Notice2021-18457
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 Wise Origin Bitcoin 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
August 27, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 86 Issue 164 (Friday, August 27, 2021)</title>
</head>
<body><pre>
[Federal Register Volume 86, Number 164 (Friday, August 27, 2021)]
[Notices]
[Pages 48272-48274]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-18457]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92721; File No. SR-CboeBZX-2021-039]
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 Wise Origin
Bitcoin Trust Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares
August 23, 2021.
On May 10, 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 Wise Origin Bitcoin 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 June 1, 2021.\3\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 91994 (May 25,
2021), 86 FR 29321 (June 1, 2021) (``Notice''). Comments on the
proposed rule change can be found at: <a href="https://www.sec.gov/comments/sr-cboebzx-2021-039/srcboebzx2021039.htm">https://www.sec.gov/comments/sr-cboebzx-2021-039/srcboebzx2021039.htm</a>.
---------------------------------------------------------------------------
On July 13, 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.
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 92388 (July 13,
2021), 86 FR 38163 (July 19, 2021). The Commission designated August
30, 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).
---------------------------------------------------------------------------
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 BZX Rule 14.11(e)(4),
which governs the listing and trading of Commodity-Based Trust Shares
on the Exchange.
---------------------------------------------------------------------------
\7\ See Notice, supra note 3.
---------------------------------------------------------------------------
The investment objective of the Trust would be to seek to track the
performance of bitcoin, as measured by the Fidelity Bitcoin Index PR
(``Index''), adjusted for the Trust's expenses and other
liabilities.\8\ Each Share will represent a fractional undivided
beneficial interest in and ownership of 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
[[Page 48273]]
unexpectedly hold cash on a temporary basis.\9\
---------------------------------------------------------------------------
\8\ FD Funds Management LLC (``Sponsor'') is the sponsor of the
Trust, Delaware Trust Company is the trustee, and Fidelity Service
Company, Inc. will be the administrator (``Administrator''). A
third-party transfer agent will facilitate the issuance and
redemption of Shares of the Trust, respond to correspondence by
Trust shareholders and others relating to its duties, maintain
shareholder accounts, and make periodic reports to the Trust. An
affiliate of the Sponsor, Fidelity Distributors Corporation, 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. Fidelity Digital Asset Services, LLC
will serve as the Trust's custodian (``Custodian''). The Index
methodology was developed by Fidelity Product Services, LLC and is
administered by the Fidelity Index Committee. Coin Metrics, Inc. is
the third-party calculation agent for the Index. The Sponsor's
affiliates have an ownership interest in Coin Metrics, Inc. See id.
at 29321, 29327 n.57, 29328-29.
\9\ See id. at 29328.
---------------------------------------------------------------------------
In seeking to achieve its investment objective, the Trust will hold
bitcoin and will value its Shares daily as of 4:00 p.m. E.T. using the
same methodology used to calculate the Index. The Index is designed to
reflect the performance of bitcoin in U.S. dollars. The Index is
calculated using bitcoin price feeds from eligible bitcoin spot
platforms. The current platform composition of the Index is Bitstamp,
Coinbase, Gemini, itBit and Kraken. The Index market value is the
volume-weighted median price of bitcoin in U.S. dollars over the
previous five minutes, which is calculated by (1) ordering all
individual transactions on eligible spot platforms over the previous
five minutes by price, and then (2) selecting the price associated with
the 50th percentile of total volume.\10\
---------------------------------------------------------------------------
\10\ See id. at 29329.
---------------------------------------------------------------------------
The Net Asset Value (``NAV'') of the Trust means the total assets
of the Trust including, but not limited to, all bitcoin and cash, if
any, less total liabilities of the Trust, each determined on the basis
of generally accepted accounting principles. The NAV of the Trust is
calculated by taking the fair market value of its total assets based on
the volume-weighted median price of bitcoin used for the calculation of
the Index, subtracting any liabilities (which include accrued
expenses), and dividing that total by the total number of outstanding
Shares. The Administrator calculates the NAV of the Trust once each
Exchange trading day. The NAV for a normal trading day will be released
after 4:00 p.m. E.T.\11\
---------------------------------------------------------------------------
\11\ See id. at 29329-30.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\12\ See id. at 29329.
---------------------------------------------------------------------------
When the Trust sells or redeems its Shares, it will do so in ``in-
kind'' transactions in blocks of 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\
---------------------------------------------------------------------------
\13\ See id. at 29328-29.
---------------------------------------------------------------------------
II. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBZX-2021-039 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.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\15\ Id.
\16\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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:
---------------------------------------------------------------------------
\17\ See Notice, supra note 3.
---------------------------------------------------------------------------
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
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 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?
---------------------------------------------------------------------------
\18\ See id. at 29322-23.
---------------------------------------------------------------------------
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 reduce risk''
associated with exposure through other means.\19\ Further, the Exchange
asserts that ``the manipulation concerns previously articulated by the
Commission are sufficiently mitigated.'' \20\ What are commenters'
views regarding such assertions?
---------------------------------------------------------------------------
\19\ See id. at 29324.
\20\ See id. at 29327.
---------------------------------------------------------------------------
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'')'s bitcoin futures market now represents a regulated market of
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 are
commenters' views on 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\
---------------------------------------------------------------------------
\21\ See id. at 29325.
\22\ See id. at 29322.
\23\ See id. at 29332.
---------------------------------------------------------------------------
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
[[Page 48274]]
surveillance sharing agreement with a regulated market of significant
size related to bitcoin? \24\ What are commenters' views on 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 are commenters' views on 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\
---------------------------------------------------------------------------
\24\ See id. at 29327 n.51.
\25\ See id. at 29328.
\26\ See id.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
Interested persons are invited to submit written data, views, and
arguments regarding whether the proposal should be approved or
disapproved by September 17, 2021. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
October 1, 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#cab8bfa6afe7a9a5a7a7afa4beb98ab9afa9e4ada5bc"><span class="__cf_email__" data-cfemail="6614130a034b05090b0b030812152615030548010910">[email protected]</span></a>. Please include
File Number SR-CboeBZX-2021-039 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-2021-039. 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-2021-039 and should be submitted
by September 17, 2021. Rebuttal comments should be submitted by October
1, 2021.
---------------------------------------------------------------------------
\28\ 17 CFR 200.30-3(a)(57).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2021-18457 Filed 8-26-21; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on August 27, 2021.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.