Notice2022-18966
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To List and Trade Shares of the ARK 21Shares Bitcoin ETF Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
September 2, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 87 Issue 170 (Friday, September 2, 2022)</title>
</head>
<body><pre>
[Federal Register Volume 87, Number 170 (Friday, September 2, 2022)]
[Notices]
[Pages 54270-54272]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-18966]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95622; File No. SR-CboeBZX-2022-031]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
Proposed Rule Change To List and Trade Shares of the ARK 21Shares
Bitcoin ETF Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares
August 29, 2022.
On May 13, 2022, Cboe BZX Exchange, Inc. (``BZX'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities
[[Page 54271]]
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to list and trade shares (``Shares'') of the ARK
21Shares Bitcoin ETF (``Trust'') under BZX Rule 14.11(e)(4), Commodity-
Based Trust Shares. The proposed rule change was published for comment
in the Federal Register on June 1, 2022.\3\ The Commission has received
no comments on the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 94982 (May 25,
2022), 87 FR 33250 (``Notice'').
---------------------------------------------------------------------------
On July 12, 2022, pursuant to Section 19(b)(2) of the Act,\4\ the
Commission designated a longer period within which to approve the
proposed rule change, disapprove the proposed rule change, or institute
proceedings to determine whether to disapprove the proposed rule
change.\5\ This order institutes proceedings under Section 19(b)(2)(B)
of the Act \6\ to determine whether to approve or disapprove the
proposed rule change.
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 95257, 87 FR 42530
(July 15, 2022). The Commission designated August 30, 2022, as the
date by which it should approve, disapprove, or institute
proceedings to determine whether to disapprove the proposed rule
change.
\6\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
I. Summary of the Proposal
As described in more detail in the Notice,\7\ the Exchange proposes
to list and trade the Shares of the Trust under BZX Rule 14.11(e)(4),
which governs the listing and trading of Commodity-Based Trust Shares
on the Exchange.
---------------------------------------------------------------------------
\7\ See Notice, supra note 3.
---------------------------------------------------------------------------
The investment objective of the Trust is to seek to track the
performance of bitcoin, as measured by the performance of the S&P
Bitcoin Index (``Index''), adjusted for the Trust's expenses and other
liabilities.\8\ Each Share will represent a fractional undivided
beneficial interest in the bitcoin held by the Trust. The Trust's
assets will consist of bitcoin held by the Custodian on behalf of the
Trust. The Trust generally does not intend to hold cash or cash
equivalents. However, there may be situations where the Trust will
unexpectedly hold cash on a temporary basis.\9\
---------------------------------------------------------------------------
\8\ See id. at 33269. 21Shares US LLC (``Sponsor'') is the
sponsor of the Trust, Delaware Trust Company is the trustee, and The
Bank of New York Mellon will be the administrator
(``Administrator'') and transfer agent. Foreside Global Services,
LLC will be the marketing agent in connection with the creation and
redemption of Shares. ARK Investment Management LLC will provide
assistance in the marketing of the Shares. Coinbase Custody Trust
Company, LLC (``Custodian''), will be responsible for custody of the
Trust's bitcoin. See id. at 33250, 33268.
\9\ See id. at 33268-69.
---------------------------------------------------------------------------
In seeking to achieve its investment objective, the Trust will hold
bitcoin and will value the Shares daily based on the Index. The Index
is a U.S. dollar-denominated composite reference rate for the price of
bitcoin. The Index price is currently sourced from the following
platforms: Binance, Bitfinex, Bitflyer, Bittrex, Bitstamp, Coinbase
Pro, Gemini, HitBTC, Huobi, Kraken, KuCoin, and Poloniex.\10\ The Index
methodology is intended to determine the fair market value for bitcoin
by determining the principal market for bitcoin as of 4:00 p.m. E.T.
daily.\11\
---------------------------------------------------------------------------
\10\ The underlying platforms are sourced by Lukka Inc. (``Data
Provider''), an independent third-party digital asset data company
engaged by the Sponsor, based on a combination of qualitative and
quantitative metrics to analyze a comprehensive data set and
evaluate factors including legal/regulation, Know-Your-Customer/
transaction risk, data provision, security, team/exchange, asset
quality/diversity, market quality, and negative events. As the
digital ecosystem continues to evolve, the Data Provider can add or
remove platforms based on the processes established by Lukka's
Pricing Integrity Oversight Board. See id. at 33269 and n.72.
\11\ The Index methodology uses a ranking approach that
considers several characteristics of the trading platforms,
including oversight and intra-day trading volume. Specifically, to
rank the credibility and quality of each trading platform, the Data
Provider dynamically assigns a Base Exchange Score (``BES'') to the
key characteristics for each platform. The BES reflects the
fundamentals of a platform and determines which platform should be
designated as the principal market at a given point of time. This
score is determined by computing a weighted average of the values
assigned to four different trading platform characteristics: (i)
oversight; (ii) microstructure efficiency; (iii) data transparency;
and (iv) data integrity. The methodology then applies a five-step
weighting process for identifying a principal trading platform and
the last price on that platform. Following this weighting process,
an executed trading platform price is assigned for bitcoin as of
4:00 p.m. E.T. See id. at 33269.
---------------------------------------------------------------------------
The Net Asset Value (``NAV'') of the Trust means the total assets
of the Trust including, but not limited to, all bitcoin and cash, if
any, less total liabilities of the Trust, each determined on the basis
of generally accepted accounting principles. The NAV of the Trust is
the aggregate value of the Trust's assets less its estimated accrued
but unpaid liabilities (which include accrued expenses). In determining
the Trust's NAV, the Administrator values the bitcoin held by the Trust
based on the price set by the Index as of 4:00 p.m. E.T. The
Administrator determines the NAV of the Trust on each day that the
Exchange is open for regular trading, as promptly as practical after
4:00 p.m. E.T.\12\
---------------------------------------------------------------------------
\12\ See id. at 33271.
---------------------------------------------------------------------------
The Trust will provide information regarding the Trust's bitcoin
holdings, as well as an Intraday Indicative Value (``IIV'') per Share
updated every 15 seconds, as calculated by the Exchange or a third-
party financial data provider during the Exchange's Regular Trading
Hours (9:30 a.m. E.T. to 4:00 p.m. E.T.). The IIV will be calculated by
using the prior day's closing NAV per Share as a base and updating that
value during Regular Trading Hours to reflect changes in the value of
the Trust's bitcoin holdings during the trading day.\13\
---------------------------------------------------------------------------
\13\ See id. at 33270.
---------------------------------------------------------------------------
When the Trust sells or redeems its Shares, it will do so in ``in-
kind'' transactions in blocks of 5,000 Shares. Authorized participants
will deliver, or facilitate the delivery of, bitcoin to the Trust's
account with the Custodian in exchange for Shares when they purchase
Shares, and the Trust, through the Custodian, will deliver bitcoin to
such authorized participants when they redeem Shares with the
Trust.\14\
---------------------------------------------------------------------------
\14\ See id. at 33269.
---------------------------------------------------------------------------
II. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBZX-2022-031 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \15\ to determine whether the proposed rule
change should be approved or disapproved. Institution of proceedings is
appropriate at this time in view of the legal and policy issues raised
by the proposed rule change, as discussed below. Institution of
proceedings does not indicate that the Commission has reached any
conclusions with respect to any of the issues involved. Rather, as
described below, the Commission seeks and encourages interested persons
to provide comments on the proposed rule change.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
Pursuant to Section 19(b)(2)(B) of the Act,\16\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of the proposed rule change's consistency with Section 6(b)(5)
of the Act, which requires, among other things, that the rules of a
national securities exchange be ``designed to prevent fraudulent and
manipulative acts and practices'' and ``to protect investors and the
public interest.'' \17\
---------------------------------------------------------------------------
\16\ Id.
\17\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Commission asks that commenters address the sufficiency of the
Exchange's statements in support of
[[Page 54272]]
the proposal, which are set forth in the Notice,\18\ in addition to any
other comments they may wish to submit about the proposed rule change.
In particular, the Commission seeks comment on the following questions
and asks commenters to submit data where appropriate to support their
views:
---------------------------------------------------------------------------
\18\ See Notice, supra note 3.
---------------------------------------------------------------------------
1. What are commenters' views on whether the proposed Trust and
Shares would be susceptible to manipulation? What are commenters' views
generally on whether the Exchange's proposal is designed to prevent
fraudulent and manipulative acts and practices? What are commenters'
views generally with respect to the liquidity and transparency of the
bitcoin markets, the bitcoin markets' susceptibility to manipulation,
and thus the suitability of bitcoin as an underlying asset for an
exchange-traded product?
2. Based on data and analysis provided and the academic research
cited by the Exchange,\19\ do commenters agree with the Exchange that
the Chicago Mercantile Exchange (``CME'') on which bitcoin futures
contracts trade (``CME Bitcoin Futures'') represents a regulated market
of significant size related to spot bitcoin? \20\ What are commenters'
views on whether there is a reasonable likelihood that a person
attempting to manipulate the Shares would also have to trade on the CME
to manipulate the Shares? Do commenters agree with the Exchange's
assertion that the combination of (a) CME Bitcoin Futures leading price
discovery; (b) the overall size of the bitcoin market; and (c) the
ability for market participants to buy or sell large amounts of bitcoin
without significant market impact, helps to prevent the Shares from
becoming the predominant force on pricing in either the spot bitcoin or
CME Bitcoin Futures markets? \21\
---------------------------------------------------------------------------
\19\ See id. at 33256-61, 33261 n.59.
\20\ See id. at 33262.
\21\ See id.
---------------------------------------------------------------------------
3. The Exchange states that bitcoin is resistant to price
manipulation and that other means to prevent fraudulent and
manipulative acts and practices exist to justify dispensing with the
requirement to enter into a comprehensive surveillance-sharing
agreement with a regulated market of significant size related to spot
bitcoin.\22\ In support of its assertion, the Exchange provides data
and analysis \23\ to indicate that the spot bitcoin market is
``increasingly efficient,'' with ``higher liquidity'' and a ``higher
degree of consensus among investors regarding the price of [b]itcoin,''
making it ``less susceptible to manipulation.'' \24\ Do commenters
believe the Exchange has shown that the bitcoin market is resistant to
price manipulation?
---------------------------------------------------------------------------
\22\ See id. at 33261 n.62.
\23\ See id. at 33262-68.
\24\ See id. at 33264-66.
---------------------------------------------------------------------------
III. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposal is
consistent with Section 6(b)(5) or any other provision of the Act, and
the rules and regulations thereunder. Although there do not appear to
be any issues relevant to approval or disapproval that would be
facilitated by an oral presentation of views, data, and arguments, the
Commission will consider, pursuant to Rule 19b-4, any request for an
opportunity to make an oral presentation.\25\
---------------------------------------------------------------------------
\25\ Section 19(b)(2) of the Act, as amended by the Securities
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Act Amendments of 1975, Senate Comm. on
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
---------------------------------------------------------------------------
Interested persons are invited to submit written data, views, and
arguments regarding whether the proposal should be approved or
disapproved by September 23, 2022. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
October 7, 2022.
Comments may be submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#99ebecf5fcb4faf6f4f4fcf7edead9eafcfab7fef6ef"><span class="__cf_email__" data-cfemail="1d6f687178307e7270707873696e5d6e787e337a726b">[email protected]</span></a>. Please include
File Number SR-CboeBZX-2022-031 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-CboeBZX-2022-031. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CboeBZX-2022-031 and should be submitted
by September 23, 2022. Rebuttal comments should be submitted by October
7, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
---------------------------------------------------------------------------
\26\ 17 CFR 200.30-3(a)(57).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-18966 Filed 9-1-22; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on September 2, 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.