Notice2021-16121
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 Kryptoin Bitcoin ETF Trust Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 29, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 143 (Thursday, July 29, 2021)</title>
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[Federal Register Volume 86, Number 143 (Thursday, July 29, 2021)]
[Notices]
[Pages 40883-40885]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-16121]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92476; File No. SR-CboeBZX-2021-029]
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 Kryptoin Bitcoin
ETF Trust Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares
July 23, 2021.
On April 9, 2021, 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 Kryptoin Bitcoin ETF Trust
(``Trust'') under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares.
The proposed rule change was published for comment in the Federal
Register on April 28, 2021.\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. 91646 (April 22,
2021), 86 FR 22485 (April 28, 2021) (``Notice''). Comments on the
proposed rule change can be found at: <a href="https://www.sec.gov/comments/sr-cboebzx-2021-029/srcboebzx2021029.htm">https://www.sec.gov/comments/sr-cboebzx-2021-029/srcboebzx2021029.htm</a>.
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On June 9, 2021, 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. 92131 (June 9,
2021), 86 FR 31772 (June 15, 2021). The Commission designated July
27, 2021, as the date by which it should approve, 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
[[Page 40884]]
and trade the Shares of the 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 Trust would be to provide exposure
to bitcoin at a price that is reflective of the actual bitcoin market
where investors purchase and sell bitcoin, less the expense of the
Trust's operation.\8\ The Trust would hold bitcoin and it would
calculate the Trust's net asset value (``NAV'') daily based on the
value of bitcoin as reflected by the CF Bitcoin US Settlement Price
(``Reference Rate''). The administrator of the Reference Rate is CF
Benchmarks Ltd. The Reference Rate aggregates the trade flow of several
bitcoin platforms. The current platform composition of the Reference
Rate is Bitstamp, Coinbase, Gemini, itBit and Kraken. In calculating
the Reference Rate, the methodology creates a joint list of certain
trade prices and sizes from the constituent platforms between 3:00 p.m.
E.T. and 4:00 p.m. E.T. The methodology then divides this list into 12
equally-sized time intervals of 5 minutes and it calculates the volume-
weighted median trade price for each of those time intervals. The
Reference Rate is the arithmetic mean of these 12 volume-weighted
median trade prices.\9\
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\8\ Kryptoin Investment Advisors, LLC (``Sponsor'') is the
sponsor of the Trust, Delaware Trust Company is the trustee, and The
Bank of New York Mellon will be the administrator
(``Administrator'') and transfer agent. Foreside Fund Services, LLC
will be the marketing agent in connection with the creation and
redemption of ``baskets'' of Shares, and the Sponsor will provide
assistance in the marketing of the Shares. Gemini Trust Company,
LLC, a third-party regulated custodian (``Custodian''), will be
responsible for custody of the Trust's bitcoin. See id. at 22485 and
22492-93.
\9\ See id. at 22493.
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Each Share will represent a fractional undivided beneficial
interest in the bitcoin held by the Trust. The Trust's assets will
consist of bitcoin held by the Custodian on behalf of the Trust. The
Trust generally does not intend to hold cash or cash equivalents.
However, there may be situations where the Trust will unexpectedly hold
cash on a temporary basis.\10\
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\10\ See id. at 22492.
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The Administrator will determine the NAV and NAV per Share of the
Trust, on each day that the Exchange is open for regular trading, after
4:00 p.m. E.T. The NAV of the Trust is the aggregate value of the
Trust's assets less its liabilities (which include estimated accrued
but unpaid fees and expenses). In determining the Trust's NAV, the
Administrator values the bitcoin held by the Trust on the basis of the
price of bitcoin as determined by the Reference Rate.\11\
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\11\ See id. at 22494.
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The Trust will provide information regarding the Trust's bitcoin
holdings, as well as 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 bitcoin holdings during the trading day.\12\
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\12\ See id. at 22493.
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When the Trust sells or redeems its Shares, it will do so in ``in-
kind'' transactions in blocks of 50,000 Shares. Authorized participants
will deliver, or facilitate the delivery of, bitcoin to the Trust's
account with the Custodian in exchange for Shares when they purchase
Shares, and the Trust, through the Custodian, will deliver bitcoin to
such authorized participants when they redeem Shares with the
Trust.\13\
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\13\ See id.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBZX-2021-029 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,\17\ 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:
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\17\ See Notice, supra note 3.
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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, the bitcoin markets' susceptibility to manipulation,
and thus the suitability of bitcoin as an underlying asset for an
exchange-traded product?
2. What are commenters' views of the Exchange's assertion that
regulatory and financial landscapes relating to bitcoin and other
digital assets have changed significantly since 2016? \18\ Are the
changes that the Exchange identifies sufficient to support the
determination that the proposed listing and trading of the Shares are
consistent with the Act?
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\18\ See id. at 22486-87.
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3. The Exchange states that ``approving this proposal . . . [would]
allow U.S. investors with access to bitcoin in a regulated and
transparent exchange-traded vehicle that would act to limit risk''
associated with exposure through other means.\19\ Further, the Exchange
asserts that ``the manipulation concerns previously articulated by the
Commission are sufficiently mitigated to the point that they are
outweighed by quantifiable investor protection issues.'' \20\ What are
commenters' views regarding such assertions?
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\19\ See id. at 22487.
\20\ See id. at 22491.
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4. According to the Exchange, ``[n]early every measurable metric
related to [Chicago Mercantile Exchange's] Bitcoin Futures has trended
consistently up since launch and/or accelerated upward in the past
year.'' \21\ Based on data provided and the academic research cited by
the Exchange, do commenters agree that the Chicago Mercantile Exchange
(``CME'') now represents a regulated market of
[[Page 40885]]
significant size? \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 CME to manipulate the Shares? What of the
Exchange's assertion that the combination of (a) CME bitcoin futures
leading price discovery; (b) the overall size of the bitcoin market;
and (c) the ability for market participants to buy or sell large
amounts of bitcoin without significant market impact helps to prevent
the Shares from becoming the predominant force on pricing in either the
bitcoin spot or CME bitcoin futures markets? \23\
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\21\ See id. at 22489.
\22\ See id. at 22486.
\23\ See id. at 22492.
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5. What are commenters' views on the Exchange's statement,
generally, 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
bitcoin? \24\ What of the Exchange's assertion in support of such
statement that significant liquidity in the spot market and the impact
of market orders on the overall price of bitcoin mean that attempting
to move the price of bitcoin is costly? \25\ What of the assertion 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''? \26\
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\24\ See id. at 22491 n.55.
\25\ See id. at 22492.
\26\ 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.\27\
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\27\ Section 19(b)(2) of the Act, as amended by the Securities
Act 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 Act 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 proposal should be approved or
disapproved by August 19, 2021. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
September 2, 2021.
Comments may be submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#1e6c6b727b337d7173737b706a6d5e6d7b7d30797168"><span class="__cf_email__" data-cfemail="e092958c85cd838f8d8d858e9493a0938583ce878f96">[email protected]</span></a>. Please include
File Number SR-CboeBZX-2021-029 on the subject line.
Paper Comments
<bullet> 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-2021-029. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CboeBZX-2021-029 and should be submitted
by August 19, 2021. Rebuttal comments should be submitted by September
2, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-16121 Filed 7-28-21; 8:45 am]
BILLING CODE 8011-01-P
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