Notice2021-18348
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 First Trust SkyBridge Bitcoin ETF Trust 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 26, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 163 (Thursday, August 26, 2021)</title>
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[Federal Register Volume 86, Number 163 (Thursday, August 26, 2021)]
[Notices]
[Pages 47662-47664]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-18348]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92714; File No. SR-NYSEArca-2021-37]
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 First Trust SkyBridge
Bitcoin ETF Trust Under NYSE Arca Rule 8.201-E
August 20, 2021.
On May 6, 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 First Trust SkyBridge Bitcoin
ETF Trust (``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 27, 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. 91962 (May 21,
2021), 86 FR 28646 (May 27, 2021) (``Notice''). Comments on the
proposed rule change can be found at: <a href="https://www.sec.gov/comments/sr-nysearca-2021-37/srnysearca202137.htm">https://www.sec.gov/comments/sr-nysearca-2021-37/srnysearca202137.htm</a>.
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On July 7, 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. 92333 (July 7,
2021), 86 FR 36826 (July 13, 2021). The Commission designated August
25, 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 would be for the Shares to
reflect the performance of the value of bitcoin, less
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the Trust's liabilities and expenses.\8\ The Trust will not seek to
reflect the performance of any benchmark or index. In order to pursue
its investment objective, the Trust will seek to purchase and sell such
number of bitcoin so that the total value of the bitcoin held by the
Trust is as close to 100% of the net assets of the Trust as is
reasonably practicable to achieve.\9\
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\8\ See id. at 28652. First Trust Advisors L.P. is the sponsor
of the Trust, and Delaware Trust Company is the trustee. The sub-
adviser for the Trust is SkyBridge Capital II, LLC. The Bank of New
York Mellon (``Administrator'') is the transfer agent and the
administrator of the Trust. The bitcoin custodian for the Trust is
NYDIG Trust Company LLC (``Bitcoin Custodian''). See id. at 28646.
\9\ See id. at 28652.
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The Shares represent units of fractional undivided beneficial
interest in, and ownership of, the Trust. The Trust will hold only
bitcoins, which the Bitcoin Custodian will custody on behalf of the
Trust. The Trust generally will not hold cash or cash equivalents;
however, the Trust may hold cash and cash equivalents on a temporary
basis to pay extraordinary expenses.\10\
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\10\ See id. at 28652, 28654. The Administrator acts as
custodian of the Trust's cash and cash equivalents. See id. at
28654. While the Trust may from time to time incur certain
extraordinary, non-recurring expenses that must be paid in U.S.
dollars or other fiat currency, such events would only impact the
amount of bitcoin represented by a Share of the Trust. See id. at
28655.
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The net asset value (``NAV'') of the Trust will be determined in
accordance with Generally Accepted Accounting Principles as the total
value of bitcoin held by the Trust, plus any cash or other assets, less
any liabilities including accrued but unpaid expenses. The NAV of the
Trust will be determined as of 4:00 p.m., E.T. on each day that the
Shares trade on the Exchange (``Business Day'').\11\ The Trust will use
the CF Bitcoin US Settlement Price (``Reference Rate'') to calculate
the Trust's NAV.\12\ The Reference Rate 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 Reference Rate aggregates the
trade flow of several bitcoin platforms 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
platforms of the Reference Rate are Bitstamp, Coinbase, Gemini, itBit,
and Kraken (``Constituent Platforms''). 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. and 4:00 p.m.,
E.T. The methodology then divides this list into a number of equally
sized time intervals, and it calculates the volume-weighted median
trade price for each of those time intervals. The Reference Rate is the
equally weighted average of the volume-weighted median trade prices of
all intervals.\13\
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\11\ The Trust's daily activities will generally not be
reflected in the NAV determined for the Business Day on which the
transactions are effected (the trade date), but rather on the
following Business Day. See id. at 28654.
\12\ The Reference Rate is not affiliated with the Sponsor and
is administered by CF Benchmarks Ltd. See id. at 28654.
\13\ See id. at 28654-55.
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The Trust's website, as well as one or more major market data
vendors, will provide an intra-day 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 Core Trading
Session (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 the Exchange's Core Trading Session to reflect changes in
the value of the Trust's NAV during the trading day.\14\
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\14\ See id. at 28659.
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The Trust will issue and redeem Shares to Authorized Participants
on an ongoing basis in blocks of 50,000 Shares (``Creation Units'').
The creation and redemption of Creation Units will be effected in ``in-
kind'' transactions based on the quantity of bitcoin attributable to
each Share. The creation and redemption of Creation Units require the
delivery to the Trust, or the distribution by the Trust, of the number
of bitcoins represented by the Creation Units being created or
redeemed.\15\
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\15\ See id. at 28658-59.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEArca-2021-37 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \16\ 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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\16\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\17\ 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.'' \18\
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\17\ Id.
\18\ 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,\19\ 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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\19\ 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 assertions that the
regulatory and financial landscape relating to bitcoin and other
digital assets have changed significantly since 2016? \20\ Are the
changes that the Exchange identifies sufficient to support the
determination that the proposal to list and trade the Shares is
designed to protect investors and the public interest and is consistent
with the other applicable requirements of Section 6(b)(5) of the Act?
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\20\ See id. at 28647-48.
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3. The Exchange states that the listing and trading of the Shares
would provide ``an opportunity for U.S. investors to gain exposure to
bitcoin in a regulated and transparent exchange-traded vehicle that
limits risks'' and asserts that concerns regarding potential
manipulation of a bitcoin exchange-traded product ``have been
sufficiently mitigated and may be outweighed by growing and
quantifiable investor protection concerns related to [over-the-counter
bitcoin funds].'' \21\ What are
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commenters' views regarding such assertions?
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\21\ See id. at 28649.
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4. The Exchange asserts that the Chicago Mercantile Exchange
(``CME''), either alone as the sole market for bitcoin futures or as a
group of markets together with the Constituent Platforms, represents a
regulated market of significant size.\22\ Further, the Exchange states
that CME is ``the primary market for bitcoin futures, and compares
favorably with other markets that were deemed to be markets of
significant size in precedents.'' \23\ Do commenters agree? What of the
Exchange's assertion that, through CME CF Bitcoin Reference Rate, ``the
CME and the Exchange 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\
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\22\ See id. at 28656, 28661.
\23\ See id. at 28656.
\24\ See id. at 28657.
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5. The Exchange states that any would-be manipulator of bitcoin
prices would be reasonably likely to do so through the Commodity
Futures Trading Commission-regulated bitcoin futures (``Bitcoin
Futures'') market, i.e., CME.\25\ Among other things, the Exchange
asserts that, ``because the Bitcoin Futures market is in effect the
`cheapest' route to manipulate bitcoin, it is highly likely such
manipulators would attempt to do so there rather than any spot
market.'' \26\ Do commenters agree with this assertion?
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\25\ See id. at 28656-57.
\26\ See id. at 28657.
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6. What are commenters' views on the Exchange's assertion that (a)
Bitcoin Futures' important role in price discovery; (b) the overall
size of the bitcoin market; (c) the ability for market participants to
buy or sell large amounts of bitcoin without significant market impact;
and (d) the results from a study conducted by CF Benchmarks regarding
``slippage'' help demonstrate that the Shares would not become the
predominant force on pricing in either the bitcoin spot or Bitcoin
Futures markets? \27\
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\27\ See id. at 28658.
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7. What are commenters' views on the Exchange's 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 increasingly expensive? \28\ What are commenters'
views on whether ``offering only in-kind creation and redemption will
provide 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''? \29\ What are commenters'
views on the assertion that because the Reference Rate is determined
exclusively based on its Constituent Platforms, ``use of the Reference
Rate would mitigate the effects of potential manipulation of the
bitcoin market''? \30\
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\28\ See id.
\29\ See id.
\30\ See id. at 28661.
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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.\31\
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\31\ 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 16, 2021. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal
September 30, 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#2654534a430b45494b4b434852556655434508414950"><span class="__cf_email__" data-cfemail="ccbeb9a0a9e1afa3a1a1a9a2b8bf8cbfa9afe2aba3ba">[email protected]</span></a>. Please include
File Number SR-NYSEArca-2021-37 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-NYSEArca-2021-37. 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-2021-37 and should be submitted
by September 16, 2021. Rebuttal comments should be submitted by
September 30, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(57).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021-18348 Filed 8-25-21; 8:45 am]
BILLING CODE 8011-01-P
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