
[Federal Register Volume 88, Number 230 (Friday, December 1, 2023)]
[Notices]
[Pages 84021-84023]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-26500]



[[Page 84021]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99031; File No. SR-NYSEARCA-2023-58]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting 
Proceedings To Determine Whether To Approve or Disapprove a Proposed 
Rule Change To List and Trade Shares of the Hashdex Bitcoin Futures ETF 
Under NYSE Arca Rule 8.500-E (Trust Units)

November 28, 2023.
    On September 22, 2023, NYSE Arca, Inc. (``NYSE Arca'' 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 
Hashdex Bitcoin Futures ETF (``Fund'') under NYSE Arca Rule 8.500-E 
(Trust Units). 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. 98564 (Sept. 27, 
2023), 88 FR 68188 (``Notice''). Comments on the proposed rule 
change are available at: https://www.sec.gov/comments/sr-nysearca-2023-58/srnysearca202358.htm.
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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. 98947, 88 FR 81171 
(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 Tidal 
Commodities Trust I (``Trust''), under NYSE Arca Rule 8.500-E, which 
governs the listing and trading of Trust Units on the Exchange.\8\
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    \7\ See Notice, supra note 3.
    \8\ The Exchange states that the Commission previously approved 
the listing and trading of the Shares pursuant to NYSE Arca Rule 
8.200-E, Commentary .02, which governs the listing and trading of 
Trust Issued Receipts on the Exchange, as shares of the Teucrium 
Bitcoin Futures Fund. See Securities Exchange Act Release No. 34-
94620 (Apr. 6, 2022), 87 FR 21676 (Apr. 12, 2022) (SR-NYSEArca-2021-
53) (Order Approving a Proposed Rule Change, as Modified by 
Amendment No. 2, To List and Trade Shares of the Teucrium Bitcoin 
Futures Fund) (the ``Approval Order''). See also Securities Exchange 
Act Release No. 92573 (Aug. 5, 2021), 86 FR 44062 (Aug. 11, 2021) 
(SR-NYSEArca-2021-53) (Notice of Filing of a Proposed Rule Change To 
List and Trade Shares of Teucrium Bitcoin Futures Fund Under NYSE 
Arca Rule 8.200-E) and Partial Amendment No. 2, available at https://www.sec.gov/comments/sr-nysearca-2021-53/srnysearca202153-20118884-271701.pdf. According to the Exchange, the name of the Teucrium 
Bitcoin Futures Fund was subsequently changed to the Hashdex Bitcoin 
Futures ETF. See Notice, 88 FR at 68188. The Exchange states that 
the representations set forth in the Notice supersede and replace 
the representations in the Exchange's prior rule filing relating to 
the Teucrium Bitcoin Futures Fund and Partial Amendment No. 2 
thereto. See id. at 68188 n.4.
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    The investment objective of the Fund is to have the daily changes 
in the net asset value (``NAV'') of the Shares reflect the daily 
changes in the price of a specified benchmark (``Benchmark'').\9\ The 
Benchmark will be calculated using the Nasdaq Bitcoin Reference Price--
Settlement (``NQBTCS''), which tracks the price of bitcoin.\10\ The 
Fund will seek to achieve its investment objective by investing in 
bitcoin futures contracts \11\ as well as in physical bitcoin to the 
extent allowed by the Fund's investment restrictions on spot 
bitcoin.\12\ The Fund will use the CME's Exchange for Physical 
(``EFP'') transactions to acquire and dispose of spot bitcoin.\13\ The 
Fund will be subject to investment restrictions on spot bitcoin which 
are currently set at 100% of the 30-day Average Daily Traded Volume on 
the core bitcoin platforms of the NQBTCS that are subject to regulatory 
and reporting rules in the United States, including companies that are 
publicly traded in the United States.\14\ The administrator of the Fund 
will calculate the NAV of the Fund once each trading day, as of the 
earlier of the close of the New York Stock Exchange or 4:00 p.m. 
Eastern Standard Time.\15\ To determine the value of bitcoin futures 
contracts, the Fund's administrator will use the bitcoin futures 
contract settlement price on the exchange on which the contract is 
traded, except that the fair value of bitcoin futures contracts may be 
used when bitcoin futures contracts close at their price fluctuation 
limit for the day. The value of spot bitcoin held by the Fund would be 
determined by the Sponsor and by Hashdex Asset Management Ltd. 
(``Digital Asset Adviser'') in good faith based on a methodology that 
is entirely derived from the settlement prices of bitcoin futures 
contracts on the CME and that considers all available facts and all 
available information on the valuation date.\16\ When the Fund sells or 
redeems its Shares, it will do so in cash transactions with authorized 
participants in blocks of 12,500 Shares.\17\
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    \9\ See Notice, 88 FR at 68189. The Fund is managed and 
controlled by Toroso Investments LLC (``Sponsor''). See id. at 
68188.
    \10\ See id. at 68189.
    \11\ It is unclear from the filing whether the Fund is limited 
to investing in bitcoin futures contracts traded on the Chicago 
Mercantile Exchange, Inc. (``CME'').
    \12\ See id. at 68190. The Fund will hold a mix of spot bitcoin, 
bitcoin futures contracts, and cash and cash equivalents, subject to 
certain investment restrictions. See id. at 68197.
    \13\ See id. at 68197. According to the Exchange, EFP 
transactions are a type of private agreement between two parties to 
trade a futures position for the underlying asset. In an EFP 
transaction, two parties exchange equivalent but offsetting 
positions in a bitcoin futures contract and the underlying physical 
bitcoin. In the context of the Fund, these transactions will be used 
to purchase and sell spot bitcoin by delivering or receiving the 
equivalent futures position. See id. at 68204.
    \14\ See id. at 68203. According to the Exchange, as of the date 
of the filing, Coinbase Inc. was the only bitcoin platform to 
satisfy this criterion. See id. at 68203 n.78.
    \15\ See id. at 68206. The Fund's NAV will include any 
unrealized profit or loss on open bitcoin futures contacts and any 
other credit or debit accruing to the Fund but unpaid or not 
received by the Fund. See id.
    \16\ See id. at 68199. This ``futures-based spot price'' 
methodology is sensitive to both the tenor of a bitcoin futures 
contract and the final settlement price for such contract. The 
calculation produces a set of weighting factors, with each factor 
indicating the contribution of the corresponding bitcoin futures 
contract to the estimated current spot price of bitcoin. The 
estimated spot price is the component of the result corresponding to 
a tenor of zero days. The Sponsor and Digital Asset Advisor will not 
use data from bitcoin trading platforms or directly from spot 
bitcoin trading activity in determining the value of spot bitcoin 
held by the Fund. See id. at 68206.
    \17\ See id. at 68204, 68206.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEARCA-2023-58 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to section 
19(b)(2)(B) of the Act \18\ 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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    \18\ 15 U.S.C. 78s(b)(2)(B).

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[[Page 84022]]

    Pursuant to section 19(b)(2)(B) of the Act,\19\ 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.'' \20\
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    \19\ Id.
    \20\ 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,\21\ what are commenters views on whether the 
CME, on which CME bitcoin futures trade and through which the Fund 
intends to engage in EFP transactions to purchase or sell spot bitcoin, 
represents a regulated market of significant size related to spot 
bitcoin? \22\ 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? \23\ 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? \24\
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    \21\ See Notice, 88 FR at 68198-99, 68201 n.74, 68202-03.
    \22\ See id. at 68197.
    \23\ See id.
    \24\ See id.
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    3. The Exchange states that the Fund intends to adopt ``an 
innovative approach to mitigate the risks of fraud and manipulation 
that are unique to the Fund'' by ``structur[ing] the operation of the 
Fund such that the regulated market of significant size in relation to 
the Fund is the [CME] because it is the same market on which the Fund 
trades its non-cash assets.'' \25\ The Exchange further states that the 
Fund has novel features that underscore its significant 
interrelationship with the CME, including that the Fund (i) utilizes 
futures-based pricing for spot bitcoin such that the NAV calculation 
for the spot bitcoin holdings of the Fund will be derived from the CME 
bitcoin futures curve; (ii) is subject to investment restrictions on 
spot bitcoin; (iii) will use CME EFP transactions to acquire and 
dispose of spot bitcoin ``instead of transactions on unregulated spot 
exchanges''; and (iv) will utilize only cash creations and 
redemptions.\26\ Based on the structure and operation of the Fund and 
the Fund's investments as described in the filing, what are commenters' 
views on whether the CME represents a regulated market of significant 
size related to spot bitcoin? \27\
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    \25\ See id. at 68196.
    \26\ See id. at 68197.
    \27\ See id. at 68197.
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    4. The Fund will only use CME EFP transactions to acquire and 
dispose of spot bitcoin.\28\ The Exchange states that ``trading 
activity in EFP transactions is sporadic'' but that, ``[n]onetheless, 
the Sponsor believes that a large number of liquidity providers are 
ready to execute this type of transaction and can provide enough 
liquidity to support the [Fund's] demand.'' \29\ Do commenters agree? 
Why or why not?
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    \28\ See, e.g., id. at 68204-06.
    \29\ See id. at 68205.
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    5. The value of spot bitcoin held by the Fund would be determined 
using a futures-based spot price methodology that is derived from the 
settlement prices of bitcoin futures contracts on the CME.\30\ The 
Exchange presents data \31\ that it states ``strongly suggests that 
[futures-based spot pricing] is a suitable choice for the NAV 
calculation.'' \32\ The Exchange states that futures-based spot pricing 
``could create some level of uncertainty due to the potential 
divergences between the [futures-based spot price] and the spot prices 
observed in unregulated markets'' but that authorized participants 
``will always be in a position to hedge their exposure using 
exclusively the [CME bitcoin futures market], which will make them more 
likely to provide liquidity to the Fund thus making its market price 
converge to its NAV.'' \33\ Do commenters agree with the Exchange? Why 
or why not?
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    \30\ See id. at 68199.
    \31\ See id. at 68199-201.
    \32\ See id. at 68201.
    \33\ See id. at 68201.
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    6. Some sponsors of proposed spot bitcoin exchange-traded products 
have provided data regarding the correlation between certain bitcoin 
spot markets and the CME bitcoin futures market.\34\ 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? What are 
commenters' views on the Sponsor's own statistical analysis of the 
relationship between prices in certain unregulated bitcoin markets and 
prices of CME bitcoin futures contracts? \35\
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    \34\ 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).
    \35\ See id. at 68202.
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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.\36\
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    \36\ 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 84023]]

    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-NYSEARCA-2023-58 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-NYSEARCA-2023-58. 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-NYSEARCA-2023-58 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.\37\
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    \37\ 17 CFR 200.30-3(a)(57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-26500 Filed 11-30-23; 8:45 am]
BILLING CODE 8011-01-P


