Notice2025-12304
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Amendment No. 1 to Proposed Rule Change To Amend NYSE Arca Rule 8.500-E and To List and Trade Shares of the Grayscale Digital Large Cap Fund LLC
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 2, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 125 (Wednesday, July 2, 2025)</title>
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[Federal Register Volume 90, Number 125 (Wednesday, July 2, 2025)]
[Notices]
[Pages 29057-29082]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-12304]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103345; File No. SR-NYSEARCA-2024-87]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Amendment No. 1 to Proposed Rule Change To Amend NYSE Arca Rule
8.500-E and To List and Trade Shares of the Grayscale Digital Large Cap
Fund LLC
June 27, 2025.
On October 15, 2024, NYSE Arca, Inc. (``NYSE Arca'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to adopt new NYSE Arca Rule
8.800-E to provide for the listing and trading of Commodity- and
Digital Asset-Based Investment Interests and to list and trade shares
of the Grayscale Digital Large Cap Fund LLC under proposed NYSE Arca
Rule 8.800-E. The proposed rule change was published for comment in the
Federal Register on November 4, 2024.\3\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 101470 (Oct. 29,
2024), 89 FR 87681. Comments on the proposed rule change are
available at: <a href="https://www.sec.gov/comments/sr-nysearca-2024-87/srnysearca202487.htm">https://www.sec.gov/comments/sr-nysearca-2024-87/srnysearca202487.htm</a>.
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On December 17, 2024, pursuant to Section 19(b)(2) of the Exchange
Act,\4\ the Commission designated a longer period within which to
approve the proposed rule change, disapprove the proposed rule change,
or institute proceedings to determine whether to disapprove the
proposed rule change.\5\ On January 31, 2025, the Commission instituted
proceedings under Section 19(b)(2)(B) of the Exchange Act \6\ to
determine whether to approve or disapprove the proposed rule change.\7\
On April 29, 2025, pursuant to Section 19(b)(2) of the Exchange Act,\8\
the Commission designated a longer period for Commission action on
proceedings to determine whether to approve or disapprove the proposed
rule change.\9\
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\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 101939, 89 FR 104581
(Dec. 23, 2024) (designating February 2, 2025, as the date by which
the Commission shall either approve, disapprove, or institute
proceedings to determine whether to disapprove the proposed rule
change).
\6\ 15 U.S.C. 78s(b)(2)(B).
\7\ See Securities Exchange Act Release No. 102313, 90 FR 9092
(Feb. 6, 2025).
\8\ 15 U.S.C. 78s(b)(2).
\9\ See Securities Exchange Act Release No. 102941, 90 FR 19037
(May 5, 2025) (designating July 2, 2025, as the date by which the
Commission shall either approve or disapprove the proposed rule
change).
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On June 26, 2025, the Exchange filed with the Commission Amendment
No. 1 to proposed rule change as described in Items I and II below,
which Items have been prepared by the Exchange. Amendment No. 1
replaces and supersedes the proposed rule change as originally filed.
The Commission is publishing this notice to solicit comments on the
proposed rule change, as modified by Amendment No. 1, from interested
persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend NYSE Arca Rule 8.500-E (Trust Units)
and to list and trade shares of the Grayscale Digital Large Cap Fund
LLC (the ``Fund'') under Rule 8.500-E, as amended. This Amendment No. 1
to SR-NYSEARCA-2024-87 replaces SR-NYSEARCA-2024-87 as originally filed
and supersedes such filing in its entirety.\10\ 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.
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\10\ This Amendment No. 1 withdraws the Exchange's original
proposal to adopt new NYSE Arca Rule 8.800-E relating to the listing
and trading of Commodity- and/or Digital Asset-Based Investment
Interests and to list shares of the Fund under such rule.
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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 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 III 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
Currently, Rule 8.500-E provides for the listing and trading of
Trust Units, which are defined in Rule 8.500-E(b)(2) as securities
issued by a trust or other similar entity that is constituted as a
commodity pool that holds investments comprising or otherwise based on
any combination of futures contracts, options on futures contracts,
forward contracts, swap contracts, commodities and/or securities.
The Exchange first proposes to amend Rule 8.500-E(b)(1), which
currently
[[Page 29058]]
provides that the term ``commodity,'' as used in this Rule, is defined
in Section 1(a)(4) of the Commodity Exchange Act. The Exchange proposes
to update the reference to Section 1(a)(4) with a reference to Section
1a(9), to accurately reflect the current section reference for the
definition of a commodity in the Commodity Exchange Act.
The Exchange next proposes to amend the definition of Trust Units
in Rule 8.500-E(b)(2). Specifically, the Exchange proposes that Rule
8.500-E(b)(2) would provide that Trust Units may be issued by a trust,
limited liability company, or other similar entity. The Exchange also
proposes to specify, by adding the phrase ``if applicable,'' that the
requirement that an entity issuing Trust Units be constituted as a
commodity pool will continue to apply, but only with respect to
entities that are required to be organized as commodity pools, and to
add the word ``and'' following the term commodity pool to clarify that
all entities issuing Trust Units would hold investments as enumerated
in Rule 8.500-E(b)(2). The Exchange believes that these proposed
changes to broaden the types of entities that could issue Trust Units
would afford prospective issuers additional flexibility and encourage
the listing and trading of additional series of Trust Units, to the
benefit of the investing public.
The Exchange also proposes to amend Rule 8.500-E(c), which
currently provides that the Exchange may list and trade Trust Units
based on an underlying asset, commodity, security or portfolio. The
Exchange proposes to amend Rule 8.500-E(c) to provide that the Exchange
may list and trade Trust Units based on an underlying asset, commodity,
security, and/or portfolio, which may be represented by an index or
portfolio of any of the foregoing. These proposed changes are intended
to clarify that Trust Units may be based on an underlying asset,
commodity, security, portfolio, or combination thereof, as well as to
specify that the underlying components of a series of Trust Units may
be represented by an index or portfolio based on an asset, commodity,
security, and/or portfolio.
The Exchange further proposes to amend Rule 8.500-E(d)(2)(ii),
which currently provides that, upon termination of a trust, the
Exchange requires that Trust Units issued in connection with such trust
be removed from Exchange listing and that a trust will terminate in
accordance with the provisions of the prospectus. Consistent with the
proposed change described above to amend Rule 8.500-E to permit Trust
Units to be issued by a trust, limited liability company, or similar
entity, the Exchange proposes conforming changes in Rule 8.500-
E(d)(2)(ii). Specifically, the Exchange proposes that Rule 8.500-
E(d)(2)(ii) would provide that, upon termination of a trust, limited
liability company, or other similar entity, the Exchange would require
that Trust Units issued in connection with such trust, limited
liability company, or other entity be removed from Exchange listing.
Rule 8.500-E(d)(2)(ii), as proposed, would also provide that a trust,
limited liability company, or other entity issuing Trust Units pursuant
to Rule 8.500-E would terminate in accordance with the provisions of
the prospectus associated with such series of Trust Units.
The Exchange next proposes to add a new subheading in Rule 8.500-
E(d)(3), which currently sets forth continued listing requirements
pertaining to the term of a trust issuing Trust Units. The Exchange
proposes that Rule 8.500-E(d)(3) would be titled ``Trust Units Issued
by a Trust,'' and that the current text of Rule 8.500-E(d)(3) be
designated as new subparagraph (i) to Rule 8.500-E(d)(3). The Exchange
further proposes that current Rule 8.500-E(d)(4) (relating to the
trustee of a trust issuing Trust Units) be designated as new
subparagraph (ii) to Rule 8.500-E(d)(3) and that subparagraphs (i) and
(ii) under current Rule 8.500-E(d)(4) be renumbered as new
subparagraphs (A) and (B), respectively, below new Rule 8.500-
E(d)(3)(ii). In addition, to reflect the consolidation of current Rules
8.500-E(d)(3) and (d)(4), the Exchange proposes to renumber current
Rule 8.500-E(d)(5) as Rule 8.500-E(d)(4). The Exchange does not propose
any changes to the text of these rules. These proposed changes are
intended to clarify the applicability of the requirements set forth in
current Rules 8.500-E(d)(3) and (4) to series of Trust Units issued by
a trust, specifically.
The Exchange also proposes to amend Rule 8.500-E(e), relating to
limitation of Exchange liability. Specifically, the Exchange proposes
to amend the first sentence of Rule 8.500-E(e) to add a reference to
underlying index value, such that Rule 8.500-E(e) would provide that
neither the Exchange nor any agent of the Exchange shall have any
liability for damages, claims, losses or expenses caused by any errors,
omissions, or delays in calculating or disseminating any underlying
portfolio or index value. This proposed change is consistent with the
proposed change to Rule 8.500-E(c) described above to specify that that
the underlying components of a series of Trust Units may be represented
by an index or portfolio based on an asset, commodity, security, and/or
portfolio.
The Exchange further proposes to amend Commentary .03 to Rule
8.500-E to specify, consistent with the proposed change to Rule 8.500-
E(c) described above to provide that a series of Trust Units may be
based on an index, that the Exchange will file separate proposals under
Section 19(b) of the Securities Exchange Act of 1934 before listing and
trading separate and distinct Trust Units designated on different
underlying investments, commodities, assets, indices, and/or
portfolios, and that all statements or representations contained in
such rule filing regarding the description of the index or portfolio or
reference asset will constitute continued listing requirements.
Finally, the Exchange also proposes to amend Rule 5.3-E to include
Trust Units listed pursuant to Rule 8.500-E among the derivative or
special purpose securities that are subject to a limited set of
corporate governance and disclosure policies and to amend Rule 5.3-E(e)
to include Trust Units listed pursuant to Rule 8.500-E among the
derivative or special purpose securities to which the requirements
concerning shareholder/annual meetings do not apply.
Grayscale Digital Large Cap Fund
The Exchange proposes to list and trade shares (``Shares'') \11\ of
the Fund pursuant to NYSE Arca Rule 8.500-E, as amended.\12\
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\11\ The Shares are expected to be listed under the ticker
symbol ``GDLC.''
\12\ On May 13, 2021, the Fund filed its registration statement
on Form 10 under the Securities Act (File No. 000-56284) (the
``Registration Statement on Form 10''). On June 28, 2021, the Fund
filed Amendment No. 1 to the Registration Statement on Form 10. On
August 13, 2021, the Fund filed Amendment No. 2 to the Registration
Statement on Form 10. On November 29, 2021, the Fund filed Amendment
No. 3 to the Registration Statement on Form 10. On January 20, 2022,
the Fund filed Amendment No. 4 to the Registration Statement on Form
10. On February 4, 2022, the Fund filed Amendment No. 5 to the
Registration Statement on Form 10. On July 12, 2021, the
Registration Statement on Form 10 was automatically deemed
effective. On September 27, 2021, September 1, 2022, September 1,
2023, and September 6, 2024, the Fund filed its annual report on
Form 10-K under the Securities Act (File No. 000-56284) (the
``Annual Reports''). On November 5, 2021, February 10, 2022, May 6,
2022, November 4, 2022, February 8, 2023, May 5, 2023, November 3,
2023, February 7, 2024, May 3, 2024, November 1, 2024, February 5,
2025, and May 2, 2025, the Fund filed its quarterly reports on Form
10-Q under the Securities Act (File No. 000-56284) (the ``Quarterly
Reports''). On February 7, 2018, the Fund submitted to the
Commission a Form D as a limited liability company. Shares of the
Fund have been quoted on OTC Market's OTCQX Best Marketplace under
the symbol ``GDLC'' since October 14, 2019. On October 15, 2019 and
September 23, 2020, the Fund published annual reports for GDLC for
the periods ended June 30, 2019 and June 30, 2020, respectively. On
November 11, 2019, February 13, 2020, May 8, 2020, November 6, 2020,
February 12, 2021, and May 13, 2021, the Fund published quarterly
reports for GDLC for the periods ended September 30, 2019, December
31, 2019, March 31, 2020, September 30, 2020, December 31, 2020, and
March 31, 2021, respectively. Reports published before July 12,
2021, the date on which the Fund's Shares became registered pursuant
to Section 12(g) of the Act, can be found on OTC Market's website
(<a href="https://www.otcmarkets.com/stock/GDLC/disclosure">https://www.otcmarkets.com/stock/GDLC/disclosure</a>), and reports
published on or after July 12, 2021 can be found on OTC Market's
website and the Commission's website (<a href="https://www.sec.gov/edgar/browse/?CIK=1729997&owner=exclude">https://www.sec.gov/edgar/browse/?CIK=1729997&owner=exclude</a>). The Shares will be of the same
class and will have the same rights as shares of GDLC. According to
Grayscale Investments, LLC, freely tradeable shares of GDLC will
remain freely tradeable Shares on the date of the listing of the
Shares that are unregistered under the Securities Act. Restricted
shares of GDLC will remain subject to private placement restrictions
on such date, and the holders of such restricted shares will
continue to hold those Shares subject to those restrictions until
they become freely tradable Shares. On April 1, 2025, the Fund filed
its registration statement on Form S-3 under the Securities Act
(File No. 333-286293) (the ``Registration Statement''). On May 16,
2025, the Fund filed Amendment No. 1 to the Registration Statement.
On June 6, 2025, the Trust filed Amendment No. 2 to the Registration
Statement. The descriptions of the Fund, the Shares, and the digital
assets contained herein are based, in part, on the Registration
Statement, as amended.
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[[Page 29059]]
The manager of the Fund is Grayscale Investments Sponsors, LLC
(``Manager''), a Delaware limited liability company. The Manager is a
wholly owned indirect subsidiary of Digital Currency Group, Inc.
(``Digital Currency Group''). The custodian for the Fund is Coinbase
Custody Trust Company, LLC (``Custodian''). The administrator and
transfer agent of the Fund will be BNY Mellon Asset Servicing, a
division of The Bank of New York Mellon (the ``Transfer Agent''). The
distribution and marketing agent for the Fund will be Foreside Fund
Services, LLC (the ``Marketing Agent''). The index provider and digital
asset index price provider for the Fund is CoinDesk Indices, Inc. (the
``Index Provider'').
The Fund is a Cayman Islands limited liability company, formed on
January 25, 2018, that operates pursuant to a limited liability company
agreement between the Manager and the Shareholders (``LLC Agreement'').
The Fund has no fixed termination date.
The Fund is one of the world's largest diversified crypto
investment funds by assets under management as of the date of this
filing. The Fund is an SEC reporting company with its Shares registered
pursuant to Section 12(g) of the `34 Act since July 12, 2021. Shares of
the Fund have been quoted on OTC Market's OTCQX Best Market under the
symbol ``GDLC'' since October 14, 2019. The Fund has approximately
$741.9 million in assets under management,\13\ and its Shares have
historically traded in the millions of dollars in daily volume and are
held by more than a quarter of a million American investor accounts
seeking exposure to the digital assets held by the Fund (the ``Fund
Components'') without the cost and complexity of purchasing any of the
individual assets directly.\14\ As of the date of this filing, the Fund
Component weightings are Bitcoin (80.20%), Ether (11.39%), Solana (SOL)
(2.78%), XRP (4.82%) and Cardano (ADA) (0.81%).\15\ However, because
the Fund is not currently listed as an exchange-traded product
(``ETP''), the Fund has not been able to operate an ongoing creation
and redemption program that would allow the Fund to closely track the
value of the Fund's underlying Fund Components and currently trades at
a market price reflecting a discount to its net asset value. The
Manager thus believes that allowing Shares of the Fund to list and
trade on the Exchange as an ETP (i.e., converting the Fund to a spot
ETP) would unlock over $40 million of value \16\ for the Fund's
shareholders and provide other investors with a safe and secure way to
invest in the Fund Components on a regulated national securities
exchange.
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\13\ As of June 20, 2025.
\14\ As of the date of this filing.
\15\ The Fund Components and their weightings are calculated as
if the Fund were operating based on the CoinDesk 5 Index (as further
discussed below). The Manager will ensure that the Fund Components
are consistent with the requirements set forth in this proposed rule
change.
\16\ As of June 20, 2025.
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Operation of the Fund
According to the Registration Statement, the Fund's assets consist
solely of the Fund Components.\17\ The Fund Components consist of the
digital assets that make up the CoinDesk 5 Index (the ``CD5'' or
``Index''), as rebalanced from time to time, subject to the Manager's
discretion to exclude individual digital assets and/or rebalance the
weighting of the Fund Components in certain rules-based circumstances
as further described in ``Index Components Compared to Fund
Components'' below.\18\ The description of the Fund and Fund Components
herein reflects the operation of the Fund as of July 1, 2025.\19\
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\17\ The Fund will not obtain exposure to any Fund Component via
futures, options on futures, or any other derivative. The Fund may
from time to time come into possession of Forked Assets (as defined
below) by virtue of its ownership of the Fund Components, generally
through a fork in the respective Fund Component's blockchain, an
airdrop offered to holders of the respective Fund Component or other
similar event. ``Rights to Forked Assets'' are rights to acquire, or
otherwise establish dominion and control over, any virtual currency
or other asset or right, which rights are incident to the Fund's
ownership of the Fund Components and arise without any action of the
Fund, or of the Manager on behalf of the Fund. A ``Forked Asset'' is
any virtual currency token, or other asset or right, acquired by the
Fund through the exercise (subject to the applicable provisions of
the LLC Agreement) of any Rights to Forked Assets. Although the Fund
is permitted to take certain actions with respect to Forked Assets
in accordance with its LLC Agreement, at this time the Fund will
prospectively irrevocably abandon any Forked Assets. In the event
the Fund seeks to change this position, the Exchange would file a
subsequent proposed rule change with the Commission.
\18\ The CD5 is designed and managed by the Index Provider and
was formerly known as the CoinDesk Large Cap Select Index (the
``DLCS''). Prior to June 5, 2025, the Fund Components consisted of
the digital assets that make up the DLCS, as rebalanced from time to
time, subject to the Manager's discretion to exclude individual
digital assets and/or rebalance the weightings of Fund Components in
certain rules-based circumstances. The DLCS and CD5 apply different
criteria to identify the digital assets that may be included in each
index and the number of digital assets that may be included in each
index, but they otherwise operate similarly in terms of applying
market capitalization, liquidity and data availability criteria to
such digital assets to select index components and are both intended
to represent a diversified benchmark for the largest and most liquid
digital assets in the digital asset market. The transition from the
DLCS to the CD5 on June 5, 2025 did not result in any change to the
Fund Components or the weightings of the Fund Components.
\19\ Although the Fund Components reflected the components of
the CD5 beginning on June 5, 2025, the Fund will not begin to value
the Fund Components based on the CD5 index methodology (as further
described below) until July 1, 2025, pursuant to the effectiveness
of such methodology as determined by the Index Provider. Shares of
the Fund will not list and trade on the Exchange prior to July 1,
2025.
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As described in ``Determination of the Index Prices'' below, each
Share represents a proportional interest, based on the total number of
Shares outstanding, in each of the Fund Components, as determined by
reference to the respective Index Prices and weightings of each Fund
Component,\20\ less the Fund's expenses and other liabilities (which
include accrued but unpaid fees and expenses). The Manager expects that
the market price of the Shares will fluctuate over time in response to
the market prices of the Fund Components. In addition,
[[Page 29060]]
because the Shares reflect the estimated accrued but unpaid expenses of
the Fund, except as otherwise affected by a rebalancing of the Fund's
portfolio, the number of Fund Components represented by a Share is
generally expected to gradually decrease over time as the Fund
Components are used to pay the Fund's expenses.
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\20\ As further described below, the value of the Fund
Components is determined by reference to their ``Index Prices.'' The
``Index Price'' of each Fund Component is the U.S. dollar value of
each Fund Component derived from the Digital Asset Trading Platforms
(as defined below) that are reflected in each Fund Component's
CoinDesk CCIXber Reference Rate (which will be disseminated by major
market data vendors), calculated at 4:00 p.m., New York time, on
each business day. As also described further below, the weightings
of the Fund Components are generally expected to be the same as the
weightings of the components of the CD5, except when the Manager
determines to exclude one or more digital assets from the Fund
Components and/or rebalance the weighting of the Fund Components in
certain rules-based circumstances.
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The activities of the Fund are limited to (i) issuing ``Baskets''
(as defined below) in exchange for Fund Components and cash transferred
to the Fund as consideration in connection with creations, (ii)
transferring or selling Fund Components as necessary to cover the
``Manager's Fee'' \21\ and/or any ``Additional Fund Expenses,'' \22\
(iii) transferring Fund Components and cash in exchange for Baskets
surrendered for redemption (subject to approval of the Manager), (iv)
causing the Manager to sell Fund Components on the termination of the
Fund, and (v) engaging in all administrative and security procedures
necessary to accomplish such activities in accordance with the
provisions of the LLC Agreement, the Custodian Agreement, the Index
License Agreement, and the Participant Agreements (each as defined
below).\23\
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\21\ The Manager's Fee means a fee, payable in the Fund
Components then held by the Fund in proportion to such Fund
Components' respective weightings, which accrues daily in U.S.
dollars at an annual rate of currently 2.5%, but which will be
lowered in connection with the Fund becoming an ETP, of the NAV Fee
Basis Amount of the Fund as of 4:00 p.m., New York time, on each
day, provided that for a day that is not a business day, the
calculation of the Manager's Fee will be based on the NAV Fee Basis
Amount from the most recent business day, reduced by the accrued and
unpaid Manager's Fee for such most recent business day and for each
day after such most recent business day and prior to the relevant
calculation date. The ``NAV Fee Basis Amount'' is calculated in the
manner set forth under ``Valuation of Fund Components and
Determination of NAV'' below.
\22\ ``Additional Fund Expenses'' are any expenses incurred by
the Fund in addition to the Manager's Fee that are not Manager-paid
expenses, including, but not limited to, (i) taxes and governmental
charges, (ii) expenses and costs of any extraordinary services
performed by the Manager (or any other service provider) on behalf
of the Fund to protect the Fund or the interests of shareholders,
(iii) any indemnification of the Custodian or other agents, service
providers or counterparties of the Fund, (iv) the fees and expenses
related to the listing, quotation or trading of the Shares on any
marketplace or other alternative trading system, as determined by
the Manager, on which the Shares may then be listed, quoted or
traded, including but not limited to, NYSE Arca, Inc. (including
legal, marketing and audit fees and expenses) to the extent
exceeding $600,000 in any given fiscal year and (v) extraordinary
legal fees and expenses, including any legal fees and expenses
incurred in connection with litigation, regulatory enforcement or
investigation matters.
\23\ Neither the Fund, nor the Manager, nor the Custodian, nor
any other person associated with the Fund will, directly or
indirectly, engage in action where any portion of the Fund
Components becomes subject to proof-of-stake validation or is used
to earn additional Fund Components or generate income or other
earnings.
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The Fund will not be actively managed.\24\ The Fund will not take
any actions to take advantage of, or mitigate, the impacts of
volatility in the prices of the Fund Components.
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\24\ The Fund is a passive entity that is managed and
administered by the Manager and does not have any officers,
directors or employees. The Manager will retain limited discretion
to exclude digital assets from the Fund Components and/or rebalance
the weighting of the Fund Components only in certain rules-based
circumstances, as further discussed below.
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Investment Objective
According to the Registration Statement, and as further described
below, the Fund's investment objective is for the value of the Shares
(based on net asset value (``NAV'') per Share) to reflect the value of
the Fund Components held by the Fund, as determined by reference to
their Index Prices and weightings within the Fund, less the Fund's
expenses and other liabilities. As further discussed below, the
weightings of the Fund Components are generally expected to be the same
as the weightings of the components of the CD5, except when the Manager
determines to exclude one or more digital assets from the Fund
Components and/or rebalance the weighting of the Fund Components in
certain rules-based circumstances as further described in ``Index
Components Compared to Fund Components'' below.
While an investment in the Shares is not a direct investment in the
Fund Components, the Shares are designed to provide investors with a
cost-effective and convenient way to gain investment exposure to the
Fund Components. Generally speaking, a substantial direct investment in
the Fund Components may require expensive and sometimes complicated
arrangements in connection with the acquisition, security and
safekeeping of the Fund Components and may involve the payment of
substantial fees to acquire such Fund Components from third-party
facilitators through cash payments of U.S. dollars. Because the value
of the Shares is correlated with the value of Fund Components held by
the Fund, it is important to understand the investment attributes of,
and the market for, the Fund Components.
The Fund uses the Index Price of each Fund Component to calculate
its NAV, which is the aggregate value, expressed in U.S. dollars, of
the Fund's assets, less the U.S. dollar value of the Fund's expenses
and other liabilities calculated in the manner set forth under
``Valuation of Fund Components and Determination of NAV.'' ``NAV per
Share'' is calculated by dividing NAV by the number of Shares then
outstanding.
Valuation of Fund Components and Determination of NAV
The following is a description of the material terms of the LLC
Agreement as it relates to valuation of the Fund digital assets and the
NAV calculations.\25\
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\25\ While the Manager uses the terminology ``NAV'' in this
filing, the term used in the LLC Agreement is ``Digital Asset
Holdings.''
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At 4:00 p.m., New York time, on each business day or as soon
thereafter as practicable, the Manager will evaluate the Fund
Components held by the Fund and calculate and publish the NAV of the
Fund. To calculate the NAV, the Manager will:
1. For each Fund Component then held by the Fund:
a. Determine the Index Price for the Fund Component as of such
business day;
b. Multiply the Index Price by the aggregate number of tokens of
the Fund Component held by the Fund as of 4:00 p.m., New York time, on
the immediately preceding business day;
c. Add the U.S. dollar value of the number of tokens of the Fund
Component receivable under pending creation orders, if any, as
calculated by multiplying the applicable Fund Component Basket Amount
\26\ by the applicable Index Price, and multiplying the result by the
number of Baskets pending under such pending creation orders; and
---------------------------------------------------------------------------
\26\ ``Fund Component Basket Amount'' means, as of any trade
date, the amount of tokens of such Fund Component required to be
delivered in connection with each Creation Basket, as determined by
dividing the amount of tokens of such Fund Component held by the
Fund at 4:00 p.m., New York time, on such trade date, after
deducting the applicable Fund Component Aggregate Liability Amount
(defined below), by the number of Shares outstanding at such time
(the quotient so obtained calculated to one one-hundred-millionth
(i.e., carried to the eighth decimal place)) and multiplying the
quotient so obtained for the Fund Component by 100. ``Fund Component
Aggregate Liability Amount'' means for any Fund Component and any
trade date, an amount of tokens of such Fund Component equal to the
sum of (x) all accrued but unpaid Fund Component Fee Amounts for
such Fund Component as of 4:00 p.m., New York time, on such trade
date and (y) the Fund Component Expense Amount as of 4:00 p.m., New
York time, on such trade date. The ``Fund Component Fee Amount'' is
the amount of tokens of each Fund Component payable as the Manager's
Fee for any day. The ``Fund Component Expense Amount'' is the amount
of tokens of each Fund Component payable as expenses for any day.
---------------------------------------------------------------------------
d. Subtract the U.S. dollar value of the number of tokens of the
Fund Component to be distributed under pending redemption orders, if
any, as calculated by multiplying the applicable
[[Page 29061]]
Fund Component Basket Amount by the applicable Index Price, and
multiplying the result by the number of Baskets pending under such
pending redemption orders; \27\
---------------------------------------------------------------------------
\27\ ``Baskets'' and ``Basket Amount'' have the meanings set
forth in ``Creation and Redemption of Shares'' below.
---------------------------------------------------------------------------
2. Calculate the sum of the resulting U.S. dollar values for all
Fund Components then held by the Fund, as determined pursuant to
paragraph 1 above;
3. Add (i) the amount of U.S. dollars then held by the Fund plus
(ii) the amount of any U.S. dollars to be received by the Fund in
connection with any pending creations;
4. Subtract the amount of any U.S. dollars to be distributed under
pending redemption orders;
5. Subtract the U.S. dollar amount of accrued and unpaid Additional
Fund Expenses, if any;
6. Subtract the U.S. dollar value of the accrued and unpaid
Manager's Fee as of 4:00 p.m., New York time on the immediately
preceding business day (the amount derived from steps 1 through 6, the
``NAV Fee Basis Amount''); and
7. Subtract the U.S. dollar value of the accrued and unpaid
Manager's Fee that accrues for such business day, as calculated based
on the NAV Fee Basis Amount for such business day.
Notwithstanding the foregoing, in the event that the Manager
determines that the primary methodology used to determine any of the
Index Prices is not an appropriate basis for valuation of the Fund's
digital assets, the Manager will utilize the cascading set of rules as
described in ``Determination of the Index Prices'' below.
Background on Current Fund Components \28\
---------------------------------------------------------------------------
\28\ The description of the Fund Components in this section was
provided by the Manager and is based on the Registration Statement.
---------------------------------------------------------------------------
Bitcoin and the Bitcoin Network
Bitcoin is a digital asset that is created and transmitted through
the operations of the peer-to-peer Bitcoin network, a decentralized
network of computers that operates on cryptographic protocols. No
single entity owns or operates the Bitcoin network, the infrastructure
of which is collectively maintained by a decentralized user base. The
Bitcoin network allows people to exchange tokens of value, called
Bitcoin, which are recorded on a public transaction ledger known as a
blockchain. Bitcoin can be used to pay for goods and services, or it
can be converted to fiat currencies, such as the U.S. dollar, at rates
determined on Digital Asset Markets \29\ that trade Bitcoin or in
individual end-user-to-end-user transactions under a barter system.
---------------------------------------------------------------------------
\29\ A ``Digital Asset Market'' is a ``Brokered Market,''
``Dealer Market,'' ``Principal-to-Principal Market'' or ``Exchange
Market'' (referred to as ``Trading Platform Markets'' in this
proposal), as each such term is defined in the Financial Accounting
Standards Board Accounting Standards Codification Master Glossary.
The ``Digital Asset Trading Platform Market'' is the global trading
platform market for the trading of digital assets, which consists of
transactions on electronic Digital Asset Trading Platforms. A
``Digital Asset Trading Platform'' is an electronic marketplace
where trading platform participants may trade, buy and sell digital
assets based on bid-ask trading. The largest Digital Asset Trading
Platforms are online and typically trade on a 24-hour basis,
publishing transaction price and volume data.
---------------------------------------------------------------------------
The Bitcoin network was initially contemplated in a white paper
that also described Bitcoin and the operating software to govern the
Bitcoin network. The white paper was purportedly authored by Satoshi
Nakamoto. However, no individual with that name has been reliably
identified as Bitcoin's creator, and the general consensus is that the
name is a pseudonym for the actual inventor or inventors. The first
Bitcoins were created in 2009 after Nakamoto released the Bitcoin
network source code (the software and protocol that created and
launched the Bitcoin network). The Bitcoin network has been under
active development since that time by a group of engineers known as
core developers. The core developers are able to access, and can alter,
the Bitcoin network source code and, as a result, they are responsible
for quasi-official releases of updates and other changes to the Bitcoin
network's source code. The release of updates to the Bitcoin network's
source code does not guarantee that the updates will be automatically
adopted. Users and miners must accept any changes made to the Bitcoin
source code by downloading the proposed modification of the Bitcoin
network's source code. A modification of the Bitcoin network's source
code is effective only with respect to the Bitcoin users and miners
that download it. If a modification is accepted by only a percentage of
users and miners, a division in the Bitcoin network will occur such
that one network will run the pre-modification source code and the
other network will run the modified source code. Such a division is
known as a ``fork.''
Core development of the Bitcoin network source code has
increasingly focused on modifications of the Bitcoin network protocol
to increase speed and scalability and also allow for non-financial,
next generation uses. For example, following the activation of
Segregated Witness on the Bitcoin network, an alpha version of the
Lightning network was released. The Lightning network is an open-source
decentralized network that enables instant off-blockchain transfers of
the ownership of Bitcoin without the need of a trusted third party. The
system utilizes bidirectional payment channels that consist of multi-
signature addresses. One on-blockchain transaction is needed to open a
channel and another on-blockchain transaction can close the channel.
Once a channel is open, value can be transferred instantly between
counterparties who are engaging in real Bitcoin transactions without
broadcasting them to the Bitcoin network. New transactions will replace
previous transactions and the counterparties will store everything
locally as long as the channel stays open to increase transaction
throughput and reduce computational burden on the Bitcoin network.
Other efforts include increased use of smart contracts and distributed
registers built into, built atop or pegged alongside the Bitcoin
blockchain. For example, the white paper for Blockstream, an
organization that includes core developer Pieter Wuille, calls for the
use of ``pegged sidechains'' to develop programming environments that
are built within Bitcoin blockchain ledgers that can interact with and
rely on the security of the Bitcoin network and the Bitcoin blockchain,
while remaining independent from them. Open-source projects such as RSK
are a manifestation of this concept and seek to create the first open-
source, smart contract platform built on the Bitcoin blockchain to
enable automated, condition-based payments with increased speed and
scalability. At this time, such projects remain in early stages and
have not been materially integrated into the Bitcoin blockchain or the
Bitcoin network. The Fund's activities will not directly relate to such
projects, though such projects may utilize Bitcoin as tokens for the
facilitation of their non-financial uses, thereby potentially
increasing demand for Bitcoin and the utility of the Bitcoin network as
a whole. Conversely, projects that operate and are built within the
blockchain may increase the data flow on the Bitcoin network and could
either ``bloat'' the size of the Bitcoin blockchain or slow
confirmation times.
The supply of new Bitcoin is mathematically controlled so that the
number of Bitcoin grows at a limited rate pursuant to a pre-set
schedule. The number of Bitcoin awarded for solving a new block is
automatically halved
[[Page 29062]]
after every 210,000 blocks are added to the blockchain. Currently, the
fixed reward for solving a new block is 3.125 Bitcoin per block and
this is expected to decrease by half to become 1.5625 Bitcoin after the
next 210,000 blocks have entered the Bitcoin Network, which is expected
to be mid-2028. This deliberately controlled rate of Bitcoin creation
means that the number of Bitcoin in existence will increase at a
controlled rate until the number of Bitcoin in existence reaches the
pre-determined 21 million Bitcoin. As of March 31, 2025, approximately
19.8 million Bitcoins were outstanding and the date when the 21 million
Bitcoin limitation will be reached is estimated to be the year 2140.
Ether and the Ethereum Network
Ether is a digital asset that is created and transmitted through
the operations of the peer-to-peer ``Ethereum Network,'' a
decentralized network of computers that operates on cryptographic
protocols. No single entity owns or operates the Ethereum Network, the
infrastructure of which is collectively maintained by a decentralized
user base. The Ethereum Network allows people to exchange tokens of
value, called Ether, which are recorded on a public transaction ledger
known as a blockchain. Ether can be used to pay for goods and services,
including computational power on the Ethereum Network, or it can be
converted to fiat currencies, such as the U.S. dollar, at rates
determined on Digital Asset Markets or in individual end-user-to-end-
user transactions under a barter system.
Furthermore, the Ethereum Network also allows users to write and
implement smart contracts--that is, general-purpose code that executes
on every computer in the network and can instruct the transmission of
information and value based on a sophisticated set of logical
conditions. Using smart contracts, users can create markets, store
registries of debts or promises, represent the ownership of property,
move funds in accordance with conditional instructions and create
digital assets other than Ether on the Ethereum Network. Smart contract
operations are executed on the Ethereum blockchain in exchange for
payment of Ether. The Ethereum Network is one of a number of projects
intended to expand blockchain use beyond just a peer-to-peer money
system.
The Ethereum Network went live on July 30, 2015.
Smart Contracts and Development on the Ethereum Network
Smart contracts are programs that run on a blockchain that can
execute automatically when certain conditions are met. Smart contracts
facilitate the exchange of anything representative of value, such as
money, information, property, or voting rights. Using smart contracts,
users can send or receive digital assets, create markets, store
registries of debts or promises, represent ownership of property or a
company, move funds in accordance with conditional instructions and
create new digital assets.
Development on the Ethereum Network involves building more complex
tools on top of smart contracts, such as decentralized apps
(``DApps''); organizations that are autonomous, known as decentralized
autonomous organizations (``DAOs''); and entirely new decentralized
networks. For example, a company that distributes charitable donations
on behalf of users could hold donated funds in smart contracts that are
paid to charities only if the charity satisfies certain pre-defined
conditions.
Moreover, the Ethereum Network has also been used as a platform for
creating new digital assets and conducting their associated initial
coin offerings. As of March 31, 2025, a majority of digital assets were
built on the Ethereum Network, with such assets representing a
significant amount of the total market value of all digital assets.
More recently, the Ethereum Network has been used for decentralized
finance (``DeFi'') or open finance platforms, which seek to democratize
access to financial services, such as borrowing, lending, custody,
trading, derivatives and insurance, by removing third-party
intermediaries. DeFi can allow users to lend and earn interest on their
digital assets, exchange one digital asset for another and create
derivative digital assets such as stablecoins, which are digital assets
pegged to a reserve asset such as fiat currency. Over the course of
2024, between $29 billion and $79 billion worth of digital assets were
locked up as collateral on DeFi platforms on the Ethereum Network.\30\
---------------------------------------------------------------------------
\30\ DeFiLlama, ``Ethereum Total Value Locked,'' <a href="https://defillama.com/chain/Ethereum">https://defillama.com/chain/Ethereum</a>.
---------------------------------------------------------------------------
SOL and the Solana Network
The Solana protocol introduced the Proof-of-History (``PoH'')
consensus mechanism as an alternative to Proof-of-Stake (``PoS'')
blockchains like Ethereum and Proof-of-Work (``PoW'') blockchains like
Bitcoin.\31\ PoH is a consensus mechanism that automatically orders on-
chain transactions by creating a historical record that proves an event
has occurred at a specific moment in time. PoH is intended to provide a
transaction processing speed and capacity advantage over traditional
PoW and PoS networks, which rely on sequential production of blocks and
can lead to delays caused by validator confirmations.
---------------------------------------------------------------------------
\31\ Neither the Fund, nor the Manager, nor the Custodian, nor
any other person associated with the Fund will, directly or
indirectly, engage in action where any portion of the Fund's Fund
Components becomes subject to proof-of-stake validation or is used
to earn additional Fund Components or generate income or other
earnings.
---------------------------------------------------------------------------
The Solana protocol was first conceived by Anatoly Yakovenko in a
2017 whitepaper. Development of the Solana network is overseen by the
Solana Foundation, a Swiss non-profit organization, and Solana Labs,
Inc., a Delaware corporation, which administered the original network
launch and token distribution. Smart contract operations are executed
on the Solana blockchain in exchange for payment of SOL.
XRP and the XRP Network
XRP is a digital asset that was created by Chris Larsen, Jed
McCaleb, Arthur Britto and David Schwartz (the ``XRP Creators'') in
2012. Built out of the frustrations of Bitcoin's utility for payments,
the XRP ledger (the ledger to which XRP is native) is designed to be a
global real-time payment and settlement system. The XRP Creators
developed this unique digital asset to solve the scalability concerns
that they believed were inherent in the structure of Bitcoin. In
particular, XRP was created to improve the efficiency of payments. To
this end, the open source code (available at <a href="https://github.com/ripple/rippled/">https://github.com/ripple/rippled/</a>) was designed to maximize speed, scalability, and stability.
For example, the XRP ledger can accommodate 4,400 transactions per
second. This is, in part, because XRP is not mined like Bitcoin, but is
designed for the ledgers to close in seconds based on a system of
consensus. Further, because of the consensus methodology underlying the
XRP design, network transaction fees are substantially lower than
Bitcoin, typically less than $0.01.
Given the unique qualities of XRP and the natural suitability of
this digital asset to solve the friction experience with payments, the
XRP Creators started a company, calling it Ripple, to further develop
the ecosystem around XRP and
[[Page 29063]]
build software solutions to address the friction in sending,
processing, and sourcing liquidity for global payments. Thus, the
company, Ripple, began as, and continues to be, a payments software
company. Today, Ripple is focused on designing and deploying state-of-
the-art and industry-leading software to enable banks and financial
institutions to more easily effect cross-border payments. For maximum
efficiency, Ripple's software can integrate XRP to solve liquidity and
value transfer challenges.
ADA and the Cardano Network
ADA is a digital asset that is created and transmitted through the
operations of the peer-to-peer Cardano network, a decentralized network
of computers that operates on cryptographic protocols. No single entity
owns or operates the Cardano network, the infrastructure of which is
collectively maintained by a decentralized user base. The Cardano
network allows people to exchange tokens of value, called ADA, which
are recorded on a public transaction ledger known as a blockchain. ADA
can be used to pay for goods and services, including computational
power on the Cardano network, or it 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.
Furthermore, the Cardano network was designed to allow users to
write and implement smart contracts--that is, general-purpose code that
executes on every computer in the network and can instruct the
transmission of information and value based on a sophisticated set of
logical conditions. Using smart contracts, users can create markets,
store registries of debts or promises, represent the ownership of
property, move funds in accordance with conditional instructions and
create digital assets other than ADA on the Cardano network. Smart
contract operations are executed on the Cardano blockchain in exchange
for payment of ADA. Like the Ethereum Network, the Cardano network is
one of a number of projects intended to expand blockchain use beyond
just a peer-to-peer money system.
Cardano was founded by Charles Hoskinson, a co-founder of the
Ethereum Network. Development of the Cardano network is overseen by the
Cardano Foundation, a Swiss non-profit organization that administered
the original network launch and token distribution. The Cardano
Foundation has contracted IOHK, a company founded by Hoskinson, to
continue building and maintaining the Cardano network.
Custody of the Fund Components
Digital assets and digital asset transactions are recorded and
validated on blockchains, the public transaction ledgers of a digital
asset network. Each digital asset blockchain serves as a record of
ownership for all of the units of such digital asset, even in the case
of certain privacy-preserving digital assets, where the transactions
themselves are not publicly viewable. All digital assets recorded on a
blockchain are associated with a public blockchain address, also
referred to as a digital wallet. Digital assets held at a particular
public blockchain address may be accessed and transferred using a
corresponding private key.
Key Generation
Public addresses and their corresponding private keys are generated
by the Custodian in secret key generation ceremonies at secure
locations inside faraday cages, which are enclosures used to block
electromagnetic fields and thus mitigate against attacks. The Custodian
uses quantum random number generators to generate the public and
private key pairs.
Once generated, private keys are encrypted, separated into
``shards,'' and then further encrypted. After the key generation
ceremony, all materials used to generate private keys, including
computers, are destroyed. All key generation ceremonies are performed
offline. No party other than the Custodian has access to the private
key shards of the Fund, including the Fund itself.
Key Storage
Private key shards are distributed geographically in secure vaults
around the world, including in the United States. The locations of the
secure vaults may change regularly and are kept confidential by the
Custodian for security purposes.
The ``Digital Asset Account'' is a segregated custody account
controlled and secured by the Custodian to store private keys, which
allows for the transfer of ownership or control of the Fund's Fund
Components on the Fund's behalf. The Digital Asset Account uses offline
storage, or ``cold storage,'' mechanisms to secure the Fund's private
keys. The term cold storage refers to a safeguarding method by which
the private keys corresponding to digital assets are disconnected and/
or deleted entirely from the internet. Cold storage of private keys may
involve keeping such keys on a non-networked (or ``air-gapped'')
computer or electronic device or storing the private keys on a storage
device (for example, a USB thumb drive) or printed medium (for example,
papyrus, paper, or a metallic object). A digital wallet may receive
deposits of digital assets but may not send digital assets without use
of the digital assets' corresponding private keys. In order to send
digital assets from a digital wallet in which the private keys are kept
in cold storage, either the private keys must be retrieved from cold
storage and entered into an online, or ``hot,'' digital asset software
program to sign the transaction, or the unsigned transaction must be
transferred to the cold server in which the private keys are held for
signature by the private keys and then transferred back to the online
digital asset software program. At that point, the user of the digital
wallet can transfer its digital assets.
Security Procedures
The Custodian is the custodian of the Fund's private keys (which,
as noted above, facilitate the transfer of ownership or control of the
Fund Components) in accordance with the terms and provisions of the
custodian agreement by and between the Custodian, the Manager and the
Fund (the ``Custodian Agreement''). Transfers from the Digital Asset
Account require certain security procedures, including, but not limited
to, multiple encrypted private key shards, usernames, passwords and 2-
step verification. Multiple private key shards held by the Custodian
must be combined to reconstitute the private key to sign any
transaction in order to transfer the Fund's assets. Private key shards
are distributed geographically in secure vaults around the world,
including in the United States.
As a result, if any one secure vault is ever compromised, this
event will have no impact on the ability of the Fund to access its
assets, other than a possible delay in operations, while one or more of
the other secure vaults is used instead. These security procedures are
intended to remove single points of failure in the protection of the
Fund's assets.
Transfers of Fund Components to the Digital Asset Account will be
available to the Fund once processed on the relevant blockchain.
Subject to authorization of the Manager, the process of accessing
and withdrawing Fund Components from the Fund to redeem a Basket by an
[[Page 29064]]
Authorized Participant \32\ will follow the same general procedure as
transferring Fund Components to the Fund to create a Basket by an
Authorized Participant, only in reverse.
---------------------------------------------------------------------------
\32\ ``Authorized Participant'' has the meaning set forth in
``Creation and Redemption of Shares'' below.
---------------------------------------------------------------------------
The Manager will maintain ownership and control of the Fund
Components in a manner consistent with good delivery requirements for
spot commodity transactions.
Fund Component Value
Digital Asset Trading Platform Valuation
According to the Registration Statement, the value of digital
assets is determined by the value that various market participants
place on digital assets through their transactions. The most common
means of determining the value of a digital asset is by surveying one
or more Digital Asset Trading Platforms where the digital asset is
traded publicly and transparently (e.g., Coinbase, Kraken, LMAX
Digital, <a href="http://Crypto.com">Crypto.com</a>, and Bitstamp).\33\
---------------------------------------------------------------------------
\33\ Over-the-counter dealers and market makers may also
transact in digital assets.
---------------------------------------------------------------------------
Digital Asset Trading Platform Public Market Data
On each online Digital Asset Trading Platform, digital assets are
traded with publicly disclosed valuations for each executed trade,
measured by one or more fiat currencies such as the U.S. dollar or
Euro, or by the digital asset Bitcoin. Over-the-counter dealers or
market makers do not typically disclose their trade data.
As of March 31, 2025, the Digital Asset Trading Platforms included
in the Index Prices were Bitfinex, Bitstamp, Bullish, Bybit,
<a href="http://Crypto.com">Crypto.com</a>, Gemini, itBit, Kraken, LMAX Digital, and OKX.\34\ As
further described below, the Manager and the Fund believe each of these
Digital Asset Trading Platforms are in material compliance with
applicable licensing requirements based on the ``Trading Platform
Category'' (as defined below) and jurisdiction, as detailed below, and
maintain practices and policies designed to comply with anti-money
laundering (``AML'') and know-your-customer (``KYC'') regulations.
---------------------------------------------------------------------------
\34\ The Digital Asset Trading Platforms included in the Index
Prices may vary, and not all Digital Asset Trading Platforms are
included in each Index Price.
---------------------------------------------------------------------------
Bitstamp: A U.K.-based trading platform that has U.S. operations
and entities registered as money services businesses (``MSBs'') with
the U.S. Department of the Treasury's Financial Crimes Enforcement
Network (``FinCEN''), holds a BitLicense, and that is licensed as a
money transmitter in various U.S. states.
Bitfinex: A British Virgin Islands based trading platform. Bitfinex
does not hold any licenses or registrations in the U.S. and is not
available to U.S.-based customers. Bitfinex is categorized by the Index
Provider as a ``Category 2'' trading platform that meets the Inclusion
Criteria \35\ but is non-U.S. licensed.
---------------------------------------------------------------------------
\35\ The ``Inclusion Criteria'' are criteria applied by the
Index Provider to determine whether a trading platform is eligible
to become a Constituent Trading Platform, as further discussed in
``Constituent Trading Platform Selection'' below.
---------------------------------------------------------------------------
Bullish: A Gibraltar-based trading platform that has entities
registered as MSBs with FinCEN. Bullish is not available to U.S.-based
customers. Bullish is categorized by the Index Provider as a ``Category
2'' trading platform that meets the Inclusion Criteria outlined below
but is non-U.S. licensed.
Bybit: A United Arab Emirates-based trading platform. Bybit does
not hold any licenses or registrations in the U.S. and is not available
to U.S. based customers. Bybit is categorized by the Index Provider as
a ``Category 2'' trading platform that meets the Inclusion Criteria but
is non-U.S. licensed.
<a href="http://Crypto.com">Crypto.com</a>: A Singapore-based trading platform that has entities
registered as MSBs with FinCEN, and that is licensed as a money
transmitter in various U.S. states and chartered as a non-depository
trust company by the New Hampshire Banking Department. <a href="http://Crypto.com">Crypto.com</a> does
not hold a BitLicense.
Gemini: A U.S.-based trading platform that has entities registered
as MSBs with FinCEN and that is licensed as a money transmitter in
various U.S. states. Gemini is exempt from applying for a BitLicense
under the framework established by the New York Department of Financial
Services (``NYDFS'') because of their trust charter under New York
Banking Law.
itBit: A U.S.-based trading platform that has entities registered
as MSBs with FinCEN and that is licensed as a limited purpose trust
company under the NYDFS through its parent company, Paxos Trust
Company, LLC. itBit does not hold a BitLicense.
Kraken: A U.S.-based trading platform that has entities registered
as MSBs with FinCEN, and that is licensed as a money transmitter in
various U.S. states and chartered as a Special Purpose Depository
Institution by the Wyoming Division of Banking. Kraken does not hold a
BitLicense.
LMAX Digital: A U.K.-based trading platform that has entities
registered as a broker with the U.K. Financial Conduct Authority, and
that is licensed as an MSB with FinCEN and regulated by the Gibraltar
Financial Services Commission.
OKX: A Seychelles-based trading platform. OKX does not hold any
licenses or registrations in the U.S. and is not available to U.S.-
based customers. OKX is categorized by the Index Provider as a
``Category 2'' trading platform that meets the Inclusion Criteria but
is non-U.S. licensed.
Currently, there are several Digital Asset Trading Platforms
operating worldwide, and online Digital Asset Trading Platforms
represent a substantial percentage of buying and selling activity and
provide the most data with respect to prevailing valuations of the Fund
Components. These trading platforms include established trading
platforms such as trading platforms included in the Index Prices, which
provide a number of options for buying and selling the Fund Components.
The below tables reflect the trading volume in each Fund Component and
market share \36\ of the
[[Page 29065]]
Fund Component-U.S. dollar and Fund Component-USD Coin (``USDC'')
trading pairs of each of the Digital Asset Trading Platforms included
in the Index Prices as of March 31, 2025 (collectively, ``Constituent
Trading Platforms''), using data reported by the Index Provider from
January 1, 2024 to March 31, 2025:
---------------------------------------------------------------------------
\36\ Bitcoin market share is calculated using trading volume (in
Bitcoin) for certain Digital Asset Trading Platforms, including
Bitfinex, Bitstamp, Bullish, Bybit, <a href="http://Crypto.com">Crypto.com</a>, Gemini, itBit,
Kraken, LMAX Digital and OKX, as well as certain other large U.S.-
dollar and USDC denominated Digital Asset Trading Platforms that
were not included in the Index Price as of March 31, 2025, including
Binance, Binance.US, Bitflyer Coinbase, CEX.IO, Huobi, Kucoin,
Lbank, MEXC and Derebit. Ether market share is calculated using
trading volume (in Ether) for certain Digital Asset Trading
Platforms, including Bitfinex, Bitstamp, Bullish, Bybit, <a href="http://Crypto.com">Crypto.com</a>,
Gemini, itBit, Kraken, LMAX Digital and OKX, as well as certain
other large U.S.-dollar and USDC denominated Digital Asset Trading
Platforms that were not included in the Index Price as of March 31,
2025, including Binance, Binance.US, Bitflyer, CEX.IO, Coinbase,
Derebit, Gemini, HitBTC, Huobi, itBit, KuCoin, Lbank, LMAX Digital,
MEXC, and OKCoin. SOL market share is calculated using trading
volume (in SOL) for certain Digital Asset Trading Platforms,
including Bitfinex, Bitstamp, Bullish, Bybit, <a href="http://Crypto.com">Crypto.com</a>, Gemini,
itBit, Kraken, LMAX Digital, and OKX, as well as certain other large
U.S. dollar and USDC denominated Digital Asset Trading Platforms
that were not included in the Index Price as of March 31, 2025,
including Binance, Binance.US, CEX.IO, Coinbase, Derebit, Gate.IO,
KuCoin, Lbank, and MEXC. ADA market share is calculated using
trading volume (in ADA) for certain Digital Asset Trading Platforms,
including Bitfinex, Bitstamp, Bybit, <a href="http://Crypto.com">Crypto.com</a>, Kraken, and OKX, as
well as certain other large U.S. dollar and USDC denominated Digital
Asset Trading Platforms that were not included in the Index Price as
of March 31, 2025, including Binance, Binance.US, Coinbase, Gate.IO,
HitBTC, KuCoin, and MEXC. XRP market share is calculated using
trading volume (in XRP) for certain Digital Asset Trading Platforms,
including Bitfinex, Bitstamp, Bullish, Bybit, <a href="http://Crypto.com">Crypto.com</a>, Gemini,
Kraken, LMAX Digital, and OKX, as well as certain other large U.S.
dollar and USDC denominated Digital Asset Trading Platforms that
were not included in the Index Price as of March 31, 2025, including
Bibox, Binance, Binance.US, Coinbase, Deribit, Gate.IO, KuCoin,
Lbank, and MEXC.
------------------------------------------------------------------------
Bitcoin trading platforms included
in the Index Price as of March 31, Volume (Bitcoin) Market share (%)
2025
------------------------------------------------------------------------
<a href="http://Crypto.com">Crypto.com</a>........................ 5,649,095 35.01
Kraken............................ 1,054,839 6.54
Bitstamp.......................... 962,978 5.97
LMAX Digital...................... 909,192 5.64
Bitfinex.......................... 624.078 3.87
Bullish........................... 561,913 3.48
Gemini............................ 357,780 2.22
itBit............................. 75,869 0.47
OKX............................... 14,817 0.09
-------------------------------------
Total Bitcoin-U.S. Dollar 10,210,559 63.28
trading pair.................
------------------------------------------------------------------------
Bullish........................... 3,802,861 39.47
Bybit............................. 2,831,696 29.39
OKX............................... 624,904 6.49
Kraken............................ 48,807 0.51
Bitstamp.......................... 6,184 0.06
-------------------------------------
Total Bitcoin-USDC trading 7,314,452 75.91
pair.........................
------------------------------------------------------------------------
------------------------------------------------------------------------
Ether trading platforms included
in the Index Price as of March 31, Volume (Ether) Market share (%)
2025
------------------------------------------------------------------------
<a href="http://Crypto.com">Crypto.com</a>........................ 147,382,677 62.57
LMAX Digital...................... 8,517,589 3.62
Kraken............................ 7,881,802 3.35
Bullish........................... 7,763,216 3.30
Bitstamp.......................... 3,606,634 1.53
Bitfinex.......................... 3,529,425 1.50
Gemini............................ 2,839,061 1.21
itBit............................. 755,172 0.32
OKX............................... 597,631 0.25
-------------------------------------
Total Ether-U.S. Dollar 182,873,207 77.63
trading pair.................
------------------------------------------------------------------------
Bybit............................. 49,754,266 21.12
Bullish........................... 43,462,680 18.45
OKX............................... 8,970,449 3.81
Kraken............................ 381,191 0.16
Bitstamp.......................... 32,379 0.01
-------------------------------------
Total Ether-USDC trading pair. 102,600,965 43.56
------------------------------------------------------------------------
------------------------------------------------------------------------
SOL trading platforms included in
the Index Price as of March 31, Volume (SOL) Market share (%)
2025
------------------------------------------------------------------------
Kraken............................ 180,697,333 21.26
<a href="http://Crypto.com">Crypto.com</a>........................ 63,266,934 7.44
LMAX Digital...................... 30,571,876 3.60
Bitstamp.......................... 19,768,722 2.33
Gemini............................ 13,116,265 1.54
Bitfinex.......................... 12,411,935 1.46
Bullish........................... 3,443,144 0.41
itBit............................. 2,056,975 0.24
OKX............................... 1,553,079 0.18
-------------------------------------
Total SOL-U.S. Dollar trading 326,886,263 38.46
pair.........................
------------------------------------------------------------------------
Bybit............................. 66,734,820 23.48
OKX............................... 25,311,560 8.90
Bullish........................... 23,783,549 8.37
Kraken............................ 1,803,180 0.63
-------------------------------------
Total SOL-USDC trading pair... 117,633,109 41.38
------------------------------------------------------------------------
[[Page 29066]]
------------------------------------------------------------------------
Trading Platforms included in the
Index Price as of March 31, 2025 Volume (ADA) Market share (%)
------------------------------------------------------------------------
Kraken............................ 5,074,914,798 17.24
<a href="http://Crypto.com">Crypto.com</a>........................ 2,606,371,671 8.86
Bitfinex.......................... 856,345,067 2.91
Bitstamp.......................... 599,531,930 2.04
-------------------------------------
Total ADA-U.S. Dollar trading 9,137,163,466 31.05
pair.........................
------------------------------------------------------------------------
Bybit............................. 1,141,907,555 10.14
OKX............................... 488,344,223 4.34
Kraken............................ 113,409,303 1.01
-------------------------------------
Total ADA-USDC trading pair... 1,743,661,080 15.49
------------------------------------------------------------------------
------------------------------------------------------------------------
XRP Trading Platforms included in
the Index Price as of March 31, Volume (XRP) Market share (%)
2025
------------------------------------------------------------------------
<a href="http://Crypto.com">Crypto.com</a>........................ 12,847,158,745 13.76
Kraken............................ 11,222,742,450 12.02
Bitstamp.......................... 6,621,938,727 7.09
LMAX Digital...................... 5,340,528,253 5.72
Bitfinex.......................... 1,684,516,016 1.80
Gemini............................ 868,329,195 0.93
OKX............................... 84,362,827 0.09
-------------------------------------
Total XRP-U.S. Dollar trading 38,669,576,213 41.41
pair.........................
------------------------------------------------------------------------
Bullish........................... 21,913,561,282 54.49
Bybit............................. 5,147,733,555 12.80
OKX............................... 2,157,197,958 5.36
Kraken............................ 81,385,761 0.20
-------------------------------------
Total XRP-USDC trading pair... 29,299,878,556 72.86
------------------------------------------------------------------------
The domiciles of, as well as the regulations and laws applicable
to, the Digital Asset Trading Platforms included in the Index Prices
vary. Information regarding each Digital Asset Trading Platform may be
found, where available, on the websites for such Digital Asset Trading
Platforms, among other places.
The Index and Index Prices
The digital assets that make up the CD5 (the ``Index Components'')
are drawn from the universe of investable digital assets meeting the
following criteria (the ``Index Universe''): (i) the digital asset must
be ranked in the top 250 by market capitalization, excluding
stablecoins; (ii) the digital asset must be able to support an
applicable index price by nature of its inclusion on a sufficient
amount of digital asset trading platforms and volume metrics; (iii) the
digital asset must not be a ``wrapped token,'' ``pegged token,'' or
``liquid-staked asset,'' a ``gas-only token,'' a ``memecoin,'' a
``privacy-focused'' token, each as defined by the Index Provider, or an
asset that meets the definition of a security as determined by the
Index Provider; and (iv) the digital asset must be listed as a USD and/
or USDC pair on a minimum of three trading platforms that contribute to
the applicable Index Price and such trading platform must meet the
following requirements: (a) at least one listing has existed for the
previous 90 days; (b) at least one digital trading platform is a
Category 1 Trading Platform (as defined below); and (c) there has been
30 consecutive days of non-zero volume on all three trading platforms
described above.
The Index Provider applies market capitalization, liquidity and
data availability criteria to the digital assets in the Index Universe
in order to arrive at five digital assets that, in the Index Provider's
judgment, represent a diversified benchmark for the largest and most
liquid digital assets in the digital asset market (the ``Large Cap
Sector''), rather than exposure to all digital assets in the Index
Universe. The respective weightings of the Index Components within the
CD5 are determined by the Index Provider based on market capitalization
criteria and are referred to as the ``Index Weightings.'' The process
followed by the Index Provider to determine the Index Universe, the
Index Components and their respective Index Weightings is referred to
as the ``CD5 Methodology.''
The Fund will seek to (i) provide large cap coverage of the digital
asset market; (ii) minimize transaction costs through low turnover of
the Fund's portfolio; and (iii) create a portfolio that could be
replicated through direct purchases in the Digital Asset Market.
Because Index Components target the Large Cap Sector and are included
in the CD5 in accordance with market capitalization and liquidity
criteria, as of March 31, 2025, the CD5 covered approximately 86% of
the market capitalization of the entire digital asset market, excluding
stablecoins and meme coins, based on data provided by the Index
Provider calculated using data from <a href="http://CoinMarketCap.com">CoinMarketCap.com</a>. Additionally, as
of March 31, 2025, the CD5 covered approximately 84% of the market
capitalization of the Index Universe.
The Fund Components will consist of the Index Components except
that the Manager may determine to exclude a particular Index Component
and/or rebalance the weighting of the Fund Components, in its
discretion under certain rules-based circumstances. The weightings of
each Fund Component (the ``Weightings'') are generally expected to be
the same as the Index Weightings except when the Manager determines to
exclude one or more digital assets from the Fund Components and/or
rebalance the weighting of the Fund Components, in which case the
Weightings are generally
[[Page 29067]]
expected to be calculated proportionally to the respective Index
Weightings for the remaining Index Components. The Fund uses the CD5
Methodology, described further below, to construct its portfolio.
The Manager represents that it will ensure, on an initial and
continuing basis, that, as of 4:00 p.m. E.T. on every trading day, at
least 85% of the Fund Components consist of commodities that are the
primary investment underlying ETPs previously approved by the
Commission to list and trade on a national securities exchange
(``Approved Components'') and that no more than 15% of the Fund
Components will be non-Approved Components.\37\ Specifically:
---------------------------------------------------------------------------
\37\ The Exchange notes that this requirement is similar to
Commentary .01(d)(1) to Rule 8.600-E regarding Managed Fund Shares,
which permits portfolio holdings of series of Managed Fund Shares to
be in listed derivatives provided that, in the aggregate, at least
90% of the weight of such holdings invested in futures, exchange-
traded options, and listed swaps consist of, on both an initial and
continued basis, futures, options, and swaps for which the Exchange
may obtain information via the Intermarket Surveillance Group
(``ISG'') from other members or affiliates of the ISG or for which
the principal market is a market with which the Exchange has a
comprehensive surveillance sharing agreement (``CSSA''). Here, the
Exchange proposes that 85% of the Fund's holdings consist of
Approved Components. As of the date of this filing, the Commission
has approved exchange-traded products based on spot Bitcoin and
Ether in view of listing exchanges' ability to obtain information
via CSSA from the CME, a U.S. regulated market whose Bitcoin and
Ether futures markets consistently have been highly correlated to
spot Bitcoin and spot Ether, respectively, to assist in surveilling
for fraudulent and manipulative acts and practices. See Bitcoin ETP
Approval Order, note 43, infra; Ether ETP Approval Order, note 45,
infra. The Exchange represents that its procedures are reasonably
designed to surveil for fraudulent and manipulative acts and
practices with respect to trading of the Fund's Shares on the
Exchange. In addition, the Exchange believes that the allocation
structure proposed by the Manager mitigates certain risks with
respect to trading of the Fund's Shares because the Fund will be
rebalanced if necessary, on a daily basis, to ensure that a majority
of the Fund Components are Approved Components for which the
Commission has found that there are sufficient means of preventing
fraud and manipulation. The Manager notes that, as of the date of
this filing, the Fund Components that meet this standard are Bitcoin
and Ether, which currently make up approximately 80% and 11% of the
Index, respectively.
---------------------------------------------------------------------------
<bullet> To the extent the Fund's composition is or is anticipated
to be less than 85% Approved Components as of 4:00 p.m. E.T. on a given
trading day,\38\ the Manager will promptly notify the Exchange.
---------------------------------------------------------------------------
\38\ The Manager represents that it does not intend for the Fund
Components to consist of less than 85% Approved Components intra-day
or expect that the Fund Components will deviate from at least 85%
Approved Components and will monitor the allocation of the Fund
Components.
---------------------------------------------------------------------------
<bullet> In addition, as soon as practicable and in any event by no
later than the beginning of the NYSE Arca Core Trading Session on the
following trading day, the Manager will rebalance the Fund's portfolio
according to the methodology described in the Fund's prospectus (the
``Prospectus'') such that at least 85% of the Weightings will consist
of Approved Components.
<bullet> Moreover, if it is anticipated that, as of 4:00 p.m. E.T.
on a given trading day, the Fund's portfolio will not consist of at
least 85% Approved Components by the start of the next NYSE Arca Core
Trading Session, the Manager will notify the Exchange as soon as
practicable (and, in any event, no later than 9:15 a.m. E.T.), and the
Exchange will halt trading in the Fund Shares until at least 85% of the
Weightings consist of Approved Components.
Eligibility and Weighting
Under the CD5 Methodology and subject to the below, a digital asset
included in the Index Universe will generally be eligible for inclusion
in the CD5 as an Index Component, and thus the Fund's portfolio as a
Fund Component, if it satisfies market capitalization, liquidity and
data availability metrics determined by the Index Provider. Digital
assets will be included in the CD5 on a market capitalization-weighted
basis. For example, a digital asset with a larger market capitalization
will have a higher representation in the CD5, and thus the Fund's
portfolio (unless the Manager excludes the digital asset from the Fund
and/or rebalances the weighting of the Fund Components). Market
capitalization refers to a digital asset's market value, as determined
by multiplying the number of tokens of such digital asset in
circulation by the market price of a token of such digital asset. The
market price per token of a Fund Component will be determined by
reference to the applicable Index Price. The market capitalization of
any digital assets not in the CD5, and therefore not held by the Fund,
will be determined based on data that the Index Provider obtains
directly from trading platforms and other service providers. Because
the Fund creates Shares in exchange for Fund Components on a daily
basis, the market capitalization of each Fund Component is calculated,
and its Weighting therefore fluctuates, daily in accordance with
changes in the market price of such Fund Components.
The CD5, and therefore the Fund, is rebalanced on a quarterly basis
according to the CD5 Methodology during a period beginning 14 days
before the last business day of each January, April, July, and October
(each such period, an ``Index Rebalancing Period'').
Inclusion of New Fund Components
In order for a new digital asset to qualify for inclusion in the
CD5, and thus the Fund's portfolio during a Fund Rebalancing
Period,\39\ it must be included in the Index Universe and included in
the CoinDesk 20 Index (the ``Selection Universe'').
---------------------------------------------------------------------------
\39\ A ``Fund Rebalancing Period'' is a period during which the
Manager reviews for rebalancing the Fund's portfolio in accordance
with the policies and procedures set forth in the Prospectus.
---------------------------------------------------------------------------
Inclusion in the Selection Universe
The digital assets that make up the Selection Universe are selected
according to the following rules:
(1) All digital assets in the Index Universe are ranked by 90-day
median daily value traded. Daily volume data is sourced from USD and
USDC trading pairs aggregated across centralized Digital Asset Trading
Platforms that contribute to the applicable Index Price;
(2) Following the ranking described in Step 1, the 50 highest
ranked current constituents of the Index Universe and 40 highest ranked
non-constituents of the Index Universe are eligible to qualify for the
Selection Universe. The remainder of the assets are removed;
(3) Following removal of ineligible digital assets described in
Step 2, all digital assets that are not supported by Coinbase Custody
Trust Company are removed;
(4) Following the removals described in Step 3, the digital assets
are ranked by market capitalization;
(5) Following the ranking described in Step 4, the top 15 ranked
digital assets are selected for inclusion in the Selection Universe;
(6) From the remaining digital assets not selected in Step 5, any
current constituents included within the top 25 ranking described in
Step 4 are selected in order, until 20 digital assets are selected for
inclusion in the Selection Universe;
(7) If Step 6 results in fewer than 20 constituents included in the
Selection Universe, the highest-ranked non-constituents from the
remaining digital assets are selected until 20 constituents are
selected.
Inclusion in the CD5
In order for a digital asset in the Selection Universe to be
included in the CD5 and therefore the Fund's portfolio during a Fund
Rebalancing Period, such digital asset must satisfy the following
rules: (i) the top four assets by market capitalization in the
Selection Universe will automatically be selected for
[[Page 29068]]
inclusion; (ii) the fifth digital asset selected for inclusion will be
a current CD5 constituent unless such digital asset falls below the top
six digital asset by market capitalization in the Selection Universe;
(iii) if no such current constituent is eligible pursuant to (ii), the
digital asset with the largest market capitalization from the remaining
Selection Universe will be selected for inclusion. Under ordinary
circumstances, the CD5 is intended to have five digital asset
constituents.
Outside of the quarterly Index Rebalancing Period, the Index
Provider may remove a digital asset as an Index Component from the CD5
under extraordinary circumstances. For example, if an Index Component
is determined to be a ``security'' under the federal securities laws by
the Commission, a federal court or other U.S. government agency, it may
be removed from the CD5 at a date determined and announced by the Index
Provider. In the event the Index Provider removes an Index Component
outside of the quarterly rebalancing period, the Manager expects the
Fund would rebalance and the relevant digital asset would be removed as
a Fund Component as soon as practical.
Index Components Compared to Fund Components
The Fund Components consist of the Index Components except when the
Manager determines to exclude a particular Index Component in view of
one or more of the following criteria (the ``Exclusion Criteria''), as
determined in the sole discretion of the Manager:
<bullet> none or few of the Authorized Participants or service
providers has the ability to trade or otherwise support the digital
asset;
<bullet> the Manager believes, based on current guidance, that use
or trading of the digital asset raises or potentially raises
significant governmental, policy or regulatory concerns or is subject
or likely subject to a specialized regulatory regime, such as the U.S.
federal securities or commodities laws or similar laws in other
significant jurisdictions; \40\
---------------------------------------------------------------------------
\40\ The Manager will determine whether a particular digital
asset that is included or eligible for inclusion in the Fund is a
security for purposes of the federal securities laws by considering
a number of factors, including the various definitions of
``security'' under the federal securities laws and federal court
decisions interpreting elements of these definitions, such as the
U.S. Supreme Court's decisions in the Howey and Reves cases, as well
as reports, orders, press releases, public statements and speeches
by the Commission and its staff providing guidance on when a digital
asset may be a security for purposes of the federal securities laws.
The Manager does not intend to permit the Fund to hold any digital
asset that the Manager determines is a security under the federal
securities laws, whether that determination is initially made by the
Manager itself, or because a federal court upholds an allegation
that a digital asset is a security.
---------------------------------------------------------------------------
<bullet> the digital asset's underlying code contains, or may
contain, significant flaws or vulnerabilities; or
<bullet> there is limited or no reliable information regarding, or
concerns over the intentions of, the core developers of the digital
asset.
The Weightings are generally expected to be the same as the Index
Weightings except when one or more digital assets have been excluded
from the Fund Components based on the Exclusion Criteria, in which case
the Weightings are generally expected to be calculated proportionally
to the respective Index Weightings for the remaining Index Components.
The Manager may exclude a digital asset or rebalance the Weighting
of an existing Fund Component to the extent its inclusion as a Fund
Component or projected Weighting would exceed a threshold that could,
in the Manager's sole discretion, require the Fund to register as an
investment company under the Investment Company Act, require the
Manager to register as an investment adviser under the Investment
Advisers Act, or conflict with any continued listing requirement
(including that the Fund Components consist of 85% Approved Components
as noted above).
The Manager will retain discretion to include or exclude individual
digital assets from the Fund Components, or to rebalance Fund
Components, only in certain rules-based circumstances, as described
above. Accordingly, the Manager believes that the Fund will be in
compliance with Rule 10A-3 \41\ under the Act, as provided by NYSE Arca
Rule 5.3-E.
---------------------------------------------------------------------------
\41\ With respect to the application of Rule 10A-3 (17 CFR
240.10A-3) under the Act, the Fund relies on the exemption contained
in Rule 10A-3(c)(7).
---------------------------------------------------------------------------
Constituent Trading Platform Selection
According to the Prospectus, the Constituent Trading Platforms that
are included in each Fund Component's Index Price are selected by the
Index Provider utilizing a methodology that is guided by the IOSCO
principles for financial benchmarks. For a trading platform to become a
Constituent Trading Platform, it must satisfy the Inclusion Criteria
below:
<bullet> No evidence in the past 12 months of trading restrictions
on individuals or entities that would otherwise meet the trading
platform's eligibility requirements to trade;
<bullet> No evidence in the past 12 months of undisclosed
restrictions on deposits or withdrawals from user accounts;
<bullet> Real-time price discovery;
<bullet> Limited or no capital controls; \42\
---------------------------------------------------------------------------
\42\ ``Capital controls'' in this context means governmental
sanctions that would limit the movement of capital into, or out of,
the jurisdiction in which such Digital Asset Trading Platforms
operate.
---------------------------------------------------------------------------
<bullet> Transparent ownership including a publicly-known ownership
entity;
<bullet> Publicly available language and policies addressing legal
and regulatory compliance, including KYC, AML and other policies
designed to comply with relevant regulations that might apply to it;
<bullet> Offer programmatic spot trading of the trading pair \43\
and reliably publish trade prices and volumes on a real-time basis
through Rest and Websocket APIs;
---------------------------------------------------------------------------
\43\ Trading platforms with programmatic trading offer traders
an application programming interface that permits trading by sending
programmed commands to the trading platform.
---------------------------------------------------------------------------
<bullet> Is a centralized spot trading platform ranked BB or higher
in the Index Provider's latest published Trading Platform Benchmark
report; and
<bullet> Is not classified as an Excluded Trading Platform \44\ as
defined in the Index Provider's Digital Asset Indices Policy
Methodology.
---------------------------------------------------------------------------
\44\ Certain Index Provider products support derivatives and
other exchange-listed financial products that may require additional
cooperation and support from contributing trading platforms. The
Index Provider may designate one or more exchanges as an ``Excluded
Trading Platform'' as it deems necessary or prudent to ensure
adequate support. Excluded Trading Platforms will be ineligible to
contribute to relevant Digital Asset Price Indices and Index Prices
as specified in their respective methodologies.
---------------------------------------------------------------------------
All trading platforms that meet these Inclusion Criteria will be
assigned to a ``Trading Platform Category'' as defined by the
additional criteria below, and at least one Category 1 Trading Platform
must be included in each Index Price.
<bullet> A ``Category 1 Trading Platform'' is a trading platform:
[cir] Licensed and/or able to serve investors, retail or
professional, in the U.S.; and
[cir] That maintains sufficient USD or USDC liquidity relative to
the size of the listed assets.
<bullet> A ``Category 2 Trading Platform'' is a trading platform:
[cir] Licensed (including in-principal licensure) and/or able to
serve investors, retail or professional, in one or more of the
following jurisdictions:
[ssquf] United Kingdom
[ssquf] European Union \45\
---------------------------------------------------------------------------
\45\ In the event a trading platform is only licensed or able to
serve investors in select European Union countries and none of the
other listed jurisdictions, the Index Provider reserves the right to
evaluate its eligibility on a case-by-case basis.
---------------------------------------------------------------------------
[[Page 29069]]
[ssquf] Hong Kong
[ssquf] Singapore; and
[cir] That maintains sufficient USD or USDC liquidity relative to
the size of the listed assets.
A Digital Asset Trading Platform is removed as a Constituent
Trading Platform when it no longer satisfies the Inclusion Criteria.
The Index Provider does not currently include data from over-the-
counter markets or derivatives platforms among the Constituent Trading
Platforms. According to the Prospectus, over-the-counter data is not
currently included because of the potential for trades to include a
significant premium or discount paid for larger liquidity, which
creates an uneven comparison relative to more active markets. There is
also a higher potential for over-the-counter transactions to not be
arms-length, and thus not be representative of a true market price.
The Index Provider and the Manager have entered into the Index
License Agreement, governing the Manager's use of the Index Prices.\46\
Pursuant to the terms of the Index License Agreement, the Index
Provider may adjust the calculation methodology for an Index Price
without notice to, or consent of, the Fund or its shareholders. The
Index Provider may decide to change the calculation methodology to
maintain the integrity of the Index Price calculation should it
identify or become aware of previously unknown variables or issues with
the existing methodology that it believes could materially impact its
performance and/or reliability. The Index Provider has sole discretion
over the determination of Index Prices and may change the methodologies
for determining the Index Prices from time to time. Shareholders will
be notified of any material changes to the calculation methodology or
the Index Prices in the Fund's current reports and will be notified of
all other changes that the Manager considers significant in the Fund's
periodic or current reports. The Manager will determine the materiality
of any changes to the Index Prices on a case-by-case basis, in
consultation with external counsel.
---------------------------------------------------------------------------
\46\ Upon entering into the Index License Agreement, the Manager
and the Index Provider terminated the license agreement between the
parties dated as of February 28, 2019.
---------------------------------------------------------------------------
The Index Provider may change the trading venues that are used to
calculate the Index Prices or otherwise change the way in which an
Index Price is calculated at any time. For example, the Index Provider
has scheduled quarterly reviews in which it may add or remove
Constituent Trading Platforms that satisfy or fail the Inclusion
Criteria. The Index Provider does not have any obligation to consider
the interests of the Manager, the Fund, the shareholders, or anyone
else in connection with such changes. While the Index Provider is not
required to publicize or explain the changes or to alert the Manager to
such changes, it has historically notified the Fund (and other
subscribers to the Index) of any material changes to the Constituent
Trading Platforms, including any additions or removals, contemporaneous
with its issuance of press releases in connection with the same. The
Manager will notify investors of any such material event by filing a
current report on Form 8-K. Although the Index Price methodology is
designed to operate without any manual intervention, rare events would
justify manual intervention. Intervention of this kind would be in
response to non-market-related events, such as the halting of deposits
or withdrawals of funds on a Digital Asset Trading Platform, the
unannounced closure of operations on a Digital Asset Trading Platform,
insolvency or the compromise of user funds. In the event that such an
intervention is necessary, the Index Provider would issue a public
announcement through its website, API or other established
communication channels with its clients.
Determination of the Index Prices
The Index Price, as reflected by the CoinDesk CCIXber Reference
Rate, for each Fund Component is calculated through the application of
an algorithm to the price of each Fund Component on the Constituent
Trading Platforms calculated every 5 seconds over a 24-hour period. The
Index Price's algorithm is expected to reflect a five-pronged
methodology to calculate the Index Price from the Constituent Trading
Platforms for each Fund Component:
<bullet> Volume Weighting: Constituent Trading Platforms with
greater liquidity receive a higher weighting in each Index Price,
increasing the ability to execute against (i.e., replicate) the Index
Price in the underlying spot markets. The Index Price methodology is a
volume-weighted real-time price where each Constituent Trading Platform
is weighted based on its trailing 24-hour volume.
<bullet> FX Conversion: Each Index Price algorithm utilizes a
volume-weighted real-time FX conversion rate for any trading activity
for the relevant Stablecoin-USD pair. This normalizes all trading
activity to USD denomination.
<bullet> Outlier Detection Factor: Each Index Price algorithm
excludes trade data and price(s) deemed to be an outlier relative to
the most recently calculated Index Price.
<bullet> Inactivity Adjustment: Each Index Price algorithm
penalizes stale activity from any given Constituent Trading Platform.
When a Constituent Trading Platform does not have recent trading data,
the outdated prices and their contribution to the Index Price
calculation are gradually reduced until they are de-weighted to 0.1%.
Similarly, once trading activity at a Constituent Trading Platform
resumes, the corresponding weighting for that Constituent Trading
Platform will no longer be penalized.
<bullet> Manipulation Resistance: In an effort to determine and
prioritize the most significant Constituent Trading Platforms (i.e.,
those that are likely to have the most impact on price discovery) for a
given asset, the Index Provider conducts a Constituent Trading Platform
selection and review process, which seeks to identify the highest-
ranking Constituent Trading Platforms based on both qualitative and
quantitative factors. The qualitative review includes legal and
regulation, data provision, security, trade monitoring, market quality,
and negative events policy, among others. The quantitative review
includes review of trading activity for the asset on the given
Constituent Trading Platform.
In addition, the Index Provider re-evaluates the weighting
algorithm on a periodic basis, but maintains discretion to change the
way in which an Index Price is calculated based on its periodic review
or in extreme circumstances. Nonetheless, the Manager believes that
each Index Price is designed to limit exposure to trading or price
distortion of any individual Digital Asset Trading Platform that
experiences periods of unusual activity or limited liquidity, and
thereby mitigate the effects of potential manipulation by discounting,
in real-time, anomalous price movements at individual Digital Asset
Trading Platforms.
The Manager believes the Index Provider's selection process for
Constituent Trading Platforms as well as the methodology of the Index
Price's algorithm provides a more accurate picture of Fund Component
price movements than a simple average of Digital Asset Trading Platform
spot prices, and that the weighting of Fund Component prices on the
Constituent Trading Platforms limits the inclusion of data that is
influenced by temporary price dislocations that may result from
technical problems, limited liquidity or
[[Page 29070]]
fraudulent activity elsewhere in the Fund Component spot market. By
referencing multiple trading venues and weighting them based on trade
activity, the Manager believes that the impact of any potential fraud,
manipulation or anomalous trading activity occurring on any single
venue is reduced.
If an Index Price becomes unavailable, or if the Manager determines
in good faith that such Index Price does not reflect an accurate price
for a Fund Component, then the Manager will, on a best efforts basis,
contact the Index Provider to obtain such Index Price directly from the
Index Provider. If after such contact such Index Price remains
unavailable or the Manager continues to believe in good faith that such
Index Price does not reflect an accurate price for the Fund Component,
then the Manager will employ a cascading set of rules to determine the
Index Price, as described below in ``Determination of the Index Price
When the Index Price is Unavailable.''
The Manager values the Fund Components for operational purposes by
reference to the Index Prices. The Index Prices are used to calculate
the value of each Fund Component as of 4:00 p.m., New York time, on
each business day.
Illustrative Example
For the purposes of illustration, outlined below are examples of
how the attributes that impact weighting and adjustments in the
aforementioned methodology may be utilized to generate an Index Price
for a digital asset. For example, Constituent Trading Platforms used to
calculate the Index Price of the digital asset may include trading
platforms such as Bitstamp, Kraken, LMAX Digital, and <a href="http://Crypto.com">Crypto.com</a>.
The Index Price algorithm, as described above, is designed to
account for manipulation at the outset by only including data from
executed trades on Constituent Trading Platforms. Then, the below-
listed elements may impact the weighting of the Constituent Trading
Platforms on the Index Price as follows:
<bullet> Volume Weighting: Each Constituent Trading Platform will
be weighted to appropriately reflect the trading volume share of the
Constituent Trading Platform relative to all the Constituent Trading
Platforms during this same period. For example, an average hourly
weighting of 67.06%, 14.57%, 11.88%, and 6.49% for Bitstamp, Kraken,
LMAX Digital, and <a href="http://Crypto.com">Crypto.com</a>, respectively, would represent each
Constituent Trading Platform's share of trading volume during the same
period.
<bullet> Inactivity Adjustment: Assume that a Constituent Trading
Platform represented a 14% weighting on the Index Price of the digital
asset, which is based on the per-second calculations of its trading
volume and price-variance relative to the cohort of Constituent Trading
Platforms included in such Index Price, and then went offline for
approximately two hours. The Index Price algorithm would automatically
recognize inactivity and start de-weighting the Constituent Trading
Platform at the 5-minute mark and continue to do so with each
additional 5-minute period of inactivity until its influence was
effectively zero, 25 minutes after becoming inactive. As soon as
trading activity resumed at the Constituent Trading Platform, the Index
Price algorithm would re-weight it to the appropriate weighting based
on trading volume and price-variance relative to the cohort of
Constituent Trading Platforms included in the Index Price.
<bullet> Price Outlier Detection: New traded prices from
Constituent Trading Platforms are compared to the latest calculated
Index Price. If a new traded price deviates by +/- 5% from the latest
calculated Index Price, it will be considered an outlier and will not
be used in the calculation of the Index Price until such time as a
majority of the Constituent Trading Platforms are similarly considered
outlier prices. In that case, the new prices will be used to calculate
the Index Price. For example, if the Index Price is $10 and there is a
new trade price of $11 from Constituent Trading Platform X, the price
of $11 will be considered an outlier and will not be used. However, if
the most recent prices on a majority of the Constituent Trading
Platforms are aligned with the price of $11, then these prices will no
longer be considered outliers and will be used to calculate the new
Index Price.
Determination of the Index Price When the Index Price is Unavailable
The Manager uses the following cascading set of rules to calculate
the Index Price for a Fund Component when the Index Price for such Fund
Component is unavailable. For the avoidance of doubt, the Manager will
employ the below rules sequentially and in the order as presented
below, should one or more specific rule(s) fail:
1. Index Price = The price set by the relevant Index Price as of
4:00 p.m., New York time, on the valuation date.\47\ If the relevant
Index Price becomes unavailable, or if the Manager determines in good
faith that such Index Price does not reflect an accurate digital asset
price, then the Manager will, on a best efforts basis, contact the
Index Provider to obtain the Index Price directly from the Index
Provider. If after such contact such Index Price remains unavailable or
the Manager continues to believe in good faith that such Index Price
does not reflect an accurate price for the relevant digital asset, then
the Manager will employ the next rule to determine the Index Price.
There are no predefined criteria to make a good faith assessment and it
will be made by the Manager in its sole discretion.
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\47\ The valuation date is any day for which the value of the
Fund Components in the Fund may be calculated utilizing the Index
Prices.
---------------------------------------------------------------------------
2. Index Price = The price set by Coin Metrics Real-Time Rate (the
``Secondary Index'') as of 4:00 p.m., New York time, on the valuation
date (the ``Secondary Index Price''). The Secondary Index Price is a
real-time reference rate price, calculated using trade data from
constituent markets selected by Coin Metrics, Inc. (the ``Secondary
Index Provider''). The Secondary Index Price is calculated by applying
weighted-median techniques to such trade data where half the weight is
derived from the trading volume on each constituent market and half is
derived from inverse price variance, where a constituent market with
high price variance as a result of outliers or market anomalies
compared to other constituent markets is assigned a smaller weight. The
Secondary Index Provider and the Manager have entered into the master
services agreement, dated as of August 4, 2020, and order forms
thereunder, pursuant to which the Manager may obtain and use the
Secondary Index and the Secondary Index Price from the Secondary Index
Provider. If the Secondary Index Price for the relevant Fund Component
becomes unavailable, or if the Manager determines in good faith that
the Secondary Index Price does not reflect an accurate price for such
Fund Component, then the Manager will, on a best efforts basis, contact
the Secondary Index Provider to obtain the Secondary Index Price
directly from the Secondary Index Provider. If after such contact the
Secondary Index Price remains unavailable or the Manager continues to
believe in good faith that the Secondary Index Price does not reflect
an accurate price for such Fund Component, then the Manager will employ
the next rule to determine the Digital Index Price. There are no
predefined criteria to make a good faith assessment and it will be made
by the Manager in its sole discretion.
3. Index Price = The price set by the Fund's principal market (as
defined in the Prospectus) (the ``Tertiary Pricing Option'') as of 4:00
p.m., New York
[[Page 29071]]
time, on the valuation date. The Tertiary Pricing Option is a spot
price derived from the relevant principal market's public data feed
that is believed to be consistently publishing pricing information as
of 4:00 p.m., New York time, and is provided to the Manager via an
application programming interface. If the Tertiary Pricing Option
becomes unavailable, or if the Manager determines in good faith that
the Tertiary Pricing Option does not reflect an accurate price for such
Fund Component, then the Manager will, on a best efforts basis, contact
the Tertiary Pricing Provider to obtain the Tertiary Pricing Option
directly from the Tertiary Pricing Provider. If after such contact the
Tertiary Pricing Option remains unavailable after such contact or the
Manager continues to believe in good faith that the Tertiary Pricing
Option does not reflect an accurate price for such Fund Component, then
the Manager will employ the next rule to determine the Index Price.
There are no predefined criteria to make a good faith assessment and it
will be made by the Manager in its sole discretion.
4. Index Price = The Manager will use its best judgment to
determine a good faith estimate of the Index Price. There are no
predefined criteria to make a good faith assessment and it will be made
by the Manager in its sole discretion.
In the event of a fork, the Index Provider may calculate the Index
Price based on a digital asset that the Manager does not believe to be
the appropriate asset that is held by the Fund (i.e., a digital asset
other than the Fund Components).\48\ In this event, the Manager has
full discretion to use a different index provider or calculate the
Index Price itself using its best judgment. In such an event, the
Exchange will submit a proposed rule filing to contemplate the assets
that would subsequently be held by the Fund.
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\48\ According to the Registration Statement, when a
modification is introduced and a substantial majority of users and
validators consent to the modification, the change is implemented
and the network remains uninterrupted. However, if less than a
substantial majority of users and validators consent to the proposed
modification, and the modification is not compatible with the
software prior to its modification, the consequence would be what is
known as a ``hard fork'', with one group running the pre-modified
software and the other running the modified software. The effect of
such a fork would be the existence of two versions of a digital
asset running in parallel, yet lacking interchangeability, such as
in July 2016 when Ether ``forked'' into Ether and a new digital
asset, Ether Classic.
---------------------------------------------------------------------------
The Manager may, in its sole discretion, select a different index
provider, select a different index price provided by the Index
Provider, calculate the Index Price by using the cascading set of rules
set forth above, or change the cascading set of rules set forth above
at any time.\49\
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\49\ The Manager will provide notice of any such changes in the
Fund's periodic or current reports and, if the Manager makes such a
change other than on an ad hoc or temporary basis, the Exchange will
file a proposed rule change with the Commission.
---------------------------------------------------------------------------
The Structure and Operation of the Fund Protects Investors and
Satisfies Commission Requirements for Digital Asset-Based Exchange
Traded Products
On January 10, 2024, the Commission approved the listing and
trading of shares of the Grayscale Bitcoin Trust (BTC) and Bitwise
Bitcoin ETF under NYSE Arca Rule 8.201-E (Commodity-Based Trust
Shares); the Hashdex Bitcoin ETF under NYSE Arca Rule 8.500-E (Trust
Units); the iShares Bitcoin Trust and Valkyrie Bitcoin Fund under
Nasdaq Rule 5711(d) (Commodity-Based Trust Shares); and the ARK
21Shares Bitcoin ETF, Invesco Galaxy Bitcoin ETF, VanEck Bitcoin Trust,
the WisdomTree Bitcoin Fund, Fidelity Wise Origin Bitcoin Fund, and
Franklin Bitcoin ETF under BZX Rule 14.11(e)(4) (Commodity-Based Trust
Shares) (collectively, the ``Bitcoin ETPs'').\50\ In the Bitcoin ETP
Approval Order, the Commission found that the proposed rule changes to
list the Bitcoin ETPs demonstrated that there were ``sufficient `other
means' of preventing fraud and manipulation,'' including that:
---------------------------------------------------------------------------
\50\ Securities Exchange Act Release No. 99306 (January 10,
2024), 89 FR 3008 (January 17, 2024) (SR-NYSEARCA-2021-90; SR-
NYSEARCA-2023-44; SRNYSEARCA-2023-58; SR-NASDAQ-2023-016; SR-NASDAQ-
2023-019; SR-CboeBZX-2023028; SR-CboeBZX-2023-038; SR-CboeBZX-2023-
040; SR-CboeBZX-2023-042; SRCboeBZX-2023-044; SR-CboeBZX-2023-072)
(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 ETP
Approval Order'').
[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 [Bitcoin ETPs].\51\
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\51\ Bitcoin ETP Approval Order, 89 FR at 3009-11.
Similarly, on May 23, 2024, the Commission approved the listing and
trading of shares of the Grayscale Ethereum Trust and the Bitwise
Ethereum ETF under NYSE Arca Rule 8.201-E (Commodity-Based Trust
Shares); the iShares Ethereum Trust under Nasdaq Rule 5711(d)
(Commodity-Based Trust Shares); and the VanEck Ethereum Trust, ARK
21Shares Ethereum ETF, Invesco Galaxy Ethereum ETF, Fidelity Ethereum
Fund, and the Franklin Ethereum ETF under BZX Rule 14.11(e)(4)
(Commodity-Based Trust Shares) (collectively, the ``Ether ETPs'').\52\
In the Ether ETP Approval Order, the Commission found that the proposed
rule changes to list the Ether ETPs demonstrated that there were
``sufficient `other means' of preventing fraud and manipulation,''
including that:
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\52\ Securities Exchange Act Release No. 100224 (May 23, 2024),
89 FR 46937 (May 30, 2024) (SR-NYSEARCA-2023-70; SR-NYSEARCA-2024-
31; SRNASDAQ-2023-045; SR-CboeBZX-2023-069; SR-CboeBZX-2023-070; SR-
CboeBZX-2023-087; SR-CboeBZX-2023-095; SR-CboeBZX-2024-018) (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 ETP Approval Order'').
[B]ased on the record before the Commission and the correlation
analyses in the record, including the Commission's own analysis, the
Commission is able to conclude that fraud or manipulation that
impacts prices in spot ether markets would likely similarly impact
CME ether futures prices. And because the CME's surveillance can
assist in detecting those impacts on CME ether futures prices, the
Exchanges' comprehensive surveillance-sharing agreement with the
CME--a U.S.-regulated market whose ether futures market is
consistently highly correlated to spot ether, albeit not of
``significant size'' related to spot ether--can be reasonably
expected to assist in surveilling for fraudulent and manipulative
acts and practices in the specific context of the [Ether ETPs].\53\
---------------------------------------------------------------------------
\53\ Ether ETP Approval Order, 89 FR at 46941.
The Fund is structured and will operate in a manner materially the
same as the Bitcoin ETPs and Ether ETPs and the Fund Components
currently primarily consist of Bitcoin and Ether, and at least 85% of
the Fund Components will consist of Approved Components as described
above. Accordingly, the Manager believes that, for the reasons set
forth in the Bitcoin ETP Approval Order and Ether ETP Approval Order,
listing and trading
[[Page 29072]]
Shares of the Fund would be consistent with the requirements of the
Act.\54\
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\54\ In particular, Grayscale Bitcoin Trust (BTC) (``GBTC'') and
Grayscale Ethereum Trust (ETH) (``ETHE''), affiliates of the Fund
that are structured substantially similarly to the Fund, currently
list their shares on the Exchange under NYSE Arca Rule 8.201-E. The
Fund will have the same service providers as GBTC and ETHE.
---------------------------------------------------------------------------
The Manager acknowledges that the Fund Components include minority
positions in digital assets that are not Bitcoin or Ether (e.g., SOL,
XRP, and ADA), but believes that, given that the Fund will be
rebalanced, if necessary, so that, on a daily basis, Approved
Components will comprise at least 85% of the Fund Components at the
start of every NYSE Arca Core Trading Session, listing and trading
Shares of the Fund would be consistent with the requirements of the
Act. Nonetheless, for purposes of the Fund's proposal, the Manager
anticipates that the Commission may have certain concerns about the
Fund's non-Bitcoin and Ether assets, as articulated in prior spot
digital asset ETP proposal disapproval orders,\55\ and addresses each
of these in turn below.
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\55\ See Securities Exchange Act Release Nos. 83723 (July 26,
2018), 83 FR 37579 (August 1, 2018) (SR-BatsBZX-2016-30) (Order
Setting Aside Action by Delegated Authority and Disapproving a
Proposed Rule Change, as Modified by Amendments No. 1 and 2, To List
and Trade Shares of the Winklevoss Bitcoin Fund) (the ``Winklevoss
Order''); 87267 (October 9, 2019), 84 FR 55382 (October 16, 2019)
(SR-NYSEArca-2019-01) (Order Disapproving a Proposed Rule Change, as
Modified by Amendment No. 1, Relating to the Listing and Trading of
Shares of the Bitwise Bitcoin ETF Fund Under NYSE Arca Rule 8.201-E)
(the ``Bitwise Order''); 88284 (February 26, 2020), 85 FR 12595
(March 3, 2020) (SR-NYSEArca-2019-39) (Order Disapproving a Proposed
Rule Change, as Modified by Amendment No. 1, to Amend NYSE Arca Rule
8.201-E (Commodity-Based Trust Shares) and to List and Trade Shares
of the United States Bitcoin and Treasury Investment Trust Under
NYSE Arca Rule 8.201-E) (the ``Wilshire Phoenix Order''); 83904
(August 22, 2018), 83 FR 43934 (August 28, 2018) (SR-NYSEArca-2017-
139) (Order Disapproving a Proposed Rule Change to List and Trade
the Shares of the ProShares Bitcoin ETF and the ProShares Short
Bitcoin ETF) (the ``ProShares Order''); 83912 (August 22, 2018), 83
FR 43912 (August 28, 2018) (SR-NYSEArca-2018-02) (Order Disapproving
a Proposed Rule Change Relating to Listing and Trading of the
Direxion Daily Bitcoin Bear 1X Shares, Direxion Daily Bitcoin 1.25X
Bull Shares, Direxion Daily Bitcoin 1.5X Bull Shares, Direxion Daily
Bitcoin 2X Bull Shares, and Direxion Daily Bitcoin 2X Bear Shares
Under NYSE Arca Rule 8.200-E) (the ``Direxion Order''); 83913
(August 22, 2018), 83 FR 43923 (August 28, 2018) (SR-CboeBZX-2018-
01) (Order Disapproving a Proposed Rule Change to List and Trade the
Shares of the GraniteShares Bitcoin ETF and the GraniteShares Short
Bitcoin ETF) (the ``GraniteShares Order'') (together, the ``Prior
Spot Digital Asset ETP Disapproval Orders'').
---------------------------------------------------------------------------
In the Prior Spot Digital Asset ETP Disapproval Orders, the
Commission outlined that a proposal relating to a digital asset-based
ETP could satisfy its concerns regarding potential for fraud and
manipulation by demonstrating:
(1) Inherent Resistance to Fraud and Manipulation: that the
underlying commodity market is inherently resistant to fraud and
manipulation;
(2) Other Means to Prevent Fraud and Manipulation: that there are
other means to prevent fraudulent and manipulative acts and practices
that are sufficient; or
(3) Surveillance Sharing: that the listing exchange has entered
into a surveillance sharing agreement with a regulated market of
significant size relating to the underlying or reference assets.
As described below, the Manager believes the structure and
operation of the Fund are designed to prevent fraudulent and
manipulative acts and practices, to protect investors and the public
interest, and to respond to concerns that the Commission may have with
respect to potential fraud and manipulation in the context of a digital
asset-based ETP.
How the Fund Meets Standards in the Prior Spot Digital Asset ETP
Disapproval Orders
1. Resistance to or Prevention of Fraud and Manipulation
In the Prior Spot Digital Asset ETP Disapproval Orders, the
Commission disagreed with the proposition that a digital asset's
fungibility, transportability and exchange tradability combine to
provide unique protections against, and allow such digital asset to be
uniquely resistant to, attempts at price manipulation. The Commission
reached its conclusion based on concessions by one issuer that 95% of
the reported trading in the digital asset, Bitcoin, is ``fake'' or non-
economic, effectively admitting that the properties of Bitcoin do not
make it inherently resistant to manipulation. Such issuer's concessions
were further compounded by evidence of potential and actual fraud and
manipulation in the historical trading of Bitcoin on certain
marketplaces such as (1) ``wash'' trading, (2) trading based on
material, non-public information, including the dissemination of false
and misleading information, (3) manipulative activity involving Tether,
and (4) fraud and manipulation.\56\
---------------------------------------------------------------------------
\56\ See Bitwise Order, 84 FR at 55383 (discussing analysis of
the Bitcoin spot market that asserts that 95% of the spot market is
dominated by fake and non-economic activity, such as wash trades),
55391 (discussing possible sources of fraud and manipulation in the
bitcoin spot market). See also Winklevoss Order, 83 FR at 37585-86
(discussing pending litigation against a Bitcoin trading platform
for fraudulent conduct relating to Tether); Bitwise Order, 84 FR at
55391 n.140, 55402 & n.331 (same); Winklevoss Order, 83 FR at 37584-
86 (discussing potential types of manipulation in the Bitcoin spot
market). The Commission has also noted that fraud and manipulation
in the Bitcoin spot market could persist for a significant duration.
See, e.g., Bitwise Order, 84 FR at 55405 & n.379.
---------------------------------------------------------------------------
The Manager acknowledges the possibility that fraud and
manipulation may exist in commodity markets and that digital asset
trading, such as certain of the Fund Components, on any given trading
platform may be no more uniquely resistant to fraud and manipulation
than other commodity markets.\57\ However, the Manager believes that
the fundamental features of digital assets, including fungibility,
transportability and exchange tradability offer novel protections
beyond those that exist in traditional commodity markets or equity
markets when combined with other means, as discussed further below.
---------------------------------------------------------------------------
\57\ See generally Bitwise Order.
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2. Other Means To Prevent Fraud and Manipulation
The Commission has recognized 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.\58\ In evaluating the
effectiveness of this type of resistance, the Commission does not apply
a ``cannot be manipulated'' standard. Instead, the Commission requires
that such resistance to fraud and manipulation be novel and beyond
those protections that exist in traditional commodity markets or equity
markets for which the Commission has long required surveillance-sharing
agreements in the context of listing derivative securities
products.\59\
---------------------------------------------------------------------------
\58\ See Winklevoss Order, 84 FR at 37580, 37582-91; Bitwise
Order, 84 FR at 55383, 55385-406; Wilshire Phoenix Order, 85 FR at
12597.
\59\ See Winklevoss Order, 84 FR at 37582; Wilshire Phoenix
Order, 85 FR at 12597.
---------------------------------------------------------------------------
The Manager believes the Fund's use of the Index Prices represents
a novel means to prevent fraud and manipulation from impacting a
reference price for the Fund Components and that it offers protections
beyond those that exist in traditional commodity markets or equity
markets. Specifically, digital assets, such as the Fund Components, are
novel and exist outside traditional commodity markets. It therefore
stands to reason that the methods by which they trade will be novel and
that the market for digital assets like the Fund Components will have
different attributes than traditional commodity markets. Digital assets
like the Fund Components were only introduced within the past decade,
twenty years after the first U.S.
[[Page 29073]]
exchange-traded funds (``ETFs'') were offered \60\ and 150 years after
the first futures were offered.\61\ In contrast to older commodities
such as gold, silver, platinum, palladium or copper, which the
Commission has noted all had at least one significant, regulated market
for trading futures on the underlying commodity at the time commodity
trust ETPs were approved for listing and trading, the first trading in
digital assets like the Fund Components took place entirely in an open,
transparent and online setting where other commodities cannot trade.
---------------------------------------------------------------------------
\60\ SEC, ``Investor Bulletin: Exchange-Traded Funds (ETFs),''
August 2012, <a href="https://www.sec.gov/investor/alerts/etfs.pdf">https://www.sec.gov/investor/alerts/etfs.pdf</a>.
\61\ Commodity Futures Trading Commission (``CFTC''), ``History
of the CFTC,'' <a href="https://www.cftc.gov/About/HistoryoftheCFTC/history_precftc.html">https://www.cftc.gov/About/HistoryoftheCFTC/history_precftc.html</a>.
---------------------------------------------------------------------------
The Manager believes the Fund's use of the Index Prices
specifically addresses the Commission's concerns in that they serve as
an alternative means to prevent fraud and manipulation. Specifically,
the Manager believes that the Index Prices can (i) mitigate the effects
of fraud, manipulation and other anomalous trading activity on the Fund
Components' reference rates, (ii) provide a real-time, volume-weighted
fair value of the Fund Components and (iii) appropriately handle and
adjust for non-market related events.
As described in more detail below, the Manager believes that the
use of the Index Prices accomplishes those objectives in the following
ways:
1. The Index Prices track the Digital Asset Trading Platform Market
price through trading activity at Constituent Trading Platforms, which
are made up of ``U.S.-Regulated Trading Platforms'' and Digital Asset
Trading Platforms licensed (including in-principal licensure) and/or
are able to serve retail or professional investors in one or more of
the United Kingdom, European Union, Hong Kong and Singapore; \62\
---------------------------------------------------------------------------
\62\ ``U.S.-Regulated Trading Platforms'' are trading platforms
in the Digital Asset Trading Platform Market required to comply with
applicable U.S. federal and state licensing requirements and
practices regarding AML and KYC regulations. Constituent Trading
Platforms are U.S.-Regulated Trading Platforms or Digital Asset
Trading Platforms licensed and/or able to serve investors in the
United Kingdom, European Union, Hong Kong and/or Singapore. As of
the date of this filing, the U.S.-Regulated Trading Platforms that
the Index Provider considered for inclusion in the Index Prices were
Bitstamp, <a href="http://Crypto.com">Crypto.com</a>, Gemini, itBit, LMAX Digital, and Kraken. From
these trading platforms, the Index Provider then applies additional
Inclusion Criteria to determine the Constituent Trading Platforms.
---------------------------------------------------------------------------
2. The Index Prices are designed to mitigate the impact of
instances of fraud, manipulation and other anomalous trading activity
in real-time through systematic adjustments;
3. The Index Prices are constructed and maintained by an expert
third-party index provider, allowing for prudent handling of non-
market-related events; and
4. The Index Prices are designed to mitigate the impact of
instances of fraud, manipulation and other anomalous trading activity
concentrated on any one specific trading platform through a cross-
trading platform composite reference rate over a 60-minute period.
1. The Index Prices track the Digital Asset Trading Platform Market
price through trading activity at Constituent Trading Platforms, which
are made up of ``U.S.-Regulated Trading Platforms'' and Digital Asset
Trading Platforms licensed (including in-principal licensure) and/or
able to serve retail or professional investors in one or more of the
United Kingdom, European Union, Hong Kong, and Singapore.
The Index Prices maintain a minimum number of three trading
platforms to track the Digital Asset Trading Platform Market while
offering replicability for traders and market makers.\63\
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\63\ According to the Manager, the more trading platforms
included in the Index Price, the more ability there is for traders
and market makers to trade against the Index Price by arbitraging
price differences. For example, in the event of variances between
Fund Component prices on Constituent Trading Platforms and non-
Constituent Trading Platforms, arbitrage trading opportunities would
exist. These discrepancies generally consolidate over time, as price
differences across trading platforms are realized and capitalized
upon by traders and market makers.
---------------------------------------------------------------------------
U.S.-Regulated Trading Platforms possess safeguards that help to
protect against fraud and manipulation. For example, U.S.-Regulated
Trading Platforms regulated by the NYDFS under the BitLicense program
are required to implement measures designed to effectively detect,
prevent, and respond to fraud, attempted fraud, market manipulation,
and similar wrongdoing, and to monitor, control, investigate and report
back to the NYDFS regarding any wrongdoing.\64\ These trading platforms
also have the following obligations: \65\
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\64\ See, e.g., ``DFS Takes Action to Deter Fraud and
Manipulation in Virtual Currency Markets,'' available at: <a href="https://www.dfs.ny.gov/about/press/pr1802071.htm">https://www.dfs.ny.gov/about/press/pr1802071.htm</a>. As of the date of this
filing, two of the Constituent Trading Platforms, Bitstamp and
itBit, are regulated by NYDFS.
\65\ See ``New York's Final ``BitLicense'' Rule: Overview and
Changes from July 2014 Proposal,'' June 5, 2015, Davis Polk,
available at: <a href="https://www.davispolk.com/files/new_yorks_final_bitlicense_rule_overview_changes_july_2014_proposal.pdf">https://www.davispolk.com/files/new_yorks_final_bitlicense_rule_overview_changes_july_2014_proposal.pdf</a>.
---------------------------------------------------------------------------
<bullet> Submission of audited financial statements including
income statements, statements of assets/liabilities, insurance, and
banking;
<bullet> Compliance with capitalization requirements set at NYDFS's
discretion;
<bullet> Prohibitions against the sale or encumbrance to protect
full reserves of custodian assets;
<bullet> Fingerprints and photographs of employees with access to
customer funds;
<bullet> Retention of a qualified Chief Information Security
Officer and annual penetration testing/audits;
<bullet> Documented business continuity and disaster recovery plan,
independently tested annually; and
<bullet> Participation in an independent exam by NYDFS.
Furthermore, all U.S.-Regulated Trading Platforms are considered
MSBs that are subject to FinCEN's federal and state reporting
requirements that provide additional safeguards. For example,
unscrupulous traders may be less likely to engage in fraudulent or
manipulative acts and practices on trading platforms that (1) report
suspicious activity to FinCEN as money services businesses, (2) report
to state regulators as money transmitters, and/or (3) require customer
identification through KYC procedures. U.S.-Regulated Trading Platforms
are required to: \66\
---------------------------------------------------------------------------
\66\ See BSA Requirements for MSBs, FinCEN website: <a href="https://www.fincen.gov/bsarequirements-msbs">https://www.fincen.gov/bsarequirements-msbs</a>.
---------------------------------------------------------------------------
<bullet> Identify people with ownership stakes or controlling roles
in the MSB;
<bullet> Establish a formal Anti-Money Laundering (AML) policy in
place with documentation, training, independent review, and a named
compliance officer;
<bullet> Implement strict customer identification and verification
policies and procedures;
<bullet> File Suspicious Activity Reports (SARs) for suspicious
customer transactions;
<bullet> File Currency Transaction Reports (CTRs) for cash-in or
cash-out transactions greater than $10,000; and
<bullet> Maintain a five-year record of currency exchanges greater
than $1,000 and money transfers greater than $3,000.
Lastly, pursuant to its view that Bitcoin and Ether are
commodities, the CFTC has authority to police fraud and manipulation on
U.S.-Regulated Trading Platforms that trade those digital assets.\67\
---------------------------------------------------------------------------
\67\ ``U.S. CFTC Chief Behnam Reinforces View of Ether as
Commodity,'' CoinDesk (Mar. 28, 2023), <a href="https://www.coindesk.com/policy/2023/03/28/us-cftc-chief-behnam-reinforces-view-of-ether-as-commodity/">https://www.coindesk.com/policy/2023/03/28/us-cftc-chief-behnam-reinforces-view-of-ether-as-commodity/</a>; CME Group, <a href="https://www.cmegroup.com/markets/cryptocurrencies/ether/ether.html?gad=1&gclid=EAIaIQobChMI44KBmu7ygAMVavvjBx2P4g5yEAAYASAAEgJSZfD_BwE&gclsrc=aw.ds">https://www.cmegroup.com/markets/cryptocurrencies/ether/ether.html?gad=1&gclid=EAIaIQobChMI44KBmu7ygAMVavvjBx2P4g5yEAAYASAAEgJSZfD_BwE&gclsrc=aw.ds</a>.
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[[Page 29074]]
The non-U.S.-Regulated Trading Platforms included in the Index
Prices are licensed (including in-principal licensure) and/or are able
to serve retail or professional investors in one or more of the
following jurisdictions: United Kingdom, European Union, Hong Kong, and
Singapore, which are jurisdictions that meet the criteria set forth
below. When reviewing non-U.S.-Regulated Trading Platforms for
eligibility in certain indices and reference rates, the Index Provider
evaluates criteria regarding such Digital Asset Trading Platforms,
including but not limited to:
<bullet> Whether the Digital Asset Trading Platform has a dedicated
virtual asset regulator;
<bullet> Whether such a regulator is overseen by, and receives a
mandate from, the primary markets regulator in the Digital Asset
Trading Platform jurisdiction; and
<bullet> Whether the Digital Asset Trading Platform produces
sufficient trading volume to meaningfully contribute to accurate price
discovery within the index or reference rate.
These criteria are not an exhaustive list of the Index Provider's
considerations when evaluating a non-U.S.-Regulated Trading Platform,
and the Index Provider may adjust these criteria from time to time.
2. The Index Prices are designed to mitigate the impact of
instances of fraud, manipulation, and other anomalous trading activity
in real-time through systematic adjustments.
The Index Prices are calculated once every second according to a
systematic methodology that relies on observed trading activity on the
Constituent Trading Platforms. While the precise methodology underlying
each Index Price is currently proprietary, the key elements of the
Index Prices are outlined below:
<bullet> Volume Weighting: Constituent Trading Platforms with
greater liquidity receive a higher weighting in the Index Prices,
increasing the ability to execute against (i.e., replicate) the Index
Prices in the underlying spot markets. The Index Price methodology is a
volume-weighted real-time price where each Constituent Trading Platform
is weighted based on its trailing 24-hour volume.
<bullet> FX Conversion: The Index Price algorithm utilizes a
volume-weighted real-time FX conversion rate for any trading activity
for the relevant Stablecoin-USD pair. This normalizes all trading
activity to USD denomination.
<bullet> Outlier Detection Factor: The Index Price algorithm
excludes trade data and price(s) deemed to be an outlier relative to
the most recently calculated Index Price.
<bullet> Inactivity Adjustment: The Index Price algorithm penalizes
stale activity from any given Constituent Trading Platform. When a
Constituent Trading Platform does not have recent trading data, the
outdated prices and their contribution to the Index Price calculation
are gradually reduced until they are de-weighted to 0.1%. Similarly,
once trading activity at a Constituent Trading Platform resumes, the
corresponding weighting for that Constituent Trading Platform will no
longer be penalized.
<bullet> Manipulation Resistance: In an effort to determine and
prioritize the most significant Constituent Trading Platforms (i.e.,
those that are likely to have the most impact on price discovery) for a
given asset, the Index Price utilizes a Constituent Trading Platform
selection and review process, which seeks to identify the highest-
ranking Constituent Trading Platforms based on both qualitative and
quantitative factors. The qualitative review includes legal and
regulation, data provision, security, trade monitoring, market quality,
and negative events policy, among others. The quantitative review
includes review of trading activity for the asset on the given
Constituent Trading Platform.
In addition, the Index Provider re-evaluates the weighting
algorithm on a periodic basis, but maintains discretion to change the
way in which an Index Price is calculated based on its periodic review
or in extreme circumstances. Nonetheless, the Manager believes that
each Index Price is designed to limit exposure to trading or price
distortion of any individual Digital Asset Trading Platform that
experiences periods of unusual activity or limited liquidity, and
thereby mitigate the effects of potential manipulation by discounting,
in real-time, anomalous price movements at individual Digital Asset
Trading Platforms.
The Manager believes the Index Provider's selection process for
Constituent Trading Platforms as well as the methodology of the Index
Price's algorithm provides a more accurate picture of Fund Component
price movements than a simple average of Digital Asset Trading Platform
spot prices, and that the weighting of Fund Component prices on the
Constituent Trading Platforms limits the inclusion of data that is
influenced by temporary price dislocations that may result from
technical problems, limited liquidity or fraudulent activity elsewhere
in the Fund Component spot market. By referencing multiple trading
venues and weighting them based on trade activity, the Manager believes
that the impact of any potential fraud, manipulation or anomalous
trading activity occurring on any single venue is reduced.
3. The Index Prices are constructed and maintained by an expert
third-party index provider, allowing for prudent handling of non-
market-related events.
The Index Provider reviews and periodically updates which trading
platforms are included in the Index Prices by utilizing methodologies
guided by the IOSCO principles for financial benchmarks.
According to the Index Provider's methodology for each Index Price,
for a trading platform to become a Constituent Trading Platform, it
must satisfy the following Inclusion Criteria:
<bullet> No evidence in the past 12 months of trading restrictions
on individuals or entities that would otherwise meet the trading
platform's eligibility requirements to trade;
<bullet> No evidence in the past 12 months of undisclosed
restrictions on deposits or withdrawals from user accounts;
<bullet> Real-time price discovery;
<bullet> Limited or no capital controls;
<bullet> Transparent ownership including a publicly-known ownership
entity;
<bullet> Publicly available language and policies addressing legal
and regulatory compliance, including KYC, AML and other policies
designed to comply with relevant regulations that might apply to it;
<bullet> Offer programmatic spot trading of the trading pair and
reliably publish trade prices and volumes on a real-time basis through
Rest and Websocket APIs;
<bullet> Is a centralized spot trading platform ranked BB or higher
in the Index Provider's latest published Trading Platform Benchmark
report; and
<bullet> Is not classified as an Excluded Trading Platform as
defined in the Index Provider's Digital Asset Indices Policy
Methodology.
All trading platforms that meet these Inclusion Criteria will be
assigned to a Trading Platform Category as defined by the additional
criteria below, and at least one Category 1 Trading Platform must be
included in each Index Price.
<bullet> A ``Category 1 Trading Platform'' is a trading platform:
[cir] Licensed and/or able to serve investors, retail or
professional, in the U.S.; and
[cir] That maintains sufficient USD or USDC liquidity relative to
the size of the listed assets.
<bullet> A ``Category 2 Trading Platform'' is a trading platform:
[cir] Licensed (including in-principal licensure) and/or able to
serve investors, retail or professional, in one or more of the
following jurisdictions:
[[Page 29075]]
[ssquf] United Kingdom
[ssquf] European Union
[ssquf] Hong Kong
[ssquf] Singapore; and
[cir] That maintain a sufficient USD or USDC liquidity relative to
the size of the listed assets.
Although the Index Provider's methodology is designed to operate
without any human interference, rare events would justify manual
intervention. Manual intervention would only be in response to ``non-
market-related events'' (e.g., halting of deposits or withdrawals of
funds, unannounced closure of trading platform operations, insolvency,
compromise of user funds, etc.). In the event that such an intervention
is necessary, the Index Provider would issue a public announcement
through its website, API and other established communication channels
with its clients.\68\
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\68\ To the extent any such intervention has a material impact
on the Fund, the Manager will also issue a public announcement.
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4. The Index Prices are designed to mitigate the impact of
instances of fraud, manipulation and other anomalous trading activity
concentrated on any one specific trading platform through a cross-
trading platform composite index rate.
The Index Prices are based on the price and volume data of multiple
Constituent Trading Platforms that satisfy the Index Provider's
Inclusion Criteria. The Manager believes that, by referencing multiple
trading venues and weighting them based on trade activity, the impact
of any potential fraud, manipulation, or anomalous trading activity
occurring on any single venue is reduced. Specifically, the effects of
fraud, manipulation, or anomalous trading activity occurring on any
single venue are de-weighted and consequently diluted by non-anomalous
trading activity from other Constituent Trading Platforms.
Although each Index Price is designed to accurately capture the
market price of the digital asset it tracks, third parties may be able
to purchase and sell such digital assets on public or private markets
not included among the constituent Digital Asset Trading Platforms of
such Index Price, and such transactions may take place at prices
materially higher or lower than the Index Price. Moreover, there may be
variances in the prices of digital assets on the various Digital Asset
Trading Platforms, including as a result of differences in fee
structures or administrative procedures on different Digital Asset
Trading Platforms.
For example, based on Index Price data provided by the Index
Provider, on any given day during the twelve months ended March 31,
2025, the maximum differential between the 4:00 p.m., New York time
spot price of Bitcoin on any single Digital Asset Trading Platform
included in the Index Price was 0.84% and the average of the maximum
differentials of the 4:00 p.m., New York time spot price of each
Digital Asset Trading Platform included in the Index Price and the
Index Price was 0.33%. During this same period, the average
differential between the 4:00 p.m., New York time spot prices of all
the Digital Asset Trading Platforms included in the Index Price and the
Index Price was 0.01%. Further, based on CD5 data provided by the Index
Provider, on any given day during the twelve months ended March 31,
2025, the maximum differential between the 4:00 p.m., New York time
spot price of Ether on any single Digital Asset Trading Platform
included in the Index Price and the Index Price was 1.88% and the
average of the maximum differentials of the 4:00 p.m., New York time
spot price of each Digital Asset Trading Platform included in the Index
Price and the Index Price was 0.47%. During this same period, the
average differential between the 4:00 p.m., New York time spot prices
of all the Digital Asset Trading Platforms included in the Index Price
and the Index Price was 0.004%. All Digital Asset Trading Platforms
that were included in the relevant Index Price throughout the period
were considered in this analysis.
The Fund will price its Shares at 4:00 p.m., New York time based on
the Index Prices. While the pricing on the Digital Asset Trading
Platforms that contribute to the Index Prices is known to the market,
the Manager believes that, even if efforts to manipulate the price of
the Fund Components at 4:00 p.m. E.T. were successful on a Digital
Asset Trading Platform, the effect of such activity on the pricing of
the Fund would be mitigated due to the controls embedded in the
structure of the Index Prices.
Accordingly, the Manager believes that the Index Prices have the
ability to (i) mitigate the effects of fraud, manipulation and other
anomalous trading activity on the Fund Components reference rates, (ii)
provide a real-time, volume-weighted fair value of the Fund Components
and (iii) appropriately handle and adjust for non-market related
events.
Creation and Redemption of Shares
Authorized Participants may submit orders to create or redeem
Shares under procedures for ``Cash Orders.''
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 the Fund Components as part of the creation or redemption
process or otherwise direct the Fund or a third party with respect to
purchasing, holding, delivering, or receiving the Fund Components as
part of the creation or redemption process.
The Fund will create Shares by receiving the Fund Components from a
third party that is not the Authorized Participant and the Fund, or an
affiliate of the Fund (and in any event not the Authorized
Participant), is responsible for selecting the third party to deliver
the Fund Components. Further, the third party will not be acting as an
agent of the Authorized Participant with respect to the delivery of the
Fund Components to the Fund or acting at the direction of the
Authorized Participant with respect to the delivery of the Fund
Components to the Fund. The Fund will redeem Shares by delivering the
Fund Components to a third party that is not the Authorized Participant
and the Fund, or an affiliate of the Fund (and in any event not the
Authorized Participant), is responsible for selecting the third party
to receive the Fund Components. Further, the third party will not be
acting as an agent of the Authorized Participant with respect to the
receipt of the Fund Components from the Fund or acting at the direction
of the Authorized Participant with respect to the receipt of the Fund
Components from the Fund.
Cash Orders are made through the participation of a Liquidity
Provider \69\
[[Page 29076]]
who obtains or receives the Fund Components in exchange for cash, and
are facilitated by the Transfer Agent and Grayscale Investments
Sponsors, LLC, acting in its capacity as the Liquidity Engager.
Liquidity Providers are not party to the Participant Agreements (as
defined below) and are engaged separately by the Liquidity Engager.
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\69\ A ``Liquidity Provider'' means one or more eligible
companies that facilitate the purchase and sale of the Fund
Components in connection with creations or redemptions pursuant to
Cash Orders. The Liquidity Providers with which Grayscale
Investments Sponsors, LLC, acting other than in its capacity as the
Manager (in such other capacity, the ``Liquidity Engager'') will
engage in Fund Component transactions are third parties that are not
affiliated with the Manager or the Fund and are not acting as agents
of the Fund, the Manager, or any Authorized Participant, and all
transactions will be done on an arms-length basis. Except for the
contractual relationships between each Liquidity Provider and
Grayscale Investments Sponsors, LLC in its capacity as the Liquidity
Engager, there is no contractual relationship between each Liquidity
Provider and the Fund, the Manager, or any Authorized Participant.
When seeking to buy Fund Components in connection with creations or
sell Fund Components in connection with redemptions, the Liquidity
Engager will seek to obtain commercially reasonable prices and terms
from the approved Liquidity Providers. Once agreed upon, the
transaction will generally occur on an ``over-the-counter'' basis.
---------------------------------------------------------------------------
According to the Registration Statement, the Fund creates Baskets
(as described below) of Shares only upon receipt of the Fund Components
and redeems Shares only by distributing the Fund Components.
``Authorized Participants'' are the only persons that may place orders
to create and redeem Baskets. Each Authorized Participant must (i) be a
registered broker-dealer and (ii) enter into an agreement with the
Manager and Transfer Agent that provides the procedures for the
creation and redemption of Baskets and for the delivery of the Fund
Components required for the creation and redemption of Baskets via a
Liquidity Provider (each, a ``Participant Agreement''). An Authorized
Participant may act for its own account or as agent 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 create or redeem their Shares through an
Authorized Participant.
The Fund issues Shares to and redeems Shares from Authorized
Participants on an ongoing basis, but only in one or more ``Baskets''
(with a Basket being a block of 10,000 Shares). The Fund will not issue
fractions of a Basket.
The creation and redemption of Baskets will be made only in
exchange for the delivery to the Fund, or the distribution by the Fund,
of the amount of whole and fractional tokens of each Fund Component
represented by each Basket being created or redeemed, which is
determined by dividing (x) the total amount of tokens of each Fund
Component owned by the Fund at 4:00 p.m., New York time, on the trade
date of a creation or redemption order, after deducting the amount of
each Fund Component representing the U.S. dollar value of accrued but
unpaid fees and expenses of the Fund (converted using the Index Prices
at such time, and carried to the eighth decimal place), by (y) the
number of Shares outstanding at such time (with the quotient so
obtained calculated to one one-hundred-millionth of the Fund Components
(i.e., carried to the eighth decimal place)), and multiplying such
quotient by 10,000 (for each Fund Component, the Fund Component Basket
Amount). The sum of the Fund Component Basket Amounts for all Fund
Components then held by the Fund, and the Cash Portion,\70\ if any,
together comprise the ``Basket Amount.'' The U.S. dollar value of a
Basket is equal to the sum of (x) each Fund Component Basket Amount
multiplied by the applicable Index Price and (y) the Cash Portion, if
any (the ``Basket NAV''). The Basket NAV multiplied by the number of
Baskets being created or redeemed is referred to as the ``Total Basket
NAV.'' All questions as to the calculation of the Basket Amount will be
conclusively determined by the Manager and will be final and binding on
all persons interested in the Fund. The amount of Fund Components
represented by a Share will gradually decrease over time as the Fund
Components are used to pay the Fund's expenses. Each Share represented
approximately 0.0004 of one Bitcoin, 0.0022 of one Ether, 0.0094 of one
SOL, 0.6584 of one ADA, and 1.0640 of one XRP as of June 20, 2025.\71\
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\70\ ``Cash Portion'' means for any trade date, the amount of
U.S. dollars determined by dividing (x) the amount of U.S. dollars
or other fiat currency (as converted into U.S. dollars at the
applicable exchange rate as of 4:00 p.m., New York time) held by the
Fund at 4:00 p.m., New York time, on such trade date by (y) the
number of Shares outstanding at such time (with the quotient so
obtained calculated to one one-hundred-millionth), and multiplying
such quotient by 100.
\71\ Calculated as if the Fund were operating based on the CD5.
---------------------------------------------------------------------------
The Basket Amount multiplied by the number of Baskets being created
or redeemed is the ``Total Basket Amount.'' The creation of Baskets
requires the delivery to the Fund of the Total Basket Amount and the
redemption of Baskets requires the distribution by the Fund of the
Total Basket Amount.
Although the Fund creates Baskets only upon the receipt of the Fund
Components, and redeems Baskets only by distributing the Fund
Components, an Authorized Participant will submit Cash Orders, pursuant
to which the Authorized Participant will deposit cash with, or accept
cash from, the Transfer Agent in connection with the creation and
redemption of Baskets.
Cash Orders will be facilitated by the Transfer Agent and Liquidity
Engager, acting other than in its capacity as Manager. On an order-by-
order basis, the Liquidity Engager will engage one or more Liquidity
Providers to obtain or receive the Fund Components in exchange for cash
in connection with such order, as described in more detail below.
Unless the Manager requires that a Cash Order be effected at actual
execution prices (an ``Actual Execution Cash Order''),\72\ each
Authorized Participant that submits a Cash Order to create or redeem
Baskets (a ``Variable Fee Cash Order'') \73\ will pay a fee (the
``Variable Fee'') based on the Total Basket NAV, and any price
differential of the Fund Components between the trade date and the
settlement date will be borne solely by the Liquidity Provider until
such Fund Components have been received or liquidated by the Fund. The
Variable Fee is intended to cover all of a Liquidity Provider's
expenses in connection with the creation or redemption order, including
any trading platform fees that the Liquidity Provider incurs in
connection with buying or selling the Fund Components. The amount may
be changed by the Manager in its sole discretion at any time, and
Liquidity Providers will communicate to the Manager in advance the
Variable Fee they would be willing to accept in connection with a
Variable Fee Cash Order, based on market conditions and other factors
existing at the time of such Variable Fee Cash Order.
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\72\ With respect to a creation or redemption pursuant to an
Actual Execution Cash Order, as between the Fund and an Authorized
Participant, the Authorized Participant is responsible for the
dollar cost of the difference between the Fund Components' price
utilized in calculating Total Basket NAV on the trade date and the
price at which the Fund acquires or disposes of the Fund Components
on the settlement date. If the price realized in acquiring or
disposing of the corresponding Total Basket Amount is higher than
the Total Basket NAV, the Authorized Participant will bear the
dollar cost of such difference, in the case of a creation, by
delivering cash in the amount of such shortfall (the ``Additional
Creation Cash'') to the Cash Account or, in the case of a
redemption, with the amount of cash to be delivered to the
Authorized Participant being reduced by the amount of such
difference (the ``Redemption Cash Shortfall''). If the price
realized in acquiring the corresponding Total Basket Amount is lower
than the Total Basket NAV, the Authorized Participant will benefit
from such difference, with the Fund promptly returning cash in the
amount of such excess (the ``Excess Creation Cash'') to the
Authorized Participant.
\73\ Unless the Manager determines otherwise in its sole
discretion based on market conditions and other factors existing at
the time of such Cash Order, all creations and redemptions pursuant
to Cash Orders are expected to be executed as Variable Fee Cash
Orders, and any price differential of Fund Components between the
trade date and the settlement date will be borne solely by the
Liquidity Provider until such Fund Components have been received by
the Fund.
---------------------------------------------------------------------------
Alternatively, the Manager may require that a Cash Order be
effected as an Actual Execution Cash Order, in its sole discretion
based on market conditions and other factors existing at the time of
such Cash Order, and under such circumstances, any price differential
of the Fund Components
[[Page 29077]]
between the trade date and the settlement date will be borne solely by
the Authorized Participant until such Fund Components have been
received or liquidated by the Fund.
In the case of creations, to transfer the Total Basket Amount to
the Fund's Digital Asset Account, the Liquidity Provider will transfer
the Fund Components to one of the public key addresses associated with
the Digital Asset Account and as provided by the Manager. In the case
of redemptions, the same procedure is conducted, but in reverse, using
the public key addresses associated with the wallet of the Liquidity
Provider and as provided by such party. All such transactions will be
conducted on the blockchain and parties acknowledge and agree that such
transfers may be irreversible if done incorrectly.
Authorized Participants do not pay a transaction fee to the Fund in
connection with the creation or redemption of Baskets, but there may be
transaction fees associated with the validation of the transfer of the
Fund Components by the online, end-user-to-end-user network hosting a
public transaction ledger, known as a Blockchain, and the source code
comprising the basis for the cryptographic and algorithmic protocols
governing such network, which will be paid by the Custodian in the case
of redemptions and the Authorized Participant or the Liquidity Provider
in the case of creations. Service providers may charge Authorized
Participants administrative fees for order placement and other services
related to creation of Baskets. As discussed above, Authorized
Participants will also pay the Variable Fee in connection with Variable
Fee Cash Orders. Under certain circumstances Authorized Participants
may also be required to deposit additional cash in the Cash Account, or
be entitled to receive excess cash from the Cash Account, in connection
with creations and redemptions pursuant to Actual Execution Cash
Orders. Authorized Participants will receive no fees, commissions or
other form of compensation or inducement of any kind from either the
Manager or the Fund and no such person has any obligation or
responsibility to the Manager or the Fund to effect any sale or resale
of Shares.
Creation Procedures
On any business day, an Authorized Participant may place an order
with the Transfer Agent to create one or more Baskets.
Cash Orders for creation must be placed with the Transfer Agent no
later than 1:59:59 p.m., New York time.
The Manager may in its sole discretion limit the number of Shares
created pursuant to Cash Orders on any specified day without notice to
the Authorized Participants and may direct the Marketing Agent to
reject any Cash Orders in excess of such capped amount. In exercising
its discretion to limit the number of Shares created pursuant to Cash
Orders, the Manager expects to take into consideration a number of
factors, including the availability of Liquidity Providers to
facilitate Cash Orders and the cost of processing Cash Orders.
Creations under Cash Orders will take place as follows, where ``T''
is the trade date and each day in the sequence must be a business day.
Before a creation order is placed, the Manager determines if such
creation order will be a Variable Fee Cash Order or an Actual Execution
Cash Order, which determination is communicated to the Authorized
Participant.
------------------------------------------------------------------------
Settlement date (T+1, or T+2, as
Trade date (T) established at the time of order
placement)
------------------------------------------------------------------------
<bullet> The Authorized Participant <bullet> The Authorized Participant
places a creation order with the delivers to the Cash Account: *
Transfer Agent. (x) in the case of a Variable Fee
<bullet> The Marketing Agent Cash Order, the Total Basket NAV,
accepts (or rejects) the creation plus any Variable Fee; or
order, which is communicated to (y) in the case of an Actual
the Authorized Participant by the Execution Cash Order, the Total
Transfer Agent. Basket NAV, plus any Additional
<bullet> The Manager notifies the Creation Cash, less any Excess
Liquidity Provider of the creation Creation Cash, if applicable (such
order. amount, as applicable, the
<bullet> The Manager determines the ``Required Creation Cash'').
Total Basket NAV and any Variable <bullet> The Liquidity Provider
Fee and Additional Creation Cash transfers the Total Basket Amount
as soon as practicable after 4:00 to the Fund's Digital Asset
p.m., New York time. Account.
<bullet> Once the Fund is in
simultaneous possession of (x) the
Total Basket Amount and (y) the
Required Creation Cash, the Fund
issues the aggregate number of
Shares corresponding to the
Baskets ordered by the Authorized
Participant, which the Transfer
Agent holds for the benefit of the
Authorized Participant.
<bullet> Cash equal to the Required
Creation Cash is delivered to the
Liquidity Provider from the Cash
Account.
<bullet> The Transfer Agent
delivers Shares to the Authorized
Participant by crediting the
number of Baskets created to the
Authorized Participant's DTC
account.
------------------------------------------------------------------------
* The ``Cash Account'' means the account maintained by the Transfer
Agent for purposes of receiving cash from, and distributing cash to,
Authorized Participants in connection with creations and redemptions
pursuant to Cash Orders. For the avoidance of doubt, the Fund shall
have no interest (beneficial, equitable or otherwise) in the Cash
Account or any cash held therein.
Redemption Procedures
The procedures by which an Authorized Participant can redeem one or
more Baskets mirror the procedures for the creation of Baskets. On any
business day, an Authorized Participant may place a redemption order
specifying the number of Baskets to be redeemed.
The redemption of Shares pursuant to Cash Orders will only take
place if approved by the Manager in writing, in its sole discretion and
on a case-by-case basis. In exercising its discretion to approve the
redemption of Shares pursuant to Cash Orders, the Manager expects to
take into consideration a number of factors, including the availability
of Liquidity Providers to facilitate Cash Orders and the cost of
processing Cash Orders.
Cash Orders for redemption must be placed no later than 1:59:59
p.m., New York time on each business day. The Authorized Participants
may only redeem Baskets and cannot redeem any Shares in an amount less
than a Basket.
Redemptions under Cash Orders will take place as follows, where
``T'' is the
[[Page 29078]]
trade date and each day in the sequence must be a business day. Before
a redemption order is placed, the Manager determines if such redemption
order will be a Variable Fee Cash Order or an Actual Execution Cash
Order, which determination is communicated to the Authorized
Participant.
------------------------------------------------------------------------
Settlement date (T+1 (or T+2 on
Trade date (T) case[dash]by[dash]case basis, as
approved by Manager))
------------------------------------------------------------------------
<bullet> The Authorized Participant <bullet> The Authorized Participant
places a redemption order with the delivers Baskets to be redeemed
Transfer Agent. from its DTC account to the
<bullet> The Marketing Agent Transfer Agent.
accepts (or rejects) the <bullet> The Liquidity Provider
redemption order, which is delivers to the Cash Account:
communicated to the Authorized (x) in the case of a Variable Fee
Participant by the Transfer Agent. Cash Order, the Total Basket NAV
<bullet> The Manager notifies the less any Variable Fee; or
Liquidity Provider of the (y) in the case of an Actual
redemption order. Execution Cash Order, the actual
<bullet> The Manager determines the proceeds to the Fund from the
Total Basket NAV and, in the case liquidation of the Total Basket
of a Variable Fee Cash Order, any Amount (such amount, as
Variable Fee, as soon as applicable, the ``Required
practicable after 4:00 p.m., New Redemption Cash'').
York time. <bullet> Once the Fund is in
simultaneous possession of (x) the
Total Basket Amount and (y) the
Required Redemption Cash, the
Transfer Agent cancels the Shares
comprising the number of Baskets
redeemed by the Authorized
Participant.
<bullet> The Custodian sends the
Liquidity Provider the Total
Basket Amount, and cash equal to
the Required Redemption Cash is
delivered to the Authorized
Participant from the Cash Account.
------------------------------------------------------------------------
Suspension or Rejection of Orders and Total Basket Amount
The creation or redemption of Shares may be suspended
generally,\74\ or refused with respect to particular requested
creations or redemptions, during any period when the transfer books of
the Transfer Agent are closed or if circumstances outside the control
of the Manager or its delegates make it for all practicable purposes
not feasible to process creation orders or redemption orders or for any
other reason at any time or from time to time.\75\ The Transfer Agent
may reject an order or, after accepting an order, may cancel such order
if: (i) such order is not presented in proper form as described in the
Participant Agreement, (ii) the transfer of the Total Basket Amount
comes from an account other than a wallet address that is known to the
Custodian as belonging to a Liquidity Provider or (iii) the fulfillment
of the order, in the opinion of counsel, might be unlawful, among other
reasons. None of the Manager or its delegates will be liable for the
suspension, rejection or acceptance of any creation order or redemption
order.
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\74\ The Manager will notify the Exchange in the event that the
creation or redemption of Shares will be suspended generally and
will follow the Exchange's ``Immediate Release Policy.''
\75\ Extenuating circumstances outside of the control of the
Manager and its delegates or that could cause the transfer books of
the Transfer Agent to be closed are outlined in the Participant
Agreement and include, for example, public service or utility
problems, power outages resulting in telephone, telecopy and
computer failures, acts of God such as fires, floods or extreme
weather conditions, market conditions or activities causing trading
halts, systems failures involving computer or other information
systems, including any failures or outages of the respective
networks on which the Fund Components operate, affecting the
Authorized Participant, the Manager, the Fund, the Transfer Agent,
the Marketing Agent and the Custodian and similar extraordinary
events.
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Availability of Information
The Fund's website (<a href="https://www.grayscale.com/funds/grayscale-digital-large-cap-fund?public">https://www.grayscale.com/funds/grayscale-digital-large-cap-fund?public</a>), which will be publicly available at no
charge, will include quantitative information on a per Share basis
updated on a daily basis, including, (i) the current NAV per Share
daily and the prior business day's NAV per Share and the reported
closing price of the Shares; (ii) the mid-point of the bid-ask price
\76\ as of the time the NAV per Share is calculated (``Bid-Ask Price'')
and a calculation of the premium or discount of such price against such
NAV per Share; and (iii) data in chart format displaying the frequency
distribution of discounts and premiums of the daily Bid-Ask Price
against the NAV per Share, within appropriate ranges, for each of the
four previous calendar quarters (or for as long as the Fund has been
trading as an ETP if shorter). In addition, on each business day the
Fund's website will provide pricing information for the Shares and
disclose the Fund Components, including: (i) the name of each Fund
Component; (ii) the quantity of each Fund Component; and (iii) the
weighting of each Fund Component. The Fund's website will also include
a form of the prospectus for the Fund that may be downloaded.
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\76\ The bid-ask price of the Fund is determined using the
highest bid and lowest offer on the Consolidated Tape as of the time
of calculation of the closing day NAV.
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One or more major market data vendors will provide the Intra-Day
Fund Value (``IFV'') per Share updated every 15 seconds, as calculated
by the Exchange or a third party financial data provider during the
Exchange's Core Trading Session (9:30 a.m. to 4:00 p.m., E.T.).\77\ The
IFV will be calculated using the same methodology as the NAV per Share
of the Fund (as described above), specifically by using the prior day's
closing NAV per Share as a base and updating that value during the NYSE
Arca Core Trading Session based on the Index Prices to reflect changes
in the value of the Fund's NAV during the trading day.
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\77\ The IFV on a per Share basis disseminated during the NYSE
Arca Core Trading Session should not be viewed as a real-time update
of the NAV, which is calculated once a day.
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The IFV disseminated during the NYSE Arca Core Trading Session
should not be viewed as an actual real-time update of the NAV per
Share, which will be calculated only once at the end of each trading
day. The IFV will be widely disseminated on a per Share basis every 15
seconds during the NYSE Arca Core Trading Session by one or more major
market data vendors. In addition, the IFV will be available through on-
line information services.
The value of the Index Prices will be calculated or available on at
least a 15-second delayed basis through major market data vendors. The
Index, as well as additional information regarding the Index such as
the Index Components and CD5 Methodology, is publicly available on a
continuous basis on the Index Provider's website.
The NAV for the Fund will be calculated by the Manager once a day
and will be disseminated daily to all market participants at the same
time. To the extent that the Manager has utilized the cascading set of
rules described in ``Determination of the Index Prices''
[[Page 29079]]
above, the Fund's website will note the valuation methodology used and
the price per Fund Components resulting from such calculation.
Quotation and last-sale information regarding the Shares will be
disseminated through the facilities of the Consolidated Tape
Association (``CTA'').
Quotation and last sale information for the Fund Components will be
widely disseminated through a variety of major market data vendors,
including Bloomberg and Reuters. In addition, real-time price (and
volume) data for the Fund Components is available by subscription from
Reuters and Bloomberg. The spot price of the Fund Components is
available on a 24-hour basis from major market data vendors, including
Bloomberg and Reuters. Information relating to trading, including price
and volume information, will be available from major market data
vendors and from the trading platforms on which the Fund Components are
traded. The normal trading hours for Digital Asset Trading Platforms
are 24-hours per day, 365-days per year.
On each business day, the Manager will publish the Index Prices,
the Fund's NAV, and the NAV per Share on the Fund's website as soon as
practicable after its determination. If the NAV and NAV per Share have
been calculated using a price per Fund Components other than the Index
Price, the publication on the Fund's website will note the valuation
methodology used and the price per Fund Components resulting from such
calculation.
The Fund will provide website disclosure of its NAV daily. The
website disclosure of the Fund's NAV will occur at the same time as the
disclosure by the Manager of the NAV to Authorized Participants so that
all market participants are provided such portfolio information at the
same time. Therefore, the same portfolio information will be provided
on the public website as well as in electronic files provided to
Authorized Participants. Accordingly, each investor will have access to
the current NAV of the Fund through the Fund's website, as well as from
one or more major market data vendors.
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 closing price and trading
volume information for the Shares will be published daily in the
financial section of newspapers.
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. Shares will trade on
the NYSE Arca Marketplace from 4:00 a.m. to 8:00 p.m., E.T. in
accordance with NYSE Arca Rule 7.34-E (Early, Core, and Late Trading
Sessions). The Exchange has appropriate rules to facilitate
transactions in the Shares during all trading sessions. As provided in
NYSE Arca Rule 7.6-E, the minimum price variation (``MPV'') for quoting
and entry of orders in equity securities traded on the NYSE Arca
Marketplace is $0.01, with the exception of securities that are priced
less than $1.00, for which the MPV for order entry is $0.0001.
The Shares will be required to conform to the initial and continued
listing criteria under NYSE Arca Rule 8.500-E. The trading of the
Shares will be subject to NYSE Arca Rule 8.500-E(f), which sets forth
certain restrictions on Equity Trading Permit Holders (``ETP Holders'')
acting as registered Market Makers in Trust Units to facilitate
surveillance. The Exchange represents that, for initial and continued
listing, the Fund will be required to comply with Rule 10A-3 \78\ under
the Act, as provided by NYSE Arca Rule 5.3-E. A minimum of 100,000
Shares of the Fund will be outstanding at the commencement of trading
on the Exchange.
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\78\ 17 CFR 240.10A-3.
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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 of the Fund.\79\ Trading in Shares of the Fund
will be halted if the circuit breaker parameters in NYSE Arca Rule
7.12-E have been reached. Trading also may be halted because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable.
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\79\ See NYSE Arca Rule 7.12-E.
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The Exchange may halt trading during the day if it becomes aware
that there has been an interruption to the dissemination of the IFV or
the value of the Index Prices occurs. If the interruption to the
dissemination of the IFV or the value of the Index Prices persists past
the trading day in which it occurred, the Exchange will halt trading no
later than the beginning of the NYSE Arca Core Trading Session on the
trading day following the interruption. In addition, if the Exchange
becomes aware that the NAV per Share 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 represents that trading in the Shares of the Fund will
be subject to the existing trading surveillances administered by the
Exchange, as well as cross-market surveillances administered by the
Financial Industry Regulatory Authority (``FINRA'') on behalf of the
Exchange, which are designed to detect potential violations of Exchange
rules and applicable federal securities laws with respect to the Shares
of the Fund trading on the Exchange.\80\ The Exchange represents that
these procedures are adequate to properly monitor Exchange trading of
the Shares in all trading sessions and to deter and detect violations
of Exchange rules and federal securities laws with respect to the
Shares of the Fund trading on the Exchange.
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\80\ FINRA conducts cross-market surveillances on behalf of the
Exchange pursuant to a regulatory services agreement. The Exchange
is responsible for FINRA's performance under this regulatory
services agreement.
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The existing surveillances referred to above generally focus on
detecting securities trading outside their normal patterns, which could
be indicative of manipulative or other violative activity with respect
to the Shares of the Fund. When such situations are detected,
surveillance analysis follows and investigations are opened, where
appropriate, to review the behavior of all relevant parties for all
relevant trading violations.
The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate regarding trading in the Shares with other markets and
other entities that are members of the ISG. The Exchange or FINRA, on
behalf of the Exchange, or both, may obtain trading information
regarding trading in the Shares and Fund Component derivatives from
such markets and other entities. In addition, the Exchange may obtain
information regarding trading in the Shares and Fund Component
derivatives from markets and other entities with which the Exchange has
in place a CSSA.\81\ The Exchange is also
[[Page 29080]]
able to obtain information from ETP Holders acting as registered Market
Makers regarding their trading (as principal or agent) in the Shares
and any underlying Fund Components, options on Fund Components, or any
other Fund Component derivatives.
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\81\ For a list of the current members of ISG, see
<a href="http://www.isgportal.org">www.isgportal.org</a>. The Exchange notes that not all Fund Components
may trade on markets that are members of ISG or with which the
Exchange has in place a CSSA, but that, consistent with this
proposed rule change, at least 85% of the Fund Components will
consist of Approved Components as detailed above.
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In addition, under Rule 8.500-E(f), an ETP Holder acting as a
registered Market Maker in the Shares is required to provide the
Exchange with information relating to its accounts for trading in any
underlying commodity, related futures or options on futures, or any
other related derivatives. Commentary .04 of NYSE Arca Rule 11.3-E
requires an ETP Holder acting as a registered Market Maker, and its
affiliates, in the Shares to establish, maintain and enforce written
policies and procedures reasonably designed to prevent the misuse of
any material nonpublic information with respect to such products, any
components of the related products, any physical asset or commodity
underlying the product, applicable currencies, underlying indexes,
related futures or options on futures, and any related derivative
instruments (including the Shares). As a general matter, the Exchange
has regulatory jurisdiction over its ETP Holders and their associated
persons, which include any person or entity controlling an ETP Holder.
To the extent the Exchange may be found to lack jurisdiction over a
subsidiary or affiliate of an ETP Holder that does business only in
commodities or futures contracts and that subsidiary or affiliate is a
member of another regulatory organization, the Exchange could obtain
information regarding the activities of such subsidiary or affiliate
through surveillance sharing agreements with regulatory organizations
to the extent the Exchange has such an agreement with that regulatory
organization.
In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
All statements and representations made in this filing regarding
(a) the description of the index or portfolio or reference asset, (b)
limitations on portfolio holdings or reference assets, or (c) the
applicability of Exchange listing rules specified in this rule filing
shall constitute continued listing requirements for listing the Shares
on the Exchange.
The Manager has represented to the Exchange that it will advise the
Exchange if the Fund ceases to comply with the continued listing
requirements, and, pursuant to its obligations under Section 19(g)(1)
of the Act, the Exchange will monitor for compliance with the continued
listing requirements. If the Exchange becomes aware that the Fund is
not in compliance with the applicable listing requirements, the
Exchange will commence delisting procedures under NYSE Arca Rule 5.5-
E(m).
Information Bulletin
At or prior to the commencement of trading, the Exchange will
inform its ETP Holders in an ``Information Bulletin'' of the special
characteristics and risks associated with trading the Shares.
Specifically, the Information Bulletin will discuss the following: (1)
the procedures for creations of Shares in Baskets; (2) NYSE Arca Rule
9.2-E(a), which imposes a duty of due diligence on its ETP Holders to
learn the essential facts relating to every customer prior to trading
the Shares; (3) information regarding how the NAV and the IFV are
disseminated; (4) the possibility that trading spreads and the
resulting premium or discount on the Shares may widen during the
Opening and Late Trading Sessions, when an updated IFV will not be
calculated or publicly disseminated; (5) the requirement that ETP
Holders deliver a prospectus to investors purchasing newly issued
Shares prior to or concurrently with the confirmation of a transaction;
and (6) trading information. The Exchange notes that investors
purchasing Shares directly from the Fund will receive a prospectus.
In addition, the Information Bulletin will reference that the Fund
is subject to various fees and expenses as described in the
Registration Statement. The Information Bulletin will disclose that
information about the Shares of the Fund is publicly available on the
Fund's website.
The Information Bulletin will also discuss any relief, if granted,
by the Commission or the staff from any rules under the Act.
5. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\82\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\83\ in particular, in that it
is designed to prevent fraudulent and manipulative acts and practices,
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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\82\ 15 U.S.C. 78f(b).
\83\ 15 U.S.C. 78f(b)(5).
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The Exchange believes the proposed changes to Rule 8.500-E would
promote just and equitable principles of trade, remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and, in general, protect investors and the public
interest because they would expand the universe of issuers that could
issue Trust Units, thereby facilitating the listing and trading of
additional series of Trust Units. The proposed changes to Rule 8.500-E
would also promote clarity and specificity in the Exchange's rules,
including with respect to the permissible holdings underlying series of
Trust Units. The Exchange believes the proposed change could promote
competition by supporting the availability of additional exchange-
traded products, to the benefit of all market participants. Except for
the changes described above, all other requirements of Rule 8.500-E
remain unchanged and would continue to apply to Trust Units listed and
traded on the Exchange.
The Exchange also believes that the proposed addition of Trust
Units to the enumerated derivative and special purpose securities that
are subject to the provisions of Rule 5.3-E (Corporate Governance and
Disclosure Policies) and Rule 5.3-E(e) (Shareholder/Annual Meetings)
would promote just and equitable principles of trade and remove
impediments to and perfect the mechanism of a free and open market and
a national market system by holding Trust Units to the same
requirements currently applicable to other similar derivative and
special purpose securities such as those listed pursuant to Rule 8.201-
E.
With respect to the proposed listing and trading of Shares of the
Fund, the Exchange believes that the proposed rule change is designed
to prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in NYSE Arca Rule 8.500-E, as
amended in this filing. The Exchange further believes that the proposed
allocation of Fund Components to include at least 85% Approved
Components, as described above, would remove impediments to and perfect
the mechanism of a free and open market and a national market system
because, at the start of each NYSE Arca Core Trading Session, at least
85% of the Fund Components will consist of Approved Components for
which the Commission has found that there are sufficient means of
preventing fraud and manipulation. The Exchange has in place certain
surveillance procedures that are adequate to properly monitor trading
in the Shares on the
[[Page 29081]]
Exchange in all trading sessions and to deter and detect violations of
Exchange rules and applicable federal securities laws applicable to the
Shares of the Fund trading on the Exchange. The Exchange or FINRA, on
behalf of the Exchange, or both, will communicate as needed regarding
trading in the Shares with other markets 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 Fund
Component derivatives from such markets. In addition, the Exchange may
obtain information regarding trading in the Shares and Fund Component
derivatives from markets with which the Exchange has in place a CSSA.
Also, pursuant to NYSE Arca Rule 8.500-E(f), the Exchange is able to
obtain information from ETP Holders regarding their trading (as
principal or agent) in the Shares and any underlying Fund Components,
options on Fund Components, or any Fund Component derivatives.
The proposed rule change to list and trade Shares of the Fund is
also designed to prevent fraudulent and manipulative acts and practices
because the Index Prices (1) track the Digital Asset Trading Platform
Market price through trading activity at Constituent Trading Platforms,
which are made up of U.S.-Regulated Trading Platforms and/or Digital
Asset Trading Platforms licensed and/or able to serve investors in the
United Kingdom, European Union, Hong Kong and/or Singapore; (2) are
designed to mitigate the impact of instances of fraud, manipulation and
other anomalous trading activity in real-time through systematic
adjustments; (3) are constructed and maintained by an expert third-
party index provider, allowing for prudent handling of non-market-
related events; and (4) are designed to mitigate the impact of
instances of fraud, manipulation and other anomalous trading activity
concentrated on any one specific
[…truncated; see source link]Indexed from Federal Register on July 2, 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.