Notice2022-14309
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Disapproving a Proposed Rule Change To List and Trade Shares of the Bitwise Bitcoin ETP Trust Under NYSE Arca Rule 8.201-E (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 6, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 87 Issue 128 (Wednesday, July 6, 2022)</title>
</head>
<body><pre>
[Federal Register Volume 87, Number 128 (Wednesday, July 6, 2022)]
[Notices]
[Pages 40282-40294]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-14309]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95179; File No. SR-NYSEArca-2021-89]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order
Disapproving a Proposed Rule Change To List and Trade Shares of the
Bitwise Bitcoin ETP Trust Under NYSE Arca Rule 8.201-E (Commodity-Based
Trust Shares)
June 29, 2022.
I. Introduction
On October 14, 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 (``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to list and trade shares
(``Shares'') of the Bitwise Bitcoin ETP 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 November 3,
2021.\3\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 93445 (Oct. 28,
2021), 86 FR 60695 (``Notice''). Comments on the proposed rule
change are available at: <a href="https://www.sec.gov/comments/sr-nysearca-2021-89/srnysearca202189.htm">https://www.sec.gov/comments/sr-nysearca-2021-89/srnysearca202189.htm</a>.
---------------------------------------------------------------------------
On December 15, 2021, pursuant to Section 19(b)(2) of the Exchange
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\ On February 1, 2022, the Commission instituted
proceedings under Section 19(b)(2)(B) of the Exchange Act \6\ to
determine whether to approve or disapprove the proposed rule change.\7\
On April 22, 2022, the Commission designated a longer period for
Commission action on the proposed rule change.\8\
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 93790, 86 FR 72300
(Dec. 21, 2021).
\6\ 15 U.S.C. 78s(b)(2)(B).
\7\ See Securities Exchange Act Release No. 94126, 87 FR 6903
(Feb. 7, 2022).
\8\ See Securities Exchange Act Release No. 94781, 87 FR 25327
(Apr. 28, 2022).
---------------------------------------------------------------------------
This order disapproves the proposed rule change. The Commission
concludes that NYSE Arca has not met its burden under the Exchange Act
and the Commission's Rules of Practice to demonstrate that its proposal
is consistent with the requirements of Exchange Act Section 6(b)(5),
which
[[Page 40283]]
requires, in relevant part, 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.'' \9\
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
When considering whether NYSE Arca's proposal to list and trade the
Shares is designed to prevent fraudulent and manipulative acts and
practices, the Commission applies the same analytical framework used in
its orders considering previous proposals to list bitcoin \10\-based
commodity trusts and bitcoin-based trust issued receipts to assess
whether a listing exchange of an exchange-traded product (``ETP'') can
meet its obligations under Exchange Act Section 6(b)(5).\11\ As the
Commission has explained, an exchange that lists bitcoin-based ETPs can
meet its obligations under Exchange Act Section 6(b)(5) by
demonstrating that the exchange has a comprehensive surveillance-
sharing agreement with a regulated market of significant size related
to the underlying or reference bitcoin assets.\12\
---------------------------------------------------------------------------
\10\ Bitcoins are digital assets that are issued and transferred
via a decentralized, open-source protocol used by a peer-to-peer
computer network through which transactions are recorded on a public
transaction ledger known as the ``bitcoin blockchain.'' The bitcoin
protocol governs the creation of new bitcoins and the cryptographic
system that secures and verifies bitcoin transactions. See, e.g.,
Notice, 86 FR at 60696.
\11\ See Order Setting Aside Action by Delegated Authority and
Disapproving a Proposed Rule Change, as Modified by Amendments No. 1
and 2, To List and Trade Shares of the Winklevoss Bitcoin Trust,
Securities Exchange Act Release No. 83723 (July 26, 2018), 83 FR
37579 (Aug. 1, 2018) (SR-BatsBZX-2016-30) (``Winklevoss Order'');
Order Disapproving a Proposed Rule Change, as Modified by Amendment
No. 1, To Amend NYSE Arca Rule 8.201-E (Commodity-Based Trust
Shares) and To List and Trade Shares of the United States Bitcoin
and Treasury Investment Trust Under NYSE Arca Rule 8.201-E,
Securities Exchange Act Release No. 88284 (Feb. 26, 2020), 85 FR
12595 (Mar. 3, 2020) (SR-NYSEArca-2019-39) (``USBT Order''); Order
Disapproving a Proposed Rule Change To List and Trade Shares of the
WisdomTree Bitcoin Trust Under BZX Rule 14.11(e)(4), Commodity-Based
Trust Shares, Securities Exchange Act Release No. 93700 (Dec. 1,
2021), 86 FR 69322 (Dec. 7, 2021) (SR-CboeBZX-2021-024)
(``WisdomTree Order''); Order Disapproving a Proposed Rule Change To
List and Trade Shares of the Valkyrie Bitcoin Fund Under NYSE Arca
Rule 8.201-E (Commodity-Based Trust Shares), Securities Exchange Act
Release No. 93859 (Dec. 22, 2021), 86 FR 74156 (Dec. 29, 2021) (SR-
NYSEArca-2021-31) (``Valkyrie Order''); Order Disapproving 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, Securities Exchange Act Release No. 93860 (Dec. 22, 2021),
86 FR 74166 (Dec. 29, 2021) (SR-CboeBZX-2021-029) (``Kryptoin
Order''); Order Disapproving a Proposed Rule Change To List and
Trade Shares of the First Trust SkyBridge Bitcoin ETF Trust Under
NYSE Arca Rule 8.201-E, Securities Exchange Act Release No. 94006
(Jan. 20, 2022), 87 FR 3869 (Jan. 25, 2022) (SR-NYSEArca-2021-37)
(``SkyBridge Order''); Order Disapproving 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, Securities Exchange
Act Release No. 94080 (Jan. 27, 2022), 87 FR 5527 (Feb. 1, 2022)
(SR-CboeBZX-2021-039) (``Wise Origin Order''); Order Disapproving a
Proposed Rule Change To List and Trade Shares of the NYDIG Bitcoin
ETF Under NYSE Arca Rule 8.201-E (Commodity-Based Trust Shares),
Securities Exchange Act Release No. 94395 (Mar. 10, 2022), 87 FR
14932 (Mar. 16, 2022) (SR-NYSEArca-2021-57) (``NYDIG Order''); Order
Disapproving 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, Securities Exchange Act Release No. 94396 (Mar. 10,
2022), 87 FR 14912 (Mar. 16, 2022) (SR-CboeBZX-2021-052) (``Global X
Order''); Order Disapproving a Proposed Rule Change, as Modified by
Amendment No. 1, To List and Trade Shares of the ARK 21Shares
Bitcoin ETF Under BZX Rule 14.11(e)(4), Commodity-Based Trust
Shares, Securities Exchange Act Release No. 94571 (Mar. 31, 2022),
87 FR 20014 (Apr. 6, 2022) (SR-CboeBZX-2021-051) (``ARK 21Shares
Order''); Order Disapproving a Proposed Rule Change To List and
Trade Shares of the One River Carbon Neutral Bitcoin Trust Under
NYSE Arca Rule 8.201-E (Commodity-Based Trust Shares), Securities
Exchange Act Release No. 94999 (May 27, 2022), 87 FR 33548 (June 2,
2022) (SR-NYSEArca-2021-67) (``One River Order''). In addition,
orders were issued by delegated authority on the following matters:
Order Disapproving a Proposed Rule Change, as Modified by Amendment
No. 1, Relating to the Listing and Trading of Shares of the SolidX
Bitcoin Trust Under NYSE Arca Equities Rule 8.201, Securities
Exchange Act Release No. 80319 (Mar. 28, 2017), 82 FR 16247 (Apr. 3,
2017) (SR-NYSEArca-2016-101) (``SolidX Order''); Order Disapproving
a Proposed Rule Change To List and Trade the Shares of the ProShares
Bitcoin ETF and the ProShares Short Bitcoin ETF, Securities Exchange
Act Release No. 83904 (Aug. 22, 2018), 83 FR 43934 (Aug. 28, 2018)
(SR-NYSEArca-2017-139) (``ProShares Order''); Order Disapproving a
Proposed Rule Change To List and Trade the Shares of the
GraniteShares Bitcoin ETF and the GraniteShares Short Bitcoin ETF,
Securities Exchange Act Release No. 83913 (Aug. 22, 2018), 83 FR
43923 (Aug. 28, 2018) (SR-CboeBZX-2018-001) (``GraniteShares
Order''); Order Disapproving a Proposed Rule Change To List and
Trade Shares of the VanEck Bitcoin Trust Under BZX Rule 14.11(e)(4),
Commodity-Based Trust Shares, Securities Exchange Act Release No.
93559 (Nov. 12, 2021), 86 FR 64539 (Nov. 18, 2021) (SR-CboeBZX-2021-
019) (``VanEck Order''); Order Granting Approval of a Proposed Rule
Change, as Modified by Amendment No. 2, To List and Trade Shares of
the Teucrium Bitcoin Futures Fund Under NYSE Arca Rule 8.200-E,
Commentary .02 (Trust Issued Receipts), Securities Exchange Act
Release No. 94620 (Apr. 6, 2022), 87 FR 21676 (Apr. 12, 2022) (SR-
NYSEArca-2021-53) (``Teucrium Order''); Order Granting Approval of a
Proposed Rule Change, as Modified by Amendment Nos. 1 and 2, To List
and Trade Shares of the Valkyrie XBTO Bitcoin Futures Fund Under
Nasdaq Rule 5711(g), Securities Exchange Act Release No. 94853 (May
5, 2022), 87 FR 28848 (May 11, 2022) (SR-NASDAQ-2021-066)
(``Valkyrie XBTO Order'').
\12\ See USBT Order, 85 FR at 12596. See also Winklevoss Order,
83 FR at 37592 n.202 and accompanying text (discussing previous
Commission approvals of commodity-trust ETPs); GraniteShares Order,
83 FR at 43925-27 nn.35-39 and accompanying text (discussing
previous Commission approvals of commodity-futures ETPs).
---------------------------------------------------------------------------
In this context, the terms ``significant market'' and ``market of
significant size'' include a market (or group of markets) as to which
(a) there is a reasonable likelihood that a person attempting to
manipulate the ETP would also have to trade on that market to
successfully manipulate the ETP, so that a surveillance-sharing
agreement would assist in detecting and deterring misconduct, and (b)
it is unlikely that trading in the ETP would be the predominant
influence on prices in that market.\13\ A surveillance-sharing
agreement must be entered into with a ``significant market'' to assist
in detecting and deterring manipulation of the ETP, because a person
attempting to manipulate the ETP is reasonably likely to also engage in
trading activity on that ``significant market.'' \14\
---------------------------------------------------------------------------
\13\ See Winklevoss Order, 83 FR at 37594. See also USBT Order,
85 FR at 12596-97; WisdomTree Order, 86 FR at 69322.
\14\ See USBT Order, 85 FR at 12597.
---------------------------------------------------------------------------
Although surveillance-sharing agreements are not the exclusive
means by which a listing exchange of a commodity-trust ETP can meet its
obligations under Exchange Act Section 6(b)(5), such agreements have
previously provided the basis for the exchanges that list commodity-
trust ETPs to meet those obligations, and the Commission has
historically recognized their importance. And where, as here, a listing
exchange does not establish that other means to prevent fraudulent and
manipulative acts and practices will be sufficient,\15\ the listing
exchange must enter into a surveillance-sharing agreement with a
regulated market of significant size because such agreements detect and
deter fraudulent and manipulative activity.\16\
---------------------------------------------------------------------------
\15\ Listing exchanges have also attempted to demonstrate that
other means besides surveillance-sharing agreements will be
sufficient to prevent fraudulent and manipulative acts and
practices, including that the bitcoin market as a whole or the
relevant underlying bitcoin market is ``uniquely'' and
``inherently'' resistant to fraud and manipulation. See USBT Order,
85 FR at 12597. The Exchange, however, does not make any such
arguments with respect to this proposal.
\16\ See Amendment to Rule Filing Requirements for Self-
Regulatory Organizations Regarding New Derivative Securities
Products, Securities Exchange Act Release No. 40761 (Dec. 8, 1998),
63 FR 70952, 70954, 70959 (Dec. 22, 1998) (File No. S7-13-98)
(``NDSP Adopting Release''). See also Winklevoss Order, 83 FR at
37593-94; ProShares Order, 83 FR at 43936; GraniteShares Order, 83
FR at 43924; USBT Order, 85 FR at 12596.
---------------------------------------------------------------------------
In previous orders,\17\ the Commission has identified possible
sources of fraud and manipulation in the spot bitcoin market, including
(1) ``wash'' trading,\18\ (2) persons with a dominant position in
bitcoin manipulating bitcoin pricing, (3) hacking of the bitcoin
network and
[[Page 40284]]
trading platforms, (4) malicious control of the bitcoin network, (5)
trading based on material, non-public information, including the
dissemination of false and misleading information, (6) manipulative
activity involving purported ``stablecoins,'' including Tether (USDT),
and (7) fraud and manipulation at bitcoin trading platforms. The
Exchange does not refute the presence of these possible sources of
fraud and manipulation.\19\
---------------------------------------------------------------------------
\17\ See, e.g., One River Order, 87 FR at 33554.
\18\ See also CFTC v. Gemini Trust Co., LLC, No. 22-cv-4563
(S.D.N.Y. filed June 2, 2022) (alleging, among other things, failure
by Gemini personnel to disclose to the CFTC that Gemini customers
could and did engage in collusive or wash trading).
\19\ The Trust's Registration Statement also acknowledges that
``[o]ver the past several years, a number of digital asset trading
platforms have been closed or faced issues due to fraud, failure,
security breaches or governmental regulations''; that ``[t]he
platforms on which users trade bitcoin are relatively new and, in
some cases, largely unregulated, and, therefore, may be more exposed
to fraud and security breaches than established, regulated exchanges
for other financial assets or instruments''; that ``[t]he nature of
the assets held at digital asset trading platforms makes them
appealing targets for hackers and a number of digital asset trading
platforms have been victims of cybercrimes''; that bitcoin networks
are susceptible to a ``51% attack,'' in which ``[i]f a malicious
actor or botnet obtains control of more than 50% of the processing
power on the [b]itcoin network, or otherwise obtains control over
the [b]itcoin network through its influence over core developers or
otherwise, such actor or botnet could manipulate how data is
recorded [on] the [bitcoin blockchain]''; that ``it is believed that
certain mining pools may have exceeded the 50% threshold on the
[b]itcoin network on a temporary basis''; that the inputs to the CME
US Reference Rate ``may be subject to technological error,
manipulative activity, or fraudulent reporting from their initial
source''; and that ``in the past, flaws in the source code for
digital assets have been exposed and exploited.'' See Registration
Statement on Form S-1, filed by the Trust on October 14, 2021, at
11-12, 17-18. See also Are Blockchains Decentralized? Unintended
Centralities in Distributed Ledgers, prepared by Trail of Bits based
upon work supported by the Defense Advanced Research Projects
Agency, June 2022, available at: <a href="https://assets-global.website-files.com/5fd11235b3950c2c1a3b6df4/62af6c641a672b3329b9a480_Unintended_Centralities_in_Distributed_Ledgers.pdf">https://assets-global.website-files.com/5fd11235b3950c2c1a3b6df4/62af6c641a672b3329b9a480_Unintended_Centralities_in_Distributed_Ledgers.pdf</a>.
---------------------------------------------------------------------------
The Commission has long recognized that surveillance-sharing
agreements ``provide a necessary deterrent to manipulation because they
facilitate the availability of information needed to fully investigate
a manipulation if it were to occur'' and thus ``enable the Commission
to continue to effectively protect investors and promote the public
interest.'' \20\ As the Commission has emphasized, it is essential for
an exchange listing a derivative securities product to have the ability
that surveillance-sharing agreements provide to obtain information
necessary to detect, investigate, and deter fraud and market
manipulation, as well as violations of exchange rules and applicable
federal securities laws and rules.\21\ The hallmarks of a surveillance-
sharing agreement are that the agreement provides for the sharing of
information about market trading activity, clearing activity, and
customer identity; that the parties to the agreement have reasonable
ability to obtain access to and produce requested information; and that
no existing rules, laws, or practices would impede one party to the
agreement from obtaining this information from, or producing it to, the
other party.\22\
---------------------------------------------------------------------------
\20\ See NDSP Adopting Release, 63 FR at 70954, 70959. See also
id. at 70959 (``It is essential that the SRO [self-regulatory
organization] have the ability to obtain the information necessary
to detect and deter market manipulation, illegal trading and other
abuses involving the new derivative securities product.
Specifically, there should be a comprehensive ISA [information-
sharing agreement] that covers trading in the new derivative
securities product and its underlying securities in place between
the SRO listing or trading a derivative product and the markets
trading the securities underlying the new derivative securities
product.'').
\21\ See NDSP Adopting Release, 63 FR at 70959.
\22\ See Winklevoss Order, 83 FR at 37592-93 (discussing Letter
from Brandon Becker, Director, Division of Market Regulation,
Commission, to Gerard D. O'Connell, Chairman, Intermarket
Surveillance Group (June 3, 1994), available at <a href="https://www.sec.gov/divisions/marketreg/mr-noaction/isg060394.htm">https://www.sec.gov/divisions/marketreg/mr-noaction/isg060394.htm</a>).
---------------------------------------------------------------------------
The Commission has explained that the ability of a national
securities exchange to enter into surveillance-sharing agreements
``furthers the protection of investors and the public interest because
it will enable the [e]xchange to conduct prompt investigations into
possible trading violations and other regulatory improprieties.'' \23\
The Commission has also long taken the position that surveillance-
sharing agreements are important in the context of exchange listing of
derivative security products, such as equity options, because a
surveillance-sharing agreement ``permits the sharing of information''
that is ``necessary to detect'' manipulation and ``provide[s] an
important deterrent to manipulation because [it] facilitate[s] the
availability of information needed to fully investigate a potential
manipulation if it were to occur.'' \24\ With respect to ETPs, when
approving the listing and trading of one of the first commodity-linked
ETPs--a commodity-linked exchange-traded note--on a national securities
exchange, the Commission continued to emphasize the importance of
surveillance-sharing agreements, stating that the listing exchange had
entered into surveillance-sharing agreements with each of the futures
markets on which pricing of the ETP would be based and stating that
``[t]hese agreements should help to ensure the availability of
information necessary to detect and deter potential manipulations and
other trading abuses, thereby making [the commodity-linked notes] less
readily susceptible to manipulation.'' \25\
---------------------------------------------------------------------------
\23\ Securities Exchange Act Release No. 27877 (Apr. 4, 1990),
55 FR 13344 (Apr. 10, 1990) (SR-NYSE-90-14).
\24\ Securities Exchange Act Release No. 33555 (Jan. 31, 1994),
59 FR 5619, 5621 (Feb. 7, 1994) (SR-Amex-93-28) (order approving
listing of options on American Depositary Receipts (``ADR'')) (``ADR
Option Order''). The Commission further stated that it ``generally
believes that having a comprehensive surveillance sharing agreement
in place, between the exchange where the ADR option trades and the
exchange where the foreign security underlying the ADR primarily
trades, will ensure the integrity of the marketplace. The Commission
further believes that the ability to obtain relevant surveillance
information, including, among other things, the identity of the
ultimate purchasers and sellers of securities, is an essential and
necessary component of a comprehensive surveillance sharing
agreement.'' Id.
\25\ Securities Exchange Act Release No. 35518 (Mar. 21, 1995),
60 FR 15804, 15807 (Mar. 27, 1995) (SR-Amex-94-30). See also
Winklevoss Order, 83 FR at 37593 n.206.
---------------------------------------------------------------------------
Consistent with these statements, for the commodity-trust ETPs
approved to date for listing and trading, there has been in every case
at least one significant, regulated market for trading futures on the
underlying commodity and the ETP listing exchange has entered into
surveillance-sharing agreements with, or held Intermarket Surveillance
Group (``ISG'') membership in common with, that market.\26\ Moreover,
the surveillance-sharing agreements have been consistently present
whenever the Commission has approved the listing and trading of
derivative securities, even where the underlying securities were also
listed on national securities exchanges--such as options based on an
index of stocks traded on a national securities exchange--and were thus
subject to the
[[Page 40285]]
Commission's direct regulatory authority.\27\
---------------------------------------------------------------------------
\26\ See Winklevoss Order, 83 FR at 37594. Furthermore, the
Commission notes that those cases dealt with a futures market that
had been trading for a long period of time before an exchange
proposed a commodity-trust ETP based on the asset underlying those
futures. For example, silver futures and gold futures began trading
in 1933 and 1974, respectively, see <a href="https://www.cmegroup.com/media-room/historical-first-trade-dates.html">https://www.cmegroup.com/media-room/historical-first-trade-dates.html</a>, and the first ETPs based on
spot silver and gold were approved for listing and trading in 2006
and 2004. See Securities Exchange Act Release No. 53521 (Mar. 20,
2006), 71 FR 14967 (Mar. 24, 2006) (SR-Amex-2005-072) (order
approving iShares Silver Trust); Securities Exchange Act Release No.
50603 (Oct. 28, 2004), 69 FR 64614 (Nov. 5, 2004) (SR-NYSE-2004-22)
(order approving streetTRACKS Gold Shares). Platinum futures and
palladium futures began trading in 1956 and 1968, respectively, see
<a href="https://www.cmegroup.com/media-room/historical-first-trade-dates.html">https://www.cmegroup.com/media-room/historical-first-trade-dates.html</a>, and the first ETPs based on spot platinum and palladium
were approved for listing and trading in 2009. See Securities
Exchange Act Release No. 61220 (Dec. 22, 2009), 74 FR 68895 (Dec.
29, 2009) (SR-NYSEArca-2009-94) (order approving ETFS Palladium
Trust); Securities Exchange Act Release No. 61219 (Dec. 22, 2009),
74 FR 68886 (Dec. 29, 2009) (SR-NYSEArca-2009-95) (order approving
ETFS Platinum Trust).
\27\ See USBT Order, 85 FR at 12597; ADR Option Order, 59 FR at
5621. The Commission has also recognized that surveillance-sharing
agreements provide a necessary deterrent to fraud and manipulation
in the context of index options even when (i) all of the underlying
index component stocks were either registered with the Commission or
exempt from registration under the Exchange Act; (ii) all of the
underlying index component stocks were traded in the U.S. either
directly or as ADRs on a national securities exchange; and (iii)
effective international ADR arbitrage alleviated concerns over the
relatively smaller ADR trading volume, helped to ensure that ADR
prices reflected the pricing on the home market, and helped to
ensure more reliable price determinations for settlement purposes,
due to the unique composition of the index and reliance on ADR
prices. See Securities Exchange Act Release No. 26653 (Mar. 21,
1989), 54 FR 12705, 12708 (Mar. 28, 1989) (SR-Amex-87-25) (stating
that ``surveillance-sharing agreements between the exchange on which
the index option trades and the markets that trade the underlying
securities are necessary'' and that ``[t]he exchange of surveillance
data by the exchange trading a stock index option and the markets
for the securities comprising the index is important to the
detection and deterrence of intermarket manipulation''). And the
Commission has explained that surveillance-sharing agreements
``ensure the availability of information necessary to detect and
deter potential manipulations and other trading abuses'' even when
approving options based on an index of stocks traded on a national
securities exchange. See Securities Exchange Act Release No. 30830
(June 18, 1992), 57 FR 28221, 28224 (June 24, 1992) (SR-Amex-91-22).
---------------------------------------------------------------------------
Here, NYSE Arca contends that approval of the proposal is
consistent with Section 6(b)(5) of the Exchange Act, and, in
particular, Section 6(b)(5)'s requirement 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.\28\ As discussed in more detail below, NYSE Arca asserts that
the proposal is consistent with Section 6(b)(5) of the Exchange Act
because the Exchange has a comprehensive surveillance-sharing agreement
with the Chicago Mercantile Exchange (``CME''), which the Exchange
argues is a regulated market of significant size in the context of the
proposed spot bitcoin ETP.\29\
---------------------------------------------------------------------------
\28\ See Notice, 86 FR at 60700-15.
\29\ See id.
---------------------------------------------------------------------------
Based on its analysis, as discussed below in Section III.B, the
Commission concludes that NYSE Arca has not established that it has a
comprehensive surveillance-sharing agreement with a regulated market of
significant size related to spot bitcoin, the underlying bitcoin assets
that would be held by the Trust. In addition, the Commission examines
in Section III.C other arguments raised by NYSE Arca and commenters,
and concludes that NYSE Arca has not demonstrated that the proposed
rule change is consistent with the statutory requirements of Exchange
Act Section 6(b)(5).
The Commission emphasizes that its disapproval of this proposed
rule change does not rest on an evaluation of the relative investment
quality of a product holding spot bitcoin versus a product holding CME
bitcoin futures, or an assessment of whether bitcoin, or blockchain
technology more generally, has utility or value as an innovation or an
investment. Rather, the Commission is disapproving this proposed rule
change because, as discussed below, NYSE Arca has not met its burden to
demonstrate that its proposal is consistent with the requirements of
Exchange Act Section 6(b)(5).
II. Description of the Proposed Rule Change
As described in more detail in the Notice,\30\ 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.
---------------------------------------------------------------------------
\30\ See Notice, supra note 3.
---------------------------------------------------------------------------
The investment objective of the Trust is to seek to provide
exposure to the value of bitcoin held by the Trust, less the expenses
of the Trust's operations.\31\ The Shares would represent units of
undivided beneficial ownership of the Trust.\32\ Under normal
circumstances, the Trust's only asset would be bitcoin, and, under
limited circumstances, cash.\33\ The Trust would not use derivatives
that may subject the Trust to counterparty and credit risks.\34\
---------------------------------------------------------------------------
\31\ See id. at 60696. Bitwise Investment Advisers, LLC
(``Sponsor'') is the sponsor of the Trust, and Delaware Trust
Company is the trustee. The Trust would engage a third party
custodian to maintain custody of the Trust's bitcoin assets. The
Trust also would engage a third party service provider to serve as
the administrator (``Administrator'') and transfer agent of the
Trust. See id.
\32\ See id.
\33\ See id. The Trust may sell bitcoin and temporarily hold
cash as part of a liquidation of the Trust or to pay certain
extraordinary expenses not assumed by the Sponsor. According to the
Exchange, the Trust also may, from time to time, passively receive,
by virtue of holding bitcoin, certain additional digital assets or
rights to receive such digital assets through a fork of the bitcoin
blockchain or an airdrop of assets. See id. at 60696 n.12.
\34\ See id. at 60696.
---------------------------------------------------------------------------
The Trust's net asset value (``NAV'') and NAV per Share would be
determined by the Administrator once each Exchange trading day as of
4:00 p.m. E.T., or as soon thereafter as practicable, by reference to
the CF Bitcoin-Dollar US Settlement Price (``CME US Reference
Rate'').\35\ The Administrator would calculate the NAV by multiplying
the number of bitcoins held by the Trust by the CME US Reference Rate
for such day, and subtracting the accrued but unpaid expenses and
liabilities of the Trust.\36\ The CME US Reference Rate is a daily
reference rate of the U.S. dollar price of one bitcoin, calculated at
4:00 p.m. E.T.\37\
---------------------------------------------------------------------------
\35\ See id. at 60696, 60699.
\36\ See id. at 60699.
\37\ The Exchange states that the CME US Reference Rate utilizes
the same methodology as the CME CF Bitcoin Reference Rate, which is
calculated at 4:00 p.m., London time, and is used to settle bitcoin
futures on the CME. See id. at 60696 n.11, 60698-99.
---------------------------------------------------------------------------
The CME US Reference Rate aggregates during a calculation window
the trade flow of several spot bitcoin trading platforms into the U.S.
dollar price of one bitcoin as of its calculation time. The current
constituent bitcoin platforms of the CME US Reference Rate are
Bitstamp, Coinbase, Gemini, itBit, and Kraken (``Constituent
Platforms'').\38\ In calculating the CME US Reference Rate, the
methodology creates a joint list of certain trade prices and sizes from
the Constituent Platforms. 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 intervals. The CME US
Reference Rate is the equally weighted average of the volume-weighted
medians of all intervals.\39\
---------------------------------------------------------------------------
\38\ See id. at 60699. None of these platforms are ``regulated''
as a national securities exchange. National securities exchanges are
required to have rules that are ``designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general,
to protect investors and the public interest.'' 15 U.S.C. 78f(b)(5).
Moreover, national securities exchanges must file proposed rules
with the Commission regarding certain material aspects of their
operations (17 CFR 240.19b-4(a)(6)(i)), and the Commission has the
authority to disapprove any such rule that is not consistent with
the requirements of the Exchange Act (15 U.S.C. 78s(b)). Thus,
national securities exchanges are subject to Commission oversight
of, among other things, their governance, membership qualifications,
trading rules, disciplinary procedures, recordkeeping, and fees. See
Winklevoss Order, 83 FR at 37597. The Constituent Platforms have
none of these requirements (none are registered as a national
securities exchange).
\39\ See Notice, 86 FR at 60699.
---------------------------------------------------------------------------
The Trust would provide website disclosure of its holdings
daily.\40\ In addition, each trading day, the Exchange would calculate
and disseminate an intraday trust value (``ITV'') every 15 seconds
during the NYSE Arca Core Trading Session.\41\ The ITV would be
calculated throughout the
[[Page 40286]]
trading day by using the prior day's holdings at close of business and
the most recently reported price level of the CME Bitcoin Real Time
Price \42\ as reported by Bloomberg, L.P., or another reporting
service, or another price of bitcoin derived from updated bids and
offers indicative of the spot price of bitcoin.\43\
---------------------------------------------------------------------------
\40\ See id. at 60715.
\41\ See id. at 60699. The ITV would also be widely disseminated
by one or more major market data vendors during the NYSE Arca Core
Trading Session. See id.
\42\ The CME Bitcoin Real Time Price is a continuous real-time
bitcoin price index published by the CME Group and Crypto Facilities
Ltd. using data from the Constituent Platforms. See id.
\43\ See id.
---------------------------------------------------------------------------
The Trust would create and redeem Shares from time to time, but
only in one or more Creation Units. A Creation Unit would initially
consist of at least 25,000 Shares, but may be subject to change.\44\
The Trust would process all creations and redemptions in-kind, and
accrue all ordinary fees in bitcoin (rather than cash), as a way of
seeking to ensure that the Trust holds the desired amount of bitcoin-
per-share. The Trust would not purchase or sell bitcoins, other than if
the Trust liquidates or must pay expenses not contractually assumed by
the Sponsor. Instead, financial institutions authorized to create and
redeem Shares (``Authorized Participants'') would deliver, or cause to
be delivered, bitcoins to the Trust in exchange for Shares of the
Trust, and the Trust would deliver bitcoins to Authorized Participants
when those Authorized Participants redeem Shares of the Trust.\45\
---------------------------------------------------------------------------
\44\ See id.
\45\ See id. at 60696.
---------------------------------------------------------------------------
III. Discussion
A. The Applicable Standard for Review
The Commission must consider whether NYSE Arca's proposal is
consistent with the Exchange Act. Section 6(b)(5) of the Exchange Act
requires, in relevant part, 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.'' \46\
Under the Commission's Rules of Practice, the ``burden to demonstrate
that a proposed rule change is consistent with the Exchange Act and the
rules and regulations issued thereunder . . . is on the self-regulatory
organization [`SRO'] that proposed the rule change.'' \47\
---------------------------------------------------------------------------
\46\ 15 U.S.C. 78f(b)(5). Pursuant to Section 19(b)(2) of the
Exchange Act, 15 U.S.C. 78s(b)(2), the Commission must disapprove a
proposed rule change filed by a national securities exchange if it
does not find that the proposed rule change is consistent with the
applicable requirements of the Exchange Act. Exchange Act Section
6(b)(5) states that an exchange shall not be registered as a
national securities exchange unless the Commission determines that
``[t]he rules of the exchange are designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general,
to protect investors and the public interest; and are not designed
to permit unfair discrimination between customers, issuers, brokers,
or dealers, or to regulate by virtue of any authority conferred by
this title matters not related to the purposes of this title or the
administration of the exchange.'' 15 U.S.C. 78f(b)(5).
\47\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
---------------------------------------------------------------------------
The description of a proposed rule change, its purpose and
operation, its effect, and a legal analysis of its consistency with
applicable requirements must all be sufficiently detailed and specific
to support an affirmative Commission finding,\48\ and any failure of an
SRO to provide this information may result in the Commission not having
a sufficient basis to make an affirmative finding that a proposed rule
change is consistent with the Exchange Act and the applicable rules and
regulations.\49\ Moreover, ``unquestioning reliance'' on an SRO's
representations in a proposed rule change is not sufficient to justify
Commission approval of a proposed rule change.\50\
---------------------------------------------------------------------------
\48\ See id.
\49\ See id.
\50\ Susquehanna Int'l Group, LLP v. Securities and Exchange
Commission, 866 F.3d 442, 447 (D.C. Cir. 2017).
---------------------------------------------------------------------------
B. Whether NYSE Arca Has Met Its Burden To Demonstrate That the
Proposal Is Designed To Prevent Fraudulent and Manipulative Acts and
Practices
As stated above, an exchange can meet its obligations under
Exchange Act Section 6(b)(5) by demonstrating that the exchange has a
comprehensive surveillance-sharing agreement with a regulated market of
significant size related to the underlying bitcoin assets. In this
context, the term ``market of significant size'' includes a market (or
group of markets) as to which (i) there is a reasonable likelihood that
a person attempting to manipulate the ETP would also have to trade on
that market to successfully manipulate the ETP, so that a surveillance-
sharing agreement would assist in detecting and deterring misconduct,
and (ii) it is unlikely that trading in the ETP would be the
predominant influence on prices in that market.\51\
---------------------------------------------------------------------------
\51\ See Winklevoss Order, 83 FR at 37594. See also supra note
13.
---------------------------------------------------------------------------
As the Commission has explained, it considers two markets that are
members of the ISG to have a comprehensive surveillance-sharing
agreement with one another, even if they do not have a separate
bilateral surveillance-sharing agreement.\52\ Accordingly, based on the
common membership of NYSE Arca and the CME in the ISG,\53\ NYSE Arca
has the equivalent of a comprehensive surveillance-sharing agreement
with the CME. However, while the Commission recognizes that the CFTC
regulates the CME futures market,\54\ including the CME bitcoin futures
market, and thus such market is ``regulated,'' in the context of the
proposed ETP, the record does not, as explained further below,
establish that the CME bitcoin futures market is a ``market of
significant size'' related to spot bitcoin, the underlying bitcoin
assets that would be held by the Trust.
---------------------------------------------------------------------------
\52\ See Winklevoss Order, 83 FR at 37580 n.19.
\53\ See Notice, 86 FR at 60703.
\54\ While the Commission recognizes that the CFTC regulates the
CME, the CFTC is not responsible for direct, comprehensive
regulation of the underlying spot bitcoin market. See Winklevoss
Order, 83 FR at 37587, 37599. See also WisdomTree Order, 86 FR at
69330 n.118; Kryptoin Order, 86 FR at 74174 n.119; SkyBridge Order,
87 FR at 3874 n.80; Wise Origin Order, 87 FR at 5534 n.93.
(1) Whether There is a Reasonable Likelihood That a Person Attempting
to Manipulate the ETP Would Also Have to Trade on the CME Bitcoin
---------------------------------------------------------------------------
Futures Market to Successfully Manipulate the ETP
The first prong in establishing whether the CME bitcoin futures
market constitutes a ``market of significant size'' related to spot
bitcoin is the determination that there is a reasonable likelihood that
a person attempting to manipulate the ETP would have to trade on the
CME bitcoin futures market to successfully manipulate the ETP.
In previous Commission orders, the Commission explained that the
lead-lag relationship between the bitcoin futures market and the spot
market is ``central to understanding'' the first prong.\55\ In
[[Page 40287]]
response, the Exchange's Notice and Exhibit 3A thereto \56\ describe
the methodology and results of statistical analysis undertaken by
Bitwise Asset Management, Inc. (``Bitwise''), the parent of the
Sponsor, which, according to the Exchange, shows that prices on the CME
bitcoin futures market ``consistently lead prices on the bitcoin spot
market and the unregulated bitcoin futures market.'' \57\ As explained
in more detail in the Notice and Exhibit 3A, Bitwise used data from
Coin Metrics, CoinAPI, CoinGecko, and the CME for its analysis of the
relationship between CME bitcoin futures prices and prices on 10
unregulated spot bitcoin platforms \58\ and seven unregulated bitcoin
futures platforms.\59\ For each of these 17 unregulated platforms,
Bitwise performed three types of analysis: (1) information share
(``IS'') price discovery analysis, which Bitwise describes as measuring
``who moves first'' to incorporate new information into a common
``efficient'' price for an asset being traded on multiple platforms;
\60\ (2) component share (``CS'') price discovery analysis, which
Bitwise describes as measuring the ``component weight'' or contribution
to the common ``efficient'' price; \61\ and (3) time-shift lead-lag
(``TSLL'') analysis, which Bitwise describes as off-setting (or
``shifting'') two time series against each other to find the direction
and length of the lead-lag relationship between the two series that
maximizes the predictive strength of one series against the other.\62\
---------------------------------------------------------------------------
\55\ See, e.g., USBT Order, 85 FR at 12612 (``[E]stablishing a
lead-lag relationship between the bitcoin futures market and the
spot market is central to understanding whether it is reasonably
likely that a would-be manipulator of the ETP would need to trade on
the bitcoin futures market to successfully manipulate prices on
those spot platforms that feed into the proposed ETP's pricing
mechanism. In particular, if the spot market leads the futures
market, this would indicate that it would not be necessary to trade
on the futures market to manipulate the proposed ETP, even if
arbitrage worked efficiently, because the futures price would move
to meet the spot price.''). When considering past proposals for spot
bitcoin ETPs, the Commission has discussed whether there is a lead-
lag relationship between the regulated market (e.g., the CME) and
the market on which the assets held by the ETP would have traded
(i.e., spot bitcoin platforms), as part of an analysis of whether a
would-be manipulator of the spot bitcoin ETP would need to trade on
the regulated market to effect such manipulation. See, e.g., USBT
Order, 85 FR at 12612. See also VanEck Order, 86 FR at 64547;
WisdomTree Order, 86 FR at 69330-31; Kryptoin Order, 86 FR at 74176
n.144; SkyBridge Order, 87 FR at 3876 n.101; Wise Origin Order, 87
FR at 5535 n.107; ARK 21Shares Order, 87 FR at 20024 n.138.
\56\ Exhibit 3A is available at: <a href="https://www.sec.gov/rules/sro/nysearca/2021/34-93445-ex3a.pdf">https://www.sec.gov/rules/sro/nysearca/2021/34-93445-ex3a.pdf</a>.
\57\ See Notice, 86 FR at 60703-04.
\58\ The 10 unregulated spot bitcoin platforms are Bitstamp,
Coinbase, Gemini, itBit, and Kraken, which the Exchange states are
the trading platforms represented in the CME US Reference Rate (see
id. at 60707); as well as Binance, Bitfinex, Huobi, LBank, and OKEx.
The Exchange states that these trading platforms include both the
largest USD-BTC pair trading platform by reported volume (Coinbase)
and the largest tether-BTC pair trading platform by reported volume
(Binance). See id.
\59\ The seven unregulated bitcoin futures platforms are
Binance, BitMEX, Bybit, Deribit, FTX, Huobi, and OKEx. See id. at
60709.
\60\ See Exhibit 3A, supra note 56, at 143-44.
\61\ See id.
\62\ See id. at 143, 157.
---------------------------------------------------------------------------
As described in more detail in the Notice and Exhibit 3A, Bitwise
removed trades that occurred during non-CME trading hours and made
certain other adjustments to the data. Bitwise then performed each type
of analysis (IS, CS, and TSLL) on each of the 17 unregulated platforms
for each day in its sample period. For each type of analysis (IS, CS,
and TSLL) and each platform, Bitwise then averaged the daily results
both by month (to evaluate the potential for time variation in price
discovery leadership) and across the full sample period. Bitwise ran
statistical significance tests with a 95% confidence interval on the
resulting monthly and full-sample averages.\63\
---------------------------------------------------------------------------
\63\ See id. at 152, 159.
---------------------------------------------------------------------------
According to Bitwise, with respect to its IS/CS analysis, the full-
sample average results demonstrate that the CME bitcoin futures market
leads all evaluated bitcoin spot and futures trading platforms and that
the results are statistically significant for all platforms from an IS
perspective, and for 16 of the 17 platforms from a CS perspective.\64\
According to Bitwise, on a month-by-month basis, each trading platform
generates a slightly different profile and has slightly different
results; but on average, the CME led the 10 spot trading platforms from
an IS perspective in 89% of evaluated months, and from a CS perspective
in 80% of evaluated months.\65\
---------------------------------------------------------------------------
\64\ See id. at 152, 168.
\65\ See id. at 154-156. Exhibit 3A does not provide
corresponding averages with respect to the seven unregulated futures
platforms. The month-by-month results for each unregulated futures
platform indicate that the CME has led IS/CS price discovery in a
majority of months for each such platform. See id. at 170.
---------------------------------------------------------------------------
According to Bitwise, with respect to its TSLL analysis, the full-
sample average results indicate that CME leads, and all such results
are statistically significant.\66\ According to Bitwise, on a month-by-
month basis, each trading platform generates a slightly different
profile and has slightly different results; but the CME led
consistently throughout the study period in a statistically significant
manner.\67\ Bitwise also states that, with respect to the 10
unregulated spot platforms, the monthly TSLL results display a
``general trend'' where the CME's ``lead'' starts out long, with wide
confidence bands, and then ``tightens'' over time ``and becomes more
consistent.'' \68\
---------------------------------------------------------------------------
\66\ See id. at 160, 170-171.
\67\ See id. at 161, 173.
\68\ See id. at 161.
---------------------------------------------------------------------------
In addition, Bitwise performed a review of academic and industry
literature pertaining to the relationship between the CME bitcoin
futures market and unregulated bitcoin markets.\69\ Bitwise states that
a majority (7 of 10) of the papers that it reviewed that use IS and/or
CS support the view that the CME bitcoin futures market leads price
discovery as compared with the spot bitcoin market; \70\ and that one
paper that uses a similar TSLL approach as Bitwise arrives at nearly
identical conclusions: that the CME bitcoin futures market leads all
other markets
[[Page 40288]]
considered in the paper's pairwise TSLL analysis, and that the CME's
lead has tightened over time.\71\
---------------------------------------------------------------------------
\69\ Bitwise considered the following papers in Exhibit 3A (see
id. at 145-151): S. Corbet, B. Lucey, M. Peat & S. Vigne, Bitcoin
Futures--What use are they?, 172 Econ. Letters 23 (2018); D. Baur &
T. Dimpfl, Price discovery in bitcoin spot or futures?, 39 J.
Futures Mkts. 803 (2019); B. Kapar & J. Olmo, An analysis of price
discovery between Bitcoin futures and spot markets, 174 Econ.
Letters 62 (2019) (``Kapar & Olmo); C. Alexander & D. Heck, Price
Discovery, High-Frequency Trading and Jumps in Bitcoin Markets
(2019), working paper available at: <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3383147">https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3383147</a> (``Alexander & Heck 2019''); Y. Hu,
Y. Hou & L. Oxley, What role do futures markets play in Bitcoin
pricing? Causality, cointegration and price discovery from a time-
varying perspective, 72 Int'l Rev. of Fin. Analysis 101569 (2020)
(``Hu, Hou & Oxley''); E. Akyildirim, S. Corbet, P. Katsiampa, N.
Kellard & A. Sensoy, The development of Bitcoin futures: Exploring
the interactions between cryptocurrency derivatives, 34 Fin. Res.
Letters 101234 (2020); A. Fassas, S. Papadamou, & A. Koulis, Price
discovery in bitcoin futures, 52 Res. Int'l Bus. Fin. 101116 (2020);
O. Entrop, B. Frijns & M. Seruset, The determinants of price
discovery on bitcoin markets, 40 J. Futures Mkts. 816 (2020); S.
Aleti & B. Mizrach, Bitcoin spot and futures market microstructure,
41 J. Futures Mkts. 194 (2021); A. Chang, W. Herrmann & W. Cai,
Efficient Price Discovery in the Bitcoin Markets, Wilshire Phoenix,
Oct. 14, 2020, working paper available at: <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3733924">https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3733924</a>. Bitwise also submitted a
comment letter that discusses K. Robertson & J. Zhang, Suitable
Price Discovery Measurement of Bitcoin Spot and Futures Markets,
Fidelity Investments Inc., Jan. 12, 2022, working paper available
at: <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4012165">https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4012165</a>
(``Fidelity Paper''). See letter from Katherine Dowling, Matt
Hougan, and Paul Fusaro, Bitwise, dated Feb. 25, 2022 (``Bitwise
Letter 1'').
\70\ See Exhibit 3A, supra note 56, at 151. Bitwise states that
an eighth paper has aggregate results in favor of the CME leading;
and that of the two remaining papers that conclude that the spot
market leads, one was an early paper that potentially studied a very
limited time period, and the other has an important methodological
flaw. See id. Bitwise also references C. Alexander & D. Heck, Price
discovery in Bitcoin: The impact of unregulated markets, 50 J.
Financial Stability 100776 (2020) (``Alexander & Heck 2020''). See
id. at 148. This published paper is a later version of the working
paper Alexander & Heck 2019, and finds, employing a multidimensional
approach to price discovery, including the main price leaders within
futures, perpetuals, and spot markets, that CME bitcoin futures have
a very minor effect on price discovery; and that faster speed of
adjustment and information absorption occurs on the unregulated spot
and derivatives platforms than on the CME bitcoin futures market.
See also infra notes 91-94 and accompanying text. With respect to
the Commission's citation of the ``mixed'' literature in its prior
disapproval orders for spot bitcoin ETPs, the Exchange asserts that
``[o]f course, the existence of variable results in IS/CS analysis,
either within one study or a group of studies, is not in isolation
sufficient to determine that a commodity futures market does not
satisfy the concerns of the [Exchange] Act,'' and that there have
been multiple commodity markets where the Commission has approved
ETPs where ``select IS/CS studies find that the related derivatives
market is not the main source of price discovery.'' See Notice, 86
FR at 60706 n.52.
\71\ See Bitwise Letter 1 at 4.
---------------------------------------------------------------------------
The Exchange concludes from Bitwise's consideration of the
literature and Bitwise's own IS, CS, and TSLL analysis that ``the
Sponsor has demonstrated that the CME [bitcoin futures market] leads
the bitcoin spot market and the unregulated bitcoin futures market,
such that it is reasonably likely that a person attempting to
manipulate the ETP would also have to trade on the CME [bitcoin futures
market].'' \72\
---------------------------------------------------------------------------
\72\ See Notice, 86 FR at 60711.
---------------------------------------------------------------------------
The Commission disagrees. The evidence in the record for the
proposal is inadequate to conclude that an interrelationship exists
between the CME bitcoin futures market and the spot bitcoin market such
that it is reasonably likely that a person attempting to manipulate the
proposed spot bitcoin ETP would have to trade on the CME bitcoin
futures market to successfully manipulate the proposed ETP.\73\
---------------------------------------------------------------------------
\73\ See USBT Order, 85 FR at 12611.
---------------------------------------------------------------------------
The Commission raises particular disagreements with the Sponsor's
assertions regarding its analysis below, but even accepting at face
value the results of Bitwise's statistical analysis of the relationship
between the CME bitcoin futures market and the spot market, such
results are only part of the ``mixed'' record on the topic of bitcoin
price discovery.\74\ Bitwise's literature review considered 10 papers
that undertook IS/CS analysis, each using different methodologies, time
periods, data, and data aggregation techniques.\75\ Bitwise states that
7 of these 10 studies find that the CME bitcoin futures market leads
price discovery.\76\ Bitwise does not, however, address issues that the
Commission has raised with respect to two of these papers purportedly
supporting the CME bitcoin futures market's lead in past disapproval
orders.\77\ Nor does Bitwise discuss these 10 IS/CS studies in light of
Bitwise's acknowledgment that ``classic'' price discovery metrics like
IS/CS could be misspecified, with potentially biased results, when
price data have a high level of sparsity.\78\ Further, beyond the 10
studies considered by Bitwise, subsequent bitcoin price discovery
literature likewise includes some studies finding that the spot bitcoin
market dominates price discovery \79\ and other studies finding that
the CME bitcoin futures market dominates.\80\ As in previous
disapprovals, because the evidence regarding whether the CME bitcoin
futures market leads the spot market remains inconclusive,\81\ the
Commission is unable to find that an interrelationship exists between
the CME bitcoin futures market and the spot bitcoin market such that it
is reasonably likely that a person attempting to manipulate the
proposed ETP would have to trade on the CME bitcoin futures market to
successfully manipulate the proposed ETP. Accordingly, the Commission
concludes that the Sponsor has not demonstrated that the CME bitcoin
futures market constitutes a market of significant size related to spot
bitcoin.
---------------------------------------------------------------------------
\74\ See Bitwise Letter 1 at 3.
\75\ See supra note 69.
\76\ See Exhibit 3A, supra note 56, at 151.
\77\ See, e.g., USBT Order, 85 FR at 12613 n.244 (discussing
that the use of daily price data, as opposed to intraday prices, by
Kapar & Olmo and Hu, Hou & Oxley (in an unpublished version of the
paper) may not be able to distinguish which market incorporates new
information faster; and discussing that the (unpublished version of
the) Hu, Hou & Oxley paper found inconclusive evidence that futures
prices lead spot bitcoin prices--in particular, that the months at
the end of the paper's sample period showed, using Granger causality
methodology, that the spot market was the leading market--and that
the record did not include evidence to explain why this would not
indicate a shift towards prices in the spot market leading the
futures market that would be expected to persist into the future).
\78\ See Bitwise Letter 1 at 3.
\79\ See, e.g., J. Hung, H. Liu & J. Yang, Trading activity and
price discovery in Bitcoin futures markets, 62 J. Empirical Finance
107 (2021).
\80\ See, e.g., J. Wu, K. Xu, X. Zheng & J. Chen, Fractional
cointegration in bitcoin spot and futures markets, 41 J. Futures
Mkts. 1478 (2021). In addition, the Exchange claims that, based on
its review of past commodity-trust ETP approvals and ``select'' IS/
CS studies, a mixed result ``is not in isolation sufficient to
determine that a commodity futures market does not satisfy the
concerns of the [Exchange] Act.'' Notice, 86 FR at 60706 n.52
(emphasis added). However, the applicable standard of review is
whether a listing exchange has provided sufficient evidence to
demonstrate that its proposal is consistent with the Exchange Act.
See supra notes 46-50 and accompanying text. For each proposal, the
Commission considers the totality of the evidence provided by the
listing exchange and on its own merits.
\81\ As the academic literature and listing exchanges' analyses
pertaining to the pricing relationship between the CME bitcoin
futures market and spot bitcoin market have developed, the
Commission has critically reviewed those materials. See ARK 21Shares
Order, 87 FR at 20024; Global X Order, 87 FR at 14920; Wise Origin
Order, 87 FR at 5535-36, 5539-40; Kryptoin Order, 86 FR at 74176;
WisdomTree Order, 86 FR at 69330-32; VanEck Order, 86 FR at 64547-
48; USBT Order, 85 FR at 12613.
---------------------------------------------------------------------------
Beyond the Commission's overarching concern about the divergent
conclusions of the econometric evidence about the lead-lag relationship
between the CME bitcoin futures market and spot market, the Commission
also has particular disagreements with the Sponsor's assertions
regarding its analysis. Those disagreements support the Commission's
determination that NYSE Arca has not provided a sufficient basis to
conclude that it is reasonably likely that a would-be manipulator of
the proposed ETP would have to trade on the CME bitcoin futures market
to successfully manipulate the proposed ETP.
First, Bitwise's first comment letter casts doubt on its own IS/CS
results. Bitwise's first comment letter acknowledges that ``classic''
price discovery metrics like IS and CS ``face difficulties based on the
model assumptions of VECM [the Vector Error Correction Model] when the
prices under consideration are asynchronous and/or infrequent,'' \82\
citing an academic study by Buccheri et al.\83\ that investigates the
difficulties to identifying price discovery with VECM models due to the
high sparsity of data in markets that record trades at the sub-
millisecond level. Bitwise also acknowledges that, ``when prices have a
high level of sparsity, the VECM is clearly misspecified and the
estimates are potentially biased.'' \84\ However, while Bitwise claims
that ``[t]he limitations of classic IS and CS analysis informed
Bitwise's specific methodological approach to IS and CS analysis,''
\85\ Bitwise neither explains how its IS/CS approach was ``informed''
by such limitations, nor provides any information on whether the price
data that Bitwise used in its IS/CS analysis have a high level of
sparsity. Moreover, Bitwise's acknowledgement of the Fidelity Paper's
finding that ``there is a high level of sparsity in bitcoin data'' \86\
suggests that, by its own admission, Bitwise's IS/CS approach is
misspecified and its estimates potentially biased.
---------------------------------------------------------------------------
\82\ Bitwise Letter 1 at 3, quoting Fidelity Paper at 12-13.
\83\ G. Buccheri, G. Bormetti, F. Corsi & F. Lillo, Comment on:
Price discovery in high resolution, 19 J. Financial Econometrics 439
(2021).
\84\ Bitwise Letter 1 at 3, quoting Fidelity Paper at 13.
\85\ Bitwise Letter 1 at 3.
\86\ Id.
---------------------------------------------------------------------------
Second, Bitwise performed its IS, CS, and TSLL analysis for each of
the 17 unregulated platforms per day and then averaged the daily
results both by month and across the full sample period.\87\ However,
neither the Exchange nor Bitwise explains why Bitwise chose a daily
basis to compute its IS, CS, and TSLL estimates; provides any
information about how variable the daily estimates are, before the
monthly and/or full-sample averaging was applied; or provides any
information on the robustness of the estimates--that is, whether these
daily estimates or the statistical significance of the monthly
[[Page 40289]]
and/or full-sample averages of such daily estimates are sensitive to
different choices that Bitwise could have made for the analysis (e.g.,
to compute intraday estimates).
---------------------------------------------------------------------------
\87\ See Exhibit 3A, supra note 56, at 152, 159.
---------------------------------------------------------------------------
Third, the pairwise IS/CS full-sample average results for CME
compared to each of the 10 spot platforms ranged between 52.97% (the CS
result versus itBit) to 68.03% (the CS result versus Bitstamp).\88\
Even accepting these results and their statistical significance at face
value, these results suggest that spot bitcoin markets still account
for approximately 32%-47% of price discovery. Yet neither Bitwise nor
the Exchange has explained why, notwithstanding this amount of price
discovery occurring on spot platforms, it is reasonably likely that a
would-be manipulator would nonetheless have to trade on the CME bitcoin
futures market to successfully manipulate the proposed ETP.
---------------------------------------------------------------------------
\88\ See id. at 153.
---------------------------------------------------------------------------
Fourth, taking Bitwise's TSLL results at face value, as Bitwise
acknowledges, the extent to which the CME bitcoin futures market
``leads'' the 10 unregulated spot platforms has decreased since 2019 to
the end of Bitwise's sample period in September 2020.\89\ This general
trend is also observed in the Fidelity Paper's TSLL analysis, which
uses a longer sample period (to Q1 2021) and finds that the CME's
average ``lead'' time has ``steadily decreased'' among all evaluated
markets to about one second in Q4 2020 and Q1 2021.\90\ The record,
however, does not explain the implication of the CME's decreasing lead
over the identified spot platforms, nor why the CME's ``lead'' time
against spot platforms would not be expected to continue to decrease
throughout 2021 and 2022 until it ``lags'' spot platforms. Moreover,
neither Bitwise nor the Exchange has explained why, notwithstanding
such decreasing ``lead'' times against spot platforms, it is
nonetheless reasonably likely that a would-be manipulator would have to
trade on the CME to successfully manipulate the proposed ETP.
---------------------------------------------------------------------------
\89\ See id. at 161.
\90\ See Fidelity Paper at 17.
---------------------------------------------------------------------------
Fifth, all of Bitwise's statistical results--IS, CS, and TSLL--are
based on pairwise, two-dimensional analysis (e.g., CME compared to
Coinbase; CME compared to Gemini; etc.). At least one multidimensional
approach to price discovery (Alexander & Heck 2020) finds that CME
bitcoin futures ``have a very minor effect on price discovery,'' and
that ``a faster speed of adjustment and information absorption [occurs]
on the unregulated spot and derivatives [platforms] than on CME bitcoin
futures.'' \91\ Specifically, Alexander & Heck's multidimensional
analysis--which simultaneously includes unregulated futures, regulated
futures, perpetual futures, and spot markets--finds that CME bitcoin
futures have never accounted for more than 9% of price discovery (and
unregulated markets collectively account for more than 91% of price
discovery), and have always contributed the least to price discovery
among all venues considered, except during July 2019.\92\ While Bitwise
acknowledges the Alexander & Heck 2020 paper, Bitwise merely states
that the paper ``involves a complex, multidimensional approach to price
discovery analysis conducted across eight different markets and four
different exposure types (unregulated futures, regulated futures,
perpetual futures, and spot markets), each with different levels of
microstructure friction and data integrity,'' and that ``these
complications make it difficult to draw a direct comparison'' to the 10
IS/CS papers that Bitwise considered.\93\ Bitwise neither critiques the
multidimensional Alexander & Heck 2020 approach; nor attempts to apply
the approach to Bitwise's own data; nor discusses the robustness of
Bitwise's two-dimensional methodology in response to the critique in
Alexander & Heck 2020 that: ``omitting substantial information flows
from other markets can produce misleading results. . . . [I]n a two-
dimensional model one or other of the instruments must necessarily be
identified as price leader.'' \94\ In other words, a two-dimensional
model might erroneously attribute information share or component share
of omitted platforms to one of the two platforms included in the
pairwise estimate, because the two shares must necessarily sum up to
100%. As such, the Exchange has not adequately addressed whether
Bitwise's conclusion that the CME bitcoin futures market ``leads''
price discovery continues to hold up when the entirety of the bitcoin-
related market (spot and futures) is simultaneously considered.
---------------------------------------------------------------------------
\91\ See Alexander & Heck 2020 at 1-2.
\92\ See id. at 13. Alexander & Heck attribute these findings
to: (i) the trading volume of each individual unregulated
derivatives in their data set being much larger than that of CME
bitcoin futures; (ii) many smaller players in bitcoin markets (such
as miners or crypto-specialized hedge funds), who have easy access
to unregulated platforms and ultra-high-frequency trading platforms,
may be considered as more informed bitcoin investors than the CME's
clients; and (iii) investors who want to manipulate the price of
bitcoin ``may do so much more easily on an unregulated [platform]
rather than on the CME, which is heavily regulated by the CFTC.''
See id.
\93\ See Exhibit 3A, supra note 56, at 148.
\94\ Alexander & Heck 2020 at 2.
---------------------------------------------------------------------------
The Commission thus concludes that the information that NYSE Arca
provides is not a sufficient basis to support a determination that it
is reasonably likely that a would-be manipulator of the proposed ETP
would have to trade on the CME bitcoin futures market to successfully
manipulate the proposed ETP.\95\ Therefore, the information in the
record also does not establish that the CME bitcoin futures market is a
``market of significant size'' related to spot bitcoin.
---------------------------------------------------------------------------
\95\ In the Teucrium Order and Valkyrie XBTO Order, the
Commission determined that it is unnecessary for the listing
exchanges to establish a reasonable likelihood that a would-be
manipulator would have to trade on the CME itself to manipulate a
proposed ETP whose only non-cash holdings would be CME bitcoin
futures contracts. As the Commission explains in those Orders, in
each such case, the proposed ``significant'' regulated market (i.e.,
the CME) with which the listing exchange has a surveillance-sharing
agreement would be the same market on which the underlying bitcoin
assets (i.e., CME bitcoin futures contracts) trade. Consequently, in
the circumstances under consideration in the Teucrium Order and
Valkyrie XBTO Order, the CME's surveillance can reasonably be relied
upon to capture the effects on the CME bitcoin futures market caused
by a person attempting to manipulate a CME bitcoin futures-based ETP
by manipulating the price of CME bitcoin futures contracts, whether
that attempt is made by directly trading on the CME bitcoin futures
market or indirectly by trading outside of the CME bitcoin futures
market. See Teucrium Order, 87 FR at 21679; Valkyrie XBTO Order, 87
FR at 28851. However, as the Commission also states in those Orders,
this reasoning does not extend to spot bitcoin ETPs. Spot bitcoin
markets are not currently ``regulated.'' See Teucrium Order, 87 FR
at 21679 n.46 (citing USBT Order, 85 FR at 12604; NYDIG Order, 87 FR
at 14936 nn.65-67). See also Valkyrie XBTO Order, 87 FR at 28851
n.42. Thus if an exchange seeking to list a spot bitcoin ETP relies
on the CME as the regulated market with which it has a comprehensive
surveillance-sharing agreement, the assets held by the spot bitcoin
ETP would not be traded on the CME; and because of this important
difference, with respect to a spot bitcoin ETP, there would be
reason to question whether a surveillance-sharing agreement with the
CME would, in fact, assist in detecting and deterring fraudulent and
manipulative misconduct affecting the price of the spot bitcoin held
by that ETP. If, however, an exchange proposing to list and trade a
spot bitcoin ETP identifies the CME as the regulated market with
which it has a comprehensive surveillance-sharing agreement, the
exchange could overcome the Commission's concern by demonstrating
that there is a reasonable likelihood that a person attempting to
manipulate the spot bitcoin ETP would have to trade on the CME in
order to manipulate the ETP, because such demonstration would help
establish that the exchange's surveillance-sharing agreement with
the CME would have the intended effect of aiding in the detection
and deterrence of fraudulent and manipulative misconduct related to
the spot bitcoin held by the ETP. See Teucrium Order, 87 FR at 21679
n.46; Valkyrie XBTO Order, 87 FR at 28851 n.42.
(2) Whether It is Unlikely that Trading in the Proposed ETP Would Be
---------------------------------------------------------------------------
the Predominant Influence on Prices in the CME Bitcoin Futures Market
[[Page 40290]]
The second prong in establishing whether the CME bitcoin futures
market constitutes a ``market of significant size'' related to spot
bitcoin is whether it is unlikely that trading in the proposed ETP
would be the predominant influence on prices in the CME bitcoin futures
market.\96\
---------------------------------------------------------------------------
\96\ See Winklevoss Order, 83 FR at 37594; USBT Order, 85 FR at
12596-97.
---------------------------------------------------------------------------
As described in more detail in the Notice and Exhibit 3B
thereto,\97\ the Exchange asserts that trading in the Trust is unlikely
to become the predominant influence on prices in the CME bitcoin
futures market based on Bitwise's estimates for the maximum likely
first-year flows into, and average daily trading volume of, the Trust,
and Bitwise's analysis of whether such flows and trading volume would
be likely to impact CME bitcoin futures prices.\98\
---------------------------------------------------------------------------
\97\ Exhibit 3B is available at: <a href="https://www.sec.gov/rules/sro/nysearca/2021/34-93445-ex3b.pdf">https://www.sec.gov/rules/sro/nysearca/2021/34-93445-ex3b.pdf</a>.
\98\ See Notice, 86 FR at 60711-15.
---------------------------------------------------------------------------
To estimate the likely first-year flows into the proposed ETP,
Bitwise first examined first-year flows into all ETPs currently listed
on the market. Bitwise concluded that it is unlikely that a bitcoin ETP
will attract more first-year flow than the ETP with the highest first-
year flows in history (Invesco QQQ Trust, $5.35 billion), particularly
given the relative size of the bitcoin market compared to the markets
captured by the most successful ETPs in the past, which target parts or
all of the equity, bond, real estate, and gold markets.\99\ Bitwise
also examined first-year flows into first-to-market single-commodity
ETPs, which Bitwise considers to provide additional context on the
likely ``upper bound'' of potential flows into a bitcoin ETP.\100\
Finally, Bitwise examined the Grayscale Bitcoin Trust (``GBTC''), which
Bitwise describes as a publicly traded grantor trust that holds bitcoin
directly with a third-party custodian and that has been accessible to
U.S. investors since 2015.\101\ Bitwise states that, according to
Grayscale Investments, GBTC attracted a record $4.7 billion in inflows
in 2020.\102\
---------------------------------------------------------------------------
\99\ See Exhibit 3B, supra note 97, at 249-50.
\100\ See id. at 250-51. Bitwise states that first-year flows
range from $3.01 billion for the SPDR Gold Shares (``GLD'') to
negative $1 million for the iPath Bloomberg Lead Subindex Total
Return ETN. See id. at 250.
\101\ See id. at 251-252.
\102\ See id. at 252.
---------------------------------------------------------------------------
Extrapolating from this historical information, Bitwise uses $4.7
billion as its estimate for first-year flows into a new bitcoin ETP.
Bitwise asserts that its $4.7 billion estimate is ``aggressive''
because it assumes that a bitcoin ETP would ``[b]e the third-fastest-
growing ETP in history,'' would ``[s]ignificantly surpass (by more than
50%) the first-year flows into GLD,'' and would ``[m]atch the highest
annual flow in GBTC's history, achieved during a strong bull market,
all while the new ETP is forced to compete for market share with GBTC
itself.'' \103\
---------------------------------------------------------------------------
\103\ See id.
---------------------------------------------------------------------------
As described in more detail in Exhibit 3B, to evaluate the
potential impact of ETP inflows on prices in the CME bitcoin futures
market, Bitwise conducted a correlation analysis examining the
relationship of daily and weekly flows into GBTC in 2020 and changes in
a spot bitcoin-based reference price.\104\ According to Bitwise, the
data show there is no meaningful relationship between daily and weekly
flows into GBTC and changes in that spot bitcoin price, despite the
aggregate yearly flows being $4.7 billion.\105\ According to Bitwise,
its analysis of outlier days and weeks with large flows also supports
this conclusion.\106\ Bitwise thus concludes that it is unlikely that
$4.7 billion in flows into a bitcoin ETP in a single year will cause it
to become the predominant influence on prices in the CME bitcoin
futures market.\107\
---------------------------------------------------------------------------
\104\ Daily or weekly percentage price changes of bitcoin were
calculated using the 4 p.m. E.T. bitcoin reference rate from Coin
Metrics. See id. at 253.
\105\ See id. at 254.
\106\ See id. at 254-55.
\107\ See id. at 255.
---------------------------------------------------------------------------
Bitwise also considered whether secondary market trading in the
Shares would be likely to become the predominant influence on prices in
the CME bitcoin futures market. To do so, as described in more detail
in Exhibit 3B, Bitwise applied the 2020 ratio of average daily volume
(``ADV'') to assets under management (``AUM'') (``ADV/AUM'') for both
GBTC and GLD to the $4.7 billion estimate of first-year flows into a
new bitcoin ETP.\108\ In so doing, for the Shares, Bitwise calculated
an estimated $72 million ADV and $143 million ADV, corresponding to the
ADV/AUM ratio of GBTC and GLD, respectively.\109\ And for the purposes
of its analysis, Bitwise uses the higher figure--$143 million--as its
estimate for a new bitcoin ETP's average daily trading volume after a
year on the market. Bitwise asserts that this estimate is
``aggressive'' because it assumes that a bitcoin ETP would ``[b]e the
third-fastest-growing ETP in history'' and would ``[h]ave an ADV/AUM
ratio two times higher than that of GBTC, which competes in the same
market.'' \110\
---------------------------------------------------------------------------
\108\ Bitwise asserts that, although the absolute size of the
ADV for GBTC ranges widely across 2020, the monthly ADV/AUM ratio
stays fairly consistent, ranging from 1.10% to 2.21%. See id. at
256. Bitwise does not, however, indicate whether a consistent ADV/
AUM ratio is common among commodity-based products, or why a
consistent ratio would otherwise be expected to persist into future
months/years. In addition, ultimately, Bitwise uses GLD's average
2020 ADV/AUM ratio for its estimate, not the GBTC ratio. The 2020
monthly ADV/AUM for GLD varies more widely, ranging from 1.65% to
5.93%. See id. at 257.
\109\ See id. at 256-58.
\110\ See id. at 258.
---------------------------------------------------------------------------
Bitwise ``believe[s] it is unlikely that trading in the ETP will
become the predominant influence on prices in the CME [bitcoin futures
market] if such trading activity is substantially smaller than the
trading activity on the CME bitcoin futures market,'' which Bitwise
states it has demonstrated to be the leading source of price discovery
in the bitcoin market.\111\ As described in Exhibit 3B, Bitwise
estimated CME bitcoin futures' average daily trading volume in 2020 to
be $392 million, which Bitwise states is 174% higher than its $143
million estimate of a new bitcoin ETP's likely average daily trading
volume. Bitwise thus concludes that it is unlikely that trading in a
new bitcoin ETP will cause it to become the predominant influence on
prices in the CME bitcoin futures market.\112\
---------------------------------------------------------------------------
\111\ See id. at 259.
\112\ See id. at 259-60.
---------------------------------------------------------------------------
Bitwise makes three additional arguments in support of its
conclusion. First, Bitwise argues that a new bitcoin ETP is unlikely to
experience a GLD-like rapid start.\113\ Bitwise states that, ``[w]hile
there is interest in a bitcoin ETP,'' it is unlikely to match the level
of demand experienced by GLD after its 2004 launch because (1) bitcoin
is a substantially smaller market (approximately 74% smaller) than gold
was at its launch; (2) unlike GLD, U.S. retail investors already have
``multiple easy ways'' to directly purchase bitcoin; and (3) unlike
GLD, a bitcoin ETP will ``face stiff competition from GBTC, a $20
billion product with high levels of liquidity that can be easily
accessed through a brokerage setting.'' \114\
---------------------------------------------------------------------------
\113\ According to Bitwise, GLD gained approximately $1.26
billion in flows in its first week. See id. at 262.
\114\ See id. at 262-64.
---------------------------------------------------------------------------
Second, Bitwise considered internationally listed spot bitcoin
ETPs, specifically the German ETC Group Physical Bitcoin ETP (``BTCE'')
and the Canadian Purpose Bitcoin ETF (``BTCC''). Using the same
correlation assessment as it used for GBTC inflows, Bitwise finds that
there is no meaningful relationship between daily or weekly flows into
BTCE (over the period June 2020 to March 2021) or BTCC (over a six-week
period in February-March 2021) and daily or
[[Page 40291]]
weekly changes in the spot bitcoin price.\115\
---------------------------------------------------------------------------
\115\ See id. at 265-69.
---------------------------------------------------------------------------
Third, Bitwise argues that evidence from the 2021 launch of CME
bitcoin futures-based exchange traded funds (``ETFs'')--ProShares
Bitcoin Strategy ETF (``BITO''), Valkyrie Bitcoin Strategy ETF
(``BTF''), and VanEck Bitcoin Strategy ETF (``XBTF'')--strengthens its
arguments. Bitwise states that the fact that these ETFs took in $1.55
billion in their first month on the market, and have taken in just $216
million since, strengthens its belief that the estimate of $4.7 billion
in first-year flows into a spot bitcoin ETP is an aggressive estimate.
Bitwise also asserts that the bitcoin market is ``incredibly and
increasingly crowded'' with options for investors, and a spot bitcoin
ETP would ``face steep competition.'' \116\
---------------------------------------------------------------------------
\116\ See Bitwise Letter 1 at 5-6.
---------------------------------------------------------------------------
Based on Bitwise's analysis, the Exchange concludes that trading in
the Trust is unlikely to become the predominant influence on prices in
the CME bitcoin futures market.\117\
---------------------------------------------------------------------------
\117\ See Notice, 86 FR at 60715.
---------------------------------------------------------------------------
The Commission disagrees. The evidence in the record for the
proposal does not support the conclusion that it is unlikely that
trading in the proposed ETP would be the predominant influence on
prices in the CME bitcoin futures market.
First, Bitwise's conflicting claims with respect to the demand for
a spot bitcoin ETP undermine Bitwise's expectations for the likely size
of such an ETP and the rapidity of inflows into it. On the one hand,
Bitwise downplays potential investor demand, stating that ``[w]hile
there is interest in a bitcoin ETP,'' \118\ the bitcoin market is
``incredibly and increasingly crowded'' with options for investors,
noting that investors today can buy bitcoin on crypto trading apps,
finance apps, through over-the-counter trusts, via bitcoin futures
ETFs, and ``in many other ways.'' \119\ Bitwise states that a spot
bitcoin ETP ``would now be the fourth bitcoin-linked ETP to come to
market,'' and ``would face steep competition from the already liquid
and highly correlated bitcoin futures-based competitors.'' \120\
Bitwise describes GBTC in particular as competition for a new bitcoin
ETP, asserting that GBTC has ``high levels of liquidity'' and can be
``easily accessed through a brokerage setting,'' and thus that ``a good
portion of the brokerage-access demand that would otherwise be waiting
for an ETP is already being met by GBTC.'' \121\ On the other hand,
when asserting public interest and investor protection arguments in
favor of its proposal (see also Section III.C, below), Bitwise
highlights that ``a great many (and an ever-increasing number of)
investors already'' directly invest in bitcoin.\122\ Bitwise also
highlights that, unlike GBTC, the proposed ETP would allow for daily
creations and redemptions; can be expected to ``closely track the value
of [b]itcoin, and not periodically trade at substantial premiums to and
discounts from the value of [b]itcoin''; and would be ``professionally
managed, SEC-regulated, highly-liquid, fully transparent, and listed on
the NYSE Arca''; and that ``at least some segment'' of retail and other
investors would benefit from such characteristics and would be
``affirmatively disadvantaged'' by not having access to it.\123\
Bitwise also states that the proposed ETP ``would add material
protections for the millions of U.S. investors who currently use other
less protected and transparent avenues to access the bitcoin market, as
well as for any future investors who may choose to do so.'' \124\ If,
as Bitwise claims, U.S. investors have been and are ever-increasingly
investing in bitcoin, and the proposed ETP ``would add material
protections'' that are not currently available through GBTC or
otherwise for some segment of investors, and would, unlike GBTC, be
available to trade immediately on a national securities exchange with
daily creations and redemptions,\125\ it is not clear that Bitwise's
use of the GBTC historical record of $4.7 billion in inflows is a
likely, let alone ``aggressive,'' estimate for first-year inflows into
a new spot bitcoin ETP.
---------------------------------------------------------------------------
\118\ Exhibit 3B, supra note 97, at 264.
\119\ Bitwise Letter 1 at 6.
\120\ Id.
\121\ Exhibit 3B, supra note 97, at 263-64.
\122\ See letter from Robert H. Rosenblum, Wilson Sonsini
Goodrich & Rosati, P.C., and Kathleen H. Moriarty, Chapman and
Cutler LLP, on behalf of Bitwise, dated Mar. 7, 2022 (``Bitwise
Letter 2''), at 4.
\123\ See id. at 3-4.
\124\ Bitwise Letter 1 at 6.
\125\ See Exhibit 3B, supra note 97, at 251 (``GBTC is different
from an ETP is certain ways, including that the structure does not
allow for redemptions . . .'') and 253 (``While GBTC allows for
daily creations, unlike an ETF, those shares are not immediately
available to be sold in the secondary market. After purchasing
shares, an investor must hold the shares for 6-months before they
are permitted to be traded on the secondary market.'').
---------------------------------------------------------------------------
Likewise, on the one hand, Bitwise claims that it is unlikely that
a new bitcoin ETP would experience rapid one-week inflows similar to
GLD, which had first-week inflows of approximately $1.26 billion.\126\
On the other hand, Bitwise highlights that BTCC--the first bitcoin ETP
launched in Canada--``experienced three days of very high inflows
shortly after its launch''; \127\ and that the three CME bitcoin
futures-based ETFs took in $1.55 billion in their first month on the
market, with just $216 million since.\128\ BITO--the first such ETF to
launch--took in $1.21 billion AUM within three days of its launch.\129\
---------------------------------------------------------------------------
\126\ See Exhibit 3B, supra note 97, at 262-64.
\127\ See id. at 269.
\128\ See Bitwise Letter 1 at 5.
\129\ See Teucrium Order, 87 FR at 21681.
---------------------------------------------------------------------------
Second, it is not clear from Bitwise's correlation analysis what
would be the likely impact of inflows into a new bitcoin ETP on CME
bitcoin futures prices. Bitwise assessed correlations of inflows (into
GBTC in 2020; into BTCE in 2020-21; and into BTCC in 2021) using a spot
bitcoin-based reference price.\130\ Bitwise does not explain why it
chose to use bitcoin spot prices instead of CME bitcoin futures prices
themselves, despite the CME bitcoin futures market having been
operating since 2017 and its price data being readily available to
Bitwise. Bitwise's decision to run its correlations against spot prices
is particularly puzzling, given its claims (discussed above) that CME
bitcoin futures prices lead price discovery. Put in another way, given
that Bitwise identifies the CME bitcoin futures market as the relevant
regulated market of significant size, the use of a spot bitcoin price
for its correlation analysis could render the analysis immaterial.
---------------------------------------------------------------------------
\130\ See Exhibit 3B, supra note 97, at 253-55, 266-69.
---------------------------------------------------------------------------
Moreover, Bitwise's correlation analysis does not control for any
other factors that may have been affecting spot bitcoin prices during
the daily or weekly aggregation periods. Thus, the results do not
isolate the statistical relationship between spot bitcoin prices and
the factor of interest (i.e., flows into GBTC, BTCE, or BTCC).
Third, Bitwise's analysis regarding the potential effects of
trading in the Shares on CME bitcoin futures prices is vague and
conclusory. Bitwise states that it ``believes'' that it is unlikely
that trading in a new bitcoin ETP will become the predominant influence
on prices in the CME bitcoin futures market ``if such trading activity
is substantially smaller than the trading activity on the CME bitcoin
futures market.'' \131\ Bitwise, however, does not provide any
explanation or basis for its ``belief.'' With this ``belief'' in hand,
Bitwise then calculates that CME bitcoin futures' average daily trading
volume in 2020 ($392 million) is 174% higher than its estimate of a new
bitcoin ETP's likely average daily trading volume ($143
[[Page 40292]]
million), which then is the sole premise for Bitwise to conclude that
trading in the Shares would not likely be the predominant influence on
CME bitcoin futures prices.\132\
---------------------------------------------------------------------------
\131\ Id. at 259.
\132\ See id.
---------------------------------------------------------------------------
However, an alternative calculation using Bitwise's statistics is
that a single bitcoin ETP's average daily trading volume could be
approximately 36.5% ($143 million divided by $392 million)--more than
one-third--of the size of CME bitcoin futures' average daily trading
volume. On top of that, assuming, as Bitwise does, potentially $4.7
billion in first-year inflows, such a spot bitcoin ETP could have AUM
that exceeds the value of all open interest in CME bitcoin futures
contracts.\133\ Bitwise has not directly addressed why, given this
relative size of estimated daily trading in the Shares compared with
daily trading in CME bitcoin futures contracts, and the relative size
of the Trust's estimated AUM itself compared with all open interest in
CME bitcoin futures contracts, it is nonetheless unlikely that trading
in the proposed ETP would be the predominant influence on prices in the
CME bitcoin futures market.
---------------------------------------------------------------------------
\133\ As of May 31, 2022, the value of open interest in the
front two month CME BTC contracts was approximately $1.7 billion
(source: CME Group).
---------------------------------------------------------------------------
Pursuant to Section 19(b)(2) of the Exchange Act, the Commission
must disapprove a proposed rule change filed by a national securities
exchange if it does not find that the proposed rule change is
consistent with the applicable requirements of the Exchange Act--
including the requirement under Section 6(b)(5) that the rules of a
national securities exchange be designed to prevent fraudulent and
manipulative acts and practices.\134\ For all of the reasons discussed
above, NYSE Arca has not provided sufficient information to establish
both prongs of the ``market of significant size'' determination, and
thus the Commission cannot conclude that the CME bitcoin futures market
is a ``market of significant size'' related to spot bitcoin such that
NYSE Arca would be able to rely on a surveillance-sharing agreement
with the CME to provide sufficient protection against fraudulent and
manipulative acts and practices. Therefore, NYSE Arca has not met its
burden of demonstrating that the proposal is consistent with Exchange
Act Section 6(b)(5),\135\ and, accordingly, the Commission must
disapprove the proposal.\136\
---------------------------------------------------------------------------
\134\ See 15 U.S.C. 78s(b)(2)(C).
\135\ 15 U.S.C. 78f(b)(5).
\136\ In disapproving the proposed rule change, the Commission
has considered its impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
---------------------------------------------------------------------------
C. Other Arguments and Comments
In a second comment letter,\137\ Bitwise argues that the
Commission, ``when analyzing the applicable legal standards for
approving the [proposed ETP], should consider--and should interpret
those standards in recognition of--the wide-spread use and adoption of
[b]itcoin among retail investors, merchants, public and private
companies, payment processors, and others in the U.S. business and
investment community.'' \138\ Bitwise argues that the fundamental
question before the Commission should be ``whether, in light of the
wide-spread retail holdings, investment in, and use of [b]itcoin, at
least some segment of retail (and other) investors would benefit from
having access to an investment product that provides exposure to
[b]itcoin'' and that is traded on a regulated national securities
exchange, that is reasonably expected to closely track the value of
bitcoin without substantial premiums or discounts, and that would
relieve investors from custodial and other transactional burdens of
bitcoin.\139\
---------------------------------------------------------------------------
\137\ See Bitwise Letter 2.
\138\ See id. at 2.
\139\ See id. at 3-4. Similarly, one commenter also states that
approval of a spot bitcoin ETP would protect investors by, among
other things, imposing less transaction costs than CME bitcoin
futures ETFs, reducing risks associated with custodying spot
bitcoin, and ``[c]hanneling investor interest into a regulated
space.'' See Letter from James J. Angel, Associate Professor of
Finance, Georgetown University, dated April 17, 2022 (``Angel
Letter''), at 7-9.
---------------------------------------------------------------------------
Bitwise asserts that ``the public interest is best served by giving
retail (and other) investors access to a publicly-traded [b]itcoin ETP
like the Trust, that at least some segment of the investing public
would be affirmatively disadvantaged by not having access to the Trust,
and that no part of the investing public would be harmed by having
access to the Trust.'' \140\ Bitwise concludes that, for these reasons,
the proposal ``overwhelmingly'' meets Exchange Act Section 6(b)(5)'s
requirement that a proposed rule change ``protect investors and the
public interest.'' \141\ Bitwise also asserts that Exchange Act Section
6(b)(5)'s requirement that the rules of a national securities exchange
be designed to prevent fraudulent and manipulative acts and practices
should be considered ``in light of the large and increasing number of
U.S. investors who directly invest in and trade [b]itcoin'' and who
``may in fact be subject to increased risks of fraud and
manipulation.'' \142\
---------------------------------------------------------------------------
\140\ See Bitwise Letter 2 at 4.
\141\ 15 U.S.C. 78f(b)(5).
\142\ See Bitwise Letter 2 at 4. Bitwise also argues that the
Commission ``must be able to work with the digital asset community
to find a way to approve more digital asset products for investors''
(see id. at 5) and states that it ``was willing to change the
structure or operation of the Trust as needed to resolve good faith
legal and regulatory concerns'' (see id. at 6). The Commission
assesses each proposed rule change--as proposed--on its particular
facts and on whether it is consistent with the requirements of the
Exchange Act. Pursuant to the Commission's Rules of Practice, the
SRO must provide all information elicited by Form 19b-4, and the
description of the proposed rule change, its purpose and operation,
its effect, and a legal analysis of its consistency with applicable
requirements must all be sufficiently detailed and specific to
support an affirmative Commission finding. See Rule 700(b)(3),
Commission Rules of Practice, 17 CFR 201.700(b)(3).
---------------------------------------------------------------------------
In essence, Bitwise asserts that the risky nature of direct
investment in bitcoin and the potential benefits of a spot bitcoin ETP
compel approval of the proposed rule change. The Commission disagrees.
Here, even if it were true that, compared to trading in unregulated
spot bitcoin markets, trading a bitcoin-based ETP on a national
securities exchange provides some additional protection to investors,
the Commission must consider this potential benefit in the broader
context of whether the proposal meets each of the applicable
requirements of the Exchange Act.\143\ Pursuant to Section 19(b)(2) of
the Exchange Act, the Commission must approve a proposed rule change
filed by a national securities exchange if it finds that the proposed
rule change is consistent with the applicable requirements of the
Exchange Act--including the requirement under Section 6(b)(5) that the
rules of a national securities exchange be designed to prevent
fraudulent and manipulative acts and practices--and it must disapprove
the filing if it does not make such a finding.\144\ Thus, even if a
proposed rule change purports to protect investors from a particular
type of investment risk--such as the susceptibility of an asset to loss
or theft, or premiums or discounts to underlying asset value--the
proposed rule change may still fail to meet the requirements under the
Exchange Act.\145\ For the reasons discussed above, NYSE Arca has not
met its burden of demonstrating
[[Page 40293]]
an adequate basis in the record for the Commission to find that the
proposal is consistent with Exchange Act Section 6(b)(5),\146\ and,
accordingly, the Commission must disapprove the proposal.
---------------------------------------------------------------------------
\143\ See Winklevoss Order, 83 FR at 37602. See also
GraniteShares Order, 83 FR at 43931; ProShares Order, 83 FR at
43941; USBT Order, 85 FR at 12615.
\144\ See Exchange Act Section 19(b)(2)(C), 15 U.S.C.
78s(b)(2)(C). See also Affiliated Ute Citizens of Utah v. United
States, 406 U.S. 128, 151 (1972) (Congress enacted the Exchange Act
largely ``for the purpose of avoiding frauds''); Gabelli v. SEC, 568
U.S. 442, 451 (2013) (The ``SEC's very purpose'' is to detect and
mitigate fraud.).
\145\ See SolidX Order, 82 FR at 16259; WisdomTree Order, 86 FR
at 69334.
\146\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
In another commenter letter, a commenter questions why the
Commission would disallow a spot bitcoin ETP when it has allowed a spot
gold ETP.\147\ The commenter states that ``[t]he argument that a spot
[b]itcoin [ETP] should not be allowed because the SEC doesn't have the
ability to regulate outside exchanges trading it doesn't hold water.''
The commenter states that ``[g]old trades around the world and around
the clock in many areas unregulated by the SEC.''
---------------------------------------------------------------------------
\147\ See letter from Anonymous, dated Feb. 18, 2022.
---------------------------------------------------------------------------
As the Commission has clearly and consistently stated, an exchange
that lists bitcoin-based ETPs can meet its obligation under Exchange
Act Section 6(b)(5) that its rules be designed to prevent fraudulent
and manipulative acts and practices by demonstrating that the exchange
has a comprehensive surveillance-sharing agreement with a regulated
market of significant size related to the underlying or reference
bitcoin assets.\148\ As discussed in detail in Section III.B, the
Commission has considered the Exchange's arguments with respect to the
CME bitcoin futures market, and the Commission concludes that the
Exchange has failed to demonstrate that the CME bitcoin futures market
is such a ``market of significant size'' related to spot bitcoin. As
the Commission has also previously stated, comparisons to the markets
for other asset classes (such as gold) are not persuasive, and do not
help the Exchange to meet its burden with respect to a bitcoin-based
ETP.\149\
---------------------------------------------------------------------------
\148\ See supra note 12 and accompanying text. See also Wise
Origin Order, 87 FR at 5539; ARK 21Shares Order, 87 FR at 20027.
\149\ See USBT Order, 85 FR at 12613; Wise Origin Order, 87 FR
at 5540; Teucrium Order, 87 FR at 21679-80.
---------------------------------------------------------------------------
Another commenter asserts that bitcoin futures-based ETFs ``derive
their price from the spot [bitcoin] market,'' and questions why then a
``generally more efficient investment vehicle'' such as a spot bitcoin
ETP ``that tracks the same spot [bitcoin] market'' would be
disapproved.\150\ The commenter, however, provides no information on
how prices of bitcoin futures-based ETFs relate to spot bitcoin prices;
how such an assertion would be compatible with the claims of the
Exchange in this filing that CME bitcoin futures prices ``lead'' spot
bitcoin prices; or why, even if such an assertion is true, it would
necessitate the approval of this proposal.
---------------------------------------------------------------------------
\150\ See letter from Brandon Gunderson, dated Feb. 4, 2022.
---------------------------------------------------------------------------
An additional commenter argues that it is inconsistent for the
Commission to approve the listing and trading of CME bitcoin futures-
based ETFs but not spot-based ETPs.\151\ Among other things, this
commenter asserts that ``[t]he spot and futures markets are so
interconnected that actions on one instantly affect the other'' and
that ``[a]ny manipulations in the spot market instantly affect the
futures prices and vice versa.'' \152\ This commenter states that CME
bitcoin futures contracts' ``ultimate cash settlement'' is based on the
``BRR Bitcoin Reference Rate Index'' (``BRR''),\153\ which is
calculated by aggregating the trade flow of major bitcoin spot
platforms, and that a spot bitcoin ETP would be less vulnerable to
manipulation than a CME bitcoin futures-based ETF because CME bitcoin
futures contracts can be manipulated on both the CME and through the
spot bitcoin platforms that are included in the BRR.\154\
---------------------------------------------------------------------------
\151\ See Angel Letter at 5.
\152\ See id.
\153\ The Commission understands the commenter's use of ``BRR
Bitcoin Reference Rate'' to mean the CME CF Bitcoin Reference Rate.
\154\ See Angel Letter at 6.
---------------------------------------------------------------------------
The Commission disagrees with this commenter's assertions. The
proposed rule change does not relate to the same underlying holdings as
either exchange-traded funds regulated under the Investment Company Act
of 1940 (``1940 Act'') that provide exposure to bitcoin through CME
bitcoin futures or CME bitcoin futures-based ETPs registered under the
Securities Act of 1933 but not regulated under the 1940 Act. The
Commission considers the proposed rule change on its own merits and
under the standards applicable to it. Namely, with respect to this
proposed rule change, the Commission must apply the standards as
provided by Section 6(b)(5) of the Exchange Act, which it has applied
in connection with its orders considering previous proposals to list
bitcoin-based commodity trusts and bitcoin-based trust issued
receipts.\155\
---------------------------------------------------------------------------
\155\ See supra note 11.
---------------------------------------------------------------------------
For this proposed rule change, the relevant analysis, as discussed
above in Section III.B, is whether the Exchange has a comprehensive
surveillance-sharing agreement with a regulated market of significant
size related to spot bitcoin. As discussed above, the record in the
current proposal does not support a determination that the CME bitcoin
futures market is a regulated market of significant size related to
spot bitcoin.\156\
---------------------------------------------------------------------------
\156\ See supra Section III.B.1 and III.B.2.
---------------------------------------------------------------------------
Moreover, the commenter argues that, because CME bitcoin futures
contracts' ``ultimate cash settlement'' is based on the BRR, CME
bitcoin futures face risks from both manipulation of the CME market
itself, and manipulation of the spot bitcoin markets whose prices feed
into the BRR. What is relevant for the ``significant market'' analysis,
however, is not the number of potential sources of manipulation, but
rather, as discussed in the Teucrium Order and the Valkyrie XBTO Order,
whether the CME's surveillance can be reasonably relied upon to capture
the effects of a person attempting to manipulate the assets underlying
the proposed ETP.\157\
---------------------------------------------------------------------------
\157\ See Teucrium Order, 87 FR at 21679; Valkyrie XBTO Order,
87 FR at 28851.
---------------------------------------------------------------------------
As explained in the Teucrium Order and the Valkyrie XBTO Order, if
an exchange seeking to list a spot bitcoin ETP relies on the CME as the
regulated market with which it has a comprehensive surveillance-sharing
agreement, the assets held by the spot bitcoin ETP would not be traded
on the CME; and thus there would be reason to question whether a
surveillance-sharing agreement with the CME would, in fact, assist in
detecting and deterring fraudulent and manipulative misconduct
affecting the price of the spot bitcoin held by that ETP.\158\ While
the commenter asserts that ``[t]he spot and futures markets are so
interconnected that actions on one instantly affect the other,'' and
that ``manipulations in the spot market instantly affect the futures
prices and vice versa,'' \159\ the commenter provides no evidence in
support of these assertions. Moreover, the commenter's observation that
CME bitcoin futures contracts' ``ultimate cash settlement'' is based on
the BRR is also insufficient to support these assertions. The BRR is
used for a CME bitcoin futures contract's final cash settlement; it is
not generally used for daily cash settlements (which, under normal
procedures, are generally based on the volume-weighted average price of
trading activity on CME Globex between 2:59 p.m. and 3:00 p.m., Central
Time),\160\ nor is the BRR
[[Page 40294]]
claimed to be used for any intra-day trading of the contract. And even
if the BRR is a potential link between prices on certain spot bitcoin
platforms and CME bitcoin futures prices, it does not--absent
supporting data--necessarily follow that manipulation that impacts spot
bitcoin also similarly impacts CME bitcoin futures contracts.\161\
---------------------------------------------------------------------------
\158\ See Teucrium Order, 87 FR at 21679 n.46; Valkyrie XBTO
Order, 87 FR at 28851 n.42. There is reason to question whether the
CME's surveillance would capture manipulation of spot bitcoin that
occurs off of the CME if, for example, off-CME manipulation of spot
bitcoin does not also similarly impact CME bitcoin futures
contracts.
\159\ See Angel Letter at 5.
\160\ A description of CME bitcoin futures daily settlement
procedures is available at: <a href="https://www.cmegroup.com/confluence/display/EPICSANDBOX/Bitcoin">https://www.cmegroup.com/confluence/display/EPICSANDBOX/Bitcoin</a>.
\161\ The commenter also has not explained how the assertions
that ``[t]he spot and futures markets are so interconnected that
actions on one instantly affect the other,'' and that
``manipulations in the spot market instantly affect the futures
prices and vice versa,'' would be compatible with the claims of the
Exchange in this filing that CME bitcoin futures prices lead spot
bitcoin prices.
---------------------------------------------------------------------------
Moreover, the Commission's determination in the Teucrium Order and
the Valkyrie XBTO Order to approve the listing and trading of the
relevant CME bitcoin futures ETPs was not based on the ETPs' use--or
lack of use--of the BRR (or any other similar pricing mechanism) for
the calculation of NAV, or on the fact that the BRR is used for the
final cash settlement of CME bitcoin futures contracts. Rather, the
Commission approved the listing and trading of such CME bitcoin futures
ETPs, not because of the BRR, but because the Commission found that the
listing exchanges satisfy the requirement pertaining to a surveillance-
sharing agreement with a regulated market of significant size related
to the underlying bitcoin assets--which for such ETPs, are CME bitcoin
futures contracts, not spot bitcoin.
This commenter also addresses, among other things, the general
nature and uses of bitcoin \162\ and suggestions for improving
regulation of bitcoin and other digital assets markets and related
market participants.\163\ Ultimately, however, additional discussion of
these topics is unnecessary, as they do not bear on the basis for the
Commission's decision to disapprove the proposal.
---------------------------------------------------------------------------
\162\ See Angel Letter at 2-4.
\163\ See, e.g., Angel Letter at 9-40.
---------------------------------------------------------------------------
IV. Conclusion
For the reasons set forth above, the Commission does not find,
pursuant to Section 19(b)(2) of the Exchange Act, that the proposed
rule change is consistent with the requirements of the Exchange Act and
the rules and regulations thereunder applicable to a national
securities exchange, and in particular, with Section 6(b)(5) of the
Exchange Act.
It is Therefore Ordered, pursuant to Section 19(b)(2) of the
Exchange Act, that proposed rule change SR-NYSEArca-2021-89 be, and
hereby is, disapproved.
By the Commission.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2022-14309 Filed 7-5-22; 8:45 am]
BILLING CODE 8011-01-P
</pre></body>
</html>Indexed from Federal Register on July 6, 2022.
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.