
[Federal Register Volume 88, Number 191 (Wednesday, October 4, 2023)]
[Notices]
[Pages 68894-68896]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-21946]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98606; File No. SR-NASDAQ-2023-019]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove a 
Proposed Rule Change To List and Trade Shares of the Valkyrie Bitcoin 
Fund Under Nasdaq Rule 5711(d), Commodity-Based Trust Shares

September 28, 2023.
    On July 3, 2023, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade shares (``Shares'') of the 
Valkyrie Bitcoin Fund (``Trust'') under Nasdaq Rule 5711(d), Commodity-
Based Trust Shares. The proposed rule change was published for comment 
in the Federal Register on July 21, 2023.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 97922 (July 17, 
2023), 88 FR 47214 (``Notice''). Comments on the proposed rule 
change are available at: https://www.sec.gov/comments/sr-nasdaq-2023-019/srnasdaq2023019.htm.
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    On August 31, 2023, pursuant to Section 19(b)(2) of the Act,\4\ the 
Commission designated a longer period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to disapprove the proposed rule 
change.\5\ This order

[[Page 68895]]

institutes proceedings under Section 19(b)(2)(B) of the Act \6\ to 
determine whether to approve or disapprove the proposed rule change.
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    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 98262, 88 FR 61658 
(Sept. 7, 2023). The Commission designated October 19, 2023, as the 
date by which the Commission shall approve or disapprove, or 
institute proceedings to determine whether to disapprove, the 
proposed rule change.
    \6\ 15 U.S.C. 78s(b)(2)(B).
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I. Summary of the Proposal

    As described in more detail in the Notice,\7\ the Exchange proposes 
to list and trade the Shares of the Trust under Nasdaq Rule 5711(d), 
which governs the listing and trading of Commodity-Based Trust Shares 
on the Exchange.
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    \7\ See Notice, supra note 3.
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    The investment objective of the Trust is for the Shares to reflect 
the performance of the value of a bitcoin as represented by the CME CF 
Bitcoin Reference Rate--New York Variant (``Index''), less the Trust's 
liabilities and expenses.\8\ The Trust will only hold bitcoin, which 
will be held by a custodian on behalf of the Trust.\9\ The bitcoin held 
by the Trust will be valued based on the price set by the Index and the 
administrator of the Trust will calculate the net asset value of the 
Trust once each Exchange trading day.\10\ The Trust will issue and 
redeem baskets of Shares on an ongoing basis only in exchange for 
delivery to the Trust, or the distribution by the Trust, of the number 
of whole and fractional bitcoins represented by each basket being 
created or redeemed.\11\
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    \8\ See id. at 47214. Valkyrie Digital Assets, LLC (``Sponsor'') 
is the sponsor of the Trust.
    \9\ See id.
    \10\ See id. at 47215.
    \11\ See id.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-
NASDAQ-2023-019 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \12\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of proceedings is 
appropriate at this time in view of the legal and policy issues raised 
by the proposed rule change, as discussed below. Institution of 
proceedings does not indicate that the Commission has reached any 
conclusions with respect to any of the issues involved. Rather, as 
described below, the Commission seeks and encourages interested persons 
to provide comments on the proposed rule change.
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    \12\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\13\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposed rule change's consistency with Section 6(b)(5) 
of the Act, which requires, among other things, that the rules of a 
national securities exchange be ``designed to prevent fraudulent and 
manipulative acts and practices'' and ``to protect investors and the 
public interest.'' \14\
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    \13\ Id.
    \14\ 15 U.S.C. 78f(b)(5).
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    The Commission asks that commenters address the sufficiency of the 
Exchange's statements in support of the proposal, which are set forth 
in the Notice, in addition to any other comments they may wish to 
submit about the proposed rule change. In particular, the Commission 
seeks comment on the following questions and asks commenters to submit 
data where appropriate to support their views:
    1. What are commenters' views on whether the proposed Trust and 
Shares would be susceptible to manipulation? What are commenters' views 
generally on whether the Exchange's proposal is designed to prevent 
fraudulent and manipulative acts and practices? What are commenters' 
views generally with respect to the liquidity and transparency of the 
bitcoin markets and the bitcoin markets' susceptibility to 
manipulation?
    2. Based on data and analysis provided and the academic research 
cited by the Exchange,\15\ do commenters agree with the Exchange that 
the Chicago Mercantile Exchange (``CME''), on which CME bitcoin futures 
trade, represents a regulated market of significant size related to 
spot bitcoin? \16\ What are commenters' views on whether there is a 
reasonable likelihood that a person attempting to manipulate the Shares 
would also have to trade on the CME to manipulate the Shares? \17\ Do 
commenters agree with the Exchange that trading in the Shares would not 
be the predominant influence on prices in the CME bitcoin futures 
market? \18\
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    \15\ See Notice, 88 FR at 47222-24.
    \16\ See id. at 47223.
    \17\ See id. at 47223-24.
    \18\ See id. at 47224.
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    3. The Exchange states that bitcoin is resistant to price 
manipulation and that other means to prevent fraudulent and 
manipulative acts and practices ``exist to justify dispensing with the 
requisite surveillance sharing agreement'' with a regulated market of 
significant size related to spot bitcoin.\19\ In support, the Exchange 
states, among other things, that the geographically diverse and 
continuous nature of bitcoin trading make it difficult and 
prohibitively costly to manipulate the price of bitcoin, and that the 
fragmentation across bitcoin platforms, the relatively slow speed of 
transactions, and the capital necessary to maintain a significant 
presence on each trading platform make manipulation of bitcoin prices 
through continuous trading activity challenging.\20\ The Exchange also 
states that offering only in-kind creations and redemptions provides 
``unique protections against potential attempts to manipulate the 
Shares'' and that the price the Sponsor uses to value the Trust's 
bitcoin ``is not particularly important.'' \21\ Do commenters agree 
with the Exchange's statements regarding the bitcoin market's 
resistance to price manipulation?
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    \19\ See id. at 47223 n.24.
    \20\ See id.
    \21\ See id. at 47224-25.
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    4. The Exchange also states that it will execute a surveillance-
sharing agreement with Coinbase, Inc. (``Coinbase'') that is intended 
to supplement the Exchange's market surveillance program.\22\ According 
to the Exchange, the agreement is ``expected to have the hallmarks of a 
surveillance-sharing agreement between two members of the [Intermarket 
Surveillance Group], which would give the Exchange supplemental access 
to data regarding spot [b]itcoin trades on Coinbase where the Exchange 
determines it is necessary as part of its surveillance program for the 
Commodity-Based Trust Shares.'' \23\ Based on the description of the 
surveillance-sharing agreement as provided by the Exchange, what are 
commenters' views of such an agreement if finalized and executed? Do 
commenters agree with the Exchange that such an agreement with Coinbase 
would be ``helpful in detecting, investigating, and deterring fraud and 
manipulation in the Commodity-Based Trust Shares''? \24\
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    \22\ See id. at 47224.
    \23\ See id. The Exchange states that ``[t]his 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.'' Id.
    \24\ See id.

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[[Page 68896]]

5. Some sponsors of proposed spot bitcoin exchange-traded products have 
also provided data regarding the correlation between certain bitcoin 
spot markets and the CME bitcoin futures market.\25\ What are 
commenters' views on the correlation between the bitcoin spot market 
and the CME bitcoin futures market? What are commenters' views on the 
extent to which that correlation provides evidence that the CME bitcoin 
futures market is ``significant'' related to spot bitcoin?
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    \25\ See, e.g. Notice of Filing of Amendment No. 3 to, and Order 
Instituting Proceedings to Determine Whether to Approve or 
Disapprove, a Proposed Rule Change to List and Trade Shares of the 
ARK 21Shares Bitcoin ETF under BZX Rule 14.11(e)(4), Commodity-Based 
Trust Shares, Securities Exchange Act Release No. 98112 (Aug. 11, 
2023), 88 FR 55743 (Aug. 16, 2023) (including data from sponsor 
21Shares US LLC that purports to show correlations of returns across 
the two-year period from January 20, 2021, to February 1, 2023, of 
no less than 92% among certain spot bitcoin platforms and between 
the CME bitcoin futures market and such spot bitcoin platforms on an 
hourly basis, and no less than 78% on a minutely basis).
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III. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposal is 
consistent with Section 6(b)(5) or any other provision of the Act, and 
the rules and regulations thereunder. Although there do not appear to 
be any issues relevant to approval or disapproval that would be 
facilitated by an oral presentation of views, data, and arguments, the 
Commission will consider, pursuant to Rule 19b-4, any request for an 
opportunity to make an oral presentation.\26\
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    \26\ Section 19(b)(2) of the Act, as amended by the Securities 
Acts Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Acts Amendments of 1975, Senate Comm. 
on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change should be approved 
or disapproved by October 25, 2023. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
November 8, 2023.
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number
    SR-NASDAQ-2023-019 on the subject line.

Paper Comments

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

All submissions should refer to file number SR-NASDAQ-2023-019. 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-NASDAQ-2023-019 and should 
be submitted on or before October 25, 2023. Rebuttal comments should be 
submitted by November 8, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-21946 Filed 10-3-23; 8:45 am]
BILLING CODE 8011-01-P


