Notice2025-03033
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Proposed Rule Change To List and Trade Shares of the CoinShares Litecoin ETF Under Nasdaq Rule 5711(d)
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 25, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 36 (Tuesday, February 25, 2025)</title>
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[Federal Register Volume 90, Number 36 (Tuesday, February 25, 2025)]
[Notices]
[Pages 10656-10663]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-03033]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102444; File No. SR-NASDAQ-2025-013]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Proposed Rule Change To List and Trade Shares of
the CoinShares Litecoin ETF Under Nasdaq Rule 5711(d)
February 19, 2025.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on February 7, 2025, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change 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 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
The Exchange proposes to list and trade shares of the CoinShares
Litecoin ETF (the ``Trust'') under Nasdaq Rule 5711(d) (``Commodity-
Based Trust Shares''). The shares of the Trust are referred to herein
as the ``Shares.''
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/nasdaq/rulefilings">https://listingcenter.nasdaq.com/rulebook/nasdaq/rulefilings</a>, at the principal office of the Exchange, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade the Shares under Nasdaq
Rule 5711(d), which governs the listing and trading of Commodity-Based
Trust Shares on the Exchange.\3\ CoinShares Co. is the sponsor of the
Trust (the ``Sponsor'').\4\ Any statements or representations included
in this proposal regarding: (a) the description of the reference assets
or trust holdings; (b) limitations on the reference assets or trust
holdings; (c) dissemination and availability of the reference asset or
intraday indicative value; or (d) the applicability of Nasdaq listing
rules specified in this proposal shall constitute continued listing
standards for the Shares listed on the Exchange.
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\3\ The Commission approved Nasdaq Rule 5711 in Securities
Exchange Act Release No. 66648 (March 23, 2012), 77 FR 19428 (March
30, 2012) (SR-NASDAQ-2012-013).
\4\ See Registration Statement on Form S-1, dated January 24,
2025 filed with the Commission on behalf of the Trust. The
descriptions of the Trust, the Shares, the Index (as defined below),
and Litecoin contained herein are based, in part on information in
the Registration Statement. The Registration Statement in not yet
effective and the Shares will not trade on the Exchange until such
time that the Registration Statement is effective.
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Overview of the Trust and the Shares
According to the Registration Statement, the Trust is a Delaware
Statutory Trust that was formed on December 10, 2024. The Trust will
operate pursuant to a trust agreement (the ``Trust Agreement''), as
amended and/or restated from time to time. CSC Delaware Trust Company,
a Delaware corporation, is the trustee of the Trust (the ``Trustee'').
A third party will be the transfer agent of the Trust (in such
capacity, the ``Transfer Agent'') and the administrator of the Trust
(in such capacity, the ``Administrator''). A third-party custodian (the
``Custodian'') will be responsible for custody of the Trust's Litecoin.
According to the Registration Statement, each Share will represent
a fractional undivided beneficial interest in and ownership of the
Trust. The Trust holds only Litecoin (``LTC'') and cash. The investment
objective of the Trust is for the Shares to reflect the performance of
the value of LTC as represented by the Compass Crypto
[[Page 10657]]
Reference Index Litecoin--4 p.m. NY Time (the ``Index''), less the
Trust's liabilities and expenses. In seeking to achieve its investment
objective, the Trust will hold LTC and will value its Shares daily
based on the value of LTC as reflected by the Index. The Index is
calculated independently by Compass Financial Technologies (the
``Benchmark Administrator'').
According to the Registration Statement, the Trust is passive and
is not managed like a corporation or an active investment vehicle. The
Trust is not registered as an investment company under the Investment
Company Act of 1940, and the Sponsor believes that the Trust is not
required to register under the Investment Company Act of 1940. The
Trust will not hold or trade in commodity futures contracts or other
derivative contracts regulated by the Commodity Exchange Act of 1936,
as administered by the Commodity Futures Trading Commission (the
``CFTC''). The Sponsor believes that the Trust is not a commodity pool
for purposes of the CEA, and that neither the Sponsor nor the Trustee
is subject to regulation as a commodity pool operator or a commodity
trading adviser in connection with the operation of the Trust.
When the Trust creates or redeems Shares, it will do so in blocks
of 5,000 Shares (a ``Basket'') based on the quantity of LTC
attributable to each Share of the Trust (net of accrued but unpaid
expenses and liabilities). The Trust issues Baskets to authorized
participants on an ongoing basis in exchange for cash, which is used to
purchase LTC that is deposited for safekeeping with the Custodian.
Neither the Trust, nor the Sponsor, nor the Custodian, nor any
other person associated with the Trust will, directly or indirectly,
engage in action where any portion of the Trust's LTC is used to earn
additional LTC or generate rewards or other income. The Trust will not
acquire and will disclaim any incidental right (``IR'') or IR asset
received, for example as a result of forks or airdrops, and such assets
will not be taken into account for purposes of determining the Trust's
net asset value (``NAV'').
Investment Objective
According to the Registration Statement, the Trust's investment
objective is for the Shares to reflect the performance of the value of
LTC as represented by the Index, less the Trust's liabilities and
expenses. While an investment in the Shares is not a direct investment
in LTC, the Shares are designed to provide investors with a cost-
effective and convenient way to gain investment exposure to LTC.
Generally speaking, a substantial direct investment in LTC may require
expensive and sometimes complicated arrangements in connection with the
acquisition, security and safekeeping of the LTC and may involve the
payment of substantial fees to acquire such LTC from third-party
facilitators through cash payments of U.S. dollars. Because the value
of the Shares is correlated with the value of the LTC held by the
Trust, it is important to understand the investment attributes of, and
the market for, LTC.
LTC Background
According to the Registration Statement, LTC is a digital asset
that is created and transmitted through the operations of the peer-to-
peer, decentralized network of computers that operates on cryptographic
protocols (the ``Litecoin Network''). No single entity owns or operates
the Litecoin Network, the infrastructure of which is collectively
maintained by a decentralized user base. The Litecoin Network allows
people to exchange LTC, which are recorded on a public transaction
ledger known as a blockchain (the ``Litecoin Blockchain''). LTC can be
used to pay for goods and services on the Litecoin Network, or it can
be converted to fiat currencies, such as the U.S. dollar, at rates
determined on digital asset trading platforms or in individual end-
user-to-end-user transactions under a barter system.
Litecoin is an alternative software implementation of Bitcoin that
was created in late 2011 by Charlie Lee, a former Google employee, who
set out to create a proof-of-work currency that could be an alternative
to Bitcoin. Ultimately, this resulted in a clone of Bitcoin. Although
Litecoin is thus very similar to Bitcoin, there are several key
differences between the Litecoin Network and the Bitcoin Network. These
differences include a block generation time of approximately two and a
half minutes for LTC as compared to ten minutes for Bitcoin, and a cap
on the number of coins that will be created of 84 million LTC, as
compared to 21 million for Bitcoin. As a result of these differences,
transactions using LTC occur four times faster than transactions using
Bitcoin and at a lower cost. Litecoin also implemented ``crypt,'' a
distinct hashing algorithm different from Bitcoin's SHA-256 hashing
algorithm, which does not require application-specific integrated
circuits (``ASICs'') to mine LTC and therefore results in less
centralized mining hash power.
The Litecoin Network is decentralized and does not require
governmental authorities or financial institution intermediaries to
create, transmit or determine the value of LTC. Rather, LTC is created
and allocated by the Litecoin Network protocol through a ``mining''
process. The value of LTC is determined by the supply of and demand for
LTC on the digital asset trading platforms or in private end-user-to-
end-user transactions.
Similar to the Bitcoin Network, the Litecoin Network operates on a
proof-of-work model. New LTC is created and rewarded to the miners of a
block in the Litecoin Blockchain for verifying transactions. The
Litecoin Blockchain is effectively a decentralized database that
includes all blocks that have been mined by miners and it is updated to
include new blocks as they are solved. Each LTC transaction is
broadcast to the Litecoin Network and, when included in a block,
recorded on the Litecoin Blockchain. As each new block records
outstanding LTC transactions, and outstanding transactions are settled
and validated through such recording, the Litecoin Blockchain
represents a complete, transparent and unbroken history of all
transactions of the Litecoin Network. The current miner reward of 6.25
LTC per block was reduced from 12.5 LTC per block by 50% in August
2023, and will be further reduced by another 50% every 840,000 blocks,
or approximately four years, thereafter.
Similar to Bitcoin, LTC can be used to pay for goods and services
or can be converted to fiat currencies, such as the U.S. dollar, at
rates determined on digital asset exchanges or in individual end-user-
to-end-user transactions under a barter system. Additionally, LTC is
used to pay for transaction fees to miners for verifying transactions
on the Litecoin Network.
Index
According to the Registration Statement, the Index is designed to
provide a daily, 4:00 p.m. Eastern Time (``ET'') reference rate of the
U.S. dollar price of one LTC that may be used to develop financial
products. The Index is representative of the LTC trading activity on
selected crypto trading platforms. For purposes of determining the
value of the Trust's LTC, the Trust uses the Index to calculate a per-
LTC value in U.S. dollars (the ``LTC Index Price''). The LTC Index
Price is published between 4:00 p.m. and 4:30 p.m. ET on each trading
day.
The Sponsor believes that the use of the Index is reflective of a
reasonable valuation of the average spot price of LTC and that
resistance to manipulation
[[Page 10658]]
is a priority aim of its design methodology. The methodology: (i) takes
an observation period and divides it in twelve (12) time-equally sized
partitions of trade records; (ii) then calculates the volume-weighted
median of all trade prices within each partition; and (iii) determines
the value from the arithmetic mean of the volume-weighted medians,
equally weighted. By employing the foregoing steps, the Index thereby
seeks to ensure that transactions in LTC 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 index level, 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.
In addition, the Sponsor notes that an oversight function is
implemented by the Benchmark Administrator in seeking to ensure that
the Index is administered through codified policies for Index
integrity.
Net Asset Value
According to the Registration Statement, the Shares are valued on a
daily basis as of 4:00 p.m. ET. The value of LTC held by the Trust is
determined based on the fair market value price for LTC determined by
the Benchmark Administrator.
The Trust's NAV is calculated by:
<bullet> taking the current market value of its LTC (determined as
set forth below) and any other; and assets;
<bullet> subtracting any liabilities (including accrued by unpaid
expenses).
The Trust's NAV per Share is calculated by taking the Trust's NAV
and dividing it by the total amount of Shares outstanding.
The LTC held by the Trust will typically be valued based on the LTC
Index Price. The Administrator calculates the NAV of the Trust once
each business day. The end-of-day LTC price is calculated using the LTC
Index Price as of 4:00 p.m. ET. However, NAVs are not officially struck
until later in the day (often by 5:30 p.m. ET and almost always by 8:00
p.m. ET). The pause after 4:00 p.m. ET provides an opportunity for the
Sponsor to detect, flag, investigate, and correct unusual pricing
should it occur. If the Sponsor determines in good faith that the Index
does not reflect an accurate LTC price, then the Sponsor will instruct
the Benchmark Administrator to employ an alternative method to
determine the fair value of the Trust's assets. The Compass Crypto
Reference Index Litecoin--4 p.m. NY Time shall constitute the Index,
but if the Index becomes unavailable, or if the Sponsor determines in
good faith that such Index does not reflect an accurate price for LTC,
then the Sponsor will employ an alternative method to determine the
fair value of the Trust's assets.\5\
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\5\ 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.
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Availability of Information and Intraday Indicative Value
In addition to the price transparency of the Index, the Trust will
provide information regarding the Trust's LTC 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: (a) the prior business day's NAV per Share; (b) the prior
business day's Nasdaq official closing price; (c) calculation of the
premium or discount of such Exchange official closing price against
such NAV per Share; (d) data in chart form displaying the frequency
distribution of discounts and premiums of the Exchange's official
closing price against the NAV, within appropriate ranges for each of
the four previous calendar quarters (or for the life of the Trust, if
shorter); (e) the prospectus; and (f) other applicable quantitative
information. The Trust will also disseminate the Trust's holdings on a
daily basis on the Trust's website. Quotation and last sale information
regarding the Shares will be disseminated through the facilities of the
relevant securities information processor.
The intraday indicative value (``IIV'') will be calculated by using
the prior day's closing NAV per Share as a base and updating that value
during the Exchange's regular market session of 9:30 a.m. to 4:00 p.m.
ET (the ``Regular Market Session'') to reflect changes in the value of
the Trust's LTC holdings during the trading day. The IIV disseminated
during the Regular Market Session should not be viewed as an actual
real-time update of the NAV, because NAV per Share is calculated only
once at the end of each trading day based upon the relevant end-of-day
values of the Trust's investments. The IIV will be widely disseminated
on a per-Share basis every 15 seconds during the Regular Market Session
through the facilities of the relevant securities information processor
by market data vendors. In addition, the IIV will be available through
online information services, such as Bloomberg and Reuters.
Quotation and last sale information for LTC is disseminated through
a variety of major market data vendors. Information related to trading,
including price and volume information, in LTC is available from major
market data vendors and from the trading platforms on which LTC are
traded. Depth of book information is also available from LTC trading
platforms. The normal trading hours for LTC 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 Nasdaq official closing price and trading
volume information for the Shares will be published daily in the
financial section of newspapers.
Custody of the Trust's LTC
The Custodian will be responsible for custody of the Trust's LTC.
The Custodian is a qualified custodian under Rule 206-4 of the
Investment Adviser Act. The Custodian will custody the Trust's LTC
pursuant to a custody agreement. The custody agreement requires the
Custodian to maintain the Trust's LTC in segregated accounts that
clearly identify the Trust as owner of the respective accounts and
assets held in those accounts; the segregation will be both from the
proprietary property of the Custodian and the assets of any other
customer. Such arrangements are 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, the Custodian carries fidelity
insurance, which covers assets held by the Custodian in custody from
risks such as theft of funds. LTC owned by the Trust will at all times
be held by, and in the control of, the Custodian, and transfer of such
LTC to or from the Custodian will occur only in connection with
creation and redemptions of Shares.
The Custodian carefully considers the design of the physical,
operational and cryptographic systems for secure storage of the Trust's
private keys in an effort to lower the risk of loss or theft. The
Custodian utilizes a variety of security measures to ensure that
private keys necessary to transfer digital assets remain uncompromised
and that the Trust maintains exclusive ownership of its assets. The
operational procedures of the Custodian are reviewed by third-party
advisors with specific expertise in
[[Page 10659]]
physical security. The devices that store the keys will never be
connected to the internet or any other public or private distributed
network--this is colloquially known as ``cold storage.'' Only specific
individuals are authorized to participate in the custody process, and
no individual acting alone will be able to access or use any of the
private keys. In addition, no combination of the executive officers of
the Sponsor or the investment professionals managing the Trust, acting
alone or together, will be able to access or use any of the private
keys that hold the Trust's LTC.
Creation and Redemption of Shares
The Trust creates and redeems Shares from time to time, but only in
one or more Baskets. Baskets are only made in exchange for delivery to
the Trust or the distribution by the Trust of the amount of cash
represented by the Baskets being created or redeemed (the ``Basket
Deposit''). The amount of cash required in a Basket Deposit (the
``Basket Cash Deposit'') is based on the quantity or value of the
quantity, as applicable, of LTC and cash attributable to each Share of
the Trust (net of accrued but unpaid fees and expenses of the Trust)
being created or redeemed determined as of 4:00 p.m. ET on the day the
order to create or redeem Baskets is properly received.
Baskets will only made in exchange for delivery to the Trust or the
distribution by the Trust of the amount of cash represented by the
Shares being created or redeemed, the amount of which is based on the
value of the LTC attributable to each Share of the Trust (net of
accrued but unpaid fees and expenses of the Trust) being created or
redeemed determined as of 4:00 p.m. ET on the day the order to create
or redeem Baskets is properly received. The Trust will engage in LTC
transactions for converting cash into LTC (in association with purchase
orders) and LTC into cash (in association with redemption orders).
The only persons that may place orders to create or redeem Baskets
are authorized participants (``Authorized Participants''). Authorized
Participants must be (1) registered broker-dealers or other securities
market participants, such as banks or other financial institutions,
that are not required to register as broker-dealers to engage in
securities transactions, and (2) Depository Trust Company participants.
To become an Authorized Participant, a person must enter into an
authorized participant agreement, which provides the procedures for the
creation and redemption of Shares and for the delivery of the cash
required for such creation and redemptions.
Authorized Participants may act for their own accounts or as agents
for broker-dealers, custodians and other securities market participants
that wish to create or redeem Baskets. Shareholders who are not
Authorized Participants will only be able to redeem their Shares
through an Authorized Participant. 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 LTC 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 LTC
as part of the creation or redemption process.
Applicable Standard
The Commission has historically approved or disapproved exchange
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.\6\ 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.\7\
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.
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\6\ See Securities Exchange Act Release Nos. 78262 (July 8,
2016), 81 FR 78262 (July 14. 2016) (the ``Winklevoss Proposal'').
The Winklevoss Proposal 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'').
Prior orders from the Commission have pointed out that in every
prior approval order for Commodity-Based Trust Shares, there has
been a derivatives market that represents the regulated market of
significant size, generally a Commodity Futures Trading Commission
(the ``CFTC'') regulated futures market. Further to this point, the
Commission's prior orders 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 underlying futures market in order to determine
whether such products were consistent with the Act. See Securities
Exchange Act No. 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'').
\7\ 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.
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The Commission has issued orders granting approval for proposals to
list bitcoin- and ether-based commodity trust shares and bitcoin- and
ether-based trust issued receipts (these proposed funds are nearly
identical to the Trust, but proposed to hold bitcoin and ether,
respectively, instead of Litecoin) (``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 with a
market 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'' with respect 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.
As further discussed below, both the Exchange and the Sponsor
believe that this proposal and the analysis to be included are
sufficient to establish 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, and
that this proposal should be approved.
The Commission has approved numerous series of Trust Issued
[[Page 10660]]
Receipts,\8\ including Commodity-Based Trust Shares,\9\ 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; 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.
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\8\ Pursuant to Nasdaq Rule 5720(a), the term ``Trust Issued
Receipt'' means a security (a) that is issued by a trust which holds
specified securities deposited with the trust; (b) that, when
aggregated in some specified minimum number, may be surrendered to
the trust by the beneficial owner to receive the securities; and (c)
that pays beneficial owners dividends and other distributions on the
deposited securities, if any are declared and paid to the trustee by
an issuer of the deposited securities
\9\ Pursuant to Nasdaq Rule 5711(d)(iv), the term ``Commodity-
Based Trust Shares'' means a security (1) that is issued by a trust
that holds (a) a specified commodity deposited with the trust, or
(b) a specified commodity and, in addition to such specified
commodity, cash; (2) that is 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 (3) that, 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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As noted above, the Commission has recognized that the ``regulated
market of significant size'' standard is not the only means for
satisfying Section 6(b)(5) of the Act, specifically providing 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.\10\ For example, in approving the Spot Bitcoin ETPs, the
Commission found that there were ``sufficient `other means' of
preventing fraud and manipulation,'' including that:
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\10\ 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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[B]ased on the record before the Commission and the improved
quality of the correlation analysis in the record, including the
Commission's own analysis, the Commission is able to conclude that
fraud or manipulation that impacts prices in spot bitcoin markets would
likely similarly impact CME bitcoin futures prices. And because 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 [Spot Bitcoin ETPs].\11\
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\11\ See Securities Exchange Act Release No. 99306 (January 10,
2024), 89 FR 3008 (January 17, 2024) (Order Granting Accelerated
Approval of Proposed Rule Changes, as Modified by Amendments
Thereto, To List and Trade Shares of Bitcoin-Based Commodity-Based
Trust Shares and Trust Units). The SEC made substantially similar
findings in the approval order for Spot ETH ETPs. See Securities
Exchange Act Release No. 100224 (May 23, 2024), 89 FR 46937 (May 30,
2024) (Order Granting Accelerated Approval of Proposed Rule Changes,
as Modified by Amendments Thereto, To List and Trade Shares of
Ether-Based Exchange-Traded Products).
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Today, Coinbase Derivatives, LLC (``Coinbase Derivatives'') offers
trading in LTC futures.\12\ Nasdaq has a comprehensive surveillance-
sharing agreement with Coinbase Derivatives via its common membership
in the Intermarket Surveillance Group (``ISG'').\13\ This facilitates
the sharing of information that is available to Coinbase Derivatives
through its surveillance of its markets, including its surveillance of
Coinbase Derivatives' LTC futures market. Similar to the Spot Bitcoin
and Spot ETH ETPs previously approved by the SEC, Nasdaq's ability to
obtain information regarding trading in the LTC futures from other
markets that are members of the ISG (specifically Coinbase Derivatives)
would assist Nasdaq in detecting and deterring misconduct.
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\12\ See <a href="https://assets.ctfassets.net/k3n74unfin40/3xEbgdn4kcSEfs409Yrwuo/76eaa812a06b1d6d3d01fc9f7f6e996c/2024-7_Listing_of_LC_Futures.docx.pdf">https://assets.ctfassets.net/k3n74unfin40/3xEbgdn4kcSEfs409Yrwuo/76eaa812a06b1d6d3d01fc9f7f6e996c/2024-7_Listing_of_LC_Futures.docx.pdf</a>.
\13\ For a list of the current members and affiliate members of
ISG, see <a href="https://www.isgportal.com/">https://www.isgportal.com/</a>.
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Initial and Continued Listing
The Shares will be subject to Nasdaq Rule 5711(d)(vi), which sets
forth the initial and continued listing criteria applicable to
Commodity-Based Trust Shares. The Exchange will obtain a representation
that the Trust's NAV per Share will be calculated daily and will be
made available to all market participants at the same time. A minimum
of 40,000 Shares will be required to be outstanding at the time of
commencement of trading on the Exchange. Upon termination of the Trust,
the Shares will be removed from listing. The Trustee will be a trust
company having substantial capital and surplus and the experience and
facilities for handling corporate trust business, as required under
Nasdaq Rule 5711(d)(vi)(D) and no change will be made to the Trustee
without prior notice to and approval of the Exchange.
As required in Nasdaq Rule 5711(d)(viii), 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 the underlying
commodity, related futures or options on futures, or any other related
derivatives, which the registered Market Maker may have or over which
it may exercise investment discretion. No registered Market Maker in
the Shares shall trade in the underlying commodity, related futures or
options on futures, or any other related 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
Nasdaq Rule 5711(d). In addition to the existing obligations under
Exchange rules regarding the production of books and records, the
registered Market Maker in the Shares shall make available to the
Exchange such books, records or other information pertaining to
transactions by such entity or any limited partner, officer or approved
person thereof, registered or non-registered employee affiliated with
such entity for its or their own accounts in the underlying commodity,
related futures or options on futures, or any other related
derivatives, as may be requested by the Exchange.
The Exchange is able to obtain information regarding trading in the
Shares and the underlying LTC, LTC futures contracts, or any other LTC
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. The Exchange also has
regulatory jurisdiction over any person or entity controlling a member,
as well as a subsidiary or affiliate of a member that is in the
securities business. A subsidiary or affiliate of a member organization
that does business only in
[[Page 10661]]
commodities would not be subject to Exchange jurisdiction, but 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 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. The Exchange will
allow trading in the Shares from 4:00 a.m. to 8:00 p.m. ET. The
Exchange has appropriate rules to facilitate transactions in the Shares
during all trading sessions. The Shares of the Trust will conform to
the initial and continued listing criteria set forth in Nasdaq Rule
5711(d) and will comply with the requirements of Rule 10A-3 of the Act.
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 Nasdaq Rules 4120 and 4121, including
without limitation the conditions specified in Nasdaq Rule 4120(a)(9)
and (10) and the trading pauses under Nasdaq Rules 4120(a)(11) and
(12).
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: (1) the extent to which trading is not
occurring in the LTC underlying the Shares; or (2) whether other
unusual conditions or circumstances detrimental to the maintenance of a
fair and orderly market are present.
If the IIV or the value of the Index 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 Index
occurs. If the interruption to the dissemination of the IIV or the
value of the Index persists past the trading day in which it occurred,
the Exchange will halt trading no later than the beginning of the
trading day following the interruption.
In addition, if the Exchange becomes aware that the NAV per Share
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 per Share is available to all market participants.
Surveillance
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. The surveillance
program includes real-time patterns for price and volume movements and
post-trade surveillance patterns (e.g., spoofing, marking the close,
pinging, phishing). Trading of Shares on the Exchange will be subject
to the Exchange's surveillance program for derivative products, as well
as cross-market surveillances administered by FINRA, on behalf of the
Exchange pursuant to a regulatory services agreement, which are also
designed to detect violations of Exchange rules and applicable federal
securities laws. The Exchange is responsible for FINRA's performance
under this regulatory services agreement.
The Exchange will require the Trust to represent to the Exchange
that it will advise the Exchange of any failure by the Trust 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 is not in compliance with the applicable listing
requirements, the Exchange will commence delisting procedures under the
Nasdaq 5800 Series. In addition, the Exchange also has a general policy
prohibiting the distribution of material, non-public information by its
employees.
The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares with other
markets and other entities that are members of the ISG, and the
Exchange or FINRA, on behalf of the Exchange, or both, may obtain
trading information regarding trading in the Shares and listed LTC
futures from such markets and other entities. The Exchange also may
obtain information regarding trading in the Shares, listed LTC futures
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.
Information Circular
Prior to the commencement of trading, the Exchange will inform its
members in an information circular (``Information Circular'') of the
special characteristics and risks associated with trading the Shares.
Specifically, the Information Circular will discuss the following: (1)
the procedures for creations and redemptions of Shares in Baskets (and
that Shares are not individually redeemable); (2) Section 10 of Nasdaq
General Rule 9, which imposes suitability obligations on Nasdaq members
with respect to recommending transactions in the Shares to customers;
(3) how information regarding the IIV and NAV is disseminated; (4) the
risks involved in trading the Shares during the pre-market and post-
market sessions when an updated IIV will not be calculated or publicly
disseminated; (5) the requirement that members deliver a prospectus to
investors purchasing newly issued Shares prior to or concurrently with
the confirmation of a transaction; and (6) trading information. The
Information Circular will also discuss any exemptive, no action and
interpretive relief granted by the Commission from any rules under the
Act.
The Information Circular will also reference the fact that there is
no regulated source of last sale information regarding LTC, that the
Commission has no jurisdiction over the trading of LTC as a commodity.
Additionally, the Information Circular will reference that the
Trust is subject to various fees and expenses described in the
Registration Statement. The Information Circular will also disclose the
trading hours of the Shares. The Information Circular will disclose
that information about the Shares will be publicly available on the
Trust's website.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\14\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\15\ in particular, in that it is designed to
promote just and equitable principles of trade, 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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\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(5).
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The Commission has approved numerous series of Trust Issued
Receipts, including Commodity-Based Trust Shares, 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
[[Page 10662]]
including: (i) the requirement that a national securities exchange's
rules are designed to prevent fraudulent and manipulative acts and
practices; 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.
As noted above, the Commission has recognized that the ``regulated
market of significant size'' standard is not the only means for
satisfying Section 6(b)(5) of the act, specifically providing 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
with the underlying spot market. The Exchange and Sponsor believe that
such conditions are present. As discussed above, in approving the Spot
Bitcoin ETPs, the Commission found that there were ``sufficient `other
means' of preventing fraud and manipulation,'' including that:
[B]ased on the record before the Commission and the improved
quality of the correlation analysis in the record, including the
Commission's own analysis, the Commission is able to conclude that
fraud or manipulation that impacts prices in spot bitcoin markets would
likely similarly impact CME bitcoin futures prices. And because 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 [Spot Bitcoin ETPs].\16\
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\16\ See Securities Exchange Act Release No. 99306 (January 10,
2024), 89 FR 3008 (January 17, 2024) (Order Granting Accelerated
Approval of Proposed Rule Changes, as Modified by Amendments
Thereto, To List and Trade Shares of Bitcoin-Based Commodity-Based
Trust Shares and Trust Units). The SEC made substantially similar
findings in the approval order for spot ether ETPs. See Securities
Exchange Act Release No. 100224 (May 23, 2024), 89 FR 46937 (May 30,
2024) (Order Granting Accelerated Approval of Proposed Rule Changes,
as Modified by Amendments Thereto, To List and Trade Shares of
Ether-Based Exchange-Traded Products).
---------------------------------------------------------------------------
As discussed above, Coinbase Derivatives offers trading in LTC
futures.\17\ Nasdaq has a comprehensive surveillance-sharing agreement
with Coinbase Derivatives via its common membership in ISG, which
facilitates the sharing of information that is available to Coinbase
Derivatives through its surveillance of its markets, including its
surveillance of Coinbase Derivatives' LTC futures market. Similar to
the Spot Bitcoin and Spot ETH ETPs previously approved by the SEC,
Nasdaq's ability to obtain information regarding trading in the LTC
futures from other markets that are members of the ISG (specifically
Coinbase Derivatives) would assist Nasdaq in detecting and deterring
misconduct.
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\17\ See <a href="https://assets.ctfassets.net/k3n74unfin40/3xEbgdn4kcSEfs409Yrwuo/76eaa812a06b1d6d3d01fc9f7f6e996c/2024-7_Listing_of_LC_Futures.docx.pdf">https://assets.ctfassets.net/k3n74unfin40/3xEbgdn4kcSEfs409Yrwuo/76eaa812a06b1d6d3d01fc9f7f6e996c/2024-7_Listing_of_LC_Futures.docx.pdf</a>.
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The Exchange further believes that the proposed rule change is
designed to prevent fraudulent and manipulative acts and practices and
to protect investors and the public interest in that the Shares will be
listed and traded on the Exchange pursuant to the initial and continued
listing criteria set forth in Nasdaq Rule 5711(d). The Exchange has in
place surveillance procedures that are adequate to properly monitor
trading in the Shares in all trading sessions and to deter and detect
violations of Exchange rules and applicable federal securities laws. As
discussed above, the surveillance program includes real-time patterns
for price and volume movements and post-trade surveillance patterns
(e.g., spoofing, marking the close, pinging, phishing). Trading of
Shares on the Exchange will be subject to the Exchange's surveillance
program for derivative products, as well as cross-market surveillances
administered by FINRA, on behalf of the Exchange pursuant to a
regulatory services agreement, which are also designed to detect
violations of Exchange rules and applicable federal securities laws.
The Exchange is responsible for FINRA's performance under this
regulatory services agreement.
The Exchange will require the Trust to represent to the Exchange
that it will advise the Exchange of any failure by the Trust 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 is not in compliance with the applicable listing
requirements, the Exchange will commence delisting procedures under the
Nasdaq 5800 Series. In addition, the Exchange also has a general policy
prohibiting the distribution of material, non-public information by its
employees.
The Exchange will communicate as needed regarding trading in the
Shares with other markets and other entities that are members of the
ISG, and the Exchange may obtain trading information regarding trading
in the Shares and listed LTC futures from such markets and other
entities.
Trading in Shares of the Trust will be halted if the circuit
breaker parameters have been reached or because of market conditions or
for reasons that, in the view of the Exchange, make trading in the
Shares inadvisable. These may include unusual conditions or
circumstances detrimental to the maintenance of a fair and orderly
market.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
Shares that will enhance competition among market participants, to the
benefit of investors and the marketplace.
For all 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 of the purpose of the Act. The Exchange notes that the
proposed rule change rather will facilitate the listing and trading of
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
No written comments were either solicited or received.
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 (i) as the Commission may
designate up to 90 days of such date 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 shall: (a) by order approve
or disapprove such proposed rule change, or (b) institute proceedings
[[Page 10663]]
to determine whether the proposed rule change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#d0a2a5bcb5fdb3bfbdbdb5bea4a390a3b5b3feb7bfa6"><span class="__cf_email__" data-cfemail="344641585119575b5959515a4047744751571a535b42">[email protected]</span></a>. Please include
file number SR-NASDAQ-2025-013 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-NASDAQ-2025-013. 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-NASDAQ-2025-013 and should
be submitted on or before March 18, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-03033 Filed 2-24-25; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on February 25, 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.