Notice2024-13054
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change To List and Trade Shares of the ProShares Ethereum ETF
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
June 14, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 116 (Friday, June 14, 2024)</title>
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[Federal Register Volume 89, Number 116 (Friday, June 14, 2024)]
[Notices]
[Pages 50644-50652]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-13054]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100307; File No. SR-NYSEARCA-2024-53]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change To List and Trade Shares of the ProShares
Ethereum ETF
DATES: June 10, 2024.
Pursuant to section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on June 6, 2024, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade shares of the ProShares
Ethereum ETF (the ``Fund'') under NYSE Arca Rule 8.201-E (Commodity-
Based Trust Shares). The proposed rule change is available on the
Exchange's website at <a href="http://www.nyse.com">www.nyse.com</a>, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade shares (``Shares'') of the
Fund, which is a series of the ProShares Trust III (the ``Trust'') \4\
pursuant to NYSE Arca Rule 8.201-E, which governs the listing and
trading of Commodity Based Trust Shares.\5\
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\4\ The Trust is a Delaware statutory trust. On April 12, 2024,
the Trust filed with the Commission an initial registration
statement (the ``Registration Statement'') on Form S-1 under the
Securities Act of 1933 (15 U.S.C. 77a). The description of the
operation of the Trust herein is based, in part, on the Registration
Statement. The Registration Statement is not yet effective, and the
Shares will not trade on the Exchange until such time that the
Registration Statement is effective.
\5\ Commodity-Based Trust Shares are securities issued by a
trust that represents investors' discrete identifiable and undivided
beneficial ownership interest in the commodities deposited into the
trust.
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According to the Registration Statement, the Trust will not be
registered as an investment company under the Investment Company Act of
1940 \6\ and is not required to register
[[Page 50645]]
thereunder. The Trust is not a commodity pool for purposes of the
Commodity Exchange Act.\7\
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\6\ 15 U.S.C. 80a-1.
\7\ 17 U.S.C. 1.
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The Exchange represents that the Shares satisfy the requirements of
NYSE Arca Rule 8.201-E and thereby qualify for listing on the
Exchange.\8\
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\8\ With respect to the application of Rule 10A-3 (17 CFR
240.10A-3) under the Act, the Trust relies on the exemption
contained in Rule 10A-3(c)(7).
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Operation of the Trust and Fund \9\
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\9\ The description of the operation of the Trust, the Fund, the
Shares, and the ether market contained herein is based, in part, on
the Registration Statement. See note 4, supra.
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The Trust will issue the Shares which, according to the
Registration Statement, represent units of fractional undivided
beneficial interest in and ownership of the Fund. The Trust is a
Delaware statutory trust that operates pursuant to a trust agreement
dated as of April 10, 2024. Delaware Trust Company (the ``Trustee'') is
the trustee of the Trust. ProShare Capital Management LLC (the
``Sponsor'') is the sponsor of the Trust and the Fund. Coinbase Custody
Trust Company, LLC (the ``Ether Custodian'') will maintain custody of
the Fund's ether. The Bank of New York Mellon will be the custodian for
the Fund's cash holdings (in such role, the ``Cash Custodian'') and the
administrator of the Trust (in such role, the ``Administrator'').
According to the Registration Statement, the investment objective
of the Fund is to reflect the performance of ether as measured by the
Bloomberg Ethereum Index (the ``Index''), less the Trust's expenses and
liabilities. The Index is designed to measure the performance of ether
traded in U.S. Dollars (``USD'') and seeks to provide a representative
proxy for the ether market. The closing Index price is calculated at
4:00 p.m. E.T. daily. The Index is owned and administered by Bloomberg
Index Services Limited (the ``Index Provider'').
The Fund's only assets will be ether and cash. The Fund does not
seek to hold any non-ether digital assets and has expressly disclaimed
ownership of any such assets in the event the Fund ever involuntarily
comes into possession of such assets.\10\ The Fund will not use
derivatives that may subject the Fund to counterparty and credit risks.
The Fund will process creations and redemptions in cash. The Fund's
only recurring ordinary expense is expected to be the Sponsor's
management fee (the ``Sponsor Fee'').
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\10\ The Fund may, from time to time, passively receive, by
virtue of holding ether, certain rights to receive a new digital
asset (``Incidental Rights'') through a fork of the Ethereum network
or an airdrop of assets. Any virtual currency (other than ether)
acquired through an Incidental Right is ``IR Virtual Currency.''
With respect to a fork, airdrop, or similar event, the Sponsor will
cause the Fund to irrevocably abandon the Incidental Rights and/or
IR Virtual Currency associated with such event. Such assets are not
and shall never be considered assets of the Fund and will not be
taken into account or purposes of determining the Fund's NAV or NAV
per Share. Neither the Trust, nor the Sponsor, nor the Ether
Custodian, nor any other person associated with the Trust will,
directly or indirectly, engage in action where any portion of the
Trust's ether becomes subject to the Ethereum proof-of-stake
validation or is used to earn additional ether or generate income or
other earnings.
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Custody of the Fund's Ether
The Fund's Ether Custodian will maintain custody of the Fund's
ether, other than that which is maintained in a trading account (the
``Trading Balance'') with Coinbase, Inc. (the ``Prime Execution
Agent,'' which is an affiliate of the Ether Custodian), in accounts
that are required to be segregated from the assets held by the Ether
Custodian as principal and the assets of its other customers.\11\ The
Fund's ether holdings and cash holdings from time to time may be
temporarily held with the Prime Execution Agent in the Trading Balance
for certain limited purposes, including in connection with creations
and redemptions of Creation Units (as defined below), and the sale of
ether to pay the Sponsor's Fee and any other Fund expenses not assumed
by the Sponsor, to the extent applicable, and in extraordinary
circumstances, in connection with the liquidation of the Fund's ether.
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\11\ The Sponsor will maintain ownership and control of ether in
a manner consistent with good delivery requirements for spot
commodity transactions.
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The Ether Custodian provides safekeeping of ether using a multi-
layer cold storage security platform designed to provide offline
security of the ether held by the Ether Custodian. The Prime Execution
Agent holds the ether associated with customer entitlements across a
combination of omnibus cold wallets, omnibus ``hot wallets'' (meaning
wallets whose private keys are generated and stored online, in
internet-connected computers or devices) or in omnibus accounts in the
Prime Execution Agent's name on a trading venue (including third-party
venues and the Prime Execution Agent's own execution venue) where the
Prime Execution Agent executes orders to buy and sell ether on behalf
of its clients.
Valuation of the Fund's Ether
The net assets of the Fund and its Shares are valued on a daily
basis with reference to the Index, which is designed to measure the
performance of ether traded in USD. The Index is calculated daily using
Digital Asset Research (``DAR'') pricing and is published after review
and quality checks. The ``DAR Close Price'' is a time-weighted average
price derived from eligible, non-outlier trades that occur within a 30-
minute window prior to 4:00 p.m. E.T. Intraday Index values will be
calculated and published on the Bloomberg Terminal from 6:15 a.m. E.T.
to 4:00 p.m. E.T.
DAR takes pricing from eligible trading platforms based on DAR's
vetting methodology, which aims to identify trustworthy trading
platforms and encourage best practices by gathering, recording, and
comparing a series of quantitative and qualitative data points. DAR's
methodology is reviewed quarterly and updated as required to reflect
the maturing digital asset marketplace and the needs of its
participants. The Index Provider administers the Index according to
three guiding principles:
<bullet> Data Integrity. Pricing Sources \12\ are selected for
liquidity and reliability and approved for use following risk and
suitability assessments. Cryptocurrencies must meet minimum thresholds
for daily traded USD-value.
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\12\ The ``Pricing Sources'' are the trading venues included in
the Index.
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<bullet> Representative. The Index seeks to provide a proxy for the
Ethereum market.
<bullet> Continuity. The Index is intended to be responsive to the
changing nature of the market in a manner that does not completely
reshape the character of the Index from year to year.
The ether Pricing Sources used by the Index Provider have, at a
minimum, represented to the Index Provider that they have documents
compliance programs that include, but are not limited to, AML and KYC
policies, and have provided the Index Provider with an organizational
and/or ownership chart.
In determining the Fund's Net Asset Value (``NAV''), the
Administrator values the ether held by the Fund based on the price set
by the Index as of 4:00 p.m. E.T.
The Sponsor, in its sole discretion, may cause the Fund to price
its portfolio based upon an index, benchmark, or standard other than
the Index at any time, with prior notice to the shareholders, if
investment conditions change or the Sponsor believes that another
index, benchmark, or standard better aligns with the Fund's investment
objective and strategy. The Sponsor may make this decision for a number
of
[[Page 50646]]
reasons, including, but not limited to, a determination that the Index
price of ether differs materially from the global market price of ether
and/or that third parties are able to purchase and sell ether on public
or private markets not included among the Pricing Sources, and such
transactions may take place at prices materially higher or lower than
the Index price. The Sponsor, however, is under no obligation
whatsoever to make such changes in any circumstance. In the event that
the Sponsor intends to establish the Fund's NAV by reference to an
index, benchmark, or standard other than the Index, it will provide
shareholders with notice in a prospectus supplement and/or a current
report on Form 8-K or in the Fund's annual or quarterly reports.\13\
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\13\ The Sponsor will provide notice of any such changes in the
Trust's periodic or current reports and, if the Sponsor makes such a
change other than on an ad hoc or temporary basis, will file a
proposed rule change with the Commission.
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Net Asset Value
The Fund's NAV means the total assets of the Fund, which will
consist solely of ether and cash, less total liabilities of the Fund.
The Administrator determines the NAV of the Fund on each day that the
Exchange is open for regular trading, as promptly as practical after
4:00 p.m. ET. The NAV of the Fund is the aggregate value of the Fund's
assets less its estimated accrued but unpaid liabilities (which include
accrued expenses). In determining the Fund's NAV, the Administrator
values the ether held by the Fund based on the price set by the Index
as of 4:00 p.m. ET. The Administrator also determines the NAV per Share
by dividing the NAV by the number of Shares then outstanding.
Indicative Optimized Portfolio Value (``IOPV'')
The IOPV is an indicator of the value of the Fund's net assets at
the time the IOPV is disseminated. The IOPV is calculated and
disseminated at least every 15 seconds throughout the trading day. The
IOPV is generally calculated using the prior day's closing net assets
of the Fund as a base and updating throughout the trading day changes
in the value of ether based on the intraday Index. One or more major
market data vendors will widely disseminate the IOPV, updated every 15
seconds each trading day as calculated by the Exchange or a third-party
financial data provider during the Exchange's Core Trading Session
(9:30 a.m. to 4:00 p.m., E.T.).
Creation and Redemption of Shares
The Fund creates and redeems Shares from time to time, but only in
one or more ``Creation Units.'' These transactions will take place in
exchange for cash. ``Authorized Participants'' are the only persons
that may place orders to create and redeem Creation Units. Each
Authorized Participant must be registered as a broker-dealer under the
Exchange Act and regulated by the FINRA, or exempt from being, or
otherwise not required to be, so regulated or registered, and must be
qualified to act as a broker or dealer in the states or other
jurisdictions where the nature of its business so requires.
The Fund will engage in ether transactions for converting cash into
ether (in association with purchase orders) and ether into cash (in
association with redemption orders). The Fund will conduct its ether
purchase and sale transactions by, in its sole discretion, choosing to
trade directly with third parties (each, an ``Ether Trading
Counterparty''),\14\ who are not registered broker-dealers, pursuant to
written agreements between such Ether Trading Counterparties and the
Fund, or choosing to trade through the Prime Execution Agent through
its Coinbase Prime service pursuant to the Prime Execution Agent
Agreement. Initially, the Fund expects to conduct its ether purchase
and sale transactions solely through the Prime Execution Agent through
its Coinbase Prime service. Over time, the Fund also expects to conduct
these transactions by trading directly with Ether Trading
Counterparties. Ether Trading Counterparties may be added at any time,
subject to the discretion of the Sponsor. The Authorized Participants
will deliver only cash to create Shares and will receive only cash when
redeeming Shares. Further, Authorized Participants will not directly or
indirectly purchase, hold, deliver, or receive ether as part of the
creation or redemption process or otherwise direct the Fund or a third
party with respect to purchasing, holding, delivering, or receiving
ether as part of the creation or redemption process.
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\14\ The Ether Trading Counterparties with which the Sponsor
will engage in ether transactions are unaffiliated third-parties
that are not acting as agents of the Fund, the Sponsor, or the
Authorized Participant, and all transactions will be done on an
arms-length basis. There is no contractual relationship between the
Fund, the Sponsor, or the Ether Trading Counterparty. When seeking
to sell ether on behalf of the Fund, the Sponsor will seek to sell
ether at commercially reasonable price and terms to any of the
approved Ether Trading Counterparties. Once agreed upon, the
transaction will generally occur on an ``over-the-counter'' basis.
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The Fund will create Shares by receiving ether from a third party
that is not the Authorized Participant and the Fund--not the Authorized
Participant--is responsible for selecting the third party to deliver
the ether. Further, the third party will not be acting as an agent of
the Authorized Participant with respect to the delivery of the ether to
the Fund or acting at the direction of the Authorized Participant with
respect to the delivery of the ether to the Fund. The Fund will redeem
Shares by delivering ether to a third party that is not the Authorized
Participant and the Fund--not the Authorized Participant--is
responsible for selecting the third party to receive the ether.
Further, the third party will not be acting as an agent of the
Authorized Participant with respect to the receipt of the ether from
the Fund or acting at the direction of the Authorized Participant with
respect to the receipt of the ether from the Fund. The third party will
be unaffiliated with the Trust, the Fund and the Sponsor. The Prime
Execution Agent facilitates the purchase and sale or settlement of the
Fund's ether transactions. Ether Trading Counterparties settle trades
with the Fund using their own accounts at the Prime Execution Agent
when trading with the Fund.
Creation of Shares
On any business day,\15\ an Authorized Participant may place an
order with the Transfer Agent to create one or more Creation Units. By
placing a creation order, an Authorized Participant agrees to
facilitate the deposit of ether with the Ether Custodian. For a
creation of Creation Units, the Authorized Participant will be required
to submit the purchase order by an early order cutoff time (the
``Creation Early Order Cutoff Time''). The Creation Early Order Cutoff
Time is 2:00 p.m. E.T. on the business day prior to trade date. The
date on which the order is received will determine the estimated cash
amount (the ``Creation Unit Amount'') the Authorized Participant needs
to deposit and the basket ether amount (the ``Creation Unit Ether
Amount'') the Fund needs to purchase from the Ether Trading
Counterparty or through the Prime Execution Agent. The final cash
amounts will be determined after the NAV of the Fund is struck and the
Fund's ether transactions have settled.
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\15\ For purposes of processing creation and redemption orders,
a ``business day'' means any day other than a day when the Exchange
is closed for regular trading.
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The Creation Unit Amount necessary for the creation of a Creation
Unit changes from day to day. On each
[[Page 50647]]
business day, the Administrator will adjust the cash amount
constituting the Creation Unit Amount and the quantity of ether
constituting the Creation Unit Ether Amount as appropriate to reflect
sales of ether, any loss of ether that may occur, and accrued expenses.
The computation is made by the Sponsor as promptly as practicable after
4:00 p.m. E.T. The Administrator will determine the Creation Unit
Amount for a given day by multiplying the NAV by the number of Shares
in each Creation Unit and determine the Creation Unit Ether Amount for
a given day by dividing the Creation Unit Amount for that day by that
day's Index. The Creation Unit Amount and the Creation Unit Ether
Amount so determined will be made available to all Authorized
Participants and Ether Transaction Counterparties on the Sponsor's
website for the Shares.
Redemption of Shares
The procedures by which an Authorized Participant can redeem one or
more Creation Units mirror the procedures for the creation of Creation
Units. On any business day, an Authorized Participant may place an
order to redeem one or more Creation Units. For a redemption of
Creation Units, the Authorized Participant will be required to submit a
redemption order by an early order cutoff time (the ``Redemption Early
Order Cutoff Time''). The Redemption Early Order Cutoff Time is 6:00
p.m. E.T. on the business day prior to trade date. On the date of the
Redemption Early Order Cutoff Time, the Sponsor may choose, in its sole
discretion, to enter into a transaction with an Ether Trading
Counterparty or the Prime Execution Agent, to sell ether in exchange
for cash. Also on the date of the Redemption Order Early Cutoff, the
Sponsor instructs the Ether Custodian to prepare to move the associated
ether from the Fund's Vault Balance \16\ with the Ether Custodian to
the Fund's Trading Balance with the Prime Execution Agent.
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\16\ The Fund's ``Vault Balance'' is the Fund's ether that is
required to be segregated from the assets held by the Ether
Custodian as principal and the assets of its other customers.
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For settlement of a redemption, the Authorized Participant delivers
the necessary Shares to the Fund, an Ether Trading Counterparty or the
Prime Execution Agent, as applicable, delivers the cash to the Trust
associated with the Fund's sale of ether, the Fund delivers ether to
the Ether Trading Counterparty's account at the Prime Execution Agent
or directly to the Prime Execution Agent, as applicable, and the Fund
delivers cash to the Authorized Participant. With respect to a
redemption order, between the Fund and the Authorized Participant, the
Authorized Participant will be responsible for the dollar cost of the
difference between the ether price utilized in calculating the NAV on
trade date and the price realized in selling the ether to raise the
cash needed for the cash redemption order to the extent the price
realized in selling the ether is lower than the ether price utilized in
the NAV. To the extent the price realized in selling the ether is
higher than the price utilized in the NAV, the Authorized Participant
will be entitled to the dollar amount of any such difference.
Background
Ethereum is free software that is hosted on computers distributed
throughout the globe. Ethereum employs an array of computer code-based
logic, called a protocol, to create a unified understanding of
ownership, commercial activity, and economic logic. This allows users
to engage in commerce without the need to trust any of its participants
or counterparties. Ethereum code creates verifiable and unambiguous
rules that assign clear, strong property rights to create a platform
for unrestrained business formation and free exchange. No single
intermediary or entity operates or controls the Ethereum network, the
transaction validation and recordkeeping infrastructure of which is
collectively maintained by a disparate user base. The Ethereum network
allows people to exchange tokens of value, or ether, which are recorded
on a distributed, public recordkeeping system or ledger known as a
blockchain, and which can be used to pay for goods and services,
including computational power on the Ethereum network, or converted to
fiat currencies, such as the U.S. dollar, at rates determined on spot
trading platforms or in individual peer-to-peer transactions. By
combining the recordkeeping system of the Ethereum blockchain with a
flexible scripting language that can be used to implement a wide
variety of instructions, the Ethereum network is intended to act as a
public computational layer on top of which users can build their own
public software programs, as an alternative to centralized web
services. On the Ethereum network, ether is the unit of account that
users pay for the computational resources consumed by running programs
of their choice.
Previously, U.S. retail investors have lacked a U.S. regulated,
U.S. exchange-traded vehicle to gain direct exposure to ether. Instead,
current options include: (i) facing the counter-party risk, legal
uncertainty, technical risk, and complexity associated with accessing
spot ether directly, or (ii) over-the-counter ether funds (``OTC Ether
Funds'') with high management fees and potentially volatile premiums
and discounts. Meanwhile, investors in other countries, including
Germany, Switzerland, and France, are able to use more traditional
exchange listed and traded products (including exchange-traded funds
holding spot ether) to gain exposure to ether.\17\
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\17\ The Exchange notes that the list of countries above is not
exhaustive and that securities regulators in a number of additional
countries have either approved or otherwise allowed the listing and
trading of spot ether ETPs.
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To this point, the lack of an exchange-traded product (``ETP'')
that holds spot ether (a ``Spot Ether ETP'') exposes U.S. investor
assets to significant risk because investors who would otherwise seek
exposure through a Spot Ether ETP are forced to find alternative
exposure through generally riskier means. For example, investors in OTC
Ether Funds are not afforded the benefits and protections of regulated
Spot Ether ETPs, resulting in retail investors potentially suffering
losses due to drastic movements in the premium/discount of OTC Ether
Funds. Additionally, many U.S. investors who held their digital assets
in accounts at FTX,\18\ Celsius Network LLC,\19\ BlockFi Inc.,\20\ and
Voyager Digital Holdings, Inc.\21\ have become unsecured creditors in
the insolvencies of those entities. The Sponsor believes that, if a
Spot Ether ETP had been available to U.S. investors, it is likely that
at least a portion of the billions of dollars tied up in those
proceedings would still reside in the brokerage accounts of U.S.
investors, having instead been invested in the transparent, regulated,
and well-understood structure of a Spot Ether ETP. The Sponsor thus
believes that the approval of a Spot Ether ETP would represent a major
step towards protection of U.S. investors.
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\18\ See FTX Trading Ltd., et al., Case No. 22-11068.
\19\ See Celsius Network LLC, et al., Case No. 22-10964.
\20\ See BlockFi Inc., Case No. 22-19361.
\21\ See Voyager Digital Holdings, Inc., et al., Case No. 22-
10943.
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CME Ether Futures Market
The Chicago Mercantile Exchange (``CME'') began offering trading in
ether futures on February 8, 2021.\22\ Each contract represents fifty
ether and is based on the CME CF Ether Reference Rate. The contracts
trade and settle like
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other cash settled commodity futures contracts.
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\22\ See ``CME Group Announces Launch of Ether Futures,''
February 8, 2021.
[GRAPHIC] [TIFF OMITTED] TN14JN24.433
Most measurable metrics related to CME ether futures have trended
up since launch. For example, there were 92,278 CME ether futures
contracts traded in April 2024 (approximately $14.9 billion) compared
to 105,005 contracts ($10.1 billion), 83,568 contracts ($12.8 billion),
and 49,938 contracts ($6.0 billion) traded in April 2023, April 2022,
and April 2021, respectively.\23\
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\23\ Source: Bloomberg.
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Average daily open interest was 5,650 CME ether futures contracts
in April 2024 (approximately $920 million) compared to 4,737 contracts
($459 million), 3,371 contracts ($521 million), and 2,134 contracts
($253 million) in April 2023, April 2022, and April 2021
respectively.\24\
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\24\ Source: Bloomberg.
[GRAPHIC] [TIFF OMITTED] TN14JN24.434
The number of large open interest holders has increased as well, as
demonstrated in the figure that follows.\25\
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\25\ A large open interest holder in ether futures is an entity
that holds at least 25 contracts, or the equivalent of 1,250 ether.
Source: The Block.
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[GRAPHIC] [TIFF OMITTED] TN14JN24.435
The Commodity Futures Trading Commission (``CFTC'') regulates the
CME ether futures market, and both the Exchange and CME are members of
the Intermarket Surveillance Group (``ISG'').\26\
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\26\ For a list of the current members and affiliate members of
ISG, see <a href="https://www.isgportal.com/">https://www.isgportal.com/</a>.
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Applicable Standard
On May 23, 2024, the Commission approved the listing and trading of
shares of the Grayscale Ethereum Trust and the Bitwise Ethereum ETF
under NYSE Arca Rule 8.201-E (Commodity-Based Trust Shares); the
iShares Ethereum Trust under Nasdaq Rule 5711(d) (Commodity-Based Trust
Shares); and the VanEck Ethereum Trust, the ARK 21Shares Ethereum ETF,
the Invesco Galaxy Ethereum ETF, the Fidelity Ethereum Fund, and the
Franklin Ethereum ETF under Cboe BZX Rule 14.11(e)(4) (Commodity-Based
Trust Shares) (collectively, the ``Spot Ether ETPs'').\27\ In the Spot
Ether ETP Approval Order, the Commission found that the proposed rule
changes to list the Spot Ether ETPs demonstrated that there were
``sufficient `other means' of preventing fraud and manipulation,''
including that:
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\27\ Securities Exchange Act Release No. 100224 (May 23, 2024)
(SR-NYSEARCA-2023-70; SR-NYSEARCA-2024-31; SR-NASDAQ-2023-045; SR-
CboeBZX-2023-069; SR-CboeBZX-2023-070; SR-CboeBZX-2023-087; SR-
CboeBZX-2023-095; SR-CboeBZX-2024-018) (Order Granting Accelerated
Approval of Proposed Rule Changes, as Modified by Amendments
Thereto, to List and Trade Shares of Ether-Based Exchange-Traded
Products) (the ``Spot Ether ETP Approval Order'').
[B]ased on the record before the Commission and the Commission's
own correlation analysis, the Commission concludes that fraud or
manipulation that impacts prices in spot ether markets would likely
similarly impact CME ether futures prices, such that a surveillance-
sharing agreement with the CME can be reasonably expected to assist
in surveilling for fraud and manipulation that may impact the [Spot
Ether ETPs].\28\
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\28\ Spot Ether ETP Approval Order at 16-17.
The Fund is structured and will operate in a manner materially the
same as the Spot Ether ETPs. The Sponsor believes that the Exchange's
ability to obtain information regarding trading in ether futures from
the CME, which, like the Exchange, is a member of the ISG, would assist
the Exchange in detecting potential fraud or manipulation with respect
to trading in the Shares. The Sponsor thus believes that, for reasons
similar to those set forth in the Spot Ether ETP Approval Order,
listing and trading Shares of the Fund would be consistent with the
requirements of the Act.
Availability of Information
The NAV per Share will be calculated and disseminated daily to all
market participants at the same time. Quotation and last-sale
information regarding the Shares will be disseminated through the
facilities of the CTA. The IOPV will be calculated every 15 seconds
throughout the core trading session each trading day.
The Sponsor will cause information about the Shares to be posted to
the Fund's website (<a href="http://www.proshares.com">www.proshares.com</a>): (1) the NAV and NAV per Share
for each Exchange trading day, posted at end of day; (2) the daily
holdings of the Fund, before 9:30 a.m. E.T. on each Exchange trading
day; (3) the Fund's effective prospectus, in a form available for
download; and (4) the Shares' ticker and CUSIP information, along with
additional quantitative information updated on a daily basis for the
Fund. For example, the Fund's website will include (1) the prior
Business Day's trading volume, the prior Business Day's reported NAV
and closing price, and a calculation of the premium and discount of the
closing price or mid-point of the bid/ask spread at the time of NAV
calculation (``Bid/Ask Price'') against the NAV; and (2) data in chart
format displaying the frequency distribution of discounts and premiums
of the daily closing price or Bid/Ask Price against the NAV, within
appropriate ranges, for at least each of the four previous calendar
quarters. The Fund's website will be publicly available prior to the
public offering of Shares and accessible at no charge.
Investors may obtain on a 24-hour basis ether pricing information
based on the Index, spot ether market prices and ether futures price
from various financial information service providers. Current ether
spot market prices are also available with bid/ask spreads from ether
trading platforms, including the Pricing Sources of the Index.
Information regarding market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services.
Information regarding the previous day's closing price and trading
volume information for the Shares will be published daily in the
financial section of newspapers.
[[Page 50650]]
Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund.\29\ Trading in Shares of the Fund
will be halted if the circuit breaker parameters in NYSE Arca Rule
7.12-E have been reached. Trading also may be halted because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable.
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\29\ See NYSE Arca Rule 7.12-E.
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The Exchange may halt trading during the day in which an
interruption to the dissemination of the IOPV or intraday Index value
occurs.\30\ If the interruption to the dissemination of the IOPV or
intraday Index persists past the trading day in which it occurred, the
Exchange will halt trading no later than the beginning of the trading
day following the interruption. In addition, if the Exchange becomes
aware that the NAV with respect to the Shares is not disseminated to
all market participants at the same time, it will halt trading in the
Shares until such time as the NAV is available to all market
participants.
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\30\ A limit up/limit down condition in the futures market would
not be considered an interruption requiring the Fund to be halted.
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Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4:00 a.m. to 8:00 p.m. E.T. in
accordance with NYSE Arca Rule 7.34-E (Early, Core, and Late Trading
Sessions). The Exchange has appropriate rules to facilitate
transactions in the Shares during all trading sessions. As provided in
NYSE Arca Rule 7.6-E, the minimum price variation (``MPV'') for quoting
and entry of orders in equity securities traded on the NYSE Arca
Marketplace is $0.01, with the exception of securities that are priced
less than $1.00 for which the MPV for order entry is $0.0001.
The Shares will conform to the initial and continued listing
criteria under NYSE Arca Rule 8.201-E. The trading of the Shares will
be subject to NYSE Arca Rule 8.201-E(g), which sets forth certain
restrictions on Equity Trading Permit Holders (``ETP Holders'') acting
as registered Market Makers in Commodity-Based Trust Shares to
facilitate surveillance.\31\ The Exchange represents that, for initial
and continued listing, the Fund will be in compliance with Rule 10A-3
under the Act,\32\ as provided by NYSE Arca Rule 5.3-E. A minimum of
100,000 Shares of the Fund will be outstanding at the commencement of
trading on the Exchange.
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\31\ Under NYSE Arca Rule 8.201-E(g), an ETP Holder acting as a
registered Market Maker in the Shares is required to provide the
Exchange with information relating to its accounts for trading in
the underlying commodity, related futures or options on futures, or
any other related derivatives. Commentary .04 of NYSE Arca Rule
11.3-E requires an ETP Holder acting as a registered Market Maker,
and its affiliates, in the Shares to establish, maintain and enforce
written policies and procedures reasonably designed to prevent the
misuse of any material nonpublic information with respect to such
products, any components of the related products, any physical asset
or commodity underlying the product, applicable currencies,
underlying indexes, related futures or options on futures, and any
related derivative instruments (including the Shares). As a general
matter, the Exchange has regulatory jurisdiction over its ETP
Holders and their associated persons, which include any person or
entity controlling an ETP Holder. To the extent the Exchange may be
found to lack jurisdiction over a subsidiary or affiliate of an ETP
Holder that does business only in commodities or futures contracts,
the Exchange could obtain information regarding the activities of
such subsidiary or affiliate through surveillance sharing agreements
with regulatory organizations of which such subsidiary or affiliate
is a member.
\32\ 17 CFR 240.10A-3. See note 8, supra.
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Surveillance
The Exchange represents that trading in the Shares of the Fund will
be subject to the existing trading surveillances administered by the
Exchange, as well as cross-market surveillances administered by FINRA
on behalf of the Exchange, which are designed to detect violations of
Exchange rules and applicable federal securities laws.\33\ The Exchange
represents that these procedures are adequate to properly monitor
Exchange trading of the Shares in all trading sessions and to deter and
detect violations of Exchange rules and federal securities laws
applicable to trading on the Exchange.
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\33\ FINRA conducts cross-market surveillances on behalf of the
Exchange pursuant to a regulatory services agreement. The Exchange
is responsible for FINRA's performance under this regulatory
services agreement.
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The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares with other
markets and other entities that are members of the ISG, and the
Exchange or FINRA, on behalf of the Exchange, or both, may obtain
trading information regarding trading in the Shares and ether
derivatives from such markets and other entities. In addition, the
Exchange may obtain information regarding trading in the Shares and
ether derivatives from markets and other entities that are members of
ISG or with which the Exchange has in place a CSSA. The Exchange is
also able to obtain information regarding trading in the Shares and any
underlying ether, ether futures contracts, options on ether futures, or
any other ether derivatives in connection with ETP Holders' proprietary
trades, or customer trades effected through ETP Holders on any relevant
market. Under NYSE Arca Rule 8.201-E(g), an ETP Holder acting as a
registered Market Maker in the Shares is required to provide the
Exchange with information relating to its accounts for trading in any
underlying commodity, related futures or options on futures, or any
other related derivatives. Commentary .04 of NYSE Arca Rule 11.3-E
requires an ETP Holder acting as a registered Market Maker, and its
affiliates, in the Shares to establish, maintain and enforce written
policies and procedures reasonably designed to prevent the misuse of
any material nonpublic information with respect to such products, any
components of the related products, any physical asset or commodity
underlying the product, applicable currencies, underlying indexes,
related futures or options on futures, and any related derivative
instruments (including the Shares). As a general matter, the Exchange
has regulatory jurisdiction over its ETP Holders and their associated
persons, which include any person or entity controlling an ETP Holder.
To the extent the Exchange may be found to lack jurisdiction over a
subsidiary or affiliate of an ETP Holder that does business only in
commodities or futures contracts and that subsidiary or affiliate is a
member of another regulatory organization, the Exchange could obtain
information regarding the activities of such subsidiary or affiliate
through a surveillance sharing agreement with that regulatory
organization.
In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
All statements and representations made in this filing regarding
(a) the description of the index, portfolio, or reference asset of the
Fund, (b) limitations on index or portfolio holdings or reference
assets, or (c) the applicability of Exchange listing rules specified in
this rule filing shall
[[Page 50651]]
constitute continued listing requirements for listing the Shares on the
Exchange.
The Sponsor has represented to the Exchange that it will advise the
Exchange of any failure by the Fund to comply with the continued
listing requirements, and, pursuant to its obligations under section
19(g)(1) of the Act, the Exchange will monitor for compliance with the
continued listing requirements. If the Fund is not in compliance with
the applicable listing requirements, the Exchange will commence
delisting procedures under NYSE Arca Rule 5.5-E(m).
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its
ETP Holders in an ``Information Bulletin'' of the special
characteristics and risks associated with trading the Shares.
Specifically, the Information Bulletin will discuss the following: (1)
the procedures for creations of Shares in Creation Units; (2) NYSE Arca
Rule 9.2-E(a), which imposes a duty of due diligence on its ETP Holders
to learn the essential facts relating to every customer prior to
trading the Shares; (3) information regarding how the value of the IOPV
and NAV are disseminated; (4) the possibility that trading spreads and
the resulting premium or discount on the Shares may widen during the
Opening and Late Trading Sessions, when an updated IOPV will not be
calculated or publicly disseminated; (5) the requirement that members
deliver a prospectus to investors purchasing newly issued Shares prior
to or concurrently with the confirmation of a transaction and (6)
trading information.
In addition, the Information Bulletin will reference that the Fund
is subject to various fees and expenses as described in the annual
report. The Information Bulletin will disclose that information about
the Shares of the Fund is publicly available on the Fund's website.
The Information Bulletin will also discuss any relief, if granted,
by the Commission or the staff from any rules under the Act.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under section 6(b)(5) \34\ that an exchange have rules that
are designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
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\34\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices and to protect
investors and the public interest in that the Shares will be listed and
traded on the Exchange pursuant to the initial and continued listing
criteria in NYSE Arca Rule 8.201-E. Further, the Exchange has
demonstrated its ability to share information with the CME, pursuant to
common ISG membership, can be reasonably expected to assist the
Exchange in surveilling for fraudulent and manipulative acts and
practices with respect to trading in the Shares, such that there are
sufficient means of preventing fraud and manipulation sufficient to
satisfy the requirements of section 6(b)(5) of the Exchange Act. As
discussed above, the results of the Sponsor's comprehensive correlation
analysis support that prices on the spot ether and CME ether futures
markets generally move in close alignment; accordingly, it is likely
that fraud or manipulation that impacts prices in spot ether markets
would likely similarly impact CME ether futures prices.
The proposed rule change is also designed to prevent fraudulent and
manipulative acts and practices because the Trust is structured
similarly to and will operate in materially the same manner as the Spot
Ether ETPs previously approved by the Commission. The Exchange further
believes that the proposed rule change is designed to prevent
fraudulent and manipulative acts and practices because, as noted by the
Commission in the Spot Ether ETP Approval Order, the Exchange's ability
to obtain information regarding trading in the Shares and futures from
markets and other entities that are members of the ISG (including the
CME) would assist the Exchange in detecting and deterring misconduct.
In particular, the CME ether futures market is a large, surveilled, and
regulated market that is closely connected with the spot market for
ether and through which the Exchange could obtain information to assist
in detecting and deterring potential fraud or manipulation.
The Exchange has in place surveillance procedures that are adequate
to properly monitor Exchange trading in the Shares in all trading
sessions and to deter and detect attempted manipulation of the Shares
or other violations of Exchange rules and applicable federal securities
laws. The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares and ether futures
with the CME and other markets and other entities that are members of
the ISG, and the Exchange or FINRA, on behalf of the Exchange, or both,
may obtain trading information regarding trading in the Shares from
such markets and other entities. In addition, the Exchange may obtain
information regarding trading in the Shares from markets and other
entities that are members of ISG or with which the Exchange has in
place a CSSA. The Exchange is also able to obtain information regarding
trading in the Shares and ether futures or the underlying ether through
ETP Holders, in connection with such ETP Holders' proprietary trades
which they effect on any relevant market.
Quotation and last-sale information regarding the Shares will be
disseminated through the facilities of the CTA. The Fund's website will
also include a form of the prospectus for the Fund that may be
downloaded. The website will include the Shares' ticker and CUSIP
information, along with additional quantitative information updated on
a daily basis for the Fund. The Fund's website will include (1) daily
trading volume, the prior Business Day's reported NAV and closing
price, and a calculation of the premium and discount of the closing
price or mid-point of the Bid/Ask Price against the NAV; and (ii) data
in chart format displaying the frequency distribution of discounts and
premiums of the daily closing price or Bid/Ask Price against the NAV,
within appropriate ranges, for at least each of the four previous
calendar quarters. The Fund's website will be publicly available prior
to the public offering of Shares and accessible at no charge.
Trading in Shares of the Fund will be halted if the circuit breaker
parameters in NYSE Arca Rule 7.12-E have been reached or because of
market conditions or for reasons that, in the view of the Exchange,
make trading in the Shares inadvisable.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of a
new type of exchange-traded product based on the price of ether that
will enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, the Exchange has in
place surveillance procedures that are adequate to properly monitor
trading in the Shares in all trading sessions and to deter and detect
violations of Exchange rules and applicable federal securities laws.
[[Page 50652]]
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange notes that the
proposed rule change will facilitate the listing and trading of a new
type of Commodity-Based Trust Share based on the price of ether that
would enhance competition among market participants, to the benefit of
investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. 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#daa8afb6bff7b9b5b7b7bfb4aea99aa9bfb9f4bdb5ac"><span class="__cf_email__" data-cfemail="dfadaab3baf2bcb0b2b2bab1abac9facbabcf1b8b0a9">[email protected]</span></a>. Please include
file number SR-NYSEARCA-2024-53 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-2024-53. 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-2024-53 and should
be submitted on or before July 5, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
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\35\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-13054 Filed 6-13-24; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on June 14, 2024.
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.