Notice2021-25625
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 Global X 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
November 24, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 224 (Wednesday, November 24, 2021)</title>
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[Federal Register Volume 86, Number 224 (Wednesday, November 24, 2021)]
[Notices]
[Pages 67094-67096]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-25625]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93608; File No. SR-CboeBZX-2021-052]
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 Global X Bitcoin
Trust Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares
November 18, 2021.
On August 3, 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
Global X 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 August 23, 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. 92689 (Aug. 17,
2021), 86 FR 47176 (``Notice''). Comments on the proposed rule
change can be found at: <a href="https://www.sec.gov/comments/sr-cboebzx-2021-052/srcboebzx2021052.htm">https://www.sec.gov/comments/sr-cboebzx-2021-052/srcboebzx2021052.htm</a>.
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On September 29, 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
[[Page 67095]]
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. 93174, 86 FR 55043
(Oct. 5, 2021). The Commission designated November 21, 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 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 reflect the
performance of the price of bitcoin less the expenses of the Trust's
operations. The Trust is not actively managed and will not seek to
reflect the performance of any benchmark or index.\8\ 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 hold cash on a temporary basis.\9\
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\8\ See id. at 47184-85. Global X Digital Assets, LLC
(``Sponsor'') is the sponsor of the Trust, and Delaware Trust
Company is the trustee. The Sponsor will select the administrator,
transfer agent, and marketing agent in connection with the creation
and redemption of the Shares, and a third-party regulated custodian
that will be responsible for custody of the Trust's bitcoin. See id.
at 47177, 47184.
\9\ See id. at 47184.
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In seeking to achieve its investment objective, the Trust would
hold bitcoin and value its assets daily in accordance with Generally
Accepted Accounting Principles (``GAAP''), which, according to the
Exchange, generally value bitcoin by reference to orderly transactions
in the principal active market for bitcoin.\10\
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\10\ See id. at 47185.
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The net asset value (``NAV'') for the Trust will be calculated by
the administrator once a day and will be disseminated daily to all
market participants at the same time.\11\ The Sponsor will use fair
value standards according to GAAP to value the assets and liabilities
of the Trust.\12\ According to the Exchange, the fair value of an asset
that is traded on a market is measured by reference to the orderly
transactions on an active market. Among all active markets with orderly
transactions, the market that is used to determine the fair value of an
asset is the principal market (with exceptions), which is either the
market on which the Trust actually transacts or, if there is sufficient
evidence, the market with the most trading volume and level of activity
for the asset.\13\ Where there is no active market with orderly
transactions for an asset, the Sponsor's valuation committee will
follow policies and procedures to determine the fair value.\14\
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\11\ See id. at 47186.
\12\ See id. at 47185.
\13\ The Sponsor will first determine which markets are likely
to be active markets with orderly transactions for bitcoin. Among
the venues supporting active markets with orderly transactions, the
Sponsor will determine to which such venues the Trust has access and
refer to these as eligible venues. Eligible venues consist of
eligible over-the-counter venues and eligible exchanges. The Sponsor
will then determine the principal market for bitcoin as either the
market that the Trust normally transacts in for bitcoin, or, if the
Trust does not normally transact in any market or the Sponsor has
sufficient evidence that a particular market has the highest trading
volume and level of activity, such market. The Trust will not
purchase or, barring the liquidation of the Trust or the Trust
incurring certain extraordinary expenses or liabilities not
contractually assumed by the Sponsor, sell bitcoin directly. As a
result, the Sponsor expects that the principal market will generally
be the market with the highest trading volume and level of activity,
which the Sponsor expects will typically be an eligible exchange.
The Sponsor will determine the principal market for bitcoin at least
quarterly and more frequently as circumstances warrant. See id.
\14\ See id.
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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. ET to 4:00 p.m. ET). 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.\15\
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\15\ See id. at 47185-86.
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When the Trust sells or redeems its Shares, it will do so in ``in-
kind'' transactions in blocks of Shares (in an amount to be
determined). Authorized participants will deliver, or facilitate the
delivery of, bitcoin to the Trust's account with the custodian when
they purchase Shares, and the Trust, through the custodian, will
deliver bitcoin to such authorized participants when they redeem Shares
with the Trust.\16\
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\16\ See id. at 47184.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBZX-2021-052 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
regulatory and financial landscapes relating to
[[Page 67096]]
bitcoin and other digital assets have changed significantly since 2016?
\21\ 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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\21\ See id. at 47178-79.
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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.\22\ 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 that would be
resolved by approving this proposal.'' \23\ What are commenters' views
regarding such assertions?
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\22\ See id. at 47179.
\23\ See id. at 47183.
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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.'' \24\ 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? \25\ 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
would help to prevent the Shares from becoming the predominant force on
pricing in either the bitcoin spot or CME bitcoin futures markets? \26\
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\24\ See id. at 47181.
\25\ See id. at 47181-84, 47188.
\26\ See id. at 47188-89.
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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? \27\ 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? \28\ What are
commenters' views on the Exchange's 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''? \29\
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\27\ See id. at 47183 n.54.
\28\ See id. at 47189.
\29\ 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.\30\
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\30\ 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 December 15, 2021. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
December 29, 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#b1c3c4ddd49cd2dedcdcd4dfc5c2f1c2d4d29fd6dec7"><span class="__cf_email__" data-cfemail="6715120b024a04080a0a020913142714020449000811">[email protected]</span></a>. Please include
File Number SR-CboeBZX-2021-052 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-2021-052. 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-2021-052 and should be submitted
by December 15, 2021. Rebuttal comments should be submitted by December
29, 2021.
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\31\ 17 CFR 200.30-3(a)(57).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-25625 Filed 11-23-21; 8:45 am]
BILLING CODE 8011-01-P
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