Notice2024-16104
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting Approval of Proposed Rule Changes To List and Trade Shares of the Grayscale Ethereum Mini Trust and 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
July 23, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 141 (Tuesday, July 23, 2024)</title>
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[Federal Register Volume 89, Number 141 (Tuesday, July 23, 2024)]
[Notices]
[Pages 59786-59787]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-16104]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100541; File Nos. SR-NYSEARCA-2024-44; SR-NYSEARCA-
2024-53]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting
Approval of Proposed Rule Changes To List and Trade Shares of the
Grayscale Ethereum Mini Trust and ProShares Ethereum ETF
July 17, 2024.
I. Introduction
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ NYSE Arca, Inc.
(``NYSE Arca'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') proposed rule changes to list and trade
shares of the Grayscale Ethereum Mini Trust \3\ and the ProShares
Ethereum ETF \4\ (each a ``Trust'' and, together, the ``Trusts'') under
NYSE Arca Rule 8.201-E (Commodity-Based Trust Shares). Each filing was
subject to notice and comment.\5\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Notice of Filing of Proposed Rule Change, as Modified by
Amendment No. 3, To List and Trade Shares of the Grayscale Ethereum
Mini Trust, Securities Exchange Act Release No. 100233 (May 28,
2024), 89 FR 47618 (June 3, 2024) (SR-NYSEARCA-2024-44) (``Grayscale
Filing'').
\4\ See Notice of Filing of Proposed Rule Change To List and
Trade Shares of the ProShares Ethereum ETF, Securities Exchange Act
Release No. 100307 (June 10, 2024), 89 FR 50644 (June 14, 2024) (SR-
NYSEARCA-2024-53) (``ProShares Filing'').
\5\ The Commission did not receive any comments on either
filing.
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Each of the foregoing proposed rule changes is referred to herein
as a ``Proposal'' and together as the ``Proposals.'' As described in
more detail in the Proposals' respective filings,\6\ each Proposal
seeks to list and trade shares of a Trust that would hold spot
ether,\7\ in whole or in part.\8\ This order approves the Proposals.
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\6\ See supra notes 3-4.
\7\ Ether is a digital asset that is native to, and minted and
transferred via, a distributed, open-source protocol used by a peer-
to-peer computer network through which transactions are recorded on
a public transaction ledger known as ``Ethereum.'' The Ethereum
protocol governs the creation of new ether and the cryptographic
system that secures and verifies transactions on Ethereum.
\8\ Each Trust proposes to hold spot ether. The ProShares
Ethereum ETF also proposes to hold cash. See ProShares Filing at
50645.
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II. Discussion and Commission Findings
After careful review, the Commission finds that the Proposals are
consistent with the Exchange Act and rules and regulations thereunder
applicable to a national securities exchange.\9\ In particular, the
Commission finds that the Proposals are consistent with Section 6(b)(5)
of the Exchange Act,\10\ which requires, among other things, that the
Exchange's rules be designed to ``prevent fraudulent and manipulative
acts and practices'' and, ``in general, to protect investors and the
public interest;'' and with Section 11A(a)(1)(C)(iii) of the Exchange
Act,\11\ which sets forth Congress' finding that it is in the public
interest and appropriate for the protection of investors and the
maintenance of fair and orderly markets to assure the availability to
brokers, dealers, and investors of information with respect to
quotations for and transactions in securities.
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\9\ In approving the Proposals, the Commission has considered
the Proposals' impacts on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\10\ 15 U.S.C. 78f(b)(5).
\11\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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A. Exchange Act Section 6(b)(5)
The Commission has explained that one way an exchange that lists
ether-based exchange-traded products (``ETPs'') can meet the obligation
under Exchange Act Section 6(b)(5) that its rules be designed to
prevent fraudulent and manipulative acts and practices is by
demonstrating that the exchange has a comprehensive surveillance-
sharing agreement with a regulated market of significant size related
to the underlying or reference assets.\12\ Such an agreement would
assist in detecting and deterring fraud and manipulation related to
that underlying asset.
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\12\ See Order Granting Accelerated Approval of Proposed Rule
Changes, as Modified by Amendments Thereto, To List and Trade Shares
of Ether-Based Exchange-Traded Products, Securities Exchange Act
Release No. 100224 (May 23, 2024), 89 FR 46937 (May 30, 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) (``Spot Ether ETP Approval
Order''). See also Order Granting Accelerated Approval of Proposed
Rule Changes, as Modified by Amendments Thereto, To List and Trade
Bitcoin-Based Commodity-Based Trust Shares and Trust Units,
Securities Exchange Act Release No. 99306 (Jan. 10, 2024), 89 FR
3008 (Jan. 17, 2024) (SR-NYSEARCA-2021-90; SR-NYSEARCA-2023-44; SR-
NYSEARCA-2023-58; SR-NASDAQ-2023-016; SR-NASDAQ-2023-019; SR-
CboeBZX-2023-028; SR-CboeBZX-2023-038; SR-CboeBZX-2023-040; SR-
CboeBZX-2023-042; SR-CboeBZX-2023-044; SR-CboeBZX-2023-072) (``Spot
Bitcoin ETP Approval Order''); Order Granting Approval of a Proposed
Rule Change, as Modified by Amendment No. 2, To List and Trade
Shares of the Teucrium Bitcoin Futures Fund Under NYSE Arca Rule
8.200-E, Commentary .02 (Trust Issued Receipts), Securities Exchange
Act Release No. 94620 (Apr. 6, 2022), 87 FR 21676 (Apr. 12, 2022)
(SR-NYSEARCA-2021-53). The Commission has provided an illustrative
definition for ``market of significant size'' to include a market
(or group of markets) as to which (a) there is a reasonable
likelihood that a person attempting to manipulate the ETP would also
have to trade on that market to successfully manipulate the ETP, so
that a surveillance-sharing agreement would assist in detecting and
deterring misconduct, and (b) it is unlikely that trading in the ETP
would be the predominant influence on prices in that market. See
Order Setting Aside Action by Delegated Authority and Disapproving a
Proposed Rule Change, as Modified by Amendments No. 1 and 2, To List
and Trade Shares of the Winklevoss Bitcoin Trust, Securities
Exchange Act Release No. 83723 (July 26, 2018), 83 FR 37579, 37594
(Aug. 1, 2018) (SR-BatsBZX-2016-30) (``Winklevoss Order'').
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The Commission has also consistently recognized, however, that this
is not the exclusive means by which an ETP listing exchange can meet
this statutory obligation.\13\ A listing exchange could, alternatively,
demonstrate that ``other means to prevent fraudulent and manipulative
acts and practices will be sufficient'' to justify dispensing with a
surveillance-sharing agreement with a regulated market of significant
size.\14\ In the Spot Ether ETP Approval Order, the Commission
determined that having a comprehensive surveillance-sharing agreement
with a U.S.-regulated market that, based on evidence from robust
correlation analysis, is consistently highly correlated with the ETPs'
underlying assets (spot ether) constituted ``other means'' sufficient
to satisfy the Exchange Act Section 6(b)(5) standard.\15\ Specifically,
given the consistently high correlation between the ether futures
market of the Chicago Mercantile Exchange (``CME'') and a sample of
spot ether markets--confirmed by the Commission through robust \16\
correlation analysis using data at hourly, five-minute, and one-minute
intervals--the Commission was able to conclude that fraud or
manipulation that impacts prices in spot ether markets would likely
similarly impact CME ether futures prices. And because the CME's
surveillance can assist in detecting those impacts on CME ether futures
prices, the Commission was able to conclude that the comprehensive
surveillance-sharing agreement among
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the listing exchanges and the CME can be reasonably expected to assist
in surveilling for fraudulent and manipulative acts and practices in
the specific context of the proposals considered in the Spot Ether ETP
Approval Order.
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\13\ See, e.g., Winklevoss Order at 37580; Spot Bitcoin ETP
Approval Order at 3009; Spot Ether ETP Approval Order at 46938.
\14\ See Spot Ether ETP Approval Order at 46938 (quoting
Winklevoss Order at 37580).
\15\ See id. at 46938-41.
\16\ The Commission stated that the ``robustness'' of its
correlation analysis rested on the pre-requisites of (1) the
correlations being calculated with respect to ether futures that
trade on the CME, a U.S. market regulated by the Commodity Futures
Trading Commission, (2) the lengthy sample period of price returns
for both the CME ether futures market and the spot ether market, (3)
the frequent intra-day trading data in both the CME ether futures
market and the spot ether market over that lengthy sample period,
and (4) the consistency of the correlation results throughout the
lengthy sample period. See id. at 46941 n.49.
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With respect to the present Proposals, the structure of the Trusts,
the terms of their operation and the trading of their shares, and the
representations in their respective filings are substantially similar
to those of the proposals considered in the Spot Ether ETP Approval
Order.\17\ In addition, the Commission recently found in the Spot Ether
ETP Approval Order that the spot ether market is consistently highly
correlated with the CME ether futures market.\18\ As such, based on the
record before the Commission, the Commission is able to conclude that
the Exchange's comprehensive surveillance-sharing agreement with the
CME can be reasonably expected to assist in surveilling for fraudulent
and manipulative acts and practices in the specific context of the
Proposals.
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\17\ See also infra Section II.B.
\18\ See Spot Ether ETP Approval Order at 46939-41, assessing
the period from October 1, 2021, to March 29, 2024.
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B. Exchange Act Section 11A(a)(1)(C)(iii)
Each Proposal sets forth aspects of its proposed ETP, including the
availability of pricing information, transparency of portfolio
holdings, and types of surveillance procedures, that are consistent
with other ETPs that the Commission has approved.\19\ This includes
commitments regarding: the availability via the Consolidated Tape
Association of quotation and last-sale information for the shares of
each Trust; the availability on the websites of each Trust of certain
information related to the Trusts, including net asset values; the
dissemination of intra-day indicative values by one or more major
market data vendors, updated every 15 seconds throughout the Exchange's
core trading hours; the Exchange's surveillance procedures and ability
to obtain information regarding trading in the shares of the Trusts;
the conditions under which the Exchange would implement trading halts
and suspensions; and the requirements of registered market makers in
the shares of each Trust.\20\ In addition, in each Proposal, the
Exchange deems the shares of the applicable Trust to be equity
securities, thus rendering trading in such shares subject to the
Exchange's existing rules governing the trading of equity
securities.\21\ Further, the listing rules of the Exchange require that
all statements and representations made in its filing regarding, among
others, the description of the applicable Trust's holdings, limitations
on such holdings, and the applicability of the Exchange's listing rules
specified in the filing, will constitute continued listing
requirements.\22\ Moreover, each Proposal states that: its sponsor has
represented to the Exchange that it will advise the Exchange of any
failure to comply with the continued listing requirements; pursuant to
obligations under Section 19(g)(1) of the Exchange Act, the Exchange
will monitor for compliance with the continued listing requirements;
and if the applicable Trust is not in compliance with the applicable
listing requirements, the Exchange will commence delisting
procedures.\23\
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\19\ See, e.g., Spot Bitcoin ETP Approval Order at 3011; Spot
Ether ETP Approval Order at 46941-42; Securities Exchange Act
Release No. 61220 (Dec. 22, 2009), 74 FR 68895 (Dec. 29, 2009) (SR-
NYSEARCA-2009-94) (Order Granting Approval of Proposed Rule Change
Relating To Listing and Trading Shares of the ETFS Palladium Trust);
Securities Exchange Act Release No. 94518 (Mar. 25, 2022), 87 FR
18837 (Mar. 31, 2022) (SR-NYSEARCA-2021-65) (Notice of Filing of
Amendment No. 1 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 1, To List and
Trade Shares of the Sprott ESG Gold ETF Under NYSE Arca Rule 8.201-E
(Commodity-Based Trust Shares)).
\20\ See Grayscale Filing at 47635-37; ProShares Filing at
50646, 50649-51.
\21\ See Grayscale Filing at 47636; ProShares Filing at 50650.
\22\ See NYSE Arca Rule 8.201-E(e)(2)(vii).
\23\ See Grayscale Filing at 47637; ProShares Filing at 50651.
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The Commission therefore finds that the Proposals, as with other
ETPs that the Commission has approved,\24\ are reasonably designed to
promote fair disclosure of information that may be necessary to price
the shares of the Trusts appropriately, to prevent trading when a
reasonable degree of transparency cannot be assured, to safeguard
material non-public information relating to the Trusts' portfolios, and
to ensure fair and orderly markets for the shares of the Trusts.
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\24\ See supra note [19].
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III. Conclusion
This approval order is based on all of the Exchange's
representations and descriptions in the respective filings, which the
Commission has carefully evaluated as discussed above.\25\ For the
reasons set forth above, the Commission finds, pursuant to Section
19(b)(2) of the Exchange Act,\26\ that the Proposals are consistent
with the requirements of the Exchange Act and the rules and regulations
thereunder applicable to a national securities exchange, and in
particular, with Section 6(b)(5) and Section 11A(a)(1)(C)(iii) of the
Exchange Act.\27\
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\25\ See supra notes 3-4. In addition, the shares of the Trusts
must comply with the requirements of NYSE Arca Rule 8.201-E
(Commodity-Based Trust Shares) to be listed and traded on NYSE Arca
on an initial and continuing basis.
\26\ 15 U.S.C. 78s(b)(2).
\27\ 15 U.S.C. 78f(b)(5); 15 U.S.C. 78k-1(a)(1)(C)(iii).
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\28\ that the Proposals (SR-NYSEARCA-2024-44; SR-NYSEARCA-
2024-53) be, and hereby are, approved.
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\28\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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\29\ 17 CFR 200.30-3(a)(12).
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-16104 Filed 7-22-24; 8:45 am]
BILLING CODE 8011-01-P
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