
[Federal Register Volume 88, Number 230 (Friday, December 1, 2023)]
[Notices]
[Pages 84004-84006]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-26488]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99030; File No. SR-CboeBZX-2023-072]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove a 
Proposed Rule Change To List and Trade Shares of the Franklin Bitcoin 
ETF Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares

November 28, 2023.
    On September 26, 2023, Cboe BZX Exchange, Inc. (``BZX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade shares (``Shares'') of the 
Franklin Bitcoin ETF (``Fund'') under BZX Rule 14.11(e)(4), Commodity-
Based Trust Shares. The proposed rule change was published for comment 
in the Federal Register on October 3, 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. 98562 (Sept. 27, 
2023), 88 FR 68240 (``Notice''). The Commission has received no 
comments on the proposal.
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    On November 15, 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 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. 98945, 88 FR 81150 
(Nov. 21, 2023). The Commission designated January 1, 2024, 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 Fund, a series of the Franklin 
Templeton Digital Holdings Trust (``Trust''), under BZX Rule 
14.11(e)(4), which governs the listing and trading of Commodity-Based 
Trust Shares on the Exchange.
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    \7\ See Notice, supra note 3.
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    The investment objective of the Fund is to generally reflect the 
performance of the price of bitcoin before payment of the Fund's 
expenses.\8\ The Fund's assets will consist of bitcoin held by the 
Fund's bitcoin custodian on behalf of the Fund and cash holdings, if 
any, held by the Fund's cash custodian.\9\ The Fund will value its 
Shares daily based on the value of bitcoin as reflected by the CME CF 
Bitcoin Reference Rate (``Reference Rate'').\10\ The administrator for 
the Fund will determine the net asset value (``NAV'') of the Fund on 
each day that the Exchange is open for regular trading, as promptly as 
practicable after 4:00 p.m. ET.\11\ In determining the Fund's NAV, the 
administrator for the Fund will value the bitcoin held by the Fund 
based on the price set by the Reference Rate as of 4:00 p.m. ET.\12\ 
When the Fund sells or redeems its Shares, it will do so in ``in-kind'' 
transactions with authorized participants in large blocks of 
Shares.\13\
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    \8\ See id. at 68250. Franklin Holdings, LLC (``Sponsor'') is 
the sponsor of the Fund. See id. at 68241.
    \9\ See id. at 68249. In seeking to achieve its investment 
objective, the Fund will hold bitcoin and may hold cash or cash 
equivalents. Coinbase Custody Trust Company, LLC will be responsible 
for custody of the Fund's bitcoin holdings and Bank of New York 
Mellon will be the custodian for the Fund's cash holdings, if any. 
See id. at 68241, 68250.
    \10\ See id. at 68250.
    \11\ See id. at 68251.
    \12\ See id.
    \13\ See id. at 68249-50, 68251.

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[[Page 84005]]

II. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBZX-2023-072 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \14\ 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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    \14\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\15\ 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.'' \16\
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    \15\ Id.
    \16\ 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 Fund 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,\17\ do commenters agree with the Exchange that 
the Chicago Mercantile Exchange, Inc. (``CME''), on which CME bitcoin 
futures trade, represents a regulated market of significant size 
related to spot bitcoin? \18\ 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? \19\ 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? \20\
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    \17\ See Notice, 88 FR at 68246-48.
    \18\ See id. at 68248.
    \19\ See id. at 68253.
    \20\ See id.
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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.\21\ 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.\22\ The Exchange also 
states that offering only in-kind creations and redemptions provides 
``unique protections against potential attempts to manipulate the price 
of the Shares'' and that the price the Sponsor uses to value the Fund's 
bitcoin ``is not particularly important.'' \23\ Do commenters agree 
with the Exchange's statements regarding the bitcoin market's 
resistance to price manipulation?
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    \21\ See id. at 68248 n.52.
    \22\ See id.
    \23\ See id. at 68253.
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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.\24\ 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 
Shares.'' \25\ 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 market manipulation 
in the Shares''? \26\
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    \24\ See id. at 68249.
    \25\ 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 
the Shares.'' Id.
    \26\ See id.
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    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.\27\ 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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    \27\ 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.\28\
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    \28\ 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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[[Page 84006]]

    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change should be approved 
or disapproved by December 22, 2023. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
January 5, 2024.
    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-2023-072 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-2023-072. 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-2023-072 and should 
be submitted on or before December 22, 2023. Rebuttal comments should 
be submitted by January 5, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-26488 Filed 11-30-23; 8:45 am]
BILLING CODE 8011-01-P


