Notice2025-02888
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change, as Modified by Amendment No. 1 To List and Trade Shares of the 21Shares Core XRP Trust Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
February 21, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 34 (Friday, February 21, 2025)</title>
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[Federal Register Volume 90, Number 34 (Friday, February 21, 2025)]
[Notices]
[Pages 10093-10103]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-02888]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102426; File No. SR-CboeBZX-2025-021]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change, as Modified by Amendment No. 1 To
List and Trade Shares of the 21Shares Core XRP Trust Under BZX Rule
14.11(e)(4), Commodity-Based Trust Shares
February 14, 2025.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on February 6, 2025, Cboe BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission (the
``Commission'') a proposed rule change to list and trade shares of the
21Shares Core XRP Trust under BZX Rule 14.11(e)(4) (Commodity-Based
Trust Shares). On February 12, 2025, the Exchange filed Amendment No. 1
to the proposed rule change, which replaced and superseded the original
filing in its entirety. The proposed rule change, as modified by
Amendment No.1, is as described in Items I, II, and III below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change, as
modified by Amendment No. 1, from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 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
Cboe BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (``Commission'' or ``SEC'')
a proposed rule change to list and trade shares of the 21Shares Core
XRP Trust (the
[[Page 10094]]
``Trust''),\3\ under BZX Rule 14.11(e)(4), Commodity-Based Trust
Shares.
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\3\ The Trust was formed as a Delaware statutory trust on June
3, 2024, and is operated as a grantor trust for U.S. federal tax
purposes. The Trust has no fixed termination date.
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The text of the proposed rule change is also available on the
Exchange's website (<a href="http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/">http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/</a>), at the Exchange's Office of the Secretary, 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 Exchange 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 these 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 aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
This Amendment No. 1 to SR-CboeBZX-2025-021 amends and replaces in
its entirety the proposal as originally submitted on February 6, 2025.
The Exchange submits this Amendment No. 1 in order to clarify certain
points and add additional details to the proposal.
The Exchange proposes to list and trade the Shares under BZX Rule
14.11(e)(4),\4\ which governs the listing and trading of Commodity-
Based Trust Shares on the Exchange.\5\ 21Shares US, LLC is the sponsor
of the Trust (the ``Sponsor''). The Shares will be registered with the
Commission by means of the Trust's registration statement on Form S-1
(the ``Registration Statement'').\6\ According to the Registration
Statement, the Trust is neither an investment company registered under
the Investment Company Act of 1940, as amended,\7\ nor a commodity pool
for purposes of the Commodity Exchange Act (``CEA''), and neither the
Trust nor the Sponsor is subject to regulation as a commodity pool
operator or a commodity trading adviser in connection with the Shares.
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\4\ The Commission approved BZX Rule 14.11(e)(4) in Securities
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148
(September 6, 2011) (SR-BATS-2011-018).
\5\ Any of the statements or representations regarding the
Pricing Benchmark, the description of the portfolio or reference
assets, limitations on portfolio holdings or reference assets,
dissemination and availability of Pricing Benchmark, reference
asset, and intraday indicative values, or the applicability of
Exchange listing rules specified in this filing to list a series of
Other Securities (collectively, ``Continued Listing
Representations'') shall constitute continued listing requirements
for the Shares listed on the Exchange.
\6\ See the Registration Statement on Form S-1, dated November
1, 2024, submitted by the Sponsor on behalf of the Trust. The
descriptions of the Trust, the Shares, and the Pricing Benchmark (as
defined below) contained herein are based, in part, on information
in 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.
\7\ 15 U.S.C. 80a-1.
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Since 2017, the Commission has approved or disapproved exchange
rule filings to list and trade series of Trust Issued Receipts,
including spot-based Commodity-Based Trust Shares, on the basis of
whether the listing exchange has in place a comprehensive surveillance
sharing agreement with a regulated market of significant size related
to the underlying commodity to be held, or in a derivative thereof (the
``Winklevoss Test'').\8\ The Commission has also consistently
recognized that this not the exclusive means by which an exchange
listing an exchange-traded product (``ETP'') can meet this statutory
obligation.\9\ 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.\10\
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\8\ See Securities Exchange Act Release Nos. 78262 (July 8,
2016), 81 FR 78262 (July 14, 2016) (the ``Winklevoss Proposal'').
The Winklevoss Proposal was the first exchange rule filing proposing
to list and trade shares of an ETP that would hold spot bitcoin (a
``Spot Bitcoin ETP''). It was subsequently disapproved by the
Commission. See Securities Exchange Act Release No. 83723 (July 26,
2018), 83 FR 37579 (August 1, 2018) (the ``Winklevoss Order'');
99306 (January 10, 2024), 89 FR 3008 (January 17, 2024) (Self-
Regulatory Organizations; NYSE Arca, Inc.; The Nasdaq Stock Market
LLC; Cboe BZX Exchange, Inc.; 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) (the ``Spot Bitcoin ETP Approval Order''); 100224 (May 23,
2024), 89 FR 46937 (May 30, 2024) (Self-Regulatory Organizations;
NYSE Arca, Inc.; The Nasdaq Stock Market LLC; Cboe BZX Exchange,
Inc.; 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 ETH ETP Approval
Order'').
\9\ See Winklevoss Order, 83 FR at 37580; see Spot Bitcoin ETP
Approval Order, 89 FR at 3009; see Spot ETH ETP Approval Order 89 FR
at 46938.
\10\ See Spot Bitcoin ETP Approval Order, 89 FR at 3009 (quoting
Winklevoss Order, 83 FR at 37580). The Exchange notes that that the
Winklevoss Test was first applied in 2017 in the Winklevoss Order,
which was the first disapproval order related to an exchange
proposal to list and trade a Spot Bitcoin ETP. All prior approval
orders issued by the Commission approving the listing and trading of
series of Trust Issued Receipts included no specific analysis
related to a ``regulated market of significant size.'' In the
Winklevoss Order and the Commission's prior orders approving the
listing and trading of series of Trust Issued Receipts have noted
that the spot commodities and currency markets for which it has
previously approved spot ETPs are generally unregulated and that the
Commission relied on the underlying futures market as the regulated
market of significant size that formed the basis for approving the
series of Currency and Commodity-Based Trust Shares, including gold,
silver, platinum, palladium, copper, and other commodities and
currencies. The Commission specifically noted in the Winklevoss
Order that the approval order issued related to the first spot gold
ETP ``was based on an assumption that the currency market and the
spot gold market were largely unregulated.'' See Winklevoss Order at
37592. As such, the regulated market of significant size test does
not require that the spot market be regulated in order for the
Commission to approve this proposal, and precedent makes clear that
an underlying market for a spot commodity or currency being a
regulated market would actually be an exception to the norm. These
largely unregulated currency and commodity markets do not provide
the same protections as the markets that are subject to the
Commission's oversight, but the Commission has consistently looked
to surveillance sharing agreements with the futures market for the
underlying commodity in order to determine whether such products
were consistent with the Act.
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The Commission recently issued orders approving proposals to list
bitcoin- and ether-based commodity trust shares and bitcoin-based,
ether-based, and a combination of bitcoin- and ether-based trust issued
receipts (these proposed funds are structurally nearly identical to the
Trust, but proposed to hold bitcoin and/or ether, respectively, instead
of XRP) (``Spot Bitcoin ETPs'' and ``Spot ETH ETPs''). In both the Spot
Bitcoin ETP Approval Order and Spot ETH ETP Approval Order, the
Commission found that sufficient ``other means'' of preventing fraud
and manipulation had been demonstrated that justified dispensing with a
surveillance-sharing agreement of significant size. Specifically, the
Commission found that while the Chicago Mercantile Exchange (``CME'')
futures market for both bitcoin and ether were not of ``significant
size'' related to the spot market, the Exchange demonstrated that other
means could be reasonably expected to assist in surveilling for
fraudulent and manipulative acts and practices in the specific context
of the proposals.\11\
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\11\ ``[B]ecause the CME's surveillance can assist in detecting
those impacts on CME bitcoin futures prices, the Exchanges'
comprehensive surveillance-sharing agreement with the CME--a U.S.-
regulated market whose bitcoin futures market is consistently highly
correlated to spot bitcoin, albeit not of `significant size' related
to spot bitcoin--can be reasonably expected to assist in surveilling
for fraudulent and manipulative acts and practices in the specific
context of the Proposals.'' See Spot Bitcoin ETP Approval Order, 89
FR at 3009-11.
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[[Page 10095]]
As further discussed below, both the Exchange and the Sponsor
believe that this proposal and the analysis herein are sufficient to
establish that the proposal is consistent with the Act and,
additionally, that there are sufficient ``other means'' of preventing
fraud and manipulation that warrant dispensing of the surveillance-
sharing agreement with a regulated market of significant size, as was
done with both Spot Bitcoin ETPs and Spot ETH ETPs. This proposal
should therefore be approved.
Background
XRP is a digital asset that is created and transmitted through the
operations of the XRP Ledger, a distributed ledger upon which XRP
transactions are processed and settled. XRP can be used to pay for
goods and services, or it can be converted to fiat currencies, such as
the U.S. dollar. The XRP Ledger is based on a shared public ledger.
However, the XRP Ledger differentiates itself from other digital asset
networks in that its stated primary function is transactional utility,
not a store of value. The XRP Ledger is designed to be a global real-
time payment and settlement system. As a result, the XRP Ledger and XRP
aim to improve the speed at which parties on the network may transfer
value while also reducing the fees and delays associated with the
traditional methods of interbank payments.
No single entity controls the XRP Ledger. Instead, a network of
independent nodes validates transactions pursuant to a consensus-based
algorithm. It is this mechanism, as opposed to the proof-of-work
mechanism utilized by the Bitcoin blockchain, that allows the XRP
Ledger to be fast, energy-efficient and scalable, and therefore
suitable for its most prominent use case, the facilitation of cross-
border financial transactions. Unlike proof-of-work systems, which
require massive computational power to secure the network, the
consensus-based algorithm utilized by the XRP Ledger is extremely
lightweight in terms of energy usage, as it relies on trusted
validators rather than mining. The XRP Ledger can handle up to 1,500
transactions per second, far more than the Bitcoin or Ethereum
blockchain. This makes the XRP Ledger suitable for high-volume use
cases, such as cross-border payments. Lastly, because validators do not
need to spend resources on mining, transaction fees are extremely low
(typically a fraction of a cent per transaction).
Transactions are validated on the XRP Ledger by a network of
independent validator nodes. These nodes do not mine new blocks but
participate in a consensus process to ensure that transactions are
valid and correctly ordered on the ledger. Any node can be a validator,
but for practical purposes, the XRP Ledger depends on a list of trusted
validators known as the Unique Node List or ``UNL.'' Validators are
entities (which can be individuals, institutions or other
organizations) that run nodes to participate in the consensus process.
These validators ensure the integrity and accuracy of the ledger. Each
node in the network maintains a Unique Node List--a list of other
validators that the node trusts to reliably validate transactions. The
XRP Ledger's decentralized architecture means that different nodes may
maintain different UNLs, but there needs to be some overlap in the UNLs
for consensus mechanism to work effectively.
Unlike other digital assets such as bitcoin or ether, XRP was not
and is not mined gradually over time. Instead, all 100 billion XRP
tokens were created at the time of the XRP Ledger's launch in 2012.
This means that every XRP token that exists today was generated from
the outset, without the need for a mining process. Of the 100 billion
XRP generated by the XRP Ledger's code, the founders of Ripple Labs
retained 20 billion XRP and the rest, nearly 80 billion XRP, was
provided to Ripple Labs Inc. (``Ripple Labs''). As of September 2024,
Ripple Labs runs only 1 of the 35 validators in the default Trusted
Nodes Lists.
In light of these factors and consistent with applicable legal
precedent, particularly as applied in SEC v. Ripple Labs, the Sponsor
believes that it is applying the proper legal standards in making a
good faith determination that it believes that XRP is not under these
circumstances a security under the federal securities laws.\12\ The
Sponsor believes XRP is a ``commodity'' as that term is defined under
the Commodity Exchange Act.\13\
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\12\ See SEC v. Ripple Labs, 2023 WL 4507900 at 15, (S.D.N.Y.
July 13, 2023) (``(XRP, as a digital token, is not in and of itself
a `contract, transaction[,] or scheme' that embodies the Howey
requirements of an investment contract.)'') and 23 ``Ripple's
Programmatic Sales were blind bid/ask transactions, and Programmatic
Buyers could not have known if their payments of money went to
Ripple, or any other seller of XRP. Since 2017, Ripple's
Programmatic Sales represented less than 1% of the global XRP
trading volume. Therefore, the vast majority of individuals who
purchased XRP from digital asset exchanges did not invest their
money in Ripple at all. An Institutional Buyer knowingly purchased
XRP directly from Ripple pursuant to a contract, but the economic
reality is that a Programmatic Buyer stood in the same shoes as a
secondary market purchaser who did not know to whom or what it was
paying its money.'' The Court specifically notes that the question
of whether secondary market sales of XRP constitute offers and sales
of investment contracts because it was not before the Court and
therefore was not addressed. However, the general logic applied
above in the Court's finding that an investment contract did not
exist seems to similarly indicate that purchases and sales on the
secondary market where the purchaser ``did not know to whom or what
it was paying its money'' would also not constitute an investment
contract.
\13\ 7 U.S.C. 1 et seq. See also, in this regard, SEC v.
Coinbase, 2024 WL 134037 at 29 (S.D.N.Y. March 27, 2024 at 29) (``As
a preliminary matter, the SEC does not appear to contest that
tokens, in and of themselves, are not securities.''); and SEC v.
Terraform Labs, 2023 WL 4858299 at 33 (S.D.N.Y. July 31, 2023) (``To
be sure, the original UST and LUNA coins, as originally created and
when considered in isolation, might not then have been, by
themselves, investment contracts. Much as the orange groves in Howey
would not be considered securities if they were sold apart from the
cultivator's promise to share any profits derived by their
cultivation, the term ``security'' also cannot be used to describe
any crypto-assets that were not somehow intermingled with one of the
investment ``protocols,'' did not confer a ``right to . . .
purchase'' another security, or were otherwise not tied to the
growth of the Terraform blockchain ecosystem.'')
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Section 6(b)(5) and the Applicable Standards
The Commission has approved numerous series of Trust Issued
Receipts,\14\ including Commodity-Based Trust Shares,\15\ to be listed
on U.S. national securities exchanges. In order for any proposed rule
change from an exchange to be approved, the Commission must determine
that, among other things, the proposal is consistent with the
requirements of Section 6(b)(5) of the Act, specifically including: (i)
the requirement that a national securities exchange's rules are
designed to prevent fraudulent and manipulative acts and practices;
\16\ and
[[Page 10096]]
(ii) the requirement that an exchange proposal be designed, in general,
to protect investors and the public interest. The Exchange believes
that this proposal is consistent with the requirements of Section
6(b)(5) of the Act and that this filing sufficiently demonstrates that
potential policy concerns under the Act are sufficiently mitigated to
the point that they are outweighed by quantifiable investor protection
issues that would be resolved by approving this proposal.
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\14\ See Exchange Rule 14.11(f).
\15\ Commodity-Based Trust Shares, as described in Exchange Rule
14.11(e)(4), are a type of Trust Issued Receipt.
\16\ Much like bitcoin and ETH, the Exchange believes that XRP
is resistant to price manipulation and that ``other means to prevent
fraudulent and manipulative acts and practices'' exist to justify
dispensing with the requisite surveillance sharing agreement. The
geographically diverse and continuous nature of XRP trading render
it difficult and prohibitively costly to manipulate the price of
XRP. The fragmentation across platforms and the capital necessary to
maintain a significant presence on each trading platform make
manipulation of XRP prices through continuous trading activity
challenging. To the extent that there are trading platforms engaged
in or allowing wash trading or other activity intended to manipulate
the price of XRP on other markets, such pricing does not normally
impact prices on other trading platforms because participants will
generally ignore markets with quotes that they deem non-executable.
Moreover, the linkage between XRP markets and the presence of
arbitrageurs in those markets means that the manipulation of the
price of XRP on any single venue would require manipulation of the
global XRP price in order to be effective. Arbitrageurs must have
funds distributed across multiple trading platforms in order to take
advantage of temporary price dislocations, thereby making it
unlikely that there will be strong concentration of funds on any
particular trading platforms or OTC platform. Further, the speed and
relatively inexpensive nature of transactions on the XRP network
allow arbitrageurs to quickly move capital between trading platforms
where price dislocations may occur. As a result, the potential for
manipulation on a trading platform would require overcoming the
liquidity supply of such arbitrageurs who are effectively
eliminating any cross-market pricing differences.
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More recently, the Commission has applied the Winklevoss Test to
recognize that the ``regulated market of significant size'' standard is
not the only means for satisfying Section 6(b)(5) of the Act. Instead,
the Commission has specifically acknowledged that a listing exchange
could demonstrate that ``other means to prevent fraudulent and
manipulative acts and practices'' are sufficient to justify dispensing
with the requisite surveillance-sharing agreement.\17\ There is
currently no futures market for XRP, but the existence of a futures
market of significant size is not a prerequisite for preventing
fraudulent and manipulative acts and practices. In the Spot Bitcoin ETF
Approval Order and Spot ETH ETF Approval Order the Commission
determined that the CME bitcoin futures market and CME ETH futures
market, respectively, were not of ``significant size'' related to the
spot market. Instead, the Commission found that sufficient ``other
means'' of preventing fraud and manipulation had been demonstrated that
justified dispensing with a surveillance-sharing agreement of
significant size. The Exchange and Sponsor believe that this proposal
provides for other means of preventing fraud and manipulation that
justify dispensing with a surveillance-sharing agreement of significant
size.
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\17\ See Winklevoss Order at 37580. The Commission has also
specifically noted that it ``is not applying a `cannot be
manipulated' standard; instead, the Commission is examining whether
the proposal meets the requirements of the Exchange Act and,
pursuant to its Rules of Practice, places the burden on the listing
exchange to demonstrate the validity of its contentions and to
establish that the requirements of the Exchange Act have been met.''
Id. at 37582.
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Over the past several years, U.S. investor exposure to XRP, through
OTC XRP Funds and digital asset trading platforms, has grown into
billions of dollars with a fully diluted market cap of greater than
$176 billion.\18\ The Exchange believes that approving this proposal
(and comparable proposals) provides the Commission with the opportunity
to allow U.S. investors with access to XRP in a regulated and
transparent exchange-traded vehicle that would act to limit risk to
U.S. investors by: (i) reducing premium and discount volatility; (ii)
reducing management fees through meaningful competition; and (iii)
providing an alternative to custodying spot XRP.
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\18\ See <a href="https://coinmarketcap.com/currencies/xrp/">https://coinmarketcap.com/currencies/xrp/</a> (visited on
Jan. 31, 2025).
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The policy concerns that the Exchange Act is designed to address
are also otherwise mitigated by the fact that the size of the market
for the underlying reference asset ($176+ billion fully diluted value)
and the nature of the XRP ecosystem reduce its susceptibility to
manipulation. The geographically diverse and continuous nature of XRP
trading makes it difficult and prohibitively costly to manipulate the
price of XRP and, in many instances, the XRP market can be less
susceptible to manipulation than the equity, fixed income, and
commodity futures markets. There are a number of reasons why this is
the case, including:
<bullet> the absence of inside information about revenue, earnings,
corporate activities, or sources of supply;
<bullet> the fact that manipulation of the price on any single
venue would require manipulation of the global XRP price in order to be
effective;
<bullet> the existence of a substantial over-the-counter market
that provides liquidity and shock-absorbing capacity;
<bullet> the fact that XRP's 24/7/365 nature provides constant
arbitrage opportunities across all trading venues; and
<bullet> the low likelihood that any one actor could obtain a
dominant market share.
Further, XRP is arguably less susceptible to manipulation than many
physical commodities that underlie existing ETPs. For example, for
physical commodities there may be inside information relating to the
supply of the physical commodity such as the discovery of new sources
of supply or significant disruptions at mining facilities that supply
the commodity--no such inside information is available for crypto
assets on public, distributed networks, such as XRP. Further, the
Exchange believes that the fragmentation across XRP trading platforms
and increased adoption of XRP, as displayed through increased user
engagement and trading volumes, and the distributed nature of the XRP
network make manipulation of XRP prices through continuous trading
activity difficult. Moreover, the presence of arbitrageurs in the XRP
markets means that the manipulation of the price of XRP price on any
single venue would require manipulation of the global XRP price in
order to be effective. Arbitrageurs must have funds distributed across
multiple XRP trading platforms in order to take advantage of temporary
price dislocations, thereby making it unlikely that there will be
strong concentration of funds on any particular XRP trading platform.
As a result, manipulation on a particular XRP trading platform would
require overcoming the liquidity supply of such arbitrageurs who are
effectively eliminating any cross-market pricing differences. For all
of these reasons, XRP is not particularly susceptible to manipulation,
especially as compared to many other approved ETP reference assets.
21Shares Core XRP Trust
CSC Delaware Trust Company is the trustee (``Trustee'') of the
Trust. Third parties to be appointed by the Sponsor and/or the Trustee
will serve as the administrator (``Administrator''), the transfer agent
(``Transfer Agent'') and the custodian responsible for the custody of
the Trust's cash and cash equivalents \19\ (the ``Cash Custodian'').
Coinbase Custody Trust Company, LLC (the ``Custodian''), will be
responsible for custody of the Trust's XRP.
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\19\ Cash equivalents are short-term instruments with maturities
of less than 3 months.
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According to the Registration Statement, each Share will represent
a fractional undivided beneficial interest in and ownership of the
Trust. The Trust's assets will only consist of XRP, cash, or cash and
cash equivalents.
According to the Registration Statement, the Trust will be neither
an investment company registered under the Investment Company Act of
1940, as amended,\20\ nor a commodity pool for purposes of the CEA, and
neither the Trust nor the Sponsor is subject to regulation as a
commodity pool operator or a commodity trading adviser in connection
with the Shares.
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\20\ 15 U.S.C. 80a-1.
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The Trust will not acquire and will disclaim any incidental right
(``IR''), or IR asset received, for example as a result
[[Page 10097]]
of forks or airdrops, and such assets will not be taken into account
for purposes of determining NAV.
When the Trust sells or redeems its Shares, it will do so in cash
transactions in blocks of 10,000 Shares (a ``Creation Basket'') at the
Trust's net asset value (``NAV''). For creations, authorized
participants will deliver cash to the Trust's account with the Cash
Custodian in exchange for Shares. Upon receipt of an approved creation
order, the Sponsor, on behalf of the Trust, will submit an order to buy
the amount of XRP represented by a Creation Basket. Based off XRP
executions, the Cash Custodian will request the required cash from the
authorized participant; the Transfer Agent will only issue Shares when
the authorized participant has made delivery of the cash. Following
receipt by the Cash Custodian of the cash from an authorized
participant, the Sponsor, on behalf of the Trust, will approve an order
with one or more previously onboarded trading partners to purchase the
amount of XRP represented by the Creation Basket. This purchase of XRP
will normally be cleared through an affiliate of the Custodian
(although the purchase may also occur directly with the trading
partner) and the XRP will settle directly into the Trust's account at
the Custodian.\21\ Authorized participants may then offer Shares to the
public at prices that depend on various factors, including the supply
and demand for Shares, the value of the Trust's assets, and market
conditions at the time of a transaction. Shareholders who buy or sell
Shares during the day from their broker may do so at a premium or
discount relative to the NAV of the Shares of the Trust.
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\21\ For redemptions, the process will occur in the reverse
order. Upon receipt of an approved redemption order, the Sponsor, on
behalf of the Trust, will submit an order to sell the amount of XRP
represented by a Creation Basket and the cash proceeds will be
remitted to the authorized participant when the 10,000 Shares are
received by the Transfer Agent.
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As noted above, the Trust is designed to protect investors against
the risk of losses through fraud and insolvency that arise by holding
XRP on centralized platforms. Specifically, the Trust is designed to
protect investors as follows:
(i) Assets of the Trust Protected From Insolvency
The Trust's XRP will be held by its Custodian, which is a New York
chartered trust company overseen by the New York Department of
Financial Services and a qualified custodian under Rule 206-4 of the
Investment Advisers Act, 1940. The Custodian will custody the Trust's
XRP pursuant to a custody agreement, which requires the Custodian to
maintain the Trust's XRP in segregated accounts that clearly identify
the Trust as owner of the accounts and assets held on those accounts;
the segregation will be both from the proprietary property of the
Custodian and the assets of any other customer. Such an arrangement is
generally deemed to be ``bankruptcy remote,'' that is, in the event of
an insolvency of the Custodian, assets held in such segregated accounts
would not become property of the Custodian's estate and would not be
available to satisfy claims of creditors of the Custodian. In addition,
according to the Registration Statement, the Custodian carries fidelity
insurance, which covers assets held by the Custodian in custody from
risks such as theft of funds. These arrangements provide significant
protections to investors and could have mitigated the type of losses
incurred by investors in the numerous crypto-related insolvencies,
including Celsius, Voyager, BlockFi, and FTX.
(ii) Trust's Transfer Agent Will Instruct Disposition of Trust's XRP
According to the Registration Statement, except with respect to
sale of XRP from time to time to cover expenses of the Trust, the only
time XRP will move into or out from the Trust will be with respect to
creations or redemptions of Shares of the Trust. The Transfer Agent
will facilitate the settlement of Shares in response to the placement
of creation orders and redemption orders from authorized participants.
The creation and redemption procedures are administered by the Transfer
Agent, an independent third party. Specifically, Shares are issued in
registered form in accordance with the Trust agreement. The Transfer
Agent has been appointed registrar and transfer agent for the purpose
of transferring Shares in certificated form. The Transfer Agent keeps a
record of all holders of the Shares in certified form in the registry.
The Sponsor recognizes transfers of Shares in certified form only if
done in accordance with the Trust agreement. XRP owned by the Trust
will at all times be held by, and in the control of, the Custodian, and
transfer of such XRP to or from the Custodian will occur only in
connection with creation and redemptions of Shares. This will provide
safeguards against the movement of XRP owned by the Trust by or to the
Sponsor or affiliates of the Sponsor.
(iii) Trust's Assets Are Subject to Regular Audit
According to the Registration Statement, audit trails exist for all
movement of XRP within Custodian-controlled XRP wallets and are audited
annually for accuracy and completeness by an independent external audit
firm. In addition, the Trust will be audited by an independent
registered public accounting firm on a regular basis.
(iv) Trust Is Subject to the Exchange's Obligations of Companies Listed
on the Exchange and Applicable Corporate Governance Requirements
The Trust will be subject to the obligations of companies listed on
the Exchange set forth in BZX Rule 14.6, which require the listed
companies to make public disclosure of material events and any
notifications of deficiency by the Exchange, file and distribute period
financial reports, engage independent public accountants registered
with the Exchange, among other things. Such disclosures serve a key
investor protection role. In addition, the Trust will be subject to the
corporate governance requirements for companies listed on the Exchange
set forth in BZX Rule 14.10.
Investment Objective
According to the Registration Statement and as further described
below, the Trust's investment objective is to seek to track the
performance of XRP, as measured by the performance of the CME CF XRP--
Dollar Reference Rate--New York Variant (``Pricing Benchmark''),
adjusted for the Trust's expenses and other liabilities. adjusted for
the Trust's expenses and other liabilities. In seeking to achieve its
investment objective, the Trust will hold XRP and will value its Shares
daily as of 4:00 p.m. ET using the same methodology used to calculate
the Pricing Benchmark. All of the Trust's XRP will be held by the
Custodian.
The Pricing Benchmark
As described in the Registration Statement, The Trust will use the
CME CF XRP-Dollar Reference Rate--New York Variant (the ``Pricing
Benchmark'') to calculate the Trust's NAV. The Pricing Benchmark is
calculated by CF Benchmarks Ltd. (the ``Benchmark Provider'') based on
an aggregation of executed trade flow of major XRP trading platforms
(``Constituent Exchanges''). The Pricing Benchmark is designed to
reflect the performance of XRP in U.S. dollars. In seeking to achieve
its investment objective, the Trust will hold XRP and will value its
[[Page 10098]]
Shares daily based on the Pricing Benchmark.
The Pricing Benchmark, which was introduced on September 16, 2024,
is based on materially the same methodology (except calculation time)
as the CME CF Ripple--Dollar Reference Rate, which was first introduced
on November 16, 2017. The Benchmark Provider is the administrator of
the Pricing Benchmark. The Pricing Benchmark is calculated daily.
The Sponsor believes that the use of the Pricing Benchmark is
reflective of a reasonable valuation of the average spot price of XRP
and that resistance to manipulation is a priority aim of its design
methodology. The methodology: (i) takes an observation period and
divides it into equal partitions of time; (ii) then calculates the
volume-weighted median of all transactions within each partition; and
(iii) the value is determined from the arithmetic mean of the volume-
weighted medians, equally weighted. By employing the foregoing steps,
the Pricing Benchmark thereby seeks to ensure that transactions in XRP
conducted at outlying prices do not have an undue effect on the value
of a specific partition, large trades or clusters of trades transacted
over a short period of time will not have an undue influence on the
benchmark level, as applicable, and the effect of large trades at
prices that deviate from the prevailing price are mitigated from having
an undue influence on the benchmark level.
Pricing Benchmark data and the description of the Pricing Benchmark
are based on information made publicly available by the Benchmark
Provider on its website at <a href="https://www.cfbenchmarks.com/data/indices/XRPUSD_NY">https://www.cfbenchmarks.com/data/indices/XRPUSD_NY</a>.
Net Asset Value
NAV means the total assets of the Trust (which includes all XRP and
cash and cash equivalents) less total liabilities of the Trust. The
Administrator determines the NAV of the Trust 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 Trust is the aggregate value of the
Trust's assets less its estimated accrued but unpaid liabilities (which
include accrued expenses). In determining the Trust's NAV, the
Administrator values the XRP held by the Trust based on the price set
by the Pricing Benchmark as of 4:00 p.m. ET. The Administrator also
determines the NAV per Share.
The NAV for the Trust will be calculated by the Administrator once
a day and will be disseminated daily to all market participants at the
same time.
If the Pricing Benchmark is not available, or if the Sponsor
determines in good faith that the Pricing Benchmark does not reflect an
accurate XRP price, then the Administrator will employ an alternative
method to determine the fair value of the Trust's assets.\22\
---------------------------------------------------------------------------
\22\ Such alternative method will only be employed on an ad hoc
basis. Any permanent change to the calculation of the NAV would
require a proposed rule change under Rule 19b-4.
---------------------------------------------------------------------------
Availability of Information
In addition to the price transparency of the Pricing Benchmark, the
Trust will provide information regarding the Trust's XRP holdings as
well as additional data regarding the Trust. The website for the Trust,
which will be publicly accessible at no charge, will contain the
following information:
(i) the current NAV per Share daily and the prior business day's
NAV per Share and the reported BZX Official Closing Price; \23\
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\23\ As defined in Rule 11.23(a)(3), the term ``BZX Official
Closing Price'' shall mean the price disseminated to the
consolidated tape as the market center closing trade.
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(ii) the BZX Official Closing Price in relation to the NAV per
Share as of the time the NAV is calculated and a calculation of the
premium or discount of such price against such NAV per Share;
(iii) data in chart form displaying the frequency distribution of
discounts and premiums of the BZX Official Closing Price against the
NAV per Share, within appropriate ranges for each of the four previous
calendar quarters (or for the life of the Trust, if shorter);
(iv) the prospectus; and
(v) other applicable quantitative information.
The aforementioned information will be published as of the close of
business and available on the Sponsor's website at <a href="http://www.21shares.com">www.21shares.com</a>, or
any successor thereto. The NAV for the Trust will be calculated by the
Administrator once a day and will be 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
Consolidated Tape Association (``CTA''). The Trust will also
disseminate its holdings on a daily basis on its website.
The Intraday Indicative Value (``IIV'') will be updated during
Exchange's Regular Trading Hours (9:30 a.m. to 4:00 p.m. E.T.) to
reflect changes in the value of the Trust's XRP holdings during the
trading day. The IIV disseminated during Regular Trading Hours should
not be viewed as an actual real-time update of the NAV, which will be
calculated only once at the end of each trading day. The IIV may differ
from the NAV because NAV is calculated, using the closing value of the
Pricing Benchmark, once a day at 4 p.m. ET, whereas the IIV draws
prices from the last trade on each constituent platform in an effort to
produce a relevant, real-time price). The Trust will provide an IIV per
Share updated every 15 seconds, as calculated by the Exchange or a
third-party financial data provider during the Exchange's Regular
Trading Hours. The IIV will be widely disseminated on a per Share basis
every 15 seconds during the Exchange's Regular Trading Hours through
the facilities of the CTA and Consolidated Quotation System (CQS) high
speed lines. In addition, the IIV will be available through on-line
information services, such as Bloomberg and Reuters.
The price of XRP will be made available by one or more major market
data vendors, updated at least every 15 seconds during Regular Trading
Hours.
Information about the Pricing Benchmark and Pricing Benchmark
value, including key elements of how the Pricing Benchmark is
calculated, will be publicly available at <a href="https://www.cfbenchmarks.com/data/indices/XRPUSD_NY">https://www.cfbenchmarks.com/data/indices/XRPUSD_NY</a>.
Quotation and last sale information for XRP is widely disseminated
through a variety of major market data vendors, including Bloomberg and
Reuters. Information relating to trading, including price and volume
information, in XRP is available from major market data vendors and
from the trading platforms on which XRP are traded. Depth of book
information is also available from XRP trading platforms. The normal
trading hours for XRP trading platforms are 24 hours per day, 365 days
per year.
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 BZX Official Closing Price and trading
volume information for the Shares will be published daily in the
financial section of newspapers. Quotation and last-sale information
regarding the Shares will be disseminated through the facilities of the
CTA.
The Custodian
The Custodian's services (i) allow XRP to be deposited from a
public blockchain address to the Trust's XRP account and (ii) allow XRP
to be withdrawn from the XRP account to a public blockchain address as
instructed
[[Page 10099]]
by the Trust. The custody agreement requires the Custodian to hold the
Trust's XRP in cold storage, unless required to facilitate withdrawals
as a temporary measure. The Custodian will use segregated cold storage
XRP addresses for the Trust which are separate from the XRP addresses
that the Custodian uses for its other customers and which are directly
verifiable via the XRP blockchain. The Custodian will safeguard the
private keys to the XRP associated with the Trust's XRP account. The
Custodian will at all times record and identify in its books and
records that such XRP constitutes the property of the Trust. The
Custodian will not withdraw the Trust's XRP from the Trust's account
with the Custodian, or loan, hypothecate, pledge or otherwise encumber
the Trust's XRP, without the Trust's instruction. If the custody
agreement terminates, the Sponsor may appoint another custodian, and
the Trust may enter into a custodian agreement with such custodian.
Creation and Redemption of Shares
When the Trust sells or redeems its Shares, it will do so in cash
transactions in 10,000 Share increments (a Creation Basket) that are
based on the amount of XRP held by the Trust on a per Creation Basket
basis. According to the Registration Statement, on any business day, an
authorized participant may place an order to create one or more
Creation Baskets. Purchase orders must be placed by 12:00 p.m. ET, the
close of regular trading on the Exchange, or another time determined by
the Sponsor. The day on which an order is received is considered the
purchase order date. The total deposit of cash required is based on the
combined NAV of the number of Shares included in the Creation Baskets
being created determined as of 4:00 p.m. ET on the date the order to
purchase is properly received. The Administrator determines the
quantity of XRP associated with a Creation Basket for a given day by
dividing the number of XRP held by the Trust as of the opening of
business on that business day, adjusted for the amount of XRP
constituting estimated accrued but unpaid fees and expenses of the
Trust as of the opening of business on that business day, by the
quotient of the number of Shares outstanding at the opening of business
divided by the number of Shares in a Creation Basket.
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 XRP as part of the creation or redemption process or
otherwise direct the Trust or a third party with respect to purchasing,
holding, delivering, or receiving XRP as part of the creation or
redemption process. For a creation order, the Trust will create Shares
by receiving XRP from a third party that is not the authorized
participant and the Trust--not the authorized participant--is
responsible for selecting the third party to facilitate the delivery of
XRP. Further, the third party will not be acting as an agent of the
authorized participant with respect to the delivery of the XRP to the
Trust or acting at the direction of the authorized participant with
respect to the delivery of the XRP to the Trust. When fulfilling a
redemption request, the Trust will redeem shares by delivering XRP to a
third party that is not the authorized participant and the Trust--not
the authorized participant--is responsible for selecting such third
party to receive the XRP. Further, the third party will not be acting
as an agent of the authorized participant with respect to the receipt
of the XRP from the Trust or acting at the direction of the authorized
participant with respect to the receipt of the XRP from the Trust.
The Sponsor will maintain ownership and control of XRP in a manner
consistent with good delivery requirements for spot commodity
transactions.
Rule 14.11(e)(4)--Commodity-Based Trust Shares
The Shares will be subject to BZX Rule 14.11(e)(4), which sets
forth the initial and continued listing criteria applicable to
Commodity-Based Trust Shares. The Exchange represents that, for initial
and continued listing, the Trust must be in compliance with Rule 10A-3
under the Act. A minimum of 100,000 Shares will be outstanding at the
commencement of listing on the Exchange. The Exchange will obtain a
representation that the NAV will be calculated daily and that the NAV
and information about the assets of the Trust will be made available to
all market participants at the same time. The Exchange notes that, as
defined in Rule 14.11(e)(4)(C)(i), the Shares will be: (i) issued by a
trust that holds (1) a specified commodity \24\ deposited with the
trust, or (2) a specified commodity and, in addition to such specified
commodity, cash; (ii) issued by such trust in a specified aggregate
minimum number in return for a deposit of a quantity of the underlying
commodity and/or cash; and (iii) when aggregated in the same specified
minimum number, may be redeemed at a holder's request by such trust
which will deliver to the redeeming holder the quantity of the
underlying commodity and/or cash.
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\24\ For purposes of Rule 14.11(e)(4), the term commodity takes
on the definition of the term as provided in the Commodity Exchange
Act.
---------------------------------------------------------------------------
Upon termination of the Trust, the Shares will be removed from
listing. The Trustee, CSC Delaware Trust Company, is a trust company
having substantial capital and surplus and the experience and
facilities for handling corporate trust business, as required under
Rule 14.11(e)(4)(E)(iv)(a) and no change will be made to the trustee
without prior notice to and approval of the Exchange. The Exchange also
notes that, pursuant to Rule 14.11(e)(4)(F), neither the Exchange nor
any agent of the Exchange shall have any liability for damages, claims,
losses or expenses caused by any errors, omissions or delays in
calculating or disseminating any underlying commodity value, the
current value of the underlying commodity required to be deposited to
the Trust in connection with issuance of Commodity-Based Trust Shares;
resulting from any negligent act or omission by the Exchange, or any
agent of the Exchange, or any act, condition or cause beyond the
reasonable control of the Exchange, its agent, including, but not
limited to, an act of God; fire; flood; extraordinary weather
conditions; war; insurrection; riot; strike; accident; action of
government; communications or power failure; equipment or software
malfunction; or any error, omission or delay in the reports of
transactions in an underlying commodity. Finally, as required in Rule
14.11(e)(4)(G), the Exchange notes that any registered market maker
(``Market Maker'') in the Shares must file with the Exchange in a
manner prescribed by the Exchange and keep current a list identifying
all accounts for trading in an underlying commodity, related commodity
futures or options on commodity futures, or any other related commodity
derivatives, which the registered Market Maker may have or over which
it may exercise investment discretion. No registered Market Maker shall
trade in an underlying commodity, related commodity futures or options
on commodity futures, or any other related commodity derivatives, in an
account in which a registered Market Maker, directly or indirectly,
controls trading activities, or has a direct interest in the profits or
losses thereof, which has not been reported to the Exchange as required
by this Rule. In addition to the existing obligations under Exchange
rules regarding the production of books and records (see, e.g., Rule
4.2), the
[[Page 10100]]
registered Market Maker in Commodity-Based Trust Shares shall make
available to the Exchange such books, records or other information
pertaining to transactions by such entity or registered or non-
registered employee affiliated with such entity for its or their own
accounts for trading the underlying commodity, or any other related
commodity derivatives, as may be requested by the Exchange.
The Exchange is able to obtain information regarding trading in the
Shares and the underlying XRP or any other XRP derivative through
members acting as registered Market Makers, in connection with their
proprietary or customer trades.
As a general matter, the Exchange has regulatory jurisdiction over
its members and their associated persons, which include any person or
entity controlling a member. To the extent the Exchange may be found to
lack jurisdiction over a subsidiary or affiliate of a member 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.
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. The Exchange will halt trading in the Shares
under the conditions specified in BZX Rule 11.18. Trading may be halted
because of market conditions or for reasons that, in the view of the
Exchange, make trading in the Shares inadvisable. These may include:
(i) the extent to which trading is not occurring in the XRP underlying
the Shares; or (ii) whether other unusual conditions or circumstances
detrimental to the maintenance of a fair and orderly market are
present. Trading in the Shares also will be subject to Rule
14.11(e)(4)(E)(ii), which sets forth circumstances under which trading
in the Shares may be halted.
If the IIV or the value of the Pricing Benchmark is not being
disseminated as required, the Exchange may halt trading during the day
in which the interruption to the dissemination of the IIV or the value
of the Pricing Benchmark occurs. If the interruption to the
dissemination of the IIV or the value of the Pricing Benchmark 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.
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. BZX will allow
trading in the Shares during all trading sessions on the Exchange. The
Exchange has appropriate rules to facilitate transactions in the Shares
during all trading sessions. As provided in BZX Rule 11.11(a) the
minimum price variation for quoting and entry of orders in securities
traded on the Exchange is $0.01 where the price is greater than $1.00
per share or $0.0001 where the price is less than $1.00 per share. The
Shares of the Trust will conform to the initial and continued listing
criteria set forth in BZX Rule 14.11(e)(4).
Surveillance
The Exchange represents that its surveillance procedures are
adequate to properly monitor the trading of the Shares on the Exchange
during all trading sessions and to deter and detect violations of
Exchange rules and the applicable federal securities laws. Trading of
the Shares through the Exchange will be subject to the Exchange's
surveillance procedures for derivative products, including Commodity-
Based Trust Shares. FINRA conducts certain 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.
The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares or any other XRP
derivative with other markets and other entities that are members of
the Intermarket Surveillance Group (``ISG''), and the Exchange, or
FINRA, on behalf of the Exchange, or both, may obtain trading
information regarding trading in the Shares or any other XRP derivative
from such markets and other entities.\25\ The Exchange may obtain
information regarding trading in the Shares or any other XRP derivative
via ISG, from other exchanges who are members or affiliates of the ISG,
or with which the Exchange has entered into a comprehensive
surveillance sharing agreement.
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\25\ For a list of the current members and affiliate members of
ISG, see <a href="http://www.isgportal.com">www.isgportal.com</a>.
---------------------------------------------------------------------------
In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
The Sponsor has represented to the Exchange that it will advise the
Exchange of any failure by the Trust or the Shares to comply with the
continued listing requirements, and, pursuant to its obligations under
Section 19(g)(1) of the Exchange Act, the Exchange will surveil for
compliance with the continued listing requirements. If the Trust or the
Shares are not in compliance with the applicable listing requirements,
the Exchange will commence delisting procedures under Exchange Rule
14.12.
Information Circular
Prior to the commencement of trading, the Exchange will inform its
members in an Information Circular of the special characteristics and
risks associated with trading the Shares. Specifically, the Information
Circular will discuss the following:
(i) the procedures for the creation and redemption of Creation
Baskets (and that the Shares are not individually redeemable);
(ii) BZX Rule 3.7, which imposes suitability obligations on
Exchange members with respect to recommending transactions in the
Shares to customers;
(iii) how information regarding the IIV and the Trust's NAV are
disseminated;
(iv) the risks involved in trading the Shares outside of Regular
Trading Hours when an updated IIV will not be calculated or publicly
disseminated;
(v) the requirement that members deliver a prospectus to investors
purchasing newly issued Shares prior to or concurrently with the
confirmation of a transaction; and
(vi) trading information.
The Information Circular will also reference the fact that there is
no regulated source of last sale information regarding XRP, and that
the Commission has no jurisdiction over the trading of XRP as a
commodity.
In addition, the Information Circular will advise members, prior to
the commencement of trading, of the prospectus delivery requirements
applicable to the Shares. Members purchasing the Shares for resale to
investors will deliver a prospectus to such investors. The Information
Circular will also discuss any exemptive, no-action and interpretive
relief granted by the Commission from any rules under the Act.
[[Page 10101]]
2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act \26\ in general and Section 6(b)(5) of the Act \27\ in
particular in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system and, in general, to protect investors and the
public interest.
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\26\ 15 U.S.C. 78f.
\27\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Commission has approved numerous series of Trust Issued
Receipts,\28\ including Commodity-Based Trust Shares,\29\ to be listed
on U.S. national securities exchanges. In order for any proposed rule
change from an exchange to be approved, the Commission must determine
that, among other things, the proposal is consistent with the
requirements of Section 6(b)(5) of the Act, specifically including: (i)
the requirement that a national securities exchange's rules are
designed to prevent fraudulent and manipulative acts and practices;
\30\ and (ii) the requirement that an exchange proposal be designed, in
general, to protect investors and the public interest. The Exchange
believes that this proposal is consistent with the requirements of
Section 6(b)(5) of the Act and that this filing sufficiently
demonstrates that potential policy concerns under the Act are
sufficiently mitigated to the point that they are outweighed by
quantifiable investor protection issues that would be resolved by
approving this proposal.
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\28\ See Exchange Rule 14.11(f).
\29\ Commodity-Based Trust Shares, as described in Exchange Rule
14.11(e)(4), are a type of Trust Issued Receipt.
\30\ Much like bitcoin and ETH, the Exchange believes that XRP
is resistant to price manipulation and that ``other means to prevent
fraudulent and manipulative acts and practices'' exist to justify
dispensing with the requisite surveillance sharing agreement. The
geographically diverse and continuous nature of XRP trading render
it difficult and prohibitively costly to manipulate the price of
XRP. The fragmentation across platforms and the capital necessary to
maintain a significant presence on each trading platform make
manipulation of XRP prices through continuous trading activity
challenging. To the extent that there are trading platforms engaged
in or allowing wash trading or other activity intended to manipulate
the price of XRP on other markets, such pricing does not normally
impact prices on other trading platforms because participants will
generally ignore markets with quotes that they deem non-executable.
Moreover, the linkage between XRP markets and the presence of
arbitrageurs in those markets means that the manipulation of the
price of XRP on any single venue would require manipulation of the
global XRP price in order to be effective. Arbitrageurs must have
funds distributed across multiple trading platforms in order to take
advantage of temporary price dislocations, thereby making it
unlikely that there will be strong concentration of funds on any
particular trading platforms or OTC platform. Further, the speed and
relatively inexpensive nature of transactions on the XRP network
allow arbitrageurs to quickly move capital between trading platforms
where price dislocations may occur. As a result, the potential for
manipulation on a trading platform would require overcoming the
liquidity supply of such arbitrageurs who are effectively
eliminating any cross-market pricing differences.
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The Commission has recently applied the Winklevoss Test to
recognize that the ``regulated market of significant size'' standard is
not the only means for satisfying Section 6(b)(5) of the Act. Instead,
the Commission has acknowledged that a listing exchange could
demonstrate that ``other means to prevent fraudulent and manipulative
acts and practices'' are sufficient to justify dispensing with the
requisite surveillance-sharing agreement.\31\ There is currently no
futures market for XRP, but the existence of a futures market of
significant size is not a prerequisite for preventing fraudulent and
manipulative acts and practices. In the Spot Bitcoin ETF Approval Order
and Spot ETH ETF Approval Order the Commission determined that the CME
bitcoin futures market and CME ETH futures market, respectively, were
not of ``significant size'' related to the spot market. Instead, the
Commission found that sufficient ``other means'' of preventing fraud
and manipulation had been demonstrated that justified dispensing with a
surveillance-sharing agreement of significant size. The Exchange and
Sponsor believe that this proposal provides for other means of
preventing fraud and manipulation that justify dispensing with a
surveillance-sharing agreement of significant size.
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\31\ See Winklevoss Order at 37580. The Commission has also
specifically noted that it ``is not applying a `cannot be
manipulated' standard; instead, the Commission is examining whether
the proposal meets the requirements of the Exchange Act and,
pursuant to its Rules of Practice, has placed the burden on the
listing exchange to demonstrate the validity of its contentions and
to establish that the requirements of the Exchange Act have been
met.'' Id. at 37582.
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The Exchange believes that the proposal is designed to protect
investors and the public interest. Over the past several years, U.S.
investor exposure to XRP, through OTC XRP Funds and digital asset
trading platforms, has grown into billions of dollars with a fully
diluted market cap of greater than $176 billion. The Exchange believes
that approving this proposal (and comparable proposals) provides the
Commission with the opportunity to allow U.S. investors with access to
XRP in a regulated and transparent exchange-traded vehicle that would
act to limit risk to U.S. investors by: (i) reducing premium and
discount volatility; (ii) reducing management fees through meaningful
competition; and (iii) providing an alternative to custodying spot XRP.
The Exchange believes that the policy concerns are mitigated by the
fact that the size of the market for the underlying reference asset
($176+ billion fully diluted value) and the nature of the XRP ecosystem
reduce its susceptibility to manipulation. The geographically diverse
and continuous nature of XRP trading makes it difficult and
prohibitively costly to manipulate the price of XRP and, in many
instances, the XRP market can be less susceptible to manipulation than
the equity, fixed income, and commodity futures markets. There are a
number of reasons why this is the case, including:
<bullet> the absence of inside information about revenue, earnings,
corporate activities, or sources of supply;
<bullet> the fact that manipulation of the price on any single
venue would require manipulation of the global XRP price in order to be
effective;
<bullet> the existence of a substantial over-the-counter market
that provides liquidity and shock-absorbing capacity;
<bullet> the fact that XRP's 24/7/365 nature provides constant
arbitrage opportunities across all trading venues; and the low
likelihood that any one actor could obtain a dominant market share.
Further, XRP is arguably less susceptible to manipulation than many
physical commodities that underlie ETPs. For example, for physical
commodities, there may be inside information relating to the supply of
the physical commodity such as the discovery of new sources of supply
or significant disruptions at mining facilities that supply the
commodity--no such inside information is available for crypto assets on
public, distributed networks, such as XRP. Further, the Exchange
believes that the fragmentation across XRP trading platforms and
increased adoption of XRP, as displayed through increased user
engagement and trading volumes, and the distributed nature of the XRP
network make manipulation of XRP prices through continuous trading
activity more difficult. Moreover, the presence of arbitrageurs in the
XRP markets means that the manipulation of the price of XRP price on
any single venue would require manipulation of the global XRP price in
order to be effective. Arbitrageurs must have funds distributed across
multiple XRP trading platforms in order to take advantage of
[[Page 10102]]
temporary price dislocations, thereby making it unlikely that there
will be strong concentration of funds on any particular XRP trading
platform. As a result, manipulation on a particular XRP trading
platform would require overcoming the liquidity supply of such
arbitrageurs who are effectively eliminating any cross-market pricing
differences. For all of these reasons, XRP is not particularly
susceptible to manipulation, especially as compared to many other
approved ETP reference assets.
Commodity-Based Trust Shares
The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed on the Exchange pursuant to the initial and
continued listing criteria in Exchange Rule 14.11(e)(4). The Exchange
believes that its surveillance procedures are adequate to properly
monitor the trading of the Shares on the Exchange during all trading
sessions and to deter and detect violations of Exchange rules and the
applicable federal securities laws. Trading of the Shares through the
Exchange will be subject to the Exchange's surveillance procedures for
derivative products, including Commodity-Based Trust Shares. The issuer
has represented to the Exchange that it will advise the Exchange of any
failure by the Trust or the Shares to comply with the continued listing
requirements, and, pursuant to its obligations under Section 19(g)(1)
of the Exchange Act, the Exchange will surveil for compliance with the
continued listing requirements. If the Trust or the Shares are not in
compliance with the applicable listing requirements, the Exchange will
commence delisting procedures under Exchange Rule 14.12. The Exchange
may obtain information regarding trading in the Shares and listed XRP
derivatives via the ISG, from other exchanges who are members or
affiliates of the ISG, or with which the Exchange has entered into a
comprehensive surveillance sharing agreement.
Availability of Information
In addition to the price transparency of the Pricing Benchmark, the
Trust will provide information regarding the Trust's XRP holdings as
well as additional data regarding the Trust. The website for the Trust,
which will be publicly accessible at no charge, will contain the
following information:
(i) the current NAV per Share daily and the prior business day's
NAV per Share and the reported BZX Official Closing Price; \32\
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\32\ As defined in Rule 11.23(a)(3), the term ``BZX Official
Closing Price'' shall mean the price disseminated to the
consolidated tape as the market center closing trade.
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(ii) the BZX Official Closing Price in relation to the NAV per
Share as of the time the NAV is calculated and a calculation of the
premium or discount of such price against such NAV per Share;
(iii) data in chart form displaying the frequency distribution of
discounts and premiums of the BZX Official Closing Price against the
NAV per Share, within appropriate ranges for each of the four previous
calendar quarters (or for the life of the Trust, if shorter);
(iv) the prospectus; and
(v) other applicable quantitative information.
The aforementioned information will be published as of the close of
business and available on the Sponsor's website at <a href="http://www.21shares.com">www.21shares.com</a>, or
any successor thereto. The NAV for the Trust will be calculated by the
Administrator once a day and will be 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 Trust will also disseminate its holdings on a daily basis on
its website.
The IIV will be updated during Regular Trading Hours to reflect
changes in the value of the Trust's XRP holdings during the trading
day. The IIV may differ from the NAV because NAV is calculated, using
the closing value of the Pricing Benchmark, once a day at 4:00 p.m.
Eastern time whereas the IIV draws prices from the last trade on each
constituent platform to produce a relevant, real-time price. The IIV
disseminated during Regular Trading Hours should not be viewed as an
actual real-time update of the NAV, which will be calculated only once
at the end of each trading day. The Trust will provide an IIV per Share
updated every 15 seconds, as calculated by the Exchange or a third-
party financial data provider during the Exchange's Regular Trading
Hours. The IIV will be widely disseminated on a per Share basis every
15 seconds during the Exchange's Regular Trading Hours through the
facilities of the CTA and CQS high speed lines. In addition, the IIV
will be available through on-line information services such as
Bloomberg and Reuters.
The price of XRP will be made available by one or more major market
data vendors, updated at least every 15 seconds during Regular Trading
Hours.
Information about the Pricing Benchmark and Pricing Benchmark
value, including key elements of how the Pricing Benchmark is
calculated, will be publicly available at <a href="https://www.cfbenchmarks.com/data/indices/XRPUSD_NY">https://www.cfbenchmarks.com/data/indices/XRPUSD_NY</a>.
Quotation and last sale information for XRP is widely disseminated
through a variety of major market data vendors, including Bloomberg and
Reuters. Information relating to trading, including price and volume
information, in XRP is available from major market data vendors and
from the trading platforms on which XRP are traded. Depth of book
information is also available from XRP trading platforms. The normal
trading hours for XRP trading platforms are 24 hours per day, 365 days
per year.
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 BZX Official Closing Price and trading
volume information for the Shares will be published daily in the
financial section of newspapers. Quotation and last-sale information
regarding the Shares will be disseminated through the facilities of the
CTA.
In sum, the Exchange believes that this proposal is consistent with
the requirements of Section 6(b)(5) of the Act, that on the whole the
manipulation concerns previously articulated by the Commission are
sufficiently mitigated to the point that they are outweighed by
investor protection issues that would be resolved by approving this
proposal.
The Exchange believes that the proposal is, in particular, designed
to protect investors and the public interest. Investor protection
issues for U.S. investors have grown significantly over the last
several years, through premium/discount volatility and management fees
for OTC XRP Funds. As discussed in this proposed rule filing, these
investor protection concerns need to be re-evaluated alongside the
prevention of fraudulent and manipulative acts and practices concerns
that previous disapproval orders have relied upon.
For the above reasons, the Exchange believes that the proposed rule
change is consistent with the requirements of Section 6(b)(5) of the
Act.
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
[[Page 10103]]
of the purpose of the Act. The Exchange notes that the proposed rule
change, rather will facilitate the listing and trading of an additional
exchange-traded product that will enhance competition among both market
participants and listing venues, 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
The Exchange has neither solicited nor received comments on 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 Exchange consents, the Commission will:
A. by order approve or disapprove such 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, as modified by Amendment No. 1, 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#92e0e7fef7bff1fdfffff7fce6e1d2e1f7f1bcf5fde4"><span class="__cf_email__" data-cfemail="2052554c450d434f4d4d454e5453605345430e474f56">[email protected]</span></a>. Please include
file number SR-CboeBZX-2025-021 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-CboeBZX-2025-021. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-CboeBZX-2025-021 and should
be submitted on or before March 14, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
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\33\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-02888 Filed 2-20-25; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on February 21, 2025.
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.