Notice2025-10532
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of a Proposed Rule Change, as Modified by Amendment No. 1, To Amend the Bitwise Bitcoin ETF Trust and the Bitwise Ethereum ETF in Order To Permit In-Kind Creations and Redemptions
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
June 11, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 90 Issue 111 (Wednesday, June 11, 2025)</title>
</head>
<body><pre>
[Federal Register Volume 90, Number 111 (Wednesday, June 11, 2025)]
[Notices]
[Pages 24683-24692]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-10532]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103198; File No. SR-NYSEARCA-2025-38]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of a Proposed Rule Change, as Modified by Amendment No. 1, To Amend the
Bitwise Bitcoin ETF Trust and the Bitwise Ethereum ETF in Order To
Permit In-Kind Creations and Redemptions
June 5, 2025.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on May 21, 2025, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change to amend the Bitwise Bitcoin
ETF Trust and the Bitwise Ethereum ETF to permit in-kind creations and
redemptions. On June 4, 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proposed rule change, which replaced and superseded the original filing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 described in Items I, II, and III below, which Items have been
prepared by the self-regulatory organization. The Commission is
publishing this notice to solicit comments on the proposed rule change,
as modified by Amendment No. 1, from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change, as Modified by Amendment No. 1
The Exchange proposes to amend the Bitwise Bitcoin ETF Trust and
the Bitwise Ethereum ETF, shares of which have been approved by the
Commission to list and trade on the Exchange pursuant to Rule 8.201-E
(Commodity-Based Trust Shares), to permit in-kind creations and
redemptions. This Amendment No. 1 to SR-NYSEARCA-2025-38 replaces SR-
NYSEARCA-2025-38 as originally filed and supersedes such filing in its
entirety. The proposed rule change is available on the Exchange's
website at <a href="http://www.nyse.com">www.nyse.com</a>, at the principal office of the Exchange, and
at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change, as Modified by Amendment
No. 1
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the Bitwise Bitcoin ETF Trust (the
``Bitcoin Trust'') and the Bitwise Ethereum ETF (the ``ETH Trust'' and,
together with the Bitcoin Trust, the ``Trusts''), shares of which have
been approved by the
[[Page 24684]]
Commission to list and trade on the Exchange pursuant to Rule 8.201-E
(Commodity-Based Trust Shares), to permit in-kind creations and
redemptions.
Background
The Commission approved the listing and trading of shares
(``Bitcoin Trust Shares'') of the Bitcoin Trust on the Exchange under
Rule 8.201-E (Commodity-Based Trust Shares) on January 10, 2024.\4\ The
Commission also approved the listing and trading of shares of the ETH
Trust (``ETH Trust Shares'') under Rule 8.201-E (Commodity-Based Trust
Shares) on May 23, 2024.\5\
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 99306 (Jan. 10,
2024), 89 FR 3008 (Jan. 17, 2024) (SR-NYSEArca-2023-44) (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 ``Bitcoin Approval
Order'').
\5\ See Securities Exchange Act Release No. 100224 (May 23,
2024), 89 FR 46937(May 30, 2024) (SR-NYSEArca-2024-31) (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 ``Ether Approval Order'').
---------------------------------------------------------------------------
Rule 8.201-E governs the listing and trading of Commodity-Based
Trust Shares. Commodity-Based Trust Shares are securities issued by a
trust that represent investors' discrete identifiable and undivided
beneficial ownership interest in the commodities deposited into the
trust. The Bitcoin Trust Shares are issued by the Bitcoin Trust, a
Delaware statutory trust, and the ETH ETP Shares are issued by the ETH
Trust, also a Delaware statutory trust.
Proposed Rule Change--Bitcoin Trust
The Exchange proposes to amend representations regarding the
Bitcoin Trust's creation and redemption process as set forth in its
previous rule filing to list and trade Bitcoin Trust Shares in order to
allow for in-kind transfers of the Bitcoin Trust's bitcoin.\6\ The
proposed in-kind transfer process will be an alternative to the Bitcoin
Trust's current cash only creation and redemption process.
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release No. 99294 (Jan. 8,
2024), 89 FR 2297 (Jan. 12, 2024) (SR-NYSEArca-2023-44) (Notice of
Filing of Amendment No. 2 to a Proposed Rule Change To List and
Trade Shares of the Bitwise Bitcoin ETF Under NYSE Arca Rule 8.201-E
(Commodity-Based Trust Shares).
---------------------------------------------------------------------------
In order to effectuate this change, the Exchange proposes certain
changes to Amendment No. 2 to the Bitcoin Trust Shares filing as
described below. Except for the changes described below, all other
representations in Amendment No. 2 remain unchanged and will continue
to constitute continued listing requirements. In addition, the Bitcoin
Trust will continue to comply with the terms of Amendment No. 2 and the
requirements of Rule 8.201-E.
Operation of the Trust
The Exchange proposes to amend the third paragraph in the section
of Amendment No. 2 titled ``Operation of the Trust'' as follows
(additions italicized): The Trust's only assets will be bitcoin and
cash.\15\ The Trust does not seek to hold any non-bitcoin crypto assets
and has expressly disclaimed ownership of any such assets in the event
the Trust ever involuntarily comes into possession of such assets.\16\
The Trust will not use derivatives that may subject the Trust to
counterparty and credit risks. The Trust will process creations and
redemptions in cash or bitcoin. The Trust's only recurring ordinary
expense is expected to be the Sponsor's unitary management fee (the
``Sponsor Fee''), which will accrue daily and will be payable in
bitcoin monthly in arrears. The Administrator will calculate the
Sponsor Fee on a daily basis by applying an annualized rate to the
Trust's total bitcoin holdings, and the amount of bitcoin payable in
respect of each daily accrual shall be determined by reference to the
CME US Reference Rate. Financial institutions authorized to create and
redeem Shares (each, an ``Authorized Participant'') will deliver, or
cause to be delivered, cash or bitcoin in exchange for Shares of the
Trust, and the Trust will deliver cash or bitcoin to Authorized
Participants when those Authorized Participants redeem Shares of the
Trust.
Footnote 15: The Trust conducts creations and redemptions of its
Shares for cash or bitcoin. In connection with cash creations,
Authorized Participants will deliver cash to the Cash Custodian
pursuant to creation orders for Shares and the Cash Custodian will hold
such cash until such time as it can be converted to bitcoin, which the
Trust intends to do on the same business day in which such cash is
received by the Cash Custodian. Additionally, the Trust will sell
bitcoin in exchange for cash pursuant to cash redemption orders of its
Shares. In connection with such sales, an approved Bitcoin Trading
Counterparty (defined below) will send cash to the Cash Custodian. The
Cash Custodian will hold such cash until it can be distributed to the
redeeming Authorized Participant, which it intends to do on the same
business in which it is received. In connection with the purchases and
sales of bitcoin pursuant to its creation and redemption activity, it
is possible that the Trust may retain de minimis amounts of cash as a
result of rounding differences. The Trust may also initially hold small
amounts of cash to initiate Trust operations in the immediate aftermath
of its Registration Statement being declared effective. Lastly, the
Trust may also sell bitcoin and temporarily hold cash as part of a
liquidation of the Trust or to pay certain extraordinary expenses not
assumed by the Sponsor. Under the Trust Agreement, the Sponsor has
agreed to assume the normal operating expenses of the Trust, subject to
certain limitations. For example, the Trust will bear any
indemnification or litigation liabilities as extraordinary expenses. In
any event, in the ongoing course of business, the amounts of cash
retained by the Trust are not expected to constitute a material portion
of the Trust's holdings. In connection with in-kind creations,
Authorized Participants will submit orders by an order cutoff time to
create ``Baskets'' of Shares in exchange for bitcoin. On the settlement
date for an in-kind creation, the Trust delivers Shares to the
Authorized Participant in exchange for bitcoin received from the
Authorized Participant or its designated agent or client. The
Authorized Participant or its designated agent or client will deposit
such bitcoin with the Bitcoin Custodian. In connection with in-kind
redemptions, the Authorized Participants will submit orders by an order
cutoff time to redeem Baskets of Shares in exchange for bitcoin. On the
settlement date for an in-kind redemption, the Trust delivers bitcoin
to the account of the Authorized Participant or its designated agent or
client in exchange for Shares received from the Authorized Participant.
Footnote 16: No change.
Creation and Redemption of Shares
The Exchange proposes to amend the section of Amendment No. 2
titled ``Creation and Redemption of Shares'' to integrate the proposed
in-kind creation and redemption process, as follows (additions
italicized, deletions bracketed):
The Trust creates and redeems Shares from time to time, but only in
one or more Creation Units, which will initially consist of at least
10,000 Shares, but may be subject to change (``Creation Unit''). A
Creation Unit is only made in exchange for delivery to the Trust or the
distribution by the Trust of an amount of cash or bitcoin, equivalent
to the amount of bitcoin represented by the Creation Unit being created
or redeemed, the amount of which is representative of the combined NAV
of the number of Shares included in the Creation Units being created or
redeemed determined as of 4:00 p.m.
[[Page 24685]]
E.T. on the day the order to create or redeem Creation Units is
properly received. Except when aggregated in Creation Units or under
extraordinary circumstances permitted under the Trust Agreement, the
Shares are not redeemable securities.
Authorized Participants are the only persons that may place orders
to create and redeem Creation Units. Authorized Participants must be
(1) registered broker-dealers or other securities market participants,
such as banks and other financial institutions, that are not required
to register as broker-dealers to engage in securities transactions
described below, and (2) Depository Trust Company (``DTC'')
Participants. To become an Authorized Participant, a person must enter
into an Authorized Participant Agreement with the Trust and/or the
Trust's marketing agent (the ``Marketing Agent'').
According to the Registration Statement, when purchasing or selling
bitcoin in response to the purchase of Creation Units or the redemption
of Creation Units[, which will be processed in cash], the Trust would
do so pursuant to either (1) a ``Trust-Directed Trade Model,'' or (2)
an ``Agent Execution Model,'' which are each described in more detail
below.
The Trust intends to utilize the Trust-Directed Trade Model for all
purchases and sales of bitcoin and would only utilize the Agent
Execution Model in the event that no Bitcoin Trading Counterparty is
able to effectuate the Trust's purchase or sale of bitcoin. Under the
Trust-Directed Trade Model, in connection with receipt of a purchase
order or redemption order, the Sponsor, on behalf of the Trust, would
be responsible for acquiring bitcoin from an approved Bitcoin Trading
Counterparty in an amount equal to the Basket Amount. When seeking to
purchase bitcoin on behalf of the Trust, the Sponsor will seek to
purchase bitcoin at commercially reasonable price and terms from any of
the approved Bitcoin Trading Counterparties.\25\ Once agreed upon, the
transaction will generally occur on an ``over-the-counter'' basis.
[Whether utilizing the Trust-Directed Trade Model or the Agent
Execution Model, 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 bitcoin 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 bitcoin as
part of the creation or redemption process. Additionally, under both
the Trust-Directed Trade Model or the Agent Execution Model, the Trust
will create Shares by receiving bitcoin from a third party that is not
the Authorized Participant and is not affiliated with the Sponsor or
the Trust, and the Trust--not the Authorized Participant--is
responsible for selecting the third party to deliver the bitcoin. The
third party will not be acting as an agent of the Authorized
Participant with respect to the delivery of the bitcoin to the Trust or
acting at the direction of the Authorized Participant with respect to
the delivery of the bitcoin to the Trust. Additionally, the Trust will
redeem Shares by delivering bitcoin to a third party that is not the
Authorized Participant and is not affiliated with the Sponsor or the
Trust, and the Trust--not the Authorized Participant--is responsible
for selecting the third party to receive the bitcoin. Finally, the
third party will not be acting as an agent of the Authorized
Participant with respect to the receipt of the bitcoin from the Trust
or acting at the direction of the Authorized Participant with respect
to the receipt of the bitcoin from the Trust.]
Footnote 25: No change.
Acquiring and Selling Bitcoin Pursuant to Creation and Redemption of
Shares Under the Trust-Directed Model
Under the Trust-Directed Trade Model and as set forth in the
Registration Statement, on any business day, an Authorized Participant
may create Shares by placing an order to purchase one or more Creation
Units with the Transfer Agent through the Marketing Agent. Such orders
are subject to approval by the Marketing Agent and the Transfer Agent.
For purposes of processing creation and redemption orders, a ``business
day'' means any day other than a day when the Exchange is closed for
regular trading (``Business Day''). To be processed on the date
submitted, creation orders must be placed before 4 p.m. E.T. or the
close of regular trading on the Exchange, whichever is earlier, but may
be required to be placed earlier at the discretion of the Sponsor. A
purchase order will be effective on the date it is received by the
Transfer Agent and approved by the Marketing Agent (``Purchase Order
Date'').
Creation Units are processed in cash or bitcoin. By placing a
purchase order, an Authorized Participant agrees to deposit, or cause
to be deposited, an amount of cash or bitcoin equal to the quantity of
bitcoin attributable to each Share of the Trust (net of accrued but
unpaid expenses and liabilities) multiplied by the number of Shares
(10,000) comprising a Creation Unit (the ``Basket Amount''). The
Sponsor will cause to be published each Business Day, prior to the
commencement of trading on the Exchange, the Basket Amount relating to
a Creation Unit applicable for such Business Day. That amount is
derived by multiplying the Basket Amount by the value of bitcoin
ascribed by the CME US Reference Rate. However, the Authorized
Participant is also responsible for any additional cash or bitcoin
required to account for the price at which the Trust agrees to purchase
the requisite amount of bitcoin from a bitcoin trading counterparty
approved by the Sponsor (``Bitcoin Trading Counterparty'')\26\ to the
extent it is greater than the CME US Reference Rate price on each
Purchase Order Date.
Prior to the delivery of Creation Units, the Authorized Participant
must also have wired to the Transfer Agent the nonrefundable
transaction fee due for the creation order. Authorized Participants may
not withdraw a creation request. If an Authorized Participant fails to
consummate the foregoing, the order may be cancelled.
Following the acceptance of a purchase order, [the Authorized
Participant must wire the cash amount described above] in connection
with a cash creation, the Authorized Participant must wire the cash
amount to the Cash Custodian, and the Bitcoin Trading Counterparty must
deposit the required amount of bitcoin with the Bitcoin Custodian by
the end of the day E.T. on the Business Day following the Purchase
Order Date. The bitcoin will be purchased from Bitcoin Trading
Counterparties that are not acting as agents of the Trust or agents of
the Authorized Participant. These transactions will be done on an arms-
length basis, and there is no contractual relationship between the
Trust, the Sponsor, or the Bitcoin Trading Counterparty to acquire such
bitcoin. Prior to any movement of cash from the Cash Custodian to the
Bitcoin Trading Counterparty or movement of Shares from the Transfer
Agent to the Authorized Participant's DTC account to settle the
transaction, the bitcoin must be deposited at the Bitcoin Custodian.
The Bitcoin Trading Counterparty must deposit the required amount
of bitcoin by end of day E.T. on the Business Day following the
Purchase Order Date prior to any movement of cash from the Cash
Custodian or Shares from the Transfer Agent. Upon receipt of the
deposit amount of bitcoin at the Bitcoin Custodian from the Bitcoin
Trading Counterparty, the Bitcoin Custodian will notify the Sponsor
that
[[Page 24686]]
the bitcoin has been received. The Sponsor will then notify the
Transfer Agent that the bitcoin has been received, and the Transfer
Agent will direct DTC to credit the number of Shares ordered to the
Authorized Participant's DTC account and will wire the cash previously
sent by the Authorized Participant to the Bitcoin Trading Counterparty
to complete settlement of the Purchase Order and the acquisition of the
bitcoin by the Trust, as described above.
In connection with in-kind creations, the Authorized Participant
must submit a purchase order by an order cutoff time (the ``In-Kind
Order Cutoff Time'') to create Baskets of Shares in exchange for
bitcoin. The In-Kind Order Cutoff Time will initially be 3:59 p.m. ET
on the Purchase Order Date.
On the settlement date for an in-kind creation, the Trust delivers
Shares to the Authorized Participant in exchange for bitcoin received
from the Authorized Participant or its designated agent or client. The
Authorized Participant or its designated agent or client will deposit
such bitcoin with the Bitcoin Custodian. In the event the Authorized
Participant has not deposited the bitcoin with the Bitcoin Custodian by
the applicable time on the settlement date of the in-kind purchase
order, the Authorized Participant will be given the option to (1)
cancel the in-kind purchase order, (2) delay settlement of the purchase
order to enable delivery of bitcoin at a later date, or (3) accept that
the Trust will execute a bitcoin transaction required for the creation
and the Authorized Participant and the Authorized Participant will
deliver the U.S. dollars required for the purchase order.
As between the Trust and the Authorized Participant, the expense
and risk of the difference between the value of bitcoin calculated by
the Administrator for daily valuation using the CME US Reference Rate
and the price at which the Trust acquires the bitcoin will be borne
solely by the Authorized Participant to the extent that the Trust pays
more for bitcoin than the price used by the Trust for daily valuation.
[A]In connection with cash creations, any such additional cash amount
will be included in the amount of cash calculated by the Administrator
on the Purchase Order Date, communicated to the Authorized Participant
on the Purchase Order Date, and wired by the Authorized Participant to
the Cash Custodian on the day following the Purchase Order Date. If the
Bitcoin Trading Counterparty fails to deliver the bitcoin to the
Bitcoin Custodian, no cash is sent from the Cash Custodian to the
Bitcoin Trading Counterparty, no Shares are transferred to the
Authorized Participant's DTC account, the cash is returned to the
Authorized Participant, and the Purchase Order is cancelled.
Under the Trust-Directed Trade Model and according to the
Registration Statement, the procedures by which an Authorized
Participant can redeem one or more Creation Units mirror the procedures
for the creation of Creation Units. On any Business Day, an Authorized
Participant may place an order with the Transfer Agent through the
Marketing Agent to redeem one or more Creation Units. To be processed
on the date submitted, redemption orders must be placed before 4 p.m.
E.T. or the close of regular trading on the Exchange, whichever is
earlier, or earlier as determined by the Sponsor. A redemption order
will be effective on the date it is received by the Transfer Agent and
approved by the Marketing Agent (``Redemption Order Date''). The
redemption procedures allow Authorized Participants to redeem Creation
Units and do not entitle an individual shareholder to redeem any Shares
in an amount less than a Creation Unit, or to redeem Creation Units
other than through an Authorized Participant. In connection with
receipt of a redemption order accepted by the Marketing Agent and
Transfer Agent, the Sponsor, on behalf of the Trust, is responsible for
selling the bitcoin to an approved Bitcoin Trading Counterparty in an
amount equal to the Basket Amount.
The redemption distribution from the Trust will consist of a
transfer to the redeeming Authorized Participant, or its agent, of the
amount of cash or bitcoin the Trust received in connection with a sale
of the Basket Amount of bitcoin to a Bitcoin Trading Counterparty made
pursuant to the redemption order. The Sponsor will cause to be
published each Business Day, prior to the commencement of trading on
the Exchange, the redemption distribution amount relating to a Creation
Unit applicable for such Business Day. The redemption distribution
amount is derived by multiplying the Basket Amount by the value of
bitcoin ascribed by the CME US Reference Rate. However, as between the
Trust and the Authorized Participant, the expense and risk of the
difference between the value of bitcoin ascribed by the CME US
Reference Rate and the price at which the Trust sells the bitcoin will
be borne solely by the Authorized Participant to the extent that the
Trust receives less for bitcoin than the value ascribed by CME US
Reference Rate.
Prior to the delivery of Creation Units, the Authorized Participant
must also have wired to the Transfer Agent the nonrefundable
transaction fee due for the redemption order.
In connection with cash redemptions, [T]the redemption distribution
due from the Trust will be delivered by the Transfer Agent to the
Authorized Participant once the Cash Custodian has received the cash
from the Bitcoin Trading Counterparty. The Bitcoin Custodian will not
send the Basket Amount of bitcoin to the Bitcoin Trading Counterparty
until the Cash Custodian has received the cash from the Bitcoin Trading
Counterparty and is instructed by the Sponsor to make such transfer.
Once the Bitcoin Trading Counterparty has sent the cash to the Cash
Custodian in an agreed upon amount to settle the agreed upon sale of
the Basket Amount of bitcoin, the Transfer Agent will notify Sponsor.
The Sponsor will then notify the Bitcoin Custodian to transfer the
bitcoin to the Bitcoin Trading Counterparty, and the Transfer Agent
will wire the redemption proceeds to the Authorized Participant once
the Trust's DTC account has been credited with the Shares represented
by the Creation Unit from the redeeming Authorized Participant. Once
the Authorized Participant has delivered the Shares represented by the
Creation Unit to be redeemed to the Trust's DTC account, the Cash
Custodian will wire the requisite amount of cash to the Authorized
Participant. If the Trust's DTC account has not been credited with all
of the Shares of the Creation Unit to be redeemed, the redemption
distribution will be delayed until such time as the Transfer Agent
confirms receipt of all such Shares. If the Bitcoin Trading
Counterparty fails to deliver the cash to the Cash Custodian, the
transaction will be cancelled, and no transfer of bitcoin or Shares
will occur.
In connection with in-kind redemptions, the Authorized Participant
must submit an order by the In-Kind Order Cutoff Time to redeem Baskets
of Shares in exchange for bitcoin. On the settlement date for an in-
kind redemption, the Trust delivers bitcoin to the Authorized
Participant in exchange for Shares received from the Authorized
Participant or its designated agent or client. The Authorized
Participant or its designated agent or client will deposit such Shares
to the Trust's DTC account.
In the event the Authorized Participant has not deposited the
Shares to the Trust's DTC account by the applicable time on the
settlement date of the in-kind redemption order, the Authorized
Participant will be given the option to (1) cancel the in-kind
[[Page 24687]]
redemption order, (2) delay settlement of the redemption order to
enable delivery of Shares at a later date, or (3) accept that the Trust
will execute a bitcoin transaction required for the redemption order
and the Authorized Participant will be delivered the U.S. dollars
required as calculated during the cash redemption process.
Acquiring and Selling Bitcoin Pursuant to Creation and Redemption of
Shares Under the Agent Execution Model
Under the Agent Execution Model, Coinbase, Inc. (``Coinbase Inc.''
or the ``Prime Execution Agent,'' an affiliate of the Bitcoin
Custodian), acting in an agency capacity, would conduct bitcoin
purchases and sales on behalf of the Trust with third parties through
its Coinbase Prime service pursuant to the Prime Execution Agent
Agreement. To utilize the Agent Execution Model, the Trust may maintain
some bitcoin or cash in a trading account (the ``Trading Balance'')
with the Prime Execution Agent. The Prime Execution Agent Agreement
provides that the Trust does not have an identifiable claim to any
particular bitcoin (and cash); rather, the Trust's Trading Balance
represents an entitlement to a pro rata share of the bitcoin (and cash)
the Prime Execution Agent holds on behalf of customers who hold similar
entitlements against the Prime Execution Agent. In this way, the
Trust's Trading Balance represents an omnibus claim on the Prime
Execution Agent's bitcoins (and cash) held on behalf of the Prime
Execution Agent's customers.
To avoid having to pre-fund purchases or sales of bitcoin in
connection with cash creations and redemptions and sales of bitcoin to
pay Trust expenses not assumed by the Sponsor, to the extent
applicable, the Trust may borrow bitcoin or cash as trade credit
(``Trade Credit'') from Coinbase Credit, Inc. (the ``Trade Credit
Lender'') on a short-term basis pursuant to the Coinbase Credit
Committed Trade Financing Agreement (the ``Trade Financing
Agreement'').
For cash purchase orders, [O]on the day of the Purchase Order Date,
the Trust would enter into a transaction to buy bitcoin through the
Prime Execution Agent for cash. Because the Trust's Trading Balance may
not be funded with cash on the Purchase Order Date for the purchase of
bitcoin in connection with the Purchase Order under the Agent Execution
Model, the Trust may borrow Trade Credits in the form of cash from the
Trade Credit Lender pursuant to the Trade Financing Agreement or may
require the Authorized Participant to deliver the required cash for the
Purchase Order on the Purchase Order Date. The extension of Trade
Credits on the Purchase Order Date allows the Trust to purchase bitcoin
through the Prime Execution Agent on the Purchase Order Date, with such
bitcoin being deposited in the Trust's Trading Balance.
For cash purchase orders, [O]on the day following the Purchase
Order Date (the ``Purchase Order Settlement Date''), the Trust would
deliver Shares to the Authorized Participant in exchange for cash
received from the Authorized Participant. Where applicable, the Trust
would use the cash to repay the Trade Credits borrowed from the Trade
Credit Lender. On the Purchase Order Settlement Date for a Purchase
Order utilizing the Agent Execution Model, the bitcoin associated with
the Purchase Order and purchased on the Purchase Order Date is swept
from the Trust's Trading Balance with the Prime Execution Agent to the
Trust Bitcoin Account with the Bitcoin Custodian pursuant to a regular
end-of-day sweep process. Transfers of bitcoin into the Trust's Trading
Balance are off-chain transactions and transfers from the Trust's
Trading Balance to the Trust Bitcoin Account are ``on-chain''
transactions represented on the bitcoin blockchain. Any financing fee
owed to the Trade Credit Lender is deemed part of trade execution costs
and embedded in the trade price for each transaction.
For a cash Redemption Order utilizing the Agent Execution Model, on
the day of the Redemption Order Date the Trust would enter into a
transaction to sell bitcoin through the Prime Execution Agent for cash.
The Trust's Trading Balance with the Prime Execution Agent may not be
funded with bitcoin on trade date for the sale of bitcoin in connection
with the redemption order under the Agent Execution Model, when bitcoin
remains in the Trust Bitcoin Account with the Bitcoin Custodian at the
point of intended execution of a sale of bitcoin. In those
circumstances the Trust may borrow Trade Credits in the form of bitcoin
from the Trade Credit Lender, which allows the Trust to sell bitcoin
through the Prime Execution Agent on the Redemption Order Date, and the
cash proceeds are deposited in the Trust's Trading Balance with the
Prime Execution Agent. On the business day following the Redemption
Order Date (the ``Redemption Order Settlement Date'') for a redemption
order utilizing the Agent Execution Model where Trade Credits were
utilized, the Trust delivers cash to the Authorized Participant in
exchange for Shares received from the Authorized Participant. In the
event Trade Credits were used, the Trust will use the bitcoin that is
moved from the Trust Bitcoin Account with the Bitcoin Custodian to the
Trading Balance with the Prime Execution Agent to repay the Trade
Credits borrowed from the Trade Credit Lender.
For a cash redemption of Creation Units utilizing the Agent
Execution Model, the Sponsor would instruct the Bitcoin Custodian to
prepare to transfer the bitcoin associated with the redemption order
from the Trust Bitcoin Account with the Bitcoin Custodian to the
Trust's Trading Balance with the Prime Execution Agent. On the
Redemption Order Settlement Date, the Trust would enter into a
transaction to sell bitcoin through the Prime Execution Agent for cash,
and the Prime Execution Agent credits the Trust's Trading Balance with
the cash. On the same day, the Authorized Participant would deliver the
necessary Shares to the Trust and the Trust delivers cash to the
Authorized Participant.
Footnote 26: No change.
Proposed Rule Change--ETH Trust
Similarly, the Exchange proposes to amend representations regarding
the ETH Trust's creation and redemption process as set forth in its
previous rule filing to list and trade ETH Trust Shares to allow for
in-kind transfers of the ETH Trust's ether. The proposed in-kind
transfer process will be an alternative to the ETH Trust's current cash
creation and redemption process.
In order to effectuate this change, the Exchange proposes certain
changes to Amendment No. 1 to the ETH Trust Shares filing as described
below.\7\ Except for the changes described below, all other
representations in Amendment No. 1 remain unchanged and will continue
to constitute continued listing requirements. In addition, the Trust
will continue to comply with the terms of Amendment No. 1 and the
requirements in Rule 8.201-E.
---------------------------------------------------------------------------
\7\ See Securities Exchange Act Release No. 100213 (May 22,
2024), 89 FR 46533 (May 29, 2024) (SR-NYSEArca-2024-31) (Notice of
Filing of Amendment No. 1 to a Proposed Rule Change To List and
Trade Shares of the Bitwise Ethereum ETF).
---------------------------------------------------------------------------
Operation of the Trust
The Exchange proposes to amend the third paragraph in the section
of Amendment No. 1 titled ``Operation of the Trust'' as follows
(additions italicized):
The Trust's only assets will be ether and cash.\11\ The Trust does
not seek to hold any non-ether crypto assets and has expressly
disclaimed ownership of any such assets in the event the Trust
[[Page 24688]]
ever involuntarily comes into possession of such assets.\12\ The Trust
will not use derivatives that may subject the Trust to counterparty and
credit risks. The Trust will process creations and redemptions in cash
or ether. The Trust's only recurring ordinary expense is expected to be
the Sponsor's unitary management fee (the ``Sponsor Fee''), which will
accrue daily and will be payable in ether monthly in arrears. The
Administrator will calculate the Sponsor Fee on a daily basis by
applying an annualized rate to the Trust's total ether holdings, and
the amount of ether payable in respect of each daily accrual shall be
determined by reference to the Pricing Index. Financial institutions
authorized to create and redeem Shares (each, an ``Authorized
Participant'') will deliver, or cause to be delivered, cash or ether in
exchange for Shares of the Trust, and the Trust will deliver cash to
Authorized Participants when those Authorized Participants redeem
Shares of the Trust.
Footnote 11: The Trust conducts creations and redemptions of its
Shares for cash or ether. In connection with cash creations, Authorized
Participants will deliver cash to the Cash Custodian pursuant to
creation orders for Shares and the Cash Custodian will hold such cash
until such time as it can be converted to ether, which the Trust
intends to do on the same business day in which such cash is received
by the Cash Custodian. Additionally, the Trust will sell ether in
exchange for cash pursuant to cash redemption orders of its Shares. In
connection with such sales, an approved Ether Trading Counterparty
(defined below) will send cash to the Cash Custodian. The Cash
Custodian will hold such cash until it can be distributed to the
redeeming Authorized Participant, which it intends to do on the same
business in which it is received. In connection with the purchases and
sales of ether pursuant to its creation and redemption activity, it is
possible that the Trust may retain de minimis amounts of cash as a
result of rounding differences. The Trust may also initially hold small
amounts of cash to initiate Trust operations in the immediate aftermath
of its Registration Statement being declared effective. Lastly, the
Trust may also sell ether and temporarily hold cash as part of a
liquidation of the Trust or to pay certain extraordinary expenses not
assumed by the Sponsor. Under the Trust Agreement, the Sponsor has
agreed to assume the normal operating expenses of the Trust, subject to
certain limitations. For example, the Trust will bear any
indemnification or litigation liabilities as extraordinary expenses. In
any event, in the ongoing course of business, the amounts of cash
retained by the Trust are not expected to constitute a material portion
of the Trust's holdings. In connection with in-kind creations,
Authorized Participants will submit orders by an order cutoff time to
create ``Baskets'' of Shares in exchange for ether. On the settlement
date for an in-kind creation, the Trust delivers Shares to the
Authorized Participant in exchange for ether received from the
Authorized Participant or its designated agent or client. The
Authorized Participant or its designated agent or client will deposit
such ether with the Ether Custodian. In connection with in-kind
redemptions, the Authorized Participants will submit orders by an order
cutoff time to redeem Baskets of Shares in exchange for ether. On the
settlement date for an in-kind redemption, the Trust delivers ether to
the account of the Authorized Participant or its designated agent or
client in exchange for Shares received from the Authorized Participant.
Footnote 12: No Change.
Creation and Redemption of Shares
The Exchange proposes to amend the sections of Amendment No. 1
titled ``Creation and Redemption of Shares'' to integrate the proposed
in-kind creation and redemption process, as follows (additions
italicized, deletions bracketed):
The Trust creates and redeems Shares from time to time, but only in
one or more Creation Units, which will initially consist of at least
10,000 Shares, but may be subject to change (``Creation Unit''). A
Creation Unit is only made in exchange for delivery to the Trust or the
distribution by the Trust of an amount of cash, equivalent to the value
of ether represented by the Creation Unit being created or redeemed,
the amount of which is representative of the combined NAV of the number
of Shares included in the Creation Units being created or redeemed
determined as of 4:00 p.m. E.T. on the day the order to create or
redeem Creation Units is properly received. Except when aggregated in
Creation Units or under extraordinary circumstances permitted under the
Trust Agreement, the Shares are not redeemable securities.
Authorized Participants are the only persons that may place orders
to create and redeem Creation Units. Authorized Participants must be
(1) registered broker-dealers or other securities market participants,
such as banks and other financial institutions, that are not required
to register as broker-dealers to engage in securities transactions
described below, and (2) Depository Trust Company (``DTC'')
participants. To become an Authorized Participant, a person must enter
into an Authorized Participant Agreement with the Trust and/or the
Trust's marketing agent (the ``Marketing Agent'').
According to the Registration Statement, when purchasing or selling
ether in response to the purchase of Creation Units or the redemption
of Creation Units[, which will be processed in cash], the Trust would
do so pursuant to either (1) a ``Trust-Directed Trade Model,'' or (2)
an ``Agent Execution Model,'' which are each described in more detail
below.
The Trust intends to utilize the Trust-Directed Trade Model for all
purchases and sales of ether and would only utilize the Agent Execution
Model in the event that no ether trading counterparty approved by the
Sponsor (an ``Ether Trading Counterparty'')\15\ is able to effectuate
the Trust's purchase or sale of ether. Under the Trust-Directed Trade
Model, in connection with receipt of a purchase order or redemption
order, the Sponsor, on behalf of the Trust, would be responsible for
acquiring ether from an approved Ether Trading Counterparty in an
amount equal to the Basket Amount. When seeking to purchase ether on
behalf of the Trust, the Sponsor will seek to purchase ether at
commercially reasonable price and terms from any of the approved Ether
Trading Counterparties.\16\ Once agreed upon, the transaction will
generally occur on an ``over-the-counter'' basis.
Footnote 15: No change.
Footnote 16: No change.
[Whether utilizing the Trust-Directed Trade Model or the Agent
Execution Model, the Authorized Participants will deliver only cash to
create shares and will receive only cash when redeeming Shares.
Further, Authorized Participants will not directly or indirectly
purchase, hold, deliver, or receive ether as part of the creation or
redemption process or otherwise direct the Trust or a third party with
respect to purchasing, holding, delivering, or receiving ether as part
of the creation or redemption process. Additionally, under either the
Trust-Directed Trade Model or the Agent Execution Model, the Trust will
create Shares by receiving ether from a third party that is not the
Authorized Participant and is not affiliated with the Sponsor or the
Trust, and the Trust--not the Authorized Participant--is responsible
for selecting the third party to deliver the ether. The third party
will not be acting as an agent of the Authorized Participant with
respect to
[[Page 24689]]
the delivery of the ether to the Trust or acting at the direction of
the Authorized Participant with respect to the delivery of the ether to
the Trust. Additionally, the Trust will redeem Shares by delivering
ether to a third party that is not the Authorized Participant and is
not affiliated with the Sponsor or the Trust, and the Trust--not the
Authorized Participant--is responsible for selecting the third party to
receive the ether. Finally, the third party will not be acting as an
agent of the Authorized Participant with respect to the receipt of the
ether from the Trust or acting at the direction of the Authorized
Participant with respect to the receipt of the ether from the Trust.]
Acquiring and Selling Ether Pursuant to Creation and Redemption of
Shares Under the Trust-Directed Trade Model
Under the Trust-Directed Trade Model and as set forth in the
Registration Statement, on any business day, an Authorized Participant
may create Shares by placing an order to purchase one or more Creation
Units with the Transfer Agent through the Marketing Agent. Such orders
are subject to approval by the Marketing Agent and the Transfer Agent.
For purposes of processing creation and redemption orders, a ``business
day'' means any day other than a day when the Exchange is closed for
regular trading (``Business Day''). To be processed on the date
submitted, creation orders must be placed before 4:00 p.m. E.T. or the
close of regular trading on the Exchange, whichever is earlier, but may
be required to be placed earlier at the discretion of the Sponsor. A
purchase order will be effective on the date it is received by the
Transfer Agent and approved by the Marketing Agent (``Purchase Order
Date'').
Creation Units are processed in cash or ether. By placing a
purchase order, an Authorized Participant agrees to deposit, or cause
to be deposited, an amount of cash or ether equal to the quantity of
ether attributable to each Share of the Trust (net of accrued but
unpaid expenses and liabilities) multiplied by the number of Shares
(10,000) comprising a Creation Unit (the ``Basket Amount''). The
Sponsor will cause to be published each Business Day, prior to the
commencement of trading on the Exchange, the Basket Amount relating to
a Creation Unit applicable for such Business Day. That amount is
derived by multiplying the Basket Amount by the value of ether ascribed
by the Pricing Index. However, the Authorized Participant is also
responsible for any additional cash or ether required to account for
the price at which the Trust agrees to purchase the requisite amount of
ether from an Ether Trading Counterparty to the extent it is greater
than the Pricing Index price on each Purchase Order Date.
Prior to the delivery of Creation Units, the Authorized Participant
must also have wired to the Transfer Agent the nonrefundable
transaction fee due for the creation order. Authorized Participants may
not withdraw a creation request. If an Authorized Participant fails to
consummate the foregoing, the order may be cancelled.
Following the acceptance of a purchase order, the Authorized
Participant must wire the [cash amount] Basket Amount described above.
In connection with cash creations, the Authorized Participant must wire
the cash amount to the Cash Custodian, and the Ether Trading
Counterparty must deposit the required amount of ether with the Ether
Custodian by the end of the day E.T. on the Business Day following the
Purchase Order Date. The ether will be purchased from Ether Trading
Counterparties that are not acting as agents of the Trust or agents of
the Authorized Participant. These transactions will be done on an arms-
length basis, and there is no contractual relationship between the
Trust, the Sponsor, or the Ether Trading Counterparty to acquire such
ether. Prior to any movement of cash from the Cash Custodian to the
Ether Trading Counterparty or movement of Shares from the Transfer
Agent to the Authorized Participant's DTC account to settle the
transaction, the ether must be deposited at the Ether Custodian.
The Ether Trading Counterparty must deposit the required amount of
ether by end of day E.T. on the Business Day following the Purchase
Order Date prior to any movement of cash from the Cash Custodian or
Shares from the Transfer Agent. Upon receipt of the deposit amount of
ether at the Ether Custodian from the Ether Trading Counterparty, the
Ether Custodian will notify the Sponsor that the ether has been
received. The Sponsor will then notify the Transfer Agent that the
ether has been received, and the Transfer Agent will direct DTC to
credit the number of Shares ordered to the Authorized Participant's DTC
account and will wire the cash previously sent by the Authorized
Participant to the Ether Trading Counterparty to complete settlement of
the Purchase Order and the acquisition of the ether by the Trust, as
described above.
In connection with in-kind creations, the Authorized Participant
must submit a purchase order by an order cutoff time (the ``In-Kind
Order Cutoff Time'') to create Baskets of Shares in exchange for ether.
The In-Kind Order Cutoff Time will initially be 3:59 p.m. ET on the
Purchase Order Date.
On the settlement date for an in-kind creation, the Trust delivers
Shares to the Authorized Participant in exchange for ether received
from the Authorized Participant or its designated agent or client. The
Authorized Participant or its designated agent or client will deposit
such ether with the Ether Custodian. In the event the Authorized
Participant has not deposited the ether with the Ether Custodian by the
applicable time on the settlement date of the in-kind purchase order,
the Authorized Participant will be given the option to (1) cancel the
in-kind purchase order, (2) delay settlement of the purchase order to
enable delivery of ether at a later date, or (3) accept that the Trust
will execute a ether transaction required for the creation and the
Authorized Participant and the Authorized Participant will deliver the
U.S. dollars required for the purchase order.
As between the Trust and the Authorized Participant, the expense
and risk of the difference between the value of ether calculated by the
Administrator for daily valuation using the Pricing Index and the price
at which the Trust acquires the ether will be borne solely by the
Authorized Participant to the extent that the Trust pays more for ether
than the price used by the Trust for daily valuation. In connection
with cash creations, [A]any such additional cash amount will be
included in the amount of cash calculated by the Administrator on the
Purchase Order Date, communicated to the Authorized Participant on the
Purchase Order Date, and wired by the Authorized Participant to the
Cash Custodian on the day following the Purchase Order Date. If the
Ether Trading Counterparty fails to deliver the ether to the Ether
Custodian, no cash is sent from the Cash Custodian to the Ether Trading
Counterparty, no Shares are transferred to the Authorized Participant's
DTC account, the cash is returned to the Authorized Participant, and
the Purchase Order is cancelled.
Under the Trust-Directed Trade Model and according to the
Registration Statement, the procedures by which an Authorized
Participant can redeem one or more Creation Units mirror the procedures
for the creation of Creation Units. On any Business Day, an Authorized
Participant may place an order with the Transfer Agent through the
Marketing Agent to redeem one or more Creation Units. To be processed
on the date submitted, redemption orders must be placed before 4:00
p.m. E.T. or the close of regular trading on the
[[Page 24690]]
Exchange, whichever is earlier, or earlier as determined by the
Sponsor. A redemption order will be effective on the date it is
received by the Transfer Agent and approved by the Marketing Agent
(``Redemption Order Date''). The redemption procedures allow Authorized
Participants to redeem Creation Units and do not entitle an individual
shareholder to redeem any Shares in an amount less than a Creation
Unit, or to redeem Creation Units other than through an Authorized
Participant. In connection with receipt of a redemption order accepted
by the Marketing Agent and Transfer Agent, the Sponsor, on behalf of
the Trust, is responsible for selling the ether to an approved Ether
Trading Counterparty in an amount equal to the Basket Amount.
The redemption distribution from the Trust will consist of a
transfer to the redeeming Authorized Participant, or its agent, of the
amount of cash or ether the Trust received in connection with a sale of
the Basket Amount of ether to an Ether Trading Counterparty made
pursuant to the redemption order. The Sponsor will cause to be
published each Business Day, prior to the commencement of trading on
the Exchange, the redemption distribution amount relating to a Creation
Unit applicable for such Business Day. The redemption distribution
amount is derived by multiplying the Basket Amount by the value of
ether ascribed by the Pricing Index. However, as between the Trust and
the Authorized Participant, the expense and risk of the difference
between the value of ether ascribed by the Pricing Index and the price
at which the Trust sells the ether will be borne solely by the
Authorized Participant to the extent that the Trust receives less for
ether than the value ascribed by Pricing Index.
Prior to the delivery of Creation Units, the Authorized Participant
must also have wired to the Transfer Agent the nonrefundable
transaction fee due for the redemption order.
In connection with cash redemptions, [T]the redemption distribution
due from the Trust will be delivered by the Transfer Agent to the
Authorized Participant once the Cash Custodian has received the cash
from the Ether Trading Counterparty. The Ether Custodian will not send
the Basket Amount of ether to the Ether Trading Counterparty until the
Cash Custodian has received the cash from the Ether Trading
Counterparty and is instructed by the Sponsor to make such transfer.
Once the Ether Trading Counterparty has sent the cash to the Cash
Custodian in an agreed upon amount to settle the agreed upon sale of
the Basket Amount of ether, the Transfer Agent will notify Sponsor. The
Sponsor will then notify the Ether Custodian to transfer the ether to
the Ether Trading Counterparty, and the Transfer Agent will wire the
cash proceeds to the Authorized Participant once the Trust's DTC
account has been credited with the Shares represented by the Creation
Unit from the redeeming Authorized Participant. Once the Authorized
Participant has delivered the Shares represented by the Creation Unit
to be redeemed to the Trust's DTC account, the Cash Custodian will wire
the requisite amount of cash to the Authorized Participant. If the
Trust's DTC account has not been credited with all of the Shares of the
Creation Unit to be redeemed, the redemption distribution will be
delayed until such time as the Transfer Agent confirms receipt of all
such Shares. If the Ether Trading Counterparty fails to deliver the
cash to the Cash Custodian, the transaction will be cancelled, and no
transfer of ether or Shares will occur.
In connection with in-kind redemptions, the Authorized Participant
must submit an order by the In-Kind Order Cutoff Time to redeem Baskets
of Shares in exchange for ether. On the settlement date for an in-kind
redemption, the Trust delivers ether to the Authorized Participant in
exchange for Shares received from the Authorized Participant or its
designated agent or client. The Authorized Participant or its
designated agent or client will deposit such Shares to the Trust's DTC
account.
In the event the Authorized Participant has not deposited the
Shares to the Trust's DTC account by the applicable time on the
settlement date of the in-kind redemption order, the Authorized
Participant will be given the option to (1) cancel the in-kind
redemption order, (2) delay settlement of the redemption order to
enable delivery of Shares at a later date, or (3) accept that the Trust
will execute a ether transaction required for the redemption order and
the Authorized Participant will be delivered the U.S. dollars required
as calculated during the cash redemption process.
Acquiring and Selling Ether Pursuant to Creation and Redemption of
Shares Under the Agent Execution Model
Under the Agent Execution Model, the Prime Execution Agent, acting
in an agency capacity, would conduct ether purchases and sales on
behalf of the Trust with third parties through its Coinbase Prime
service pursuant to the Prime Execution Agent Agreement. To utilize the
Agent Execution Model, the Trust may maintain some ether or cash in the
Trading Balance with the Prime Execution Agent. The Prime Execution
Agent Agreement provides that the Trust does not have an identifiable
claim to any particular ether (and cash); rather, the Trust's Trading
Balance represents an entitlement to a pro rata share of the ether (and
cash) the Prime Execution Agent holds on behalf of customers who hold
similar entitlements against the Prime Execution Agent. In this way,
the Trust's Trading Balance represents an omnibus claim on the Prime
Execution Agent's ether (and cash) held on behalf of the Prime
Execution Agent's customers.
To avoid having to pre-fund purchases or sales of ether in
connection with cash creations and redemptions and sales of ether to
pay Trust expenses not assumed by the Sponsor, to the extent
applicable, the Trust may borrow ether or cash as trade credit (``Trade
Credit'') from Coinbase Credit, Inc. (the ``Trade Credit Lender'') on a
short-term basis pursuant to the Coinbase Credit Committed Trade
Financing Agreement (the ``Trade Financing Agreement'').
For cash purchase orders, [O]on the day of the Purchase Order Date,
the Trust would enter into a transaction to buy ether through the Prime
Execution Agent for cash. Because the Trust's Trading Balance may not
be funded with cash on the Purchase Order Date for the purchase of
ether in connection with the Purchase Order under the Agent Execution
Model, the Trust may borrow Trade Credits in the form of cash from the
Trade Credit Lender pursuant to the Trade Financing Agreement or may
require the Authorized Participant to deliver the required cash for the
Purchase Order on the Purchase Order Date. The extension of Trade
Credits on the Purchase Order Date allows the Trust to purchase ether
through the Prime Execution Agent on the Purchase Order Date, with such
ether being deposited in the Trust's Trading Balance.
For cash purchase orders, [O]on the day following the Purchase
Order Date (the ``Purchase Order Settlement Date''), the Trust would
deliver Shares to the Authorized Participant in exchange for cash
received from the Authorized Participant. Where applicable, the Trust
would use the cash to repay the Trade Credits borrowed from the Trade
Credit Lender. On the Purchase Order Settlement Date for a Purchase
Order utilizing the Agent Execution Model, the ether associated with
the Purchase Order and purchased on the Purchase Order Date is swept
from the Trust's Trading Balance with the Prime Execution Agent to the
Trust Ether
[[Page 24691]]
Account with the Ether Custodian pursuant to a regular end-of-day sweep
process. Transfers of ether into the Trust's Trading Balance are off-
chain transactions and transfers from the Trust's Trading Balance to
the Trust Ether Account are ``on-chain'' transactions represented on
the ether blockchain. Any financing fee owed to the Trade Credit Lender
is deemed part of trade execution costs and embedded in the trade price
for each transaction.
For a cash Redemption Order utilizing the Agent Execution Model, on
the day of the Redemption Order Date the Trust would enter into a
transaction to sell ether through the Prime Execution Agent for cash.
The Trust's Trading Balance with the Prime Execution Agent may not be
funded with ether on trade date for the sale of ether in connection
with the redemption order under the Agent Execution Model, when ether
remains in the Trust Ether Account with the Ether Custodian at the
point of intended execution of a sale of ether. In those circumstances
the Trust may borrow Trade Credits in the form of ether from the Trade
Credit Lender, which allows the Trust to sell ether through the Prime
Execution Agent on the Redemption Order Date, and the cash proceeds are
deposited in the Trust's Trading Balance with the Prime Execution
Agent. On the business day following the Redemption Order Date (the
``Redemption Order Settlement Date'') for a redemption order utilizing
the Agent Execution Model where Trade Credits were utilized, the Trust
delivers cash to the Authorized Participant in exchange for Shares
received from the Authorized Participant. In the event Trade Credits
were used, the Trust will use the ether that is moved from the Trust
Ether Account with the Ether Custodian to the Trading Balance with the
Prime Execution Agent to repay the Trade Credits borrowed from the
Trade Credit Lender.
For a cash redemption of Creation Units utilizing the Agent
Execution Model, the Sponsor would instruct the Ether Custodian to
prepare to transfer the ether associated with the redemption order from
the Trust Ether Account with the Ether Custodian to the Trust's Trading
Balance with the Prime Execution Agent. On the Redemption Order
Settlement Date, the Trust would enter into a transaction to sell ether
through the Prime Execution Agent for cash, and the Prime Execution
Agent credits the Trust's Trading Balance with the cash. On the same
day, the Authorized Participant would deliver the necessary Shares to
the Trust and the Trust delivers cash to the Authorized Participant.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) \8\ of
the Act. Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \9\ requirements that the rules
of an exchange be 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 regulating,
clearing, settling, processing information with respect to, and
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.
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78f(b)(5).
\9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes the proposed rule change is designed to
remove impediments to and perfect the mechanism of a free and open
market and, in general, to protect investors and the public interest
because it would update representations in both the Amendment No. 2 to
the Bitcoin Trust Shares filing and Amendment No. 1 to the ETH Trust
Shares filing such that the respective Trusts would both be able to
engage in in-kind transactions with Authorized Participants, as
described above. This ability would make the Trusts (and the market
more generally) operate more efficiently because Authorized
Participants would be able to source bitcoin or ether, as applicable,
rather than provide cash to the applicable Trust and/or to receive
bitcoin or ether, as applicable, directly from the Trusts. In-kind
creations and redemptions would allow Authorized Participants to be
responsible for buying and selling the applicable crypto asset rather
than the Trusts, which would potentially lessen the impact on the
market of the Trusts on both sides of the transaction by allowing the
Authorized Participants to decide how and where to source the
underlying crypto asset for creations and deciding how, where, and
whether to sell the underlying crypto asset for redemptions. This would
improve the creation and redemption process for both Authorized
Participants and the Trusts, increase efficiency, and ultimately
benefit the end investors in the Trusts.
As noted above, except for the addition of in-kind creation and
redemption for the Bitcoin Trust, all other representations made in the
Amendment No. 2 to the Bitcoin Trust Shares filing remain unchanged and
will continue to constitute continuing listing requirements for the
Bitcoin Trust. Similarly, except for the addition of in-kind creation
and redemption for the ETH Trust, all other representations made in
Amendment No. 1 to the ETH Trust Shares filing remain unchanged and
will continue to constitute continuing listing requirements for the ETH
Trust.
Accordingly, the Exchange believes that this proposed rule change
raises no novel regulatory issues.
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. As discussed above, the
proposed amendments are intended to reflect changes to the Trusts'
creation and redemption processes, specifically to allow for in-kind
transfers.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change, as Modified by
Amendment No. 1, and Timing for Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change, as modified by Amendment No. 1, is consistent with the Act.
Comments may be submitted by any of the following methods:
[[Page 24692]]
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#0371766f662e606c6e6e666d7770437066602d646c75"><span class="__cf_email__" data-cfemail="99ebecf5fcb4faf6f4f4fcf7edead9eafcfab7fef6ef">[email protected]</span></a>. Please include
file number SR-NYSEARCA-2025-38 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-NYSEARCA-2025-38. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-NYSEARCA-2025-38 and should
be submitted on or before July 2, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
---------------------------------------------------------------------------
\10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-10532 Filed 6-10-25; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on June 11, 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.