Notice2024-13940
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 7RCC Spot Bitcoin and Carbon Credit Futures ETF Under NYSE Arca Rule 8.500-E (Trust Units)
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 26, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 123 (Wednesday, June 26, 2024)</title>
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[Federal Register Volume 89, Number 123 (Wednesday, June 26, 2024)]
[Notices]
[Pages 53466-53468]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-13940]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100390; File No. SR-NYSEARCA-2024-27]
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 7RCC Spot Bitcoin and
Carbon Credit Futures ETF Under NYSE Arca Rule 8.500-E (Trust Units)
June 20, 2024.
I. Introduction
On March 13, 2024, 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 7RCC Spot Bitcoin and Carbon
Credit 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 March 26, 2024.\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. 99801 (Mar. 20,
2024), 89 FR 21104 (``Notice''). Comments on the proposed rule
change are available at: <a href="https://www.sec.gov/comments/sr-nysearca-2024-27/srnysearca202427.htm">https://www.sec.gov/comments/sr-nysearca-2024-27/srnysearca202427.htm</a>.
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On May 2, 2024, 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\ The Commission is publishing this order to institute
proceedings pursuant to 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. 100050, 89 FR 38932
(May 8, 2024). The Commission designated June 24, 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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II. Exchange's Description of the Proposed Rule Change <SUP>7</SUP>
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\7\ Additional information regarding the Fund and the Shares,
carbon markets and Carbon Credit Futures (as defined herein), and
bitcoin and bitcoin markets, among other things, can be found in the
Notice, supra note 3.
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The Exchange proposes to list and trade Shares of the Fund under
NYSE Arca Rule 8.500-E, which governs the listing and trading of Trust
Units.\8\ The Fund is a series of the Tidal Commodities Trust I
(``Trust''), a Delaware statutory trust organized on February 10,
2023.\9\ The Trust will not
[[Page 53467]]
be registered as an investment company under the Investment Company Act
of 1940. The sponsor of the Trust, Tidal Investments LLC (``Sponsor''),
is registered as a commodity pool operator and a commodity trading
adviser with the Commodity Futures Trading Commission and is a member
of the National Futures Association.
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\8\ NYSE Arca Rule 8.500-E defines Trust Units as securities
issued by a trust or other similar entity that is constituted as a
commodity pool that holds investments comprising or otherwise based
on any combination of futures contracts, options on futures
contracts, forward contracts, swap contracts, commodities, and/or
securities.
\9\ The Exchange represents that, on December 18, 2023, the
Trust filed with the Commission a registration statement on Form S-1
(``Registration Statement'') under the Securities Act of 1933.
According to the Exchange, 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.
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The administrator of the Fund is Tidal ETF Services
(``Administrator''). The custodian of the Fund's bitcoin holdings is
Gemini Trust Company, LLC. The Sponsor will appoint a non-digital
custodian, who will serve as the Fund's custodian with respect to its
cash and cash equivalents,\10\ as well as any investments in connection
with its exposure to Carbon Credit Futures (as defined herein).
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\10\ According to the Exchange, ``Cash Equivalents'' shall mean
such investments that, in the view of the Sponsor, are of high
credit quality and liquidity and can be converted to cash quickly.
Such investments shall include, but are not limited to, (a) cash;
(b) debt securities issued or directly or indirectly fully
guaranteed or insured by the United States or any agency or
instrumentality thereof; (c) commercial paper or finance company
paper of sufficient credit quality in the view of the Sponsor; or
(d) money market mutual funds.
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The Fund's Investment Objective and Strategy
According to the Exchange, the Fund's investment objective is to
reflect the daily changes of the price of bitcoin \11\ and the value of
carbon credit futures contracts (``Carbon Credit Futures''),\12\ as
represented by the Vinter Bitcoin Carbon Credits Index (``Index''),
less expenses from the Fund's operations. The Fund will pursue its
investment objective by investing 80% of its assets in bitcoin and the
remaining 20% of its assets in financial instruments, including swap
agreements, that provide exposure to Carbon Credit Futures represented
by the Index.
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\11\ According to the Exchange, bitcoin is the digital asset
that is native to, and created and transmitted through the
operations of, the peer-to-peer Bitcoin Network, a decentralized
network of computers that operates on cryptographic protocols. See
Notice, supra note 3, 89 FR at 21105.
\12\ According to the Exchange, carbon markets are designed to
reduce greenhouse gas (``GHG'') emissions and promote sustainable
development by putting a price on carbon. Carbon markets are markets
where GHG emissions are commodified as a tradable unit either as an
emission allowance in government compliance markets or as a verified
emission reduction/removal credit in voluntary markets. There are
two types of instruments that are traded in carbon markets: carbon
credits (sometimes called ``allowances'') and carbon offsets. The
two main types of carbon markets are compliance carbon markets and
voluntary carbon markets. See Notice, supra note 3, 89 FR at 21108-
09. The Exchange further explains that Carbon Credit Futures are
futures contracts on emissions allowances issued by various ``cap-
and-trade'' regulatory regimes that seek to reduce GHGs over time. A
cap-and-trade regime typically involves a regulator setting a limit
on the total amount of specific GHGs (such as carbon dioxide
(``CO<INF>2</INF>'')) that can be emitted by regulated entities.
Capping and reducing the cap on GHGs is viewed as a key policy tool
in reaching climate change objectives. The regime is designed to
promote sustainable development by putting a price on carbon
emissions. The regulator will then issue or sell ``emissions
allowances'' to regulated entities, which in turn may buy or sell
the emissions allowances to the open market. To the extent that the
regulator may then reduce the cap on emission allowances, regulated
entities are incentivized to reduce their emissions; otherwise, they
must purchase additional emission allowances on the open market,
where the price of such allowances will likely be increasing as a
result of demand, and regulated entities that reduce their emissions
will be able to sell unneeded emission allowances for profit. An
emission allowance or carbon credit is a unit of emissions
(typically one ton of CO<INF>2</INF>) that the owner of the
allowance or credit is permitted to emit. Futures contracts linked
to the value of emission allowances are known as carbon credit
futures. See Notice, supra note 3, 89 FR at 21105.
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The Index
The Index is designed to track the performance of investing in a
portfolio comprised of 80% bitcoin and 20% Carbon Credit Futures, which
are linked to the value of emissions allowances issued under the
following cap-and-trade regimes: the European Union Emissions Trading
System (``EU ETS''); the California Carbon Allowance (``CCA''); and
Regional Greenhouse Gas Initiative (``RGGI'').\13\ Because the Fund's
investment objective is to track the daily changes of the price of
bitcoin and Carbon Credit Futures, changes in the price of the Shares
will vary from changes in the spot price of bitcoin, carbon credits,
and Carbon Credit Futures individually.\14\ The Index is rebalanced
quarterly, starting at the end of January. After a rebalance, the
portfolio is updated so that its current weights per asset equal the
rebalancing weights per asset.\15\
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\13\ See Notice, supra note 3, 89 FR at 21109.
\14\ See id.
\15\ See id.
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Invierno AB (``Vinter'') \16\ is the benchmark administrator for
the bitcoin portion of the Index and is the central recipient of input
data and evaluates the integrity and accuracy of input data on a
consistent basis.\17\ To calculate the value of bitcoin, Vinter selects
what it considers to be reputable bitcoin trading platforms and takes
the last price on each trading platform. Vinter then takes the median
price across these trading platforms and calculates the average price
during the selected time window to determine the value of bitcoin at
4:00 p.m. Eastern Time.\18\
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\16\ According to the Exchange, Vinter is a registered benchmark
administrator governed by the European Benchmarks Regulation (2016/
1011) and included in the European Securities and Markets
Authority's register over benchmark administrators. See id.
\17\ See id.
\18\ See id. According to the Exchange, the Fund uses the same
methodology as the Index to determine the value of bitcoin for
purposes of calculating the net asset value of the Fund. The Index
requires each digital asset trading platform used to calculate the
price of bitcoin to meet each of the following criteria: operating
history as a digital asset trading platform for a minimum of two
years; implemented trading, deposits, and withdrawal fees for a
minimum of one month without interruption; met a minimum monthly
volume threshold of $30 million with respect to total trading
volume; provided reliable, continuous, and valid market data for a
minimum of one month; offered the possibility to withdraw and
deposit for a minimum of one month, settling in two to seven
business days; chosen a jurisdiction of incorporation that offers
sufficient investor protection, such as Financial Action Task Force
(``FATF''), FATF-style regional bodies, or Moneyval member states;
complied with relevant anti-money laundering and know-your-customer
regulations; cooperated with requests from Vinter and relevant
regulatory bodies; has not been domiciled in a jurisdiction subject
to European Union restrictive measures (sanctions); provided
information concerning ownership and corporate structure; and has
not been declared unlawful by any governmental authority or agency
with jurisdiction over the exchange. The Exchange states that
digital asset trading platforms meeting these criteria are used to
calculate the price of the bitcoin portion of the Index (``Index
Pricing Sources''). The selection of Index Pricing Sources may
evolve from time to time, and Vinter may make changes to the
eligibility requirements. The Exchange represents that the following
digital asset trading platforms are used to calculate the Index
price: Kraken, Coinbase, Bitstamp, Itbit, Gemini, Gate.io, and
<a href="http://Crypto.com">Crypto.com</a>. See id.
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Solactive is the benchmark administrator for the Carbon Credit
Futures portion of the Index. Solactive calculates the value of the
Carbon Credit Futures portion of the Index and the value of the overall
Index.\19\ The Carbon Credit Futures component of the Index is built
with a combination of three carbon credit indices, each of which is
calculated and administered by a third party: (i) Solactive Carbon
European Union Allowance Futures ER Index (SOCARBN), which tracks EU
ETS futures; (ii) Solactive California Carbon Rolling Futures ER Index
(SOCCAER), which tracks CCA futures; and (iii) an index that tracks
RGGI futures.\20\ The weights of the components are adjusted once per
year (in November) and the weights are proportional to the trading
volume over the last six months. The combination of exposure to the
three underlying indices provides the Index with returns tied to
futures contracts on carbon credits connected to EU ETS, CCA, and RGGI.
The value of the Carbon Credit Futures that comprise the Index will be
based on market prices. The Index includes only Carbon Credit
[[Page 53468]]
Futures that mature in December of the next one to two years.\21\
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\19\ See id.
\20\ See id.
\21\ See id.
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III. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEARCA-2024-27 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \22\ to determine whether the proposed rule
change should be approved or disapproved. Institution of such
proceedings is appropriate at this time in view of the legal and policy
issues raised by the proposal. 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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\22\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\23\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of the proposal'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.'' \24\
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\23\ Id.
\24\ 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, including the information provided about the investment
objective of and the underlying assets held by the Fund, particularly
regarding the Carbon Credit Futures, in addition to any other comments
they may wish to submit about the proposed rule change. Given the
nature of the underlying assets held by the Fund, the Commission seeks
commenters' views on whether the proposed Fund and Shares would be
susceptible to manipulation, as well as commenters' views, generally,
on whether the Exchange's proposal is designed to prevent fraudulent
and manipulative acts and practices.
IV. 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 proposed rule change
is consistent with Section 6(b)(5) or any other provision of the Act,
and the rules and regulations thereunder. Although there do not appear
to be any issues relevant to approval or disapproval that would be
facilitated by an oral presentation of views, data, and arguments, the
Commission will consider, pursuant to Rule 19b-4, any request for an
opportunity to make an oral presentation.\25\
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\25\ 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 July 17, 2024. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
July 31, 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#d3a1a6bfb6feb0bcbebeb6bda7a093a0b6b0fdb4bca5"><span class="__cf_email__" data-cfemail="0371766f662e606c6e6e666d7770437066602d646c75">[email protected]</span></a>. Please include
file number SR-NYSEARCA-2024-27 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-2024-27. 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-2024-27 and should
be submitted on or before July 17, 2024. Rebuttal comments should be
submitted by July 31, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(57).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-13940 Filed 6-25-24; 8:45 am]
BILLING CODE 8011-01-P
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