members of 
ISG, see www.isgportal.com.
---------------------------------------------------------------------------

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: (i) the procedures for the 
creation and redemption of Baskets (and that the Shares are not 
individually redeemable); (ii) BZX Rule 3.7, which imposes suitability 
obligations on Exchange members with respect to recommending 
transactions in the Shares to customers; (iii) how information 
regarding the IIV and the Trust's NAV are disseminated; (iv) the risks 
involved in trading the Shares outside of Regular Trading Hours \23\ 
when an updated IIV will not be calculated or publicly disseminated; 
(v) the requirement that members deliver a prospectus to investors 
purchasing newly issued Shares prior to or concurrently with the 
confirmation of a transaction; and (vi) trading information.
---------------------------------------------------------------------------

    \23\ Regular Trading Hours is the time between 9:30 a.m. and 
4:00 p.m. Eastern Time.
---------------------------------------------------------------------------

    In addition, the Information Circular will advise members, prior to 
the

[[Page 66521]]

commencement of trading, of the prospectus delivery requirements 
applicable to the Shares. Members purchasing the Shares for resale to 
investors will deliver a prospectus to such investors. The Information 
Circular will also discuss any exemptive, no-action and interpretive 
relief granted by the Commission from any rules under the Act.
CME Ether Futures \24\
---------------------------------------------------------------------------

    \24\ Unless otherwise noted, all data and analysis presented in 
this section and referenced elsewhere in the filing has been 
provided by the Sponsor.
---------------------------------------------------------------------------

    CME began offering trading in ether futures (``CME Ether Futures'') 
in February 2021. Each contract represents 50 ether and is based on the 
CME CF Ether-Dollar Reference Rate.\25\ The contracts trade and settle 
like other cash-settled commodity futures contracts. Most measurable 
metrics related to CME Ether Futures have generally trended up since 
launch, although some metrics have slowed recently. For example, there 
were 76,293 CME ETH Futures contracts traded in July 2023 
(approximately $7.3 billion) compared to 70,305 ($11.1 billion) and 
158,409 ($7.5 billion) contracts traded in July 2021, and July 2022 
respectively.\26\
---------------------------------------------------------------------------

    \25\ The CME CF Ether-Dollar 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.
    \26\ Source: CME, 7/31/23
---------------------------------------------------------------------------

    In addition, according to Sponsor's research, trading volume for 
CME Ether Futures amounts to a total volume of $6,123,830,768.67 for 
August 2023. This trading volume represents 3,646.26 in open interest 
for CME Ether Futures, with an average value of $319,051,613.52. For 
August 2023, there were a total of 72,223 contracts for CME Ether 
Futures (equivalent to 3,611,150 ETH).
    Sponsor's analyses further demonstrate that the correlation in 
pricing between CME Ether Futures and Spot ETH is significantly 
correlated. Notably, the Sponsor performed a pairwise correlation of 
Ether daily returns across top centralized spot cryptocurrency 
exchanges and the CME from March 19, 2021 to September 5, 2023. The 
Sponsor's research indicates that daily correlation between the Spot 
ETH and the CME ETH Futures during this time period was over 99.88%.
Section 6(b)(5) and the Applicable Standards
    The Commission has approved numerous series of Trust Issued 
Receipts,\27\ including Commodity-Based Trust Shares,\28\ 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; 
\29\ 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 CME Ether 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.
---------------------------------------------------------------------------

    \27\ See Exchange Rule 14.11(f).
    \28\ Commodity-Based Trust Shares, as described in Exchange Rule 
14.11(e)(4), are a type of Trust Issued Receipt.
    \29\ Much like bitcoin, the Exchange believes that ether 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 ether trading render 
it difficult and prohibitively costly to manipulate the price of 
ETH. The fragmentation across ether platforms, the relatively slow 
speed of transactions, and the capital necessary to maintain a 
significant presence on each trading platform make manipulation of 
ether prices through continuous trading activity challenging. To the 
extent that there are ether exchanges engaged in or allowing wash 
trading or other activity intended to manipulate the price of ether 
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 ether markets and the presence of arbitrageurs in those 
markets means that the manipulation of the price of ether price on 
any single venue would require manipulation of the global ether 
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 ether 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 \30\ with a regulated market of significant size. 
Both the Exchange and CME are members of ISG. The only remaining issue 
to be addressed is whether the ether 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.\31\
---------------------------------------------------------------------------

    \30\ 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 ISG 
constitutes such a surveillance sharing agreement. See Wilshire 
Phoenix Disapproval.
    \31\ 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.32 33
---------------------------------------------------------------------------

    \32\ 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.
    \33\ According to reports, the Commission is poised to allow the 
launch of ETFs registered under the Investment Company Act of 1940, 
as amended (the ``1940 Act''), that provide exposure to ether 
primarily through CME Ether Futures (``ETH Futures ETFs'') as early 
as October 2023. 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 ETH. 
https://www.bloomberg.com/news/articles/2023-08-17/sec-said-to-be-poised-to-allow-us-debut-of-ether-futures-etfs-eth#xj4y7vzkg.

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

[[Page 66522]]

(a) Manipulation of the ETP
    The significant market test requires that 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. In light of the similarly high 
correlation between spot ETH/CME Ether Futures and spot bitcoin/CME 
Bitcoin Futures, applying the same rationale that the Commission 
applied to a Bitcoin Futures ETF in the Bitcoin Futures Approvals \34\ 
also indicates that this test is satisfied for this proposal. In the 
Teucrium Approval, the SEC stated:
---------------------------------------------------------------------------

    \34\ 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'').

    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 futures market 
caused by a person attempting to manipulate the proposed futures ETP 
by manipulating the price of CME futures contracts, whether that 
attempt is made by directly trading on the CME futures market or 
indirectly by trading outside of the CME 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.\35\
---------------------------------------------------------------------------

    \35\ See Teurcrium Approval at 21679.

    The assumptions from this statement are also true for CME Ether 
Futures. CME Ether Futures pricing is based on pricing from spot ether 
markets. The statement from the Teucrium Approval that ``CME's 
surveillance can reasonably be relied upon to capture the effects on 
the CME BTC futures market caused by a person attempting to manipulate 
the proposed futures ETP by manipulating the price of CME BTC futures 
contracts . . . indirectly by trading outside of the CME BTC 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 CME BTC Futures. This same logic would extend 
to CME Ether Futures markets where CME's surveillance would be able to 
capture the effects of trading on the relevant spot markets on the 
pricing of CME Ether Futures. This was further acknowledged in the 
Grayscale lawsuit when Judge Rao stated ``. . . the Commission in the 
Teucrium order recognizes that the futures prices are influenced by the 
spot prices, and the Commission concludes in approving futures ETPs 
that any fraud on the spot market can be adequately addressed by the 
fact that the futures market is a regulated one . . .'' The Exchange 
agrees with the Commission on this point and notes that the pricing 
mechanism applicable to the Shares is similar to that of the CME Ether 
Futures. This view is also consistent with the Advisor's research.
    Further, the Trust only allows for in-kind creation and redemption, 
which, as further described below, reduces the potential for 
manipulation of the Shares through manipulation of the Index or any of 
its individual constituents, again emphasizing that a potential 
manipulator of the Shares would have to manipulate the entirety of the 
ether spot market, which is led by the ether Futures market. As such, 
the 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 in the same way that it would be for both Bitcoin Futures 
ETPs and Spot Bitcoin ETPs.
(b) Predominant Influence on Prices in Spot and Ether Futures
    The Exchange and Sponsor also believe that trading in the Shares 
would not be the predominant force on prices in the CME Ether Futures 
market for a number of reasons. First, because the Trust would not hold 
CME Ether Futures contracts, the only way that it could be the 
predominant force on prices in that market is through the spot markets 
that CME Ether Futures contracts use for pricing.\36\ The Sponsor notes 
that ether total 24-hour spot trading volume has averaged $9.4 billion 
over the year ending September 1, 2023.\37\ The Sponsor expects that 
the Trust would represent a very small percentage of this daily trading 
volume in the spot ether market even in its most aggressive projections 
for the Trust's assets and, thus, the Trust would not have an impact on 
the spot market and therefore could not be the predominant force on 
prices in the CME Ether Futures market. Second, much like the CME 
Bitcoin Futures market, the CME Ether Futures market has progressed and 
matured significantly. As the court found in the Grayscale Order, 
``Because the spot market is deeper and more liquid than the futures 
market, manipulation should be more difficult, not less.'' The Exchange 
and sponsor agree with this sentiment and believe it applies equally to 
the spot ether and CME Ether Futures markets.
---------------------------------------------------------------------------

    \36\ This logic is reflected by the court in the Grayscale Order 
at 17-18. Specifically, the court found that ``Because Grayscale 
owns no futures contracts, trading in Grayscale can affect the 
futures market only through the spot market . . . But Grayscale 
holds just 3.4 percent of outstanding bitcoin, and the Commission 
did not suggest Grayscale can dominate the price of bitcoin.''
    \37\ Source: TokenTerminal.
---------------------------------------------------------------------------

(c) Other Means To Prevent Fraudulent and Manipulative Acts and 
Practices
    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.
    The Exchange is 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 21, 
2023, the Exchange reached an agreement on terms with Coinbase, Inc. 
(``Coinbase''), an operator of a United States-based spot trading 
platform for ether that represents a substantial portion of US-based 
and USD denominated ether trading,\38\ to enter into a surveillance-
sharing agreement (``Spot Crypto SSA'') and executed an associated term 
sheet. 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.
---------------------------------------------------------------------------

    \38\ According to a report from The Block, Coinbase represented 
45%% of USD denominated exchange trading volume in August 2023. 
https://www.theblock.co/data/crypto-markets/spot/usd-support-exchange-volume-market-share.
---------------------------------------------------------------------------

    The Spot Crypto SSA is expected to be a bilateral surveillance-
sharing agreement between the Exchange and Coinbase that is intended to 
supplement the Exchange's market surveillance program. The Spot Crypto 
SSA is expected to have the hallmarks of a

[[Page 66523]]

surveillance-sharing agreement between two members of the ISG, which 
would give the Exchange supplemental access to data regarding spot 
ether trades on Coinbase where the Exchange determines it is necessary 
as part of its surveillance program for the Commodity-Based Trust 
Shares.\39\ 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 ether 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.\40\
---------------------------------------------------------------------------

    \39\ For additional information regarding ISG and the hallmarks 
of surveillance-sharing between ISG members, see https://isgportal.org/overview.
    \40\ The Exchange also notes that it already has in place ISG-
like surveillance sharing agreement with Cboe Digital Exchange, LLC 
and Cboe Clear Digital, LLC.
---------------------------------------------------------------------------

(ii) Designed To Protect Investors and the Public Interest
    The Exchange believes that the proposal is designed to protect 
investors and the public interest. Over the past several years, U.S. 
investor exposure to ether through OTC Ether Funds is greater than $5 
billion. With that growth, so too has grown the quantifiable investor 
protection issues to U.S. investors through premium/discount volatility 
and management fees for OTC Ether Funds. The Exchange believes that, as 
described above, the concerns related to the prevention of fraudulent 
and manipulative acts and practices have been sufficiently addressed to 
be consistent with the Act and, to the extent that the Commission 
disagrees with that assertion, such concerns are now at the very least 
outweighed by investor protection concerns. As such, the Exchange 
believes that approving this proposal (and comparable proposals) 
provides the Commission with the opportunity to allow U.S. investors 
with access to ether in a regulated and transparent exchange-traded 
vehicle that would act to limit risk to U.S. investors by: (i) reducing 
premium and discount volatility; (ii) reducing management fees through 
meaningful competition; (iii) reducing risks and costs associated with 
investing in ether Futures ETFs and operating companies that are 
imperfect proxies for ether exposure; and (iv) providing an alternative 
to custodying spot ether.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \41\ in general and Section 6(b)(5) of the Act \42\ 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.
---------------------------------------------------------------------------

    \41\ 15 U.S.C. 78f.
    \42\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission has approved numerous series of Trust Issued 
Receipts,\43\ including Commodity-Based Trust Shares,\44\ 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; 
\45\ 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 CME Ether 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.
---------------------------------------------------------------------------

    \43\ See Exchange Rule 14.11(f).
    \44\ Commodity-Based Trust Shares, as described in Exchange Rule 
14.11(e)(4), are a type of Trust Issued Receipt.
    \45\ Much like bitcoin, the Exchange believes that ether 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 ether trading render 
it difficult and prohibitively costly to manipulate the price of 
ETH. The fragmentation across ether platforms, the relatively slow 
speed of transactions, and the capital necessary to maintain a 
significant presence on each trading platform make manipulation of 
ether prices through continuous trading activity challenging. To the 
extent that there are ether exchanges engaged in or allowing wash 
trading or other activity intended to manipulate the price of ether 
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 ether markets and the presence of arbitrageurs in those 
markets means that the manipulation of the price of ether price on 
any single venue would require manipulation of the global ether 
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 ether 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 \46\ with a regulated market of significant size. 
Both the Exchange and CME are members of ISG. The only remaining issue 
to be addressed is whether the ether 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.\47\
---------------------------------------------------------------------------

    \46\ 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 ISG 
constitutes such a surveillance sharing agreement. See Wilshire 
Phoenix Disapproval.
    \47\ See Wilshire Phoenix Disapproval.

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

[[Page 66524]]

    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.\48\ \49\
---------------------------------------------------------------------------

    \48\ 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.
    \49\ According to reports, the Commission is poised to allow the 
launch of ETFs registered under the Investment Company Act of 1940, 
as amended (the ``1940 Act''), that provide exposure to ether 
primarily through CME Ether Futures (``ETH Futures ETFs'') as early 
as October 2023. 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 ETH. 
https://www.bloomberg.com/news/articles/2023-08-17/sec-said-to-be-poised-to-allow-us-debut-of-ether-futures-etfs-eth#xj4y7vzkg.
---------------------------------------------------------------------------

(a) Manipulation of the ETP
    The significant market test requires that 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. In light of the similarly high 
correlation between spot ETH/CME Ether Futures and spot bitcoin/CME 
Bitcoin Futures, applying the same rationale that the Commission 
applied to a Bitcoin Futures ETF in the Bitcoin Futures Approvals \50\ 
also indicates that this test is satisfied for this proposal. In the 
Teucrium Approval, the SEC stated:
---------------------------------------------------------------------------

    \50\ 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'').

    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 futures market 
caused by a person attempting to manipulate the proposed futures ETP 
by manipulating the price of CME futures contracts, whether that 
attempt is made by directly trading on the CME futures market or 
indirectly by trading outside of the CME 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.\51\
---------------------------------------------------------------------------

    \51\ See Teucrium Approval at 21679.

    The assumptions from this statement are also true for CME Ether 
Futures. CME Ether Futures pricing is based on pricing from spot ether 
markets. The statement from the Teucrium Approval that ``CME's 
surveillance can reasonably be relied upon to capture the effects on 
the CME BTC futures market caused by a person attempting to manipulate 
the proposed futures ETP by manipulating the price of CME BTC futures 
contracts . . . indirectly by trading outside of the CME BTC 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 CME BTC Futures. This same logic would extend 
to CME Ether Futures markets where CME's surveillance would be able to 
capture the effects of trading on the relevant spot markets on the 
pricing of CME Ether Futures. This was further acknowledged in the 
Grayscale lawsuit when Judge Rao stated ``. . . the Commission in the 
Teucrium order recognizes that the futures prices are influenced by the 
spot prices, and the Commission concludes in approving futures ETPs 
that any fraud on the spot market can be adequately addressed by the 
fact that the futures market is a regulated one. . .'' The Exchange 
agrees with the Commission on this point and notes that the pricing 
mechanism applicable to the Shares is similar to that of the CME Ether 
Futures. This view is also consistent with the Advisor's research.
    Further, the Trust only allows for in-kind creation and redemption, 
which, as further described below, reduces the potential for 
manipulation of the Shares through manipulation of the Index or any of 
its individual constituents, again emphasizing that a potential 
manipulator of the Shares would have to manipulate the entirety of the 
ether spot market, which is led by the ether Futures market. As such, 
the 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 in the same way that it would be for both Bitcoin Futures 
ETPs and Spot Bitcoin ETPs.
(b) Predominant Influence on Prices in Spot and Ether Futures
    The Exchange and Sponsor also believe that trading in the Shares 
would not be the predominant force on prices in the CME Ether Futures 
market for a number of reasons. First, because the Trust would not hold 
CME Ether Futures contracts, the only way that it could be the 
predominant force on prices in that market is through the spot markets 
that CME Ether Futures contracts use for pricing.\52\ The Sponsor notes 
that ether total 24-hour spot trading volume has averaged $9.4 billion 
over the year ending September 1, 2023.\53\ The Sponsor expects that 
the Trust would represent a very small percentage of this daily trading 
volume in the spot ether market even in its most aggressive projections 
for the Trust's assets and, thus, the Trust would not have an impact on 
the spot market and therefore could not be the predominant force on 
prices in the CME Ether Futures market. Second, much like the CME 
Bitcoin Futures market, the CME Ether Futures market has progressed and 
matured significantly. As the court found in the Grayscale Order, 
``Because the spot market is deeper and more liquid than the futures 
market, manipulation should be more difficult, not less.'' The Exchange 
and sponsor agree with this sentiment and believe it applies equally to 
the spot ether and CME Ether Futures markets.
---------------------------------------------------------------------------

    \52\ This logic is reflected by the court in the Grayscale Order 
at 17-18. Specifically, the court found that ``Because Grayscale 
owns no futures contracts, trading in Grayscale can affect the 
futures market only through the spot market. . . But Grayscale holds 
just 3.4 percent of outstanding bitcoin, and the Commission did not 
suggest Grayscale can dominate the price of bitcoin.''
    \53\ Source: TokenTerminal.
---------------------------------------------------------------------------

(c) Other Means To Prevent Fraudulent and Manipulative Acts and 
Practices
    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.
    The Exchange is 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 21, 
2023, the Exchange reached an agreement on terms with Coinbase, an 
operator of a United States-based spot trading platform for ether that 
represents a substantial portion of US-based and USD denominated ether 
trading, to enter into a Spot Crypto SSA and executed an associated 
term sheet.

[[Page 66525]]

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.
    The Spot Crypto SSA is expected to be a bilateral surveillance-
sharing agreement between the Exchange and Coinbase that is intended to 
supplement the Exchange's market surveillance program. The Spot Crypto 
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 ether 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 ether 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.
(ii) Designed To Protect Investors and the Public Interest
    The Exchange believes that the proposal is designed to protect 
investors and the public interest. Over the past several years, U.S. 
investor exposure to ether through OTC Ether Funds is greater than $5 
billion. With that growth, so too has grown the quantifiable investor 
protection issues to U.S. investors through premium/discount volatility 
and management fees for OTC Ether Funds. The Exchange believes that, as 
described above, the concerns related to the prevention of fraudulent 
and manipulative acts and practices have been sufficiently addressed to 
be consistent with the Act and, to the extent that the Commission 
disagrees with that assertion, such concerns are now at the very least 
outweighed by investor protection concerns. As such, the Exchange 
believes that approving this proposal (and comparable proposals) 
provides the Commission with the opportunity to allow U.S. investors 
with access to ether in a regulated and transparent exchange-traded 
vehicle that would act to limit risk to U.S. investors by: (i) reducing 
premium and discount volatility; (ii) reducing management fees through 
meaningful competition; (iii) reducing risks and costs associated with 
investing in ether Futures ETFs and operating companies that are 
imperfect proxies for ether exposure; and (iv) providing an alternative 
to custodying spot ether.
Commodity-Based Trust Shares--Rule 14.11(e)(4)
    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 Exchange Rule 14.11(e)(4). 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 Exchange Rule 14.12. The Exchange 
may obtain information regarding trading in the Shares and listed ether 
derivatives via the ISG, from other exchanges who are members or 
affiliates of the ISG, or with 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 ether and will be available regarding the Trust and the 
Shares. In addition to the price transparency of the Index, the Trust 
will provide information regarding the Trust's ether holdings as well 
as additional data regarding the Trust. The Trust 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 
Trading Hours (9:30 a.m. to 4:00 p.m. E.T.). The IIV will be calculated 
by using the prior day's closing NAV per Share as a base and updating 
that value during Regular Trading Hours to reflect changes in the value 
of the Trust's ether holdings during the trading day.
    The IIV disseminated during Regular Trading Hours 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 Trading Hours by one or more major market data 
vendors. In addition, the IIV will be available through on-line 
information services.
    The website for the Trust, which will be publicly accessible at no 
charge, will contain the following information: (a) the current NAV per 
Share daily and the prior business day's NAV and the reported closing 
price; (b) the BZX Official Closing Price in relation to the NAV as of 
the time the NAV is calculated and a calculation of the premium or 
discount of such price against such NAV; (c) 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); (d) the prospectus; and (e) other applicable 
quantitative information. The Trust will also disseminate the Trust's 
holdings on a daily basis on the Trust's website. The price of ether 
will be made available by one or more major market data vendors, 
updated at least every 15 seconds during Regular Trading Hours. 
Information about the Index, including key elements of how the Index is 
calculated, will be publicly available at
    The NAV for the Trust will be calculated by the Administrator once 
a day and will be disseminated daily to all market participants at the 
same time. Quotation and last-sale information regarding the Shares 
will be disseminated through the facilities of the CTA.
    Quotation and last sale information for ether is widely 
disseminated through a variety of major market data vendors, including 
Bloomberg and Reuters, as well as the Index. Information relating to 
trading, including price and volume information, in ether is available 
from major market data vendors and from the exchanges on which ether 
are traded. Depth of book information is also available from ether 
exchanges. The normal trading hours for ether 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 Ether Futures market represents 
a regulated

[[Page 66526]]

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. The investor protection 
issues for U.S. investors has grown significantly over the last several 
years, through roll costs for ether Futures ETFs and premium/discount 
volatility and management fees for OTC Ether Funds. As discussed 
throughout, this growth investor protection concerns need to be re-
evaluated and rebalanced with the prevention of fraudulent and 
manipulative acts and practices concerns that previous disapproval 
orders have relied upon. Finally, the Exchange notes that in addition 
to all of the arguments herein which it believes sufficiently establish 
the CME Ether Futures market as a regulated market of significant size, 
it is logically inconsistent to find that the CME Ether Futures market 
is a significant market as it relates to the CME Ether Futures market, 
but not a significant market as it relates to the ether 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 
an 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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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-CboeBZX-2023-070 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-CboeBZX-2023-070. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (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-CboeBZX-2023-070 and should 
be submitted on or before October 18, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\54\
---------------------------------------------------------------------------

    \54\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-20959 Filed 9-26-23; 8:45 am]
BILLING CODE 8011-01-P


