
[Federal Register Volume 88, Number 245 (Friday, December 22, 2023)]
[Notices]
[Pages 88694-88695]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-28195]



[[Page 88694]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99198; File No. SR-NYSEARCA-2023-63]


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 Grayscale Ethereum Futures 
Trust (ETH) ETF Under NYSE Arca Rule 8.200-E, Commentary .02 (Trust 
Issued Receipts)

December 18, 2023.
    On September 19, 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 
Grayscale Ethereum Futures Trust (ETH) ETF (``Trust'') under NYSE Arca 
Rule 8.200-E, Commentary .02 (Trust Issued Receipts). 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. 98567 (Sept. 27, 
2023), 88 FR 68171 (``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. 98944, 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 Trust under NYSE Arca Rule 8.200-E, 
Commentary .02, which governs the listing and trading of Trust Issued 
Receipts on the Exchange.
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    \7\ See Notice, supra note 3.
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    According to the Exchange, the Chicago Mercantile Exchange, Inc. 
(``CME'') currently offers two Ethereum futures contracts, one contract 
representing 50 Ether (``ETH Contracts'') and another contract 
representing 0.10 Ether (``MET Contracts'').\8\ The investment 
objective of the Trust 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''), which is the average of the 
closing settlement prices for the first to expire and second to expire 
ETH Contracts listed on the CME.\9\ Under normal market conditions, the 
Trust will invest in the first to expire and second to expire ETH 
Contracts and MET Contracts (collectively, ``Ether Futures Contracts'') 
and in cash and cash equivalents.\10\ The administrator of the Trust 
will calculate the NAV 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.\11\ To determine the value of Ether Futures Contracts, the 
Trust's administrator will use the Ether Futures Contract settlement 
price on the exchange on which the contract is traded, except that the 
fair value of Ether Futures Contracts may be used when Ether Futures 
Contracts close at their price fluctuation limit for the day.\12\ When 
the Trust sells or redeems its Shares, it will do so in transactions 
with authorized participants in blocks of 10,000 Shares.\13\
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    \8\ See id. at 68171
    \9\ See id. at 68171-72.
    \10\ See id. at 68172.
    \11\ See id. at 68175.
    \12\ See id.
    \13\ See id. at 68176. The filing does not specify whether such 
transactions would be required to be in-kind or in cash. The filing 
states that an authorized purchaser who places a purchase order will 
transfer to the Trust's custodian the required amount of cash, cash 
equivalents, and/or ether futures by the end of the next business 
day following the purchase order date or by the end of such later 
business day, not to exceed three business days after the purchase 
order date, as agreed to between the authorized purchaser and the 
custodian when the purchase order is placed. See id. The filing also 
states that the redemption distribution from the Trust will consist 
of an amount of cash, cash equivalents, and/or exchange listed ether 
futures that is in the same proportion to the total assets of the 
Trust on the date that the order to redeem is properly received as 
the number of Shares to be redeemed under the redemption order is in 
proportion to the total number of Shares outstanding on the date the 
order is received. See id.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEARCA-2023-63 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. Given the nature of the underlying assets held by the Trust, has 
the Exchange properly filed its proposal to list and trade the Shares 
under NYSE Arca Rule 8.200-E, Commentary .02 (Trust Issued Receipts)? 
\17\
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    \17\ NYSE Arca Rule 8.200-E(b) defines a ``Trust Issued 
Receipt'' as a security (1) that is issued by a trust which holds 
specific securities deposited with the trust; (2) that, when 
aggregated in some specified minimum number, may be surrendered to 
the trust by the beneficial owner to receive the securities; and (3) 
that pay beneficial owners dividends and other distributions on the 
deposited securities, if any are declared and paid to the trustee by 
an issuer of the deposited securities. NYSE Arca Rule 8.200-E, 
Commentary .02(c) provides that the Exchange may list and trade 
Trust Issued Receipts investing in ``Financial Instruments.'' NYSE 
Arca Rule 8.200-E, Commentary .02(b)(4) further defines ``Financial 
Instruments'' as any combination of investments, including cash; 
securities; options on securities and indices; futures contracts; 
options on futures contracts; forward contracts; equity caps, 
collars and floors; and swap agreements.
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    2. The Exchange raises substantially similar arguments to support 
the listing and trading of the Shares as those made in Commission 
orders approving the listing and trading of CME bitcoin futures-based 
exchange-traded products

[[Page 88695]]

(``CME Bitcoin Futures ETPs''). Do commenters agree that arguments to 
support the listing of CME Bitcoin Futures ETPs apply equally to the 
Shares? Are there particular features related to ether and its 
ecosystem, including its proof of stake consensus mechanism and 
concentration of control or influence by a few individuals or entities, 
that raise unique concerns about ether futures' susceptibility to fraud 
and manipulation?
    3. 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?
    4. Based on data and analysis provided by the Exchange,\18\ do 
commenters agree with the Exchange that the CME represents a regulated 
market of significant size related to the holdings of the Trust? \19\ 
Do commenters agree with the Exchange that trading in the Shares would 
not be the predominant influence on prices in the CME ether futures 
market? \20\
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    \18\ See Notice, 88 FR at 68174-75.
    \19\ See id.
    \20\ See id. at 68175.
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    5. The Exchange states that several exchange-traded funds 
(``ETFs'') registered under the Investment Company Act of 1940 that 
hold ether futures contracts have filed registration statements with 
the Commission and that these ETFs would offer identical exposure to 
the Trust.\21\ The Exchange asserts that ``if the Commission allows 
these ETFs to begin trading, then it should also approve the Trust for 
trading.'' \22\ Do commenters agree? Why or why not?
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    \21\ See id. at 68173.
    \22\ See id.
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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.\23\
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    \23\ 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 January 12, 2024. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
January 26, 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-2023-63 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-2023-63. 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-2023-63 and should 
be submitted on or before January 12, 2024. Rebuttal comments should be 
submitted by January 26, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-28195 Filed 12-21-23; 8:45 am]
BILLING CODE 8011-01-P


