Notice2023-26500
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To List and Trade Shares of the Hashdex Bitcoin Futures ETF Under NYSE Arca Rule 8.500-E (Trust Units)
Primary source
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Published
December 1, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 230 (Friday, December 1, 2023)</title>
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[Federal Register Volume 88, Number 230 (Friday, December 1, 2023)]
[Notices]
[Pages 84021-84023]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-26500]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99031; File No. SR-NYSEARCA-2023-58]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting
Proceedings To Determine Whether To Approve or Disapprove a Proposed
Rule Change To List and Trade Shares of the Hashdex Bitcoin Futures ETF
Under NYSE Arca Rule 8.500-E (Trust Units)
November 28, 2023.
On September 22, 2023, 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 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to list and trade shares (``Shares'') of the
Hashdex Bitcoin Futures ETF (``Fund'') under NYSE Arca Rule 8.500-E
(Trust Units). The proposed rule change was published for comment in
the Federal Register on October 3, 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. 98564 (Sept. 27,
2023), 88 FR 68188 (``Notice''). Comments on the proposed rule
change are available at: <a href="https://www.sec.gov/comments/sr-nysearca-2023-58/srnysearca202358.htm">https://www.sec.gov/comments/sr-nysearca-2023-58/srnysearca202358.htm</a>.
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On November 15, 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.\5\ This order institutes proceedings under section 19(b)(2)(B)
of the Act \6\ to determine whether to approve or disapprove the
proposed rule change.
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\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 98947, 88 FR 81171
(Nov. 21, 2023). The Commission designated January 1, 2024, 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 described in more detail in the Notice,\7\ the Exchange proposes
to list and trade the Shares of the Fund, a series of the Tidal
Commodities Trust I (``Trust''), under NYSE Arca Rule 8.500-E, which
governs the listing and trading of Trust Units on the Exchange.\8\
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\7\ See Notice, supra note 3.
\8\ The Exchange states that the Commission previously approved
the listing and trading of the Shares pursuant to NYSE Arca Rule
8.200-E, Commentary .02, which governs the listing and trading of
Trust Issued Receipts on the Exchange, as shares of the Teucrium
Bitcoin Futures Fund. See Securities Exchange Act Release No. 34-
94620 (Apr. 6, 2022), 87 FR 21676 (Apr. 12, 2022) (SR-NYSEArca-2021-
53) (Order Approving a Proposed Rule Change, as Modified by
Amendment No. 2, To List and Trade Shares of the Teucrium Bitcoin
Futures Fund) (the ``Approval Order''). See also Securities Exchange
Act Release No. 92573 (Aug. 5, 2021), 86 FR 44062 (Aug. 11, 2021)
(SR-NYSEArca-2021-53) (Notice of Filing of a Proposed Rule Change To
List and Trade Shares of Teucrium Bitcoin Futures Fund Under NYSE
Arca Rule 8.200-E) and Partial Amendment No. 2, available at <a href="https://www.sec.gov/comments/sr-nysearca-2021-53/srnysearca202153-20118884-271701.pdf">https://www.sec.gov/comments/sr-nysearca-2021-53/srnysearca202153-20118884-271701.pdf</a>. According to the Exchange, the name of the Teucrium
Bitcoin Futures Fund was subsequently changed to the Hashdex Bitcoin
Futures ETF. See Notice, 88 FR at 68188. The Exchange states that
the representations set forth in the Notice supersede and replace
the representations in the Exchange's prior rule filing relating to
the Teucrium Bitcoin Futures Fund and Partial Amendment No. 2
thereto. See id. at 68188 n.4.
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The investment objective of the Fund is to have the daily changes
in the net asset value (``NAV'') of the Shares reflect the daily
changes in the price of a specified benchmark (``Benchmark'').\9\ The
Benchmark will be calculated using the Nasdaq Bitcoin Reference Price--
Settlement (``NQBTCS''), which tracks the price of bitcoin.\10\ The
Fund will seek to achieve its investment objective by investing in
bitcoin futures contracts \11\ as well as in physical bitcoin to the
extent allowed by the Fund's investment restrictions on spot
bitcoin.\12\ The Fund will use the CME's Exchange for Physical
(``EFP'') transactions to acquire and dispose of spot bitcoin.\13\ The
Fund will be subject to investment restrictions on spot bitcoin which
are currently set at 100% of the 30-day Average Daily Traded Volume on
the core bitcoin platforms of the NQBTCS that are subject to regulatory
and reporting rules in the United States, including companies that are
publicly traded in the United States.\14\ The administrator of the Fund
will calculate the NAV of the Fund once each trading day, as of the
earlier of the close of the New York Stock Exchange or 4:00 p.m.
Eastern Standard Time.\15\ To determine the value of bitcoin futures
contracts, the Fund's administrator will use the bitcoin futures
contract settlement price on the exchange on which the contract is
traded, except that the fair value of bitcoin futures contracts may be
used when bitcoin futures contracts close at their price fluctuation
limit for the day. The value of spot bitcoin held by the Fund would be
determined by the Sponsor and by Hashdex Asset Management Ltd.
(``Digital Asset Adviser'') in good faith based on a methodology that
is entirely derived from the settlement prices of bitcoin futures
contracts on the CME and that considers all available facts and all
available information on the valuation date.\16\ When the Fund sells or
redeems its Shares, it will do so in cash transactions with authorized
participants in blocks of 12,500 Shares.\17\
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\9\ See Notice, 88 FR at 68189. The Fund is managed and
controlled by Toroso Investments LLC (``Sponsor''). See id. at
68188.
\10\ See id. at 68189.
\11\ It is unclear from the filing whether the Fund is limited
to investing in bitcoin futures contracts traded on the Chicago
Mercantile Exchange, Inc. (``CME'').
\12\ See id. at 68190. The Fund will hold a mix of spot bitcoin,
bitcoin futures contracts, and cash and cash equivalents, subject to
certain investment restrictions. See id. at 68197.
\13\ See id. at 68197. According to the Exchange, EFP
transactions are a type of private agreement between two parties to
trade a futures position for the underlying asset. In an EFP
transaction, two parties exchange equivalent but offsetting
positions in a bitcoin futures contract and the underlying physical
bitcoin. In the context of the Fund, these transactions will be used
to purchase and sell spot bitcoin by delivering or receiving the
equivalent futures position. See id. at 68204.
\14\ See id. at 68203. According to the Exchange, as of the date
of the filing, Coinbase Inc. was the only bitcoin platform to
satisfy this criterion. See id. at 68203 n.78.
\15\ See id. at 68206. The Fund's NAV will include any
unrealized profit or loss on open bitcoin futures contacts and any
other credit or debit accruing to the Fund but unpaid or not
received by the Fund. See id.
\16\ See id. at 68199. This ``futures-based spot price''
methodology is sensitive to both the tenor of a bitcoin futures
contract and the final settlement price for such contract. The
calculation produces a set of weighting factors, with each factor
indicating the contribution of the corresponding bitcoin futures
contract to the estimated current spot price of bitcoin. The
estimated spot price is the component of the result corresponding to
a tenor of zero days. The Sponsor and Digital Asset Advisor will not
use data from bitcoin trading platforms or directly from spot
bitcoin trading activity in determining the value of spot bitcoin
held by the Fund. See id. at 68206.
\17\ See id. at 68204, 68206.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEARCA-2023-58 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to section
19(b)(2)(B) of the Act \18\ 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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\18\ 15 U.S.C. 78s(b)(2)(B).
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[[Page 84022]]
Pursuant to section 19(b)(2)(B) of the Act,\19\ 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.'' \20\
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\19\ Id.
\20\ 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 Fund 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,\21\ what are commenters views on whether the
CME, on which CME bitcoin futures trade and through which the Fund
intends to engage in EFP transactions to purchase or sell spot bitcoin,
represents a regulated market of significant size related to spot
bitcoin? \22\ What are commenters' views on whether there is a
reasonable likelihood that a person attempting to manipulate the Shares
would also have to trade on the CME to manipulate the Shares? \23\ 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? \24\
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\21\ See Notice, 88 FR at 68198-99, 68201 n.74, 68202-03.
\22\ See id. at 68197.
\23\ See id.
\24\ See id.
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3. The Exchange states that the Fund intends to adopt ``an
innovative approach to mitigate the risks of fraud and manipulation
that are unique to the Fund'' by ``structur[ing] the operation of the
Fund such that the regulated market of significant size in relation to
the Fund is the [CME] because it is the same market on which the Fund
trades its non-cash assets.'' \25\ The Exchange further states that the
Fund has novel features that underscore its significant
interrelationship with the CME, including that the Fund (i) utilizes
futures-based pricing for spot bitcoin such that the NAV calculation
for the spot bitcoin holdings of the Fund will be derived from the CME
bitcoin futures curve; (ii) is subject to investment restrictions on
spot bitcoin; (iii) will use CME EFP transactions to acquire and
dispose of spot bitcoin ``instead of transactions on unregulated spot
exchanges''; and (iv) will utilize only cash creations and
redemptions.\26\ Based on the structure and operation of the Fund and
the Fund's investments as described in the filing, what are commenters'
views on whether the CME represents a regulated market of significant
size related to spot bitcoin? \27\
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\25\ See id. at 68196.
\26\ See id. at 68197.
\27\ See id. at 68197.
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4. The Fund will only use CME EFP transactions to acquire and
dispose of spot bitcoin.\28\ The Exchange states that ``trading
activity in EFP transactions is sporadic'' but that, ``[n]onetheless,
the Sponsor believes that a large number of liquidity providers are
ready to execute this type of transaction and can provide enough
liquidity to support the [Fund's] demand.'' \29\ Do commenters agree?
Why or why not?
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\28\ See, e.g., id. at 68204-06.
\29\ See id. at 68205.
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5. The value of spot bitcoin held by the Fund would be determined
using a futures-based spot price methodology that is derived from the
settlement prices of bitcoin futures contracts on the CME.\30\ The
Exchange presents data \31\ that it states ``strongly suggests that
[futures-based spot pricing] is a suitable choice for the NAV
calculation.'' \32\ The Exchange states that futures-based spot pricing
``could create some level of uncertainty due to the potential
divergences between the [futures-based spot price] and the spot prices
observed in unregulated markets'' but that authorized participants
``will always be in a position to hedge their exposure using
exclusively the [CME bitcoin futures market], which will make them more
likely to provide liquidity to the Fund thus making its market price
converge to its NAV.'' \33\ Do commenters agree with the Exchange? Why
or why not?
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\30\ See id. at 68199.
\31\ See id. at 68199-201.
\32\ See id. at 68201.
\33\ See id. at 68201.
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6. Some sponsors of proposed spot bitcoin exchange-traded products
have provided data regarding the correlation between certain bitcoin
spot markets and the CME bitcoin futures market.\34\ 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? What are
commenters' views on the Sponsor's own statistical analysis of the
relationship between prices in certain unregulated bitcoin markets and
prices of CME bitcoin futures contracts? \35\
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\34\ 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).
\35\ See id. at 68202.
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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.\36\
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\36\ 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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[[Page 84023]]
Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change should be approved
or disapproved by December 22, 2023. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
January 5, 2024.
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#bac8cfd6df97d9d5d7d7dfd4cec9fac9dfd994ddd5cc"><span class="__cf_email__" data-cfemail="d4a6a1b8b1f9b7bbb9b9b1baa0a794a7b1b7fab3bba2">[email protected]</span></a>. Please include
file number SR-NYSEARCA-2023-58 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-NYSEARCA-2023-58. 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-NYSEARCA-2023-58 and should
be submitted on or before December 22, 2023. Rebuttal comments should
be submitted by January 5, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\37\
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\37\ 17 CFR 200.30-3(a)(57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-26500 Filed 11-30-23; 8:45 am]
BILLING CODE 8011-01-P
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