Notice2023-21959
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change, as Modified by Amendment No. 2, To List and Trade Shares of the Wise Origin Bitcoin Trust Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
October 4, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 191 (Wednesday, October 4, 2023)</title>
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[Federal Register Volume 88, Number 191 (Wednesday, October 4, 2023)]
[Notices]
[Pages 68888-68889]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-21959]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98639; File No. SR-CboeBZX-2023-044]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
Proposed Rule Change, as Modified by Amendment No. 2, To List and Trade
Shares of the Wise Origin Bitcoin Trust Under BZX Rule 14.11(e)(4),
Commodity-Based Trust Shares
September 28, 2023.
On June 30, 2023, Cboe BZX Exchange, Inc. (``BZX'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
list and trade shares (``Shares'') of the Wise Origin Bitcoin Trust
(``Trust'') under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares.
On July 11, 2023, the Exchange filed Amendment No. 1 to the proposed
rule change, which amended and replaced the proposed rule change in its
entirety. On July 13, 2023, the Exchange filed Amendment No. 2 to the
proposed rule change, which amended and replaced the proposed rule
change, as modified by Amendment No. 1, in its entirety. The proposed
rule change, as modified by Amendment No. 2, was published for comment
in the Federal Register on July 19, 2023.\3\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 97899 (July 13,
2023), 88 FR 46249 (``Notice''). Comments on the proposed rule
change, as modified by Amendment No. 2, are available at: <a href="https://www.sec.gov/comments/sr-cboebzx-2023-044/srcboebzx2023044.htm">https://www.sec.gov/comments/sr-cboebzx-2023-044/srcboebzx2023044.htm</a>.
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On August 31, 2023, 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, as modified by Amendment No. 2.\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, as modified
by Amendment No. 2.
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\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 98263, 88 FR 61642
(Sept. 7, 2023). The Commission designated October 17, 2023, as the
date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to disapprove, the
proposed rule change.
\6\ 15 U.S.C. 78s(b)(2)(B).
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I. Summary of the Proposal, as Modified by Amendment No. 2
As described in more detail in the Notice,\7\ the Exchange proposes
to list and trade the Shares of the Trust under BZX Rule 14.11(e)(4),
which governs the listing and trading of Commodity-Based Trust Shares
on the Exchange.
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\7\ See Notice, supra note 3.
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The investment objective of the Trust is to seek to track the
performance of bitcoin, as measured by the performance of the Fidelity
Bitcoin Index PR (the ``Index''), less the Trust's expenses and other
liabilities.\8\ The Trust's assets will consist of bitcoin held by the
Trust's custodian on behalf of the Trust.\9\ The Trust's holdings of
bitcoin will be valued using the same methodology as used to calculate
the Index.\10\ The administrator of the Trust will calculate the net
asset value of the Trust once each Exchange trading day after 4:00 p.m.
ET.\11\ When the Trust sells or redeems its Shares, it will do so in
``in-kind'' transactions with authorized participants in blocks of
Shares.\12\
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\8\ See id. at 46278. FD Funds Management LLC (``Sponsor'') is
the sponsor of the Trust.
\9\ See id. The Trust generally does not intend to hold cash or
cash equivalents; however, there may be situations where the Trust
would unexpectedly hold cash on a temporary basis. See id.
\10\ See id. at 46279.
\11\ See id.
\12\ See id.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBZX-2023-044 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \13\ to determine whether the proposed rule
change should be approved or disapproved. Institution of proceedings is
appropriate at this time in view of the legal and policy issues raised
by the proposed rule change, as discussed below. Institution of
proceedings does not indicate that the Commission has reached any
conclusions with respect to any of the issues involved. Rather, as
described below, the Commission seeks and encourages interested persons
to provide comments on the proposed rule change.
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\13\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\14\ 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.'' \15\
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\14\ Id.
\15\ 15 U.S.C. 78f(b)(5).
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The Commission asks that commenters address the sufficiency of the
Exchange's statements in support of the proposal, which are set forth
in the Notice, 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:
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 and the bitcoin markets' susceptibility to
manipulation?
2. Based on data and analysis provided and the academic research
cited by the Exchange,\16\ do commenters agree with the Exchange that
the Chicago Mercantile Exchange (``CME''), on which CME bitcoin futures
trade, represents a regulated market of significant size related to
spot bitcoin? \17\ 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? \18\ Do
commenters agree with the Exchange that trading in the Shares would not
be the predominant influence on prices in the CME bitcoin futures
market? \19\
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\16\ See Notice, 88 FR at 46255-77.
\17\ See id. at 46281.
\18\ See id. at 46282.
\19\ See id.
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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
requisite surveillance sharing agreement'' with a regulated market of
significant size related to spot bitcoin.\20\ In support, the Exchange
states, among other things, that the geographically diverse and
continuous nature of bitcoin trading make it difficult and
prohibitively costly to manipulate the price of bitcoin, and that the
fragmentation across bitcoin
[[Page 68889]]
platforms, the relatively slow speed of transactions, and the capital
necessary to maintain a significant presence on each trading platform
make manipulation of bitcoin prices through continuous trading activity
challenging.\21\ The Exchange also states that offering only in-kind
creations and redemptions provides ``unique protections against
potential attempts to manipulate the price of the Shares'' and that it
makes the benchmark that the Sponsor uses to value the Trust's bitcoin
``not particularly important.'' \22\ Do commenters agree with the
Exchange's statements regarding the bitcoin market's resistance to
price manipulation?
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\20\ See id. at 46257 n.52.
\21\ See id.
\22\ See id. at 46278.
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4. The Exchange also states that it will execute a surveillance-
sharing agreement with Coinbase, Inc. (``Coinbase'') that is intended
to supplement the Exchange's market surveillance program.\23\ According
to the Exchange, the agreement is ``expected to have the hallmarks of a
surveillance-sharing agreement between two members of the [Intermarket
Surveillance Group], which would give the Exchange supplemental access
to data regarding spot [b]itcoin trades on Coinbase where the Exchange
determines it is necessary as part of its surveillance program for the
Commodity-Based Trust Shares.'' \24\ Based on the description of the
surveillance-sharing agreement as provided by the Exchange, what are
commenters' views of such an agreement if finalized and executed? Do
commenters agree with the Exchange that such an agreement with Coinbase
would be ``helpful in detecting, investigating, and deterring fraud and
market manipulation in the Commodity-Based Trust Shares''? \25\
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\23\ See id. at 46277.
\24\ See id. The Exchange states that ``[t]his means that the
Exchange expects to receive market data for orders and trades from
Coinbase, which it will utilize in surveillance of the trading of
Commodity-Based Trust Shares.'' Id.
\25\ See id.
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5. Some sponsors of proposed spot bitcoin exchange-traded products
have also provided data regarding the correlation between certain
bitcoin spot markets and the CME bitcoin futures market.\26\ What are
commenters' views on the correlation between the bitcoin spot market
and the CME bitcoin futures market? What are commenters' views on the
extent to which that correlation provides evidence that the CME bitcoin
futures market is ``significant'' related to spot bitcoin?
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\26\ See, e.g. Notice of Filing of Amendment No. 3 to, and 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, Securities Exchange Act Release No. 98112 (Aug. 11,
2023), 88 FR 55743 (Aug. 16, 2023) (including data from sponsor
21Shares US LLC that purports to show correlations of returns across
the two-year period from January 20, 2021, to February 1, 2023, of
no less than 92% among certain spot bitcoin platforms and between
the CME bitcoin futures market and such spot bitcoin platforms on an
hourly basis, and no less than 78% on a minutely basis).
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III. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposal is
consistent with Section 6(b)(5) or any other provision of the Act, and
the rules and regulations thereunder. Although there do not appear to
be any issues relevant to approval or disapproval that would be
facilitated by an oral presentation of views, data, and arguments, the
Commission will consider, pursuant to Rule 19b-4, any request for an
opportunity to make an oral presentation.\27\
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\27\ Section 19(b)(2) of the Act, as amended by the Securities
Acts 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 Acts Amendments of 1975, Senate Comm.
on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change should be approved
or disapproved by October 25, 2023. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
November 8, 2023.
Comments may be submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#b5c7c0d9d098d6dad8d8d0dbc1c6f5c6d0d69bd2dac3"><span class="__cf_email__" data-cfemail="2f5d5a434a024c4042424a415b5c6f5c4a4c01484059">[email protected]</span></a>. Please include
file number SR-CboeBZX-2023-044 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-2023-044. 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="https://www.sec.gov/rules/sro.shtml">https://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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-CboeBZX-2023-044 and should
be submitted on or before October 25, 2023. Rebuttal comments should be
submitted by November 8, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-21959 Filed 10-3-23; 8:45 am]
BILLING CODE 8011-01-P
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