Notice2021-17305
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 Valkyrie Bitcoin Fund Under NYSE Arca Rule 8.201-E
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
August 13, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 154 (Friday, August 13, 2021)</title>
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[Federal Register Volume 86, Number 154 (Friday, August 13, 2021)]
[Notices]
[Pages 44763-44765]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-17305]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92610; File No. SR-NYSEArca-2021-31]
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 Valkyrie Bitcoin Fund Under
NYSE Arca Rule 8.201-E
August 9, 2021.
On April 23, 2021, 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 Valkyrie Bitcoin Fund
(``Trust'') under NYSE Arca Rule 8.201-E (Commodity-Based Trust
Shares). The proposed rule change was published for comment in the
Federal Register on May 12, 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. 91771 (May 6, 2021),
86 FR 26073 (May 12, 2021) (``Notice''). Comments on the proposed
rule change can be found at: <a href="https://www.sec.gov/comments/sr-nysearca-2021-31/srnysearca202131.htm">https://www.sec.gov/comments/sr-nysearca-2021-31/srnysearca202131.htm</a>.
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On June 22, 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. 92233 (June 22,
2021), 86 FR 34107 (June 28, 2021). The Commission designated August
10, 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 and trade the Shares of the Trust under NYSE Arca Rule 8.201-E,
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 will be for the Shares to
reflect the performance of the value of a bitcoin as represented by the
CF Bitcoin US Settlement Price (``Index''), less the Trust's
liabilities and expenses.\8\ The Fund will use the Index to calculate
the Trust's net asset value (``NAV'').\9\ The Index serves as a once-a-
day benchmark rate of the U.S. dollar price of bitcoin (USD/BTC),
calculated as of 4:00 p.m., E.T. The Index aggregates the trade flow of
several bitcoin exchanges, during an observation window between 3:00
p.m. and 4:00 p.m., E.T., into the U.S. dollar price of one bitcoin at
4:00 p.m., E.T. The current constituent bitcoin exchanges of the Index
are Bitstamp, Coinbase, Gemini, itBit, and Kraken (``Constituent
Bitcoin Exchanges''). In calculating the Index, the methodology creates
a joint list of certain trade prices and sizes from the Constituent
Bitcoin Exchanges between 3:00 p.m. 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 Index is the arithmetic mean of these
12 volume-weighted median trade prices.\10\
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\8\ Valkyrie Digital Assets LLC is the sponsor of the Trust
(``Sponsor'') and Delaware Trust Company is the trustee. Coinbase
Custody Trust Company, LLC (``Custodian'') will act as custodian for
the Trust's bitcoins. U.S. Bancorp Fund Services, LLC
(``Administrator'') will act as the transfer agent and administrator
of the Trust. See Notice, supra note 3, 86 FR at 26073.
\9\ The Index is not affiliated with the Sponsor and is
administered by CF Benchmarks Ltd. (``Benchmark Administrator'').
See Notice, supra note 3, 86 FR at 26076.
\10\ See id.
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The Shares of the Trust represent units of fractional undivided
beneficial interest in, and ownership of, the Trust. The Trust will
only hold bitcoin. The Custodian will establish accounts that hold the
bitcoins deposited with the Custodian on behalf of the Trust.\11\
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\11\ See id. at 26073.
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The Administrator will calculate the NAV of the Trust once each
Exchange trading day. The Sponsor will publish the NAV and NAV per
Share as soon as practicable after their determination and
availability, and the NAV will be released after the end of the Core
Trading Session (4:00 p.m., E.T.). The NAV of the Trust is not
officially struck until later in the day (often by 5:30 p.m., E.T, and
usually by 8:00 p.m., E.T.). The Trust's NAV per Share is calculated by
taking the current market value of its total assets, less any
liabilities of the Trust, and dividing that total by the total number
of outstanding Shares. The bitcoin held by the Trust will be valued
based on the price set by the Index.\12\
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\12\ See id. at 26076.
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The Trust will provide website disclosure of its bitcoin holdings
daily.\13\ The Trust will also disseminate an intraday indicative value
(``IIV'') per Share updated every 15 seconds by one of more major
market data vendors during the Exchange's Core Trading Session
(normally 9:30 a.m. to 4:00 p.m., E.T.). The IIV will be calculated by
a third-party financial data provider using the prior day's closing NAV
per Share of the Trust as a base and updating that value throughout the
trading day to reflect changes in the most recently reported price
level of the CME CF Bitcoin Real-Time Index (``BRTI''), as reported by
CME Group, Inc., Bloomberg, L.P., or another reporting service.\14\
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\13\ See id. at 26081.
\14\ The BRTI is calculated in real time based on the universe
of the currently unmatched limit orders to buy or sell in the BTC/
USD pair of all Constituent Bitcoin Exchanges. See id. at 26076.
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The Trust will issue and redeem Shares to authorized participants
on an ongoing basis in one or more ``Baskets'' of 50,000 Shares. The
creation and redemption of a Basket requires the delivery to the Trust,
or the distribution by the Trust, of the number of whole and fractional
bitcoins represented by
[[Page 44764]]
each Basket being created or redeemed.\15\ Creation orders and
redemption orders may be placed either ``in-kind'' or ``in-cash.''
Although the Trust will create Baskets only upon the receipt of
bitcoins, and will redeem Baskets only by distributing bitcoins, an
authorized participant may deposit cash with the Administrator, which
will facilitate the purchase or sale of bitcoins through a liquidity
provider on behalf of an authorized participant (``Conversion
Procedures'').\16\
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\15\ See id. at 26076-77.
\16\ The Conversion Procedures will be facilitated by a single
liquidity provider, which will be selected by the Sponsor on an
order-by-order basis. In the event that an order cannot be filled in
its entirety by a single liquidity provider, additional liquidity
provider(s) will be selected by the Sponsor to fill the remaining
amount. See id. at 26076-78.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEArca-2021-31 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \17\ 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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\17\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\18\ 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.'' \19\
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\18\ Id.
\19\ 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,\20\ 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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\20\ 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 the
bitcoin ecosystem has matured considerably since the last time the
Commission reviewed a proposal for a bitcoin exchange-traded product?
\21\ Are the changes that the Exchange identifies sufficient to support
the determination that the proposed listing and trading of the Shares
is consistent with the Act?
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\21\ See id. at 26078.
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3. The Exchange states that the design choices within the
methodology and framework of the Index are sufficiently resistant to
market manipulation and that, to date, there has been no evidence that
the Index has been subject to manipulation.\22\ What are commenters'
views on these assertions regarding the Index, including the relevance
of such assertions in determining whether the proposed listing and
trading of the Shares is consistent with the Act?
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\22\ See id. at 26078-79.
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4. The Exchange states that the Chicago Mercantile Exchange
(``CME'') participates in the oversight committee of the Index.\23\ The
Exchange further states that the Constituent Bitcoin Exchanges ``(1)
must enter into a data sharing agreement with the CME, (2) must
cooperate with inquiries and investigations of regulators and the
Benchmark Administrator and (3) must submit each of its clients to its
Know-Your-Customer (``KYC'') procedures; therefore, the CME would be
able, in the case of any suspicious trades, to discover all material
trade information including the identities of the customers placing the
trades.'' \24\ What are commenters' views on these assertions regarding
the Index, including the relevance of such assertions in determining
whether the proposed listing and trading of the Shares is consistent
with the Act?
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\23\ See id. at 26079.
\24\ See id.
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5. The Exchange states that the ``proposed rule change is designed
to prevent fraudulent and manipulative acts and practices because,
although the global Bitcoin market is not inherently resistant to fraud
and manipulation, the Index used by the Trust to determine the value of
its bitcoin assets and its NAV, serves as a benchmark mechanism
sufficient to mitigate the impact of instances of fraud and
manipulation on a reference price for Bitcoin.'' \25\ The Exchange
further states that ``use of the Index would mitigate the effects of
potential manipulation of the bitcoin market.'' \26\ What are
commenters' views regarding such assertions?
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\25\ See id. at 26080.
\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 September 3, 2021. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
September 17, 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#d9abacb5bcf4bab6b4b4bcb7adaa99aabcbaf7beb6af"><span class="__cf_email__" data-cfemail="fc8e899099d19f9391919992888fbc8f999fd29b938a">[email protected]</span></a>. Please include
File Number SR-NYSEArca-2021-31 on the subject line.
[[Page 44765]]
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-NYSEArca-2021-31. 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-NYSEArca-2021-31 and should be submitted
by September 3, 2021. Rebuttal comments should be submitted by
September 17, 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. 2021-17305 Filed 8-12-21; 8:45 am]
BILLING CODE 8011-01-P
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