68214 Federal Register / Vol. 88, No. 190 / Tuesday, October 3, 2023 / Notices 

21Notice, 88 FR at 58628 n.5. 

22 15 U.S.C. 78q–1(b)(3)(F). 

23 17 CFR 240.17Ad–22(e)(5). 

24 In approving the proposed rule change, the 

Commission considered the proposal’s impacts on 

efficiency, competition, and capital formation. 15 

U.S.C. 78c(f). 

25 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3The Commission approved Nasdaq Rule 5711 in 

Securities Exchange Act Release No. 66648 (March 

23, 2012), 77 FR 19428 (March 30, 2012) (SR– 

NASDAQ–2012–013). 

4On September 8, 2023, the Trust confidentially 

filed a draft registration statement under the 

Securities Act (the ‘‘Registration Statement’’). The 

Jumpstart Our Business Startups Act (the ‘‘JOBS 

Act’’), enacted on April 5, 2012, added Section 6(e) 

to the Securities Act. Secction 6(e) of the Securities 

Act provides that an ‘‘emerging growth company’’ 

may confidentially submit to the Commission a 

draft registration statement for confidential, nonpublic review by the Commission staff prior to 

public filing, provided that the initial confidential 

submission and all amendments thereto shall be 

publicly filed not later than 21 days before the date 

on which the issuer conducts a road show, as such 

term is defined in Securities Act Rule 433(h)(4). An 

emerging growth company is defined in Section 

2(a)(19) of the Securities Act as an issuer with less 

than $1,000,000,000 total annual gross revenues 

during its most recently completed fiscal year. The 

Trust meets the definition of an emerging growth 

company and consequently submitted its 

Registration Statement to the Commission on a 

confidential basis. The description of the operation 

of the Trust and the Fund herein is based, in part, 

on the Registration Statement. 

5ETH Contracts began trading on the CME Globex 

(‘‘Globex’’) trading platform on February 8, 2021 

under the ticker symbol ‘‘ETH’’ and are cash-settled 

in U.S. dollars. MET Contracts began trading on the 

Globex trading platform on December 6, 2021 under 

the ticket symbol ‘‘MET’’ and are also cash-settled 

in U.S. dollars. 

6The ETHUSD_RR is a daily reference rate of the 

U.S. dollar price of one ether calculated daily as of 

4:00 p.m. London time. It is calculated by the CME 

based on the ether trading activity on CMEspecified consituent spot ether exchanges during a 

calculation window between 3:00 p.m. and 4:00 

p.m. London time. The CME launched the 

ETHUSD_RR in May 2018. 

process, which is in effect is a double 

haircut requirement, and replace it with 

an approach in which the posted GBP 

is converted directly to the currency of 

the obligation and then haircut once. 

ICC’s proposed process would still 

align with its collateral valuation 

process, which requires that assets 

posted as collateral are haircut for their 

native market risks and cross-currency 

risk. The proposed process would still 

apply a haircut that addresses crosscurrency risk, but would eliminate an 

extraneous haircut that, according to 

ICC, is a byproduct of its previous 

clearing system business logic.21 As 

such, the Commission believes that the 

proposed change is consistent with Rule 

17Ad–22(e)(5) because it remains 

appropriately conservative. 

IV. Conclusion 

On the basis of the foregoing, the 

Commission finds that the proposed 

rule change is consistent with the 

requirements of the Act, and in 

particular, Section 17A(b)(3)(F) of the 

Act 22 and Rule 17Ad–22(e)(5) 

thereunder.23

It is therefore ordered pursuant to 

Section 19(b)(2) of the Act that the 

proposed rule change (SR–ICC–2023– 

013) be, and hereby is, approved.24

For the Commission by the Division of 

Trading and Markets, pursuant to delegated 

authority.25

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–21796 Filed 10–2–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98563; File No. SR– 

NASDAQ–2023–035] 

Self-Regulatory Organizations; The 

Nasdaq Stock Market LLC; Notice of 

Filing of a Proposed Rule Change To 

List and Trade Shares of the Hashdex 

Nasdaq Ethereum ETF Under Nasdaq 

Rule 5711(i) 

September 27, 2023. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on 

September 20, 2023, The Nasdaq Stock 

Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) 

filed with the Securities and Exchange 

Commission (‘‘SEC’’ or ‘‘Commission’’) 

the proposed rule change as described 

in Items I and II below, which Items 

have been prepared by the Exchange. 

The Commission is publishing this 

notice to solicit comments on the 

proposed rule change from interested 

persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to list and 

trade the shares of the Hashdex Nasdaq 

Ethereum ETF under Nasdaq Rule 

5711(i) (‘‘Trust Units’’). The units of the 

Trust are referred to herein as the 

‘‘Shares.’’ 

The text of the proposed rule change 

is available on the Exchange’s website at 

https://listingcenter.nasdaq.com/ 

rulebook/nasdaq/rules, at the principal 

office of the Exchange, and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in sections A, B, and C below, of 

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to list and 

trade Shares of the Hashdex Nasdaq 

Ethereum ETF (the ‘‘Fund’’) under 

Nasdaq Rule 5711(i),3 which governs 

the listing and trading of Trust Units on 

the Exchange. 

The Fund is a series of Tidal 

Commodities Trust I (the ‘‘Trust’’), a 

Delaware statutory trust.4 The Fund is 

managed and controlled by Toroso 

Investments LLC (‘‘Sponsor’’). The 

Sponsor is registered as a commodity 

pool operator (‘‘CPO’’) with the 

Commodity Futures Trading 

Commission (‘‘CFTC’’) and is a member 

of the National Futures Association 

(‘‘NFA’’). 

The Fund’s Investment Objective and 

Strategy 

According to the Registration 

Statement, the Chicago Mercantile 

Exchange, Inc. (‘‘CME’’) currently offers 

two Ether futures contracts (‘‘Ether 

Futures Contracts’’), one contract 

representing 50 ether (‘‘ETH Contracts’’) 

and another contract representing 0.10 

ether (‘‘MET Contracts’’).5 Each ETH 

Contract and MET Contract settles daily 

to the ETH Contract volume-weighted 

average price (‘‘VWAP’’) of all trades 

that occur between 2:59 p.m. and 3:00 

p.m., Central Time, the settlement 

period, rounded to the nearest tradable 

tick. ETH Contracts and MET Contracts 

each expire on the last Friday of the 

contract month, and the final settlement 

value for each contract is based on the 

CME CF Ether Dollar Reference Rate 

(‘‘ETHUSD_RR’’).6

ETH Contracts and MET Contracts 

each trade six consecutive monthly 

contracts plus two additional December 

contract months (if the 6 consecutive 

months include December, only one 

additional December contract month is 

listed). Because ETH Contracts and MET 

Contracts are exchange-listed, they 

allow investors to gain exposure to ether 


ddrumheller on DSK120RN23PROD with NOTICES1
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7The term ‘‘normal market conditions’’ includes, 

but is not limited to, the absence of: trading halts 

in the applicable financial markets generally; 

operational issues (e.g., systems failure) causing 

dissemination of inaccurate market information; or 

force majeure type events such as a natural or manmade disaster, act of God, armed conflict, act of 

terrorism, riot or labor disruption or any similar 

intervening circumstance. See Nasdaq Rules 4120 

and 4121. 

8The term ‘‘cash equivalents’’ includes short term 

Treasury bills, money market funds, and demand 

deposit accounts. 

9See https://indexes.nasdaqomx.com/Index/ 

Overview/NQETHS. 

10See https://indexes.nasdaqomx.com//docs/ 

methodology/NCI.pdf. 

11As discussed in more detail below, the CME 

determines the daily settlements for Ether futures 

based on trading activity on CME Globex between 

14:59:00 and 15:00:00 Central Time (CT), which is 

the ‘‘settlement period.’’ 

(the native cryptocurrency to the 

Ethereum blockchain, herein referred to 

interchangeably as ‘‘Ether’’ or 

‘‘Ethereum’’) without having to hold the 

underlying cryptocurrency. Like a 

futures contract on a commodity or 

stock index, ETH Contracts and MET 

Contracts allow investors to hedge 

investment positions or speculate on the 

future price of Ether. 

According to the Registration 

Statement, the Fund’s investment 

objective is to have the daily changes in 

the net asset value (‘‘NAV’’) of the 

Shares reflecting the daily changes in 

the price of the Nasdaq Ether Reference 

Price (NQETH) (the ‘‘Benchmark’’), less 

expenses from the Fund’s operations. 

The Benchmark is designed to track the 

price performance of Ether. Under 

normal market conditions,7 the Fund 

will invest in Ether, Ether Futures 

Contracts listed on the CME, and in cash 

and cash equivalents.8 Because the 

Fund’s investment objective is to track 

the price of the Benchmark by investing 

in Ether and Ether Futures Contracts, 

changes in the price of the Shares may 

vary from changes in the spot price of 

Ether. The Benchmark is calculated 

using the Nasdaq Ethereum Reference 

Price—Settlement (the ‘‘NQETHS’’).9

According to the Sponsor, the NQETHS 

is designed to allow investors to track 

the price of Ether by applying a rigorous 

methodology to trade data captured 

from cryptocurrency exchanges that 

meet eligibility criteria of the Nasdaq 

Crypto Index (‘‘NCI’’). The NQETHS is 

calculated once every trading day 

through the application of a publicly 

available rules-based pricing 

methodology to a diverse collection of 

pricing sources to provide an 

institutional-grade reference price for 

Ethereum.10 The pricing methodology is 

designed to account for variances in 

price across a wide range of sources, 

each of which has been vetted according 

to criteria identified in the 

methodology. Specifically, the 

settlement value is the Time Weighted 

Average Price (‘‘TWAP’’) calculated 

across VWAPs for each minute in the 

settlement price window, which is 

between 2:50:00 and 3:00:00 p.m. New 

York Time. Where there are no 

transactions observed in any given 

minute of the settlement price window, 

that minute is excluded from the 

calculation of the TWAP. 

According to the Sponsor, the 

NQETHS methodology also utilizes 

penalty factors to mitigate the impact of 

anomalous trading activity such as 

manipulation, illiquidity, large block 

trading, or operational issues that could 

compromise price representation. Three 

types of penalties are applied: abnormal 

price penalties, abnormal volatility 

penalties, and abnormal volume 

penalties. These penalties are defined as 

adjustment factors on the weight of 

information from each exchange that 

contributes pricing information based 

on the deviation of an exchange’s price, 

volatility, or volume from the median 

across all exchanges. For example, if a 

core exchange’s price is 2.5 standard 

deviations away from the median price, 

its price penalty factor will be a 1⁄2.5 

multiplier. 

Finally, as a means of achieving the 

highest degrees of confidence in the 

reported volume, data is sourced only 

from ‘‘core exchanges’’ that are 

screened, selected, and approved by the 

Nasdaq Crypto Index Oversight 

Committee (the ‘‘NCIOC’’). Core 

exchanges must: (1) have strong forking 

controls; (2) have effective anti-money 

laundering (AML) controls; (3) have 

reliable and transparent application 

programming interface (API) that 

provides real-time and historical trading 

data; (4) charge fees for trading and 

structure trading incentives that do not 

interfere with the forces of supply and 

demand; (5) be licensed by a public 

independent governing body; (6) 

include surveillance for manipulative 

trading practices and erroneous 

transactions; (7) evidence a robust IT 

infrastructure; (8) demonstrate active 

capacity management; (9) evidence 

cooperation with regulators and law 

enforcement; and (10) have a minimum 

market representation for trading 

volume. Additionally, the NCIOC 

conducts further diligence to assess an 

exchange’s eligibility and will consider 

additional criteria such as the 

exchange’s organizational and 

ownership structure, security history, 

and reputation; the list of existing core 

exchanges will be recertified by the 

NCIOC at minimum on an annual basis. 

The Sponsor believes that the 

NQETHS is suitable for use in 

calculating the Benchmark because (i) it 

would provide reliable pricing for 

purposes of tracking the actual 

performance of spot Ether, (ii) it is 

administered by an independent index 

administrator, and (iii) its methodology 

is specifically designed to mitigate 

potential manipulation coming from 

unregulated markets. Specifically, the 

Sponsor believes that (i) by tracking the 

actual price of spot Ether, NQETHS is 

transparent and adequate for the Fund’s 

investors; (ii) using a Benchmark that 

has its own independent index 

administrator provides investors the 

best practices in governance and 

accountability and benchmark quality; 

and (iii) the pricing methodology 

underlying the NQETHS is designed to 

be resistant to potential price 

manipulation by applying a robust 

methodology to trade data captured 

from NCI core exchanges, which have to 

meet strict criteria created by the 

NCIOC, thereby drawing on a diverse 

collection of trustworthy pricing sources 

to provide an institutional-grade 

reference price for Ether that accounts 

for variances in price across a wide 

range of sources and that adjusts to 

mitigate the impact of anomalous 

trading activity that could compromise 

the integrity of the NQETHS price. 

According to the Registration 

Statement, the Fund seeks to maintain 

its holdings in Ether Futures Contracts 

with a roughly constant expiration 

profile. Therefore, the Fund’s positions 

in Ether Futures Contracts will be 

changed or ‘‘rolled’’ on a regular basis 

by closing out first to expire contracts 

prior to settlement, and then entering 

into second to expire contracts. 

Accordingly, the Fund will never carry 

futures positions all the way to cash 

settlement—the Fund will price only off 

of the daily settlement prices of the 

Ether Futures Contracts.11 To achieve 

this, the Fund will roll its futures 

holdings prior to cash settlement of the 

expiring contract. 

In seeking to achieve the Fund’s 

investment objective, the Sponsor will 

employ a ‘‘neutral’’ investment strategy 

that is intended to track the changes in 

the Benchmark regardless of whether 

the Benchmark goes up or goes down. 

The Fund will endeavor to trade in 

Ether and Ether Futures Contracts so 

that the Fund’s average daily tracking 

error against the Benchmark will be less 

than 10 percent over any period of 30 

trading days. The Fund’s ‘‘neutral’’ 

investment strategy is designed to 

permit investors generally to purchase 

and sell the Fund’s Shares for the 

purpose of investing in the Ether and 

Ether Futures Contracts (as discussed 


ddrumheller on DSK120RN23PROD with NOTICES1
68216 Federal Register / Vol. 88, No. 190 / Tuesday, October 3, 2023 / Notices 

below). Such investors may include 

participants in the Ether market seeking 

to hedge the risk of losses in their Etherrelated transactions, as well as investors 

seeking price exposure to the Ether 

market. 

According to the Registration 

Statement, one factor determining the 

total return from investing in futures 

contracts is the price relationship 

between soon to expire contracts and 

later to expire contracts. If the futures 

market is in a state of backwardation 

(i.e., when the price of ETH Contracts 

and MET Contracts in the future is 

expected to be less than the current 

price), the Fund will buy later to expire 

contracts for a lower price than the 

sooner to expire contracts that it sells. 

Hypothetically, and assuming no 

changes to either prevailing ETH 

Contracts and MET Contracts’ prices or 

the price relationship between soon to 

expire contracts and later to expire 

contracts, the value of a contract will 

rise as it approaches expiration. Over 

time, if backwardation remained 

constant, the performance of a portfolio 

would continue to be affected. If the 

futures market is in contango, the Fund 

will buy later to expire contracts for a 

higher price than the sooner to expire 

contracts that it sells. Hypothetically, 

and assuming no other changes to either 

prevailing ETH Contracts and MET 

Contracts’ prices or the price 

relationship between the spot price, 

soon to expire contracts and later to 

expire contracts, the value of a contract 

will fall as it approaches expiration. 

Over time, if contango remained 

constant, the performance of a portfolio 

would continue to be affected. 

Frequently, whether contango or 

backwardation exists is a function, 

among other factors, of the prevailing 

market conditions of the underlying 

market and government policy. 

The Fund’s investments will be 

consistent with the Fund’s investment 

objective and will not be used to 

enhance leverage. That is, the Fund’s 

investments will not be used to seek 

performance that is the multiple or 

inverse multiple (e.g., 2Xs, 3Xs, –2Xs, 

and –3Xs) of the Fund’s Benchmark. 

According to the Registration 

Statement, the Fund will seek to achieve 

its investment objective by investing not 

only in Ether Futures Contracts, but also 

in physical Ether to the extent allowed 

by the Fund’s investment restrictions on 

spot Ether, using a pricing methodology, 

for purposes of calculating the Fund’s 

NAV, that will derive spot Ether prices 

from Ether Futures Contracts and not 

from unregulated exchanges, as further 

explained below (‘‘Spot Ether’’). In 

doing so, the Sponsor expects to provide 

Ether exposure to investors while still 

using Ether Futures Contracts in its 

strategy and relying on the CME as its 

‘‘market of relevant size.’’ In particular, 

to avoid any exposure to potential 

manipulation from unregulated 

exchanges, the Fund’s NAV will be 

calculated using a Spot Ether price 

derived from CME futures prices, as 

further explained below, and the Fund 

expects to purchase and sell physical 

Ether via CME’s Exchange for Physical 

Transactions, which are subject to 

CME’s market surveillance. 

The Ethereum Network and Ether 

Transactions 

As discussed in further detail below, 

Ether is the digital asset that is native to, 

created and transmitted through the 

operations of, the peer-to-peer Ethereum 

network, an open-source protocol of the 

network of computers that operates on 

cryptographic protocols and governs the 

creation, movement, and ownership of 

Ether and hosts the public ledger, or 

‘‘blockchain,’’ (‘‘Ethereum Network’’). 

The decentralized nature of the 

Ethereum Network allows parties to 

transact directly with one another based 

on cryptographic proof instead of 

relying on a trusted third party. 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 and settle multiple types 

of data, which are recorded on the 

blockchain. 

Ether is the native token for the 

Ethereum Network. Such a statement 

implies that, in order to settle any 

information on the Ethereum Network, 

there will be a fee (named ‘‘gas fee’’) to 

be paid in Ether, in order to use that 

block space. Ether may be also used as 

a medium of exchange, unit of account 

or store of value. Ethers exist and are 

stored on the blockchain, which serves 

as the decentralized transaction ledger 

for the Ethereum Network. All 

transactions, including the creation of 

new ethers through staking, are 

recorded on the blockchain, ensuring 

the verification of each ether’s location 

in specific digital wallets. 

The responsibility for maintaining the 

Ether Account lies with the Ether 

Custodian, who utilizes cold storage 

mechanisms for the vault account. 

Digital wallets can be accessed using 

their respective private keys, which are 

held by the Ether Custodians in cold 

storage at various vaulting locations. 

The locations of these vaulting premises 

are kept confidential to enhance 

security. ‘‘Cold storage’’ refers to a 

safeguarding method where private keys 

associated with ethers are kept offline, 

away from internet-connected devices. 

This could involve storing the private 

keys on a non-networked computer or 

electronic device. To send ethers from a 

digital wallet with private keys in cold 

storage, the private keys must be 

retrieved and entered into an ether 

software program for transaction 

signing, or the unsigned transaction is 

sent to a ‘‘cold’’ server where the private 

keys are held for signature. 

The Ethereum Network is 

decentralized and does not require 

governmental authorities or financial 

institution intermediaries to create, 

transmit, or determine the value of 

Ether. In addition, no party may easily 

censor transactions on the Ethereum 

Network. As a result, the Ethereum 

Network is often referred to as 

decentralized and censorship resistant. 

The value of Ether is determined by 

the supply of and demand for Ether. 

New tokens are created (or ‘‘minted’’) 

and rewarded to the parties providing 

security to the Ethereum Network (the 

‘‘stakes’’), by staking their own Ether 

and running a computer node in order 

to verify transactions and add them to 

the blockchain. 

The Crypto Industry Has Progressed and 

Matured Significantly 

Ether and Bitcoin are the two largest 

and most well-known cryptoassets. In a 

similar vein to the Ethereum Network, 

the bitcoin network governs the 

creation, transaction, and ownership of 

its native token (‘‘Bitcoin’’ and ‘‘Bitcoin 

Network’’). The Bitcoin Protocol was 

launched in 2009 and lays out the rate 

of issuance of new Bitcoins within the 

Bitcoin Network, a rate that is reduced 

by half approximately every four years 

with an eventual hard cap of 21 million. 

It is generally understood that the 

combination of these two features—a 

systemic hard cap of 21 million Bitcoin 

and the ability to transact with anyone 

connected to the Bitcoin Network— 

gives Bitcoin its value. 

After ‘‘The Merge,’’ which marked the 

merging of Ethereum’s original 

execution layer with its new ‘‘proof-ofstake’’ consensus layer, known as the 

Beacon Chain, a significant change 

occurred. This modification eliminated 

the resource-intensive mining process, 

replacing it with the option to secure 

the network through the utilization of 

staked Ether. In October 2022, Ether 

supply dynamics transitioned as more 

Ether was burned verifying transactions 

than was created in the same period, 

which became a constant trend ever 

since that period. This behavior, similar 

to Bitcoin’s capped supply (limited to 

21 million), plays a significant role in 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 88, No. 190 / Tuesday, October 3, 2023 / Notices 68217 

12See Order Setting Aside Action by Delegated 

Authority and Disapproving a Proposed Rule 

Change, as Modified by Amendments No. 1 and 2, 

to List and Trade Shares of the Winklevoss Bitcoin 

Trust, Securities Exchange Act Release No. 83723 

(July 26, 2018), 83 FR 37579 (August 1, 2018) (the 

‘‘Winklevoss II Order’’). This proposal was 

subsequently disapproved by the Commission. 

13See https://www.nasdaq.com/articles/vaneckproshares-abruptly-withdraw-ether-futures-etfproposals-2021-08-20. 

14See Securities Exchange Act Release No. 90788, 

86 FR 11627 (February 26, 2021) (File Number S7– 

25–20) (Custody of Digital Asset Securities by 

Special Purpose Broker-Dealers). 

15See Letter from Elizabeth Baird, Deputy 

Director, Division of Trading and Markets, U.S. 

Securities and Exchange Commission to Kris 

Dailey, Vice President, Risk Oversight & 

Operational Regulation, Financial Industry 

Regulatory Authority (September 25, 2020), 

available at: https://www.sec.gov/divisions/ 

marketreg/mr-noaction/2020/finra-ats-role- insettlement-of-digital-asset-security-trades09252020.pdf. 

16See Letter from Jeffrey S. Mooney, Associate 

Director, Division of Trading and Markets, U.S. 

Securities and Exchange Commission to Charles G. 

Cascarilla & Daniel M. Burstein, Paxos Trust 

Company, LLC (October 28, 2019), available at: 

https://www.sec.gov/divisions/marketreg/mrnoaction/2019/paxos-trust-company-102819- 

17a.pdf. 

17See, e.g., Form TA–1/A filed by Tokensoft 

Transfer Agent LLC (CIK: 0001794142) on January 

8, 2021, available at: https://www.sec.gov/Archives/ 

edgar/data/1794142/000179414219000001/

xslFTA1X01/primaryldoc.xml. 

18See OCC News Release 2021–2 (January 4, 

2021), available at: https://www.occ.gov/newsissuances/news-releases/2021/nr-occ-2021-2.html. 

19See OCC News Release 2021–6 (January 13, 

2021), available at: https://www.occ.gov/newsissuances/news-releases/2021/nr-occ-2021-6.html 

and OCC News Release 2021–19 (February 5, 2021), 

available at: https://www.occ.gov/news-issuances/ 

news-releases/2021/nr-occ-2021-19.html. 

20See FinCEN Guidance FIN–2019–G001 (May 9, 

2019) (Application of FinCEN’s Regulations to 

Certain Business Models Involving Convertible 

Virtual Currencies), available at: https:// 

www.fincen.gov/sites/default/files/2019-05/FinCEN

%20Guidance%20CVC%20FINAL%20508.pdf. 

21See U.S. Department of the Treasury Press 

Release: ‘‘The Financial Crimes Enforcement 

Network Proposes Rule Aimed at Closing AntiMoney Laundering Regulatory Gaps for Certain 

Convertible Virtual Currency and Digital Asset 

Transactions’’ (December 18, 2020), available at: 

https://home.treasury.gov/news/press-releases/ 

sm1216. 

22See U.S. Department of the Treasury 

Enforcement Release: ‘‘OFAC Enters Into $98,830 

Settlement with BitGo, Inc. for Apparent Violations 

of Multiple Sanctions Programs Related to Digital 

Currency Transactions’’ (December 30,2020), 

available at: https://home.treasury.gov/system/files/ 

126/20201230lbitgo.pdf. 

23On December 10, 2020, Massachusetts Mutual 

Life Insurance Company (MassMutual) announced 

that it had purchased $100 million in Bitcoin for 

its general investment account. See MassMutual 

Press Release ‘‘Institutional Bitcoin provider NYDIG 

announces minority stake purchase by 

MassMutual’’ (December 10, 2020), available at: 

https://www.massmutual.com/about-us/news-andpress-releases/press-releases/2020/12/institutionalbitcoin-provider-nydig-announces-minority-stakepurchase-by-massmutual. 

24See, e.g., ‘‘Morgan Stanley to Offer Rich Clients 

Access to Bitcoin Funds’’ (March 17, 2021) 

available at: https://www.bloomberg.com/news/ 

articles/2021-03-17/morgan-stanley-to-offer-richclients-access-to-bitcoin-funds. 

25See, e.g., ‘‘BlackRock’s Rick Rieder says the 

world’s largest asset manager has ‘started to dabble’ 

in Bitcoin’’ (February 17, 2021), available at: 

https://www.cnbc.com/2021/02/17/blackrock-hasstarted-to-dabble-in-bitcoin-says-rick-rieder.html 

and ‘‘Guggenheim’s Scott Minerd Says Bitcoin 

Should Be Worth $400,000’’ (December 16, 2020), 

available at: https://www.bloomberg.com/news/ 

articles/2020-12-16/guggenheim-s-scott-minerdsays-bitcoin-should-be-worth-400-000. 

26See, e.g., ‘‘Visa Moves to Allow Payment 

Settlements Using Cryptocurrency’’ (March 29, 

2021), available at: https://www.reuters.com/ 

business/autos-transportation/exclusive-visamoves-allow-payment-settlements-usingcryptocurrency-2021-03-29/. 

27See, e.g., ‘‘Harvard and Yale Endowments 

Among Those Reportedly Buying Crypto’’ (January 

25, 2021), available at: https:// 

www.bloomberg.com/news/articles/2021-01-26/ 

harvard-and-yaleendowments-among-thosereportedly-buying-crypto. 

28See, e.g., ‘‘Virginia Police Department Reveals 

Why its Pension Fund is Betting on Bitcoin’’ 

(February 14, 2019), available at: https:// 

finance.yahoo.com/news/virginia-policedepartment-reveals-why- 194558505.html. 

29See, e.g., ‘‘Bridgewater: Our Thoughts on 

Bitcoin’’ (January 28, 2021) available at: https:// 

www.bridgewater.com/research-and-insights/ourthoughts-on-bitcoin and ‘‘Paul Tudor Jones says he 

Continued 

influencing its long-term price 

dynamics. 

The first rule filing proposing to list 

an exchange-traded product to provide 

exposure to crypto in the U.S. was 

submitted by the Cboe BZX Exchange, 

Inc. on June 30, 2016.12 At that time, 

blockchain technology, and digital 

assets that utilized it, were relatively 

new to the broader public. No registered 

offering of digital asset securities or 

shares in an investment vehicle with 

exposure to a digital asset had yet been 

conducted, and the regulated 

infrastructure for conducting a digital 

asset securities offering had not begun 

to develop. Conversely, the first rule 

filing proposing to list an exchangetraded product to provide exposure to 

Ether in the U.S. was submitted on 

August 18, 2021.13 When CME Globex 

began trading ETH Contracts in 

February 2021, the digital assets 

financial ecosystem had progressed, and 

matured significantly. 

The development of a regulated 

market for digital asset securities has 

significantly evolved, with market 

participants having conducted 

registered public offerings of both 

digital asset securities and shares in 

investment vehicles holding crypto 

futures. Additionally, licensed, and 

regulated service providers have 

emerged to provide fund custodial 

services for digital assets, among other 

services. For example, in December 

2020, the Commission adopted a 

conditional no-action position 

permitting certain special purpose 

broker-dealers to custody digital asset 

securities under Rule 15c3–3 under the 

Exchange Act.14 In September 2020, the 

Commission released a no-action letter 

permitting certain broker-dealers to 

operate a non-custodial Alternative 

Trading System (‘‘ATS’’) for digital asset 

securities, subject to specified 

conditions.15 In October 2019, the 

Commission granted temporary relief 

from the clearing agency registration 

requirement to an entity seeking to 

establish a securities clearance and 

settlement system based on distributed 

ledger technology; 16 and multiple 

transfer agents who provide services for 

digital asset securities have registered 

with the Commission.17

Beyond the Commission’s purview, 

the regulatory landscape has also 

changed significantly since 2016, and 

cryptocurrency markets have grown and 

evolved as well. The U.S. Office of the 

Comptroller of the Currency (the 

‘‘OCC’’) has made clear that federally 

chartered banks are able to provide 

custody services for cryptocurrencies 

and other digital assets.18 The OCC 

recently granted conditional approval of 

two charter conversions by statechartered trust companies to national 

banks, both of which provide 

cryptocurrency custody services.19

NYDFS has granted no fewer than 

twenty-five BitLicenses, including to 

established public payment companies 

like PayPal Holdings, Inc. and Square, 

Inc., and limited purpose trust charters 

to entities providing cryptocurrency 

custody services. The U.S. Treasury 

Financial Crimes Enforcement Network 

(‘‘FinCEN’’) has released extensive 

guidance regarding the applicability of 

the Bank Secrecy Act (‘‘BSA’’) and 

implementing regulations to virtual 

currency businesses,20 and has 

proposed rules imposing requirements 

on entities subject to the BSA that are 

specific to the technological context of 

virtual currencies.21 In addition, the 

Treasury’s Office of Foreign Assets 

Control (‘‘OFAC’’) has brought 

enforcement actions over apparent 

violations of the sanction’s laws in 

connection with the provision of wallet 

management services for digital assets.22

In addition to the mentioned 

regulatory advancements, there is a 

noticeable trend of increased acceptance 

of digital assets among traditional 

financial market participants. Notably, 

major insurance companies,23

investment banks,24 asset managers,25

credit card companies,26 university 

endowments,27 pension funds,28 and 

even previously crypto-wary fund 

managers 29 are now allocating funds to 

the crypto space. 


ddrumheller on DSK120RN23PROD with NOTICES1
68218 Federal Register / Vol. 88, No. 190 / Tuesday, October 3, 2023 / Notices 

likes bitcoin even more now, rally still in the ‘first 

inning’ ’’ (October 22, 2020), available at: https:// 

www.cnbc.com/2020/10/22/-paul-tudor-jones-sayshe-likes-bitcoin-even-more-now-rally-still-in-thefirst-inning.html. 30According to the CME, the ETHUSDlRR 

aggregates the trade flow of major Ether spot 

exchanges during a specific calculation window 

into a once-a-day reference rate of the U.S. dollar 

price of Ether. Calculation rules are geared toward 

maximum transparency and real-time replicability 

in underlying spot markets, including Bitstamp, 

Coinbase, Gemini, itBit, and Kraken. For additional 

information, refer to https://www.cmegroup.com/ 

trading/files/ether-futures-fact-card-launch.pdf. 

31See https://www.cmegroup.com/newsletters/ 

quarterly-cryptocurrencies-report/2022-q3- 

cryptocurrency-recap.html. 32See Order Setting Aside Action by Delegated 

Authority and Disapprovng a Proposed Rule 

Change, as Modified by Amendments No. 1 and 2, 

To List and Trade Shares of the Winklevoss Bitcoin 

Trust, Securities Exchange Act Release No. 83723 

(July 26, 2018), 83 FR 37579 at 37592–94 (Aug. 1, 

2018) (SR–BatsBZX–2016–30) (the ‘‘Winklevoss 

Order’’); 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 Trust Under NYSE Arca Rule 8.201– 

E, Securities Exchange Act Release No. 87267 (Oct. 

9, 2019), 84 FR 55382 at 55383, 55410 (Oct. 16, 

2019) (SR–NYSEArca–2019–01) (the ‘‘Bitwise 

Order’’); Order Disapproving a Proposed Rule 

Change, as Modified by Amendment No. 1, to 

Amend NYSE Arca Rule 8.201–E (CommodityBased Trust Shares) and to List and Trade Shares 

of the United States Bitcoin and Treasury 

Investment Trust Under NYSE Arca Rule 8.201–E, 

Securities Exchange Act Release No. 88284 

(February 26, 2020), 85 FR 12595 at 12609 (March 

3, 2020) (SR–NYSEArca–2019–39) (the ‘‘Wilshire 

Phoenix Order’’). 

The Ether Futures Market Has 

Developed Alongside the Ether Spot 

Market Into a Strong and Viable 

Marketplace That Stands On Its Own 

CME began offering trading in Ether 

Futures Contracts in 2021, and each of 

the contract’s final cash settlement is 

based on the CME CF Ether Dollar 

Reference Rate (the ‘‘ETHUSD_RR’’).30

The contracts trade and settle like other 

cash-settled commodity futures 

contracts. According to the Sponsor, 

trading in CME Ether futures contracts 

has increased significantly, in particular 

with respect to ETH Contracts. Nearly 

every measurable metric related to ETH 

Contracts has trended consistently up 

since launch and/or accelerated 

upward. For example, there was 

approximately $12.53 billion in trading 

in ETH Contracts in July 2023 compared 

to $7.53 billion in total trading in 

December 2022. ETH Contracts traded 

over $544.78 million per day in July 

2023 and represented $403.58 million in 

open interest compared to $337.99 

million in December 2022. This general 

upward trend in trading volume and 

open interest is captured in the 

following chart. 

Similarly, the number of large open 

interest holders has continued to 

increase even as the price of Ether has 

risen, as have the number of unique 

accounts trading Ether Futures 

Contracts.31

The Structure and Operation of the 

Trust Satisfies Commission 

Requirements for CryptocurrenciesBased Exchange Traded Products 

The Sponsor believes that the Fund’s 

holding a combination of Ether Futures 

Contracts, Spot Ether, and cash could 

significantly mitigate the risk of market 

manipulation while still providing the 

market with a regulated product that 

tracks the actual price of Ethereum, 

creating a secure way for U.S. investors 

to gain exposure to Spot Ether without 

having to rely on unregulated products, 

offshore regulated products, or indirect 

strategies such as investing in publicly 

traded companies that hold Ether. 

In determining whether to approve 

listing and trading of new exchangetraded products (‘‘ETPs’’), the 

Commission conducts a thorough 

analysis to ensure the proposal is 

consistent with Section 6(b)(5) of the 

Act. Section 6(b)(5) of the Act mandates 

that the rules of a national securities 

exchange be designed to prevent 

fraudulent and manipulative acts and 

practices, and to protect investors and 

the public interest. With respect to 

ETPs, the Commission often considers 

how the listing exchange would access 

necessary information to detect and 

deter market manipulation, illegal 

trading, and other abuses, which listing 

exchanges may accomplish by entering 

into a comprehensive surveillancesharing agreement (‘‘CSSA’’) with other 

entities, such as the markets trading the 

ETP’s underlying assets. Historically, for 

commodity-trust ETPs, there has always 

been at least one regulated market of 

significant size for trading futures on the 

underlying commodity—whether gold, 

silver, platinum, palladium, or copper. 

Then, the listing exchange would enter 

into CSSA with, or hold Intermarket 

Surveillance Group (‘‘ISG’’) membership 

in common with, that regulated 

market.32 As the Commission has stated, 

it considers two markets to have a 

comprehensive surveillance-sharing 

agreement with one another if they are 

both members of the ISG, even if they 

do not have a separate bilateral 

surveillance-sharing agreement. 

In the context of Ethereum, the CME 

Ether Futures Market (the ‘‘CME 

Market’’) is currently the only regulated 

market in the U.S. 

The Commission has previously 

interpreted the terms ‘‘significant 


ddrumheller on DSK120RN23PROD with NOTICES1EN03OC23.001</GPH>

Volume and 01 of CME Ether Futures 

- Volume II Open Interest 

$30,000,000,000 $1,250,000,000 

$1,000,000,000 

$20,000,000,000 

$750,000,000 

$500,000,000 

$10,000,000,000 ..... · 

$250,000,000 

Date 
Federal Register / Vol. 88, No. 190 / Tuesday, October 3, 2023 / Notices 68219 

33See, e.g., Winklevoss Order, 83 FR at 37594. 

The Commission further noted that ‘‘significant 

markets’’ and ‘‘markets of significant size,’’ but this 

definition is an example that will provide guidance 

to market participants.’’ Id. 

34See Securities Exchange Act Release No. 34– 

94620 (April 6, 2022) (SR–NYSEArca–2021–53) 

(Order Granting Approval of a Proposed Rule 

Change, as Modified by Amendment No. 2, To List 

and Trade Shares of the Teucrium Bitcoin Futures 

Fund Under NYSE Arca Rule 8.200–E, Commentary 

.02 (Trust Issued Receipts)) (the ‘‘Teucrium 

Approval Order’’). 

35See Securities Exchange Act Release No. 95180 

(June 29, 2022), 87 FR 40299 at 40312 (July 6, 2022) 

(SR–NYSEArca–2021–90) (Order Disapproving a 

Proposed Rule Change, as Modified by Amendment 

No. 1, to List and Trade Shares of Grayscale Bitcoin 

Trust Under NYSE Arca Rule 8.201–E (CommodityBased Trust Shares)). 

36See https://www.cmegroup.com/trading/equityindex/exchange-for-physical-efp-transactions.html. 37 In a cash creation/redemption format, the AP 

delivers cash to the fund instead of Spot Ether. 

market’’ and ‘‘market of significant size’’ 

to include a market (or group of 

markets) where: 

1. There is a reasonable likelihood 

that a person attempting to manipulate 

the ETP would also have to trade on that 

market to successfully manipulate the 

ETP, such that a surveillance-sharing 

agreement would assist the ETP listing 

market in detecting and deterring 

misconduct; and 

2. It is unlikely that trading in the ETP 

would be the predominant influence on 

prices in that market.33

With respect to the first prong of the 

Commission’s interpretation, the 

Commission has previously explained 

that the lead/lag relationship between 

the Bitcoin futures market and the spot 

market is central to understanding this 

first prong. With respect to the second 

prong, the Commission’s prior analysis 

has focused on the potential size and 

liquidity of the ETP compared to the 

size and liquidity of the market. 

The Commission recognized in the 

Teucrium Approval Order 34 that ‘‘the 

CME [Market] is a ‘significant market’ 

related to CME bitcoin futures 

contracts,’’ and thus that the Exchange 

has entered into the requisite 

surveillance-sharing agreement with 

respect to its Bitcoin Futures Contracts 

holdings. However, there is still a lack 

of consensus on whether the CME 

Market is of ‘‘significant size’’ in 

relation to the spot Bitcoin or Ether 

market based on the test historically 

applied by the Commission. 

Interrelationship Between the CME and 

the Fund 

The Commission has previously 

stated that ‘‘the interpretation of the 

term market of significant size depends 

on the interrelationship between the 

market with which the listing exchange 

has a surveillance-sharing agreement 

and the proposed ETP.’’ 35 The Sponsor 

intends to adopt an innovative approach 

to mitigate the risks of fraud and 

manipulation that are unique to the 

Fund. The core principle of this 

approach would be to structure the 

operation of the Fund such that the 

regulated market of significant size in 

relation to the Fund is the CME Market 

because it is the same market on which 

the Fund trades its non-cash assets. 

Therefore, the Sponsor’s strategy aims to 

establish a comprehensive 

interrelationship between the CME 

Market and the Fund to unequivocally 

classify the CME Market as the market 

of significant size in relation to the ETP. 

The Sponsor notes that, although the 

Fund may, as proposed, hold physical 

ether, it does not rely on any 

information or services from 

unregulated ether spot exchanges (such 

as Coinbase or Binance). Therefore, no 

spot ether exchange could be considered 

a ‘‘market of relevant size’’ in relation to 

the Fund. 

The Sponsor has designed the Fund to 

have five features that underscore its 

significant interrelationship with the 

CME: 

1. Investment strategy: The Fund will 

hold a mix of Ether Futures Contracts, 

Spot Ether, and cash and cash 

equivalents, subject to certain 

investment restrictions (as further 

discussed below). 

2. Futures-based pricing for Spot 

Ether: The price determination for Spot 

Ether holdings in the NAV calculation 

will be derived from the CME Market’s 

Ether futures curve. As a result, the 

price of Spot Ether holdings will 

depend solely on Ether futures 

settlement prices on the CME Market 

and will not depend directly on price 

information from unregulated spot Ether 

markets (as further below). 

3. Investment restrictions on Spot 

Ether: The Fund will be subject to 

dynamic investment restrictions that are 

designed to mitigate the risk that Shares 

of the Fund could be manipulated by 

manipulating the Ether spot market and 

ensuring that the CME Market is the 

only ‘‘market of significant size’’ with 

respect to the Fund. 

4. Physical Ether purchases on the 

CME Market: The Fund will use the 

CME Market’s Exchange for Physical 

(‘‘EFP’’) 36 transactions to acquire and 

dispose of Spot Ether, instead of 

transactions on unregulated spot 

exchanges. Moreover, as described 

below, the transactions are quoted as 

basis points over the Ethereum futures 

contracts prices, creating a direct and 

unequivocal lead-lag relationship 

between the prices on CME and the spot 

market transaction prices that the Fund 

engages. Accordingly, the only non-cash 

assets held by the Fund (Ether Futures 

Contracts and Ether via EFP) would be 

traded on the CME Market, such that the 

exchanges’ ability to share information 

pursuant to their common ISG 

membership could assist in detecting 

and deterring fraudulent or 

manipulative misconduct related to 

those assets. 

5. Creations and redemptions: The 

Fund will use cash creations and 

redemptions 37 to deter intraday Share 

price manipulation that could originate 

from in kind creation or redemption 

from physical spot Ether sourced in 

unregulated spot markets. Investment in 

Spot Ether thus would not be directly 

related to creation/redemptions, but 

instead on target portfolio exposure, as 

allowed by the investment restrictions 

on spot Ether. Trading for Spot Ether 

could thus be accomplished in smaller 

sizes and at unpredictable times, 

reducing the risk of manipulation in the 

creation or redemption processes. 

The Sponsor believes that these 

features of the Fund are designed to 

provide a robust framework for 

mitigating the risks of market 

manipulation, thereby protecting 

investors, and maintaining the integrity 

of the market, and further believes that, 

given these features of the Fund, the 

CME Market would be considered the 

regulated market of significant size in 

relation to the Fund. 

Additionally, as further discussed 

below, the Sponsor believes that the 

Fund investment strategy is designed 

such that it would be highly unlikely 

that a person attempting to manipulate 

the Fund could be successful by trading 

on unregulated spot and derivatives 

markets. Thus, no market other than 

CME could be considered as of 

significant size in relation to the Fund. 

The Sponsor further believes that the 

novel approach proposed is in line with 

the first prong of the Commission’s 

interpretation of the definition of 

‘‘regulated market of significant size’’ as 

to the CME Market and that there is a 

reasonable likelihood that a person 

attempting to manipulate the Fund 

would also have to trade on the CME 

Market to successfully manipulate the 

ETP (and, accordingly, the exchange’s 

common ISG membership would aid the 

Exchange in detecting and deterring 

potential misconduct). 

According to the Sponsor, the 

Sponsor’s approach is designed in such 

a way that any attempt to manipulate 

the Fund would require trading on the 

CME Market, for the following reasons: 


ddrumheller on DSK120RN23PROD with NOTICES1
68220 Federal Register / Vol. 88, No. 190 / Tuesday, October 3, 2023 / Notices 

38See Teucrium Approval Order of the Hashdex 

Bitcoin Futures ETF, 87 FR at 21679. 

39 Id. 

40 Investment Company Act of 1940 (‘‘1940 Act’’). 

1. Futures-based pricing for Spot 

Ether: Because the price determination 

for Spot Ether holdings in the Fund 

would be derived from the CME Market 

futures curve, any attempt to 

manipulate the price of the Fund would 

require influencing the futures curve on 

the CME Market because the spot price 

(which could be a target for 

manipulation) does not directly 

influence the price of the Fund. There 

is thus a direct and unequivocal lead-lag 

relationship in which CME Market 

prices lead both the spot price used by 

the Fund to determine its NAV and the 

Fund’s market price. 

2. Investment restrictions on Spot 

Ether: The dynamic investment 

restrictions in place for the Fund (as 

discussed in the section below entitled 

‘‘Investment Restrictions on Spot 

Ether’’) ensure that any significant 

trading activity aimed at the Fund 

would likely spill over into the CME 

Market because the investment 

restrictions are designed to prevent the 

Fund from becoming so large in relation 

to the unregulated spot market that the 

cost-benefit tradeoff is favorable for the 

potential manipulator to execute 

without influencing the futures market. 

3. Spot Ether operations via EFP on 

the CME Market: Because the Fund’s 

Spot Ether operations would take place 

via CME Market EFP transactions, any 

attempt to manipulate the Fund’s 

transactions in Spot Ether holdings 

would need to occur on the CME 

Market. Accordingly, any potential 

manipulation of the Fund is closely tied 

to the CME Market. 

4. Creations and redemptions: The 

Fund’s use of cash creations and 

redemptions also reduces the potential 

for manipulation through the creation 

and redemption processes. Any 

significant creation or redemption 

activity aimed at manipulating the Fund 

would likely influence the futures 

market, given that the investment in 

spot is based on target portfolio 

exposure and not directly related to 

creations or redemptions. 

Given these factors, the Sponsor 

believes that the Exchange and CME 

Market’s common membership in the 

ISG would be an effective tool in 

assisting the Exchange in detecting and 

deterring potential misconduct. The 

agreement would provide the Exchange 

with access to necessary trading data 

from the CME Market, which is 

intrinsically linked to the Fund, 

allowing for comprehensive oversight 

and the ability to quickly identify and 

investigate any suspicious trading 

activity. 

The Sponsor believes that trading in 

the Fund is unlikely to have a 

predominant impact on prices in the 

CME Market, primarily due to the 

volume and size of the CME futures 

market, and the significant liquidity 

available in the spot market. In addition, 

considering the Investment Restrictions 

on Spot Ether detailed below, the 

holding of Ether Spot by the Fund will 

not alter its impact on prices in the 

‘‘significant market’’. 

In relation to crypto futures market, 

the Commission has previously stated 

that the CME ‘‘comprehensively surveils 

futures market conditions and price 

movements on a real-time and ongoing 

basis in order to detect and prevent 

price distortions, including price 

distortions caused by manipulative 

efforts’’ and that the ‘‘CME’s 

surveillance can reasonably be relied 

upon to capture the effects on the CME 

bitcoin futures market caused by a 

person attempting to manipulate the 

[Fund] by manipulating the price of 

CME Bitcoin Futures Contracts, whether 

that attempt is made by directly trading 

on the CME bitcoin futures market or 

indirectly by trading outside of the CME 

bitcoin futures market.’’ 38 The 

Commission further noted that, as a 

result, ‘‘when the CME shares its 

surveillance information with Arca, the 

information would assist in detecting 

and deterring fraudulent or 

manipulative misconduct related to the 

non-cash assets held by the [Fund]’’.39

The Sponsor further believes that CME 

surveillance can be relied upon to 

capture any possible manipulation of 

the CME Ether futures markets, even 

when the attempt is made indirectly by 

trading outside the CME in unregulated 

markets. 

When discussing the second prong of 

the analysis in the Teucrium Approval 

Order, the Commission observed that 

the CME bitcoin futures market has 

progressed and matured significantly, 

and nearly every measurable metric 

related to bitcoin futures contracts has 

trended consistently up since the 

launch of 1940 Act 40-registered bitcoin 

futures ETFs. This fact persuaded the 

Commission that trading in the 

proposed ETP is not likely to be the 

predominant influence on prices in the 

CME bitcoin futures market. In that 

case, the Commission concluded that 

the CME bitcoin futures market had 

sufficiently developed to support ETPs 

seeking exposure to bitcoin by holding 

CME futures contracts. 

The Sponsor understands that a 

similar effect would happen to Ether: 

the approval of Ether products could 

potentially facilitate the maturation of 

the market. Moreover, based on the 

Commission’s findings regarding the 

Bitcoin futures market, the Sponsor 

anticipates that the approval of the 

proposed ETP is unlikely to 

significantly impact prices in the CME 

Ether futures market. Market dynamics 

and the influence of these 

cryptocurrencies-based products on 

prices are expected to follow 

comparable patterns. Just as the bitcoin 

futures ETF did not disrupt the CME 

bitcoin futures market’s equilibrium, the 

Sponsor anticipates a similar behavior 

upon the introduction of an Ether-based 

ETP. 

Nevertheless, the Sponsor believes 

that the analysis below illustrates that 

the progress observed in the Ether 

Futures Contracts and Ether Spot 

markets in the last few years is on par 

with what was observed for the bitcoin 

futures and spot markets right before the 

approval of the 1940 Act-registered 

bitcoin futures ETFs. Nearly every 

measurable metric related to Ether is 

trending up and the Ether market is still 

growing in volume and liquidity, 

approaching the size of markets for 

other commodity interests. 

As the CME Market continues to 

develop and more closely resemble 

other commodity futures markets, the 

Sponsor believes that it is reasonable to 

expect that the relationship between the 

Ether futures market and Ether spot 

market will behave similarly to other 

future/spot market relationships, where 

the spot market may have no 

relationship to the futures market 

(although the current proposal does not 

depend on such similarity). 

Despite the negative price 

performance of Ether in 2022, there has 

been significant growth in CME Ether 

Futures Markets relative to unregulated 

spot and derivatives markets. The 

Sponsor also notes that in the same 

period during which CME Market 

trading volume increased 11.3%, the 

trading volume of unregulated Ether 

futures and spot markets had a 

significant drawdown of 38%. 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 88, No. 190 / Tuesday, October 3, 2023 / Notices 68221 

41 Data in this table is sourced from: Bloomberg. 42https://www.theblock.co/data/crypto-markets/ 

futures. 

43https://www.coinglass.com/currencies/ETH. 

TRADING VOLUME

August 31, 2022 

(millions) 

August 31, 2023 

(millions) 

1-year 

% variation 

CME Ether Futures Market 41 .................................................................................... $327 $364 11.3 

Unregulated Futures Market 42 .................................................................................. $7,930 $4,930 ¥37.8 

Spot Ether Market 43 .................................................................................................. $7,950 $4,930 ¥38 

The Sponsor believes that the data 

above suggests an increase in market 

appetite for regulated products (e.g., 

CME Market Ether futures) vis-a-vis a 

significant decrease in interest for 

unregulated products (e.g., unregulated 

futures and spot Ether). 

The Sponsor further considers that 

the CME Market managed to maintain 

its open interest level despite the price 

volatility that Ether experienced in 

2022, demonstrating its resilience and 

that it is sufficiently developed such 

that it is unlikely that trading in the 

Fund would be the predominant 

influence on its prices. 

CHICAGO MERCANTILE EXCHANGE ETHER FUTURES

August 31, 

2022 

August 31, 

2023 

Open Interest ........................................................................................................................................................... 207,650 ETH 219,650 ETH 

The CME Market is also sufficiently 

developed to support ETPs that seek 

exposure to Ether by holding a mix of 

CME Market Ether Futures Contracts 

and physical Ether through the use of 

CME Market EFP transactions, and thus 

the CME Market is the only market on 

which the Fund’s only proposed noncash assets would trade. Thus, the CME 

Market remains the ‘‘significant market’’ 

in relation to the Fund, as proposed. 

Moreover, as detailed above, the 

Sponsor’s proposed investment strategy 

ensures that no unregulated spot 

exchange could be considered a ‘‘market 

of relevant size’’ in relation to the Fund, 

given that the Fund does not rely on any 

information or services coming from 

unregulated markets. All of the Fund’s 

operations, including the purchase and 

sale of spot Ether and its NAV 

determination, are conducted through 

the CME Market. Thus, all transactions 

are registered and monitored on a 

regulated exchange, providing an 

additional layer of security and 

transparency. Because any attempt to 

manipulate the Fund would require 

significant trading on the CME Market, 

and not on any unregulated spot Ether 

exchange, there is significantly reduced 

potential for manipulation and fraud, 

further protecting investors and 

maintaining the integrity of the market. 

The Sponsor further believes that the 

holding of Spot Ether would not 

significantly alter the influence of the 

Fund’s trading on the CME Market. The 

Spot Ether in the Fund’s portfolio 

would be converted from futures 

positions using EFP transactions on the 

CME Market. The Fund’s Spot Ether 

holdings would thus be directly linked 

to the futures market and would not 

introduce a new, independent variable 

that could significantly influence the 

futures market. Indeed, because both 

sides of the trade track the same 

benchmark, an EFP is market-neutral 

and, as such, the pricing of an EFP is 

quoted in terms of the basis between the 

price of the futures contract and the 

level of the underlying index. 

Additionally, the dynamic investment 

restrictions and futures-based pricing 

for Spot Ether would ensure that the 

Fund’s Spot Ether holdings remain at a 

level where they are unlikely to impact 

the futures market significantly and that 

the futures market continues to 

influence the price of the Fund’s Spot 

Ether holdings (and not the other way 

around). 

The Sponsor believes that, even with 

the holding of Spot Ether by using EFP 

transactions on the CME Market, the 

Fund’s trading would not become the 

predominant influence on prices of the 

futures market. Therefore, considering 

the maturation of the CME Ether futures 

market since its inception, including but 

not limited to the overall size, volume, 

liquidity, and number of years of 

trading, the Sponsor considers that the 

second prong of the standard for 

‘‘market of significant size’’ has been 

established. 

In reviewing prior proposals to list 

and trade shares of various cryptoassetsbased trust issued receipts, the 

Commission noted that some of such 

proposals did not adequately 

demonstrate that they were designed to 

prevent fraudulent and manipulative 

acts and practices and to protect 

investors and the public interest, 

consistent with Section 6(b)(5) of the 


ddrumheller on DSK120RN23PROD with NOTICES1
68222 Federal Register / Vol. 88, No. 190 / Tuesday, October 3, 2023 / Notices 

44See e.g., Order Disapproving a Proposed Rule 

Change, as Modified by Amendments No. 1 and 2, 

to BZX Rule 14.11(e)(4), Commodity-Based Trust 

Shares, To List and Trade Shares, Issued by the 

Winklevoss Bitcoin Trust, Securities Exchange Act 

Release No. 80206 (March 10,2017), 82 FR 14076 

(March 16, 2017) (SR–BatsBZX–2016–30) (the 

‘‘Winklevoss I Order’’) the Winklevoss II Order; 

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 Trust Under NYSE Arca Rule 8.201–E, 

Securities Exchange Act Release No. 87267 (October 

9, 2019), 84 FR 55382 (October 16, 2019 (SR– 

NYSEArca–2019–01) (the ‘‘Bitwise Order’’); the 

Wilshire Phoenix Order; Order Disapproving a 

Proposed Rule Change to List and Trade the Shares 

of the ProSharess Bitcoin ETF and the ProShares 

Short Bitcoin ETF, Securities Exchange Act Release 

No. 83904 (August 22, 2018), 83 FR 43934 (August 

28, 2018) SR–NYSEArca–2017–139); Order 

Disapproving a Proposed Rule Change Relating to 

Listing and Trading of the Direxion Daily Bitcoin 

Bear IX Shares, Direxion Daily Bitcoin 1.25X Bull 

Shares, Direxion Daily Bitcoin 2X Bull Shares, and 

Direxion Daily Bitcoin 2X Bear Shares Under NYSE 

Arca Rule 8.200–E, Securities Exchange Act Release 

No. 83912 (August 22, 2018), 83 FR 43912 (August 

28, 2018) (SR–NYSEArca–2018–02); Order 

Disapproving a Proposed Rule Change to List and 

Trade the Shares of the GraniteShares Bitcoin ETF 

and the GraniteShares Short Bitcoin ETF, Securities 

Exchange Act Release No. 83913 (August 22, 2018), 

83 FR 43923 (August 28, 2018) (SR–CboeBZX– 

2018–01) (the ‘‘GraniteShares Order’’). 

45See Winklevoss II Order, 83 FR at 37582. 

46See Wilshire Phoenix Order, 85 FR at 12596– 

97. 

47See Winkle II Order, 83 FR at 37580, 37582– 

91; Bitwise Order, 84 FR at 55383, 55385–406; 

Wilshire Phoenix Order, 85 FR at 12597. 

48See Teucrium Approval Order. 

49See GraniteShares Order, 83 FR at 43931 See 

also Hester M. Peirce, U.S Sec. Exch. Comm’n, 

Dissent of Commissioner Hester M. Peirce to 

Release No. 34–83723 (July 26, 2018), available at: 

https://www.sec.gov/news/public-statement/peircedissent-34-83723 (‘‘An ETP based on bitcoin would 

offer investors indirect exposure to bitcoin through 

a product that trades on a regulated securities 

market and in manner that eliminates some of the 

frictions and worries of buying and holding bitcoin 

dirctly. If we were to approve the ETP at issue here, 

investors could choose whether to buy it or avoid 

it’’). 

Act.44 The Commission does not apply 

a ‘‘cannot be manipulated’’ standard, 

but instead seeks to examine whether a 

proposal meets the requirements of the 

Act.45 The Commission has explained 

that a proposal could satisfy the 

requirements of the Act in the first 

instance by demonstrating that the 

listing exchange has entered into a 

CSSA with a regulated ‘‘market of 

significant size’’ related to the 

underlying or reference crypto-assets.46

The Commission has also recognized 

that a listing exchange would not 

necessarily need to enter into such an 

agreement with a regulated significant 

market if the underlying commodity 

market inherently possessed a unique 

resistance to manipulation beyond the 

protections that are utilized by 

traditional commodity or securities 

markets or if the listing exchange could 

demonstrate that there were sufficient 

‘‘other means to prevent fraudulent and 

manipulative acts and practices.’’ 47 As 

the Commission explained in the 

Teucrium Approval Order, the approval 

of that fund was based on a finding that 

the CME is a ‘‘significant market’’ 

related to the exclusive non-cash 

holdings of the proposed ETPs, which 

in that case would be CME bitcoin 

futures contracts.48

As described below, the Sponsor 

believes the structure and operation of 

the Trust are designed to prevent 

fraudulent and manipulative acts and 

practices, to protect investors and the 

public interest, and to respond to the 

specific concerns that the Commission 

has identified with respect to potential 

fraud and manipulation in the context 

of a crypto product. Further, as the 

Commission has previously 

acknowledged, trading in an Etherbased ETP on a national securities 

exchange, as compared to trading in an 

unregulated Ether spot market, may 

provide additional protection to 

investors.49 The Sponsor also believes 

that listing of the Shares on the 

Exchange will provide investors with 

such an opportunity to obtain exposure 

to Ether within a regulated 

environment. 

Futures-Based Spot Price (‘‘FBSP’’) 

The value of Spot Ether held by the 

Fund would be determined by the 

Sponsor and by Hashdex Asset 

Management Ltd. (the ‘‘Digital Asset 

Adviser’’) in good faith based on a 

methodology that is entirely derived 

from the settlement prices of Ether 

Futures Contracts on the CME Market 

and that considers all available facts and 

all available information on the 

valuation date. 

The method involves a calculation 

that is sensitive to both the length of 

time (the ‘‘tenor’’) until each Ether 

Futures Contract is due for settlement 

and the final settlement price for each 

contract. The calculation takes into 

account each contract’s tenor and the 

tenor squared. This approach is 

designed to give more importance to 

contracts that are due for settlement in 

the near term, considering that the 

prices of these near-term contracts are 

more reliable indicators of the current 

spot price of Ether and are also more 

heavily traded. The calculation 

produces a set of weighting factors, with 

each factor indicating the contribution 

of the corresponding Ether Futures 

Contract to the estimated current spot 

price of Ether. The estimated spot price 

is the component of the result 

corresponding to a tenor of zero days. 

The Sponsor and Digital Asset Advisor 

do not use data from Ether exchanges or 

directly from spot Ether trading activity 

in determining the value of Spot Ether 

held by the Fund. 

As an example, the table below 

demonstrates how the weights of each 

hypothetical Ether Futures Contract 

change over time as the first contract 

gets closer to maturity. 


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50The difference in the price metrics introduces 

an artificial distortion in the comparison. Indeed, a 

regression analysis shows that the ratio between the 

maximum and minimum spot prices within the 

Ether Futures VWAP window is a significant 

variable that explains the absolute divergences 

between FBSP and the spot prices. The higher the 

ratio between the maximum and minimum spot 

prices, the higher expected absolute divergence 

between FBSP and the spot prices. The correlation 

of these two metrics in the case of the real time 

version of NQETHS is approximately 17%, 

suggesting that the actual adherence between FBSP 

and the spot benchmarks is even higher than the 

figures discussed herein indicate. 

The Sponsor believes that the 

accuracy of the proposed pricing 

methodology can be measured by 

comparing its pricing results to the real 

time version of Ether price benchmarks 

such as ETHUSD_RR and NQETHS. 

FBSP is derived from futures settlement 

prices, which are usually VWAPs from 

all contracts traded on Globex between 

14:59:00 and 15:00:00 Central Time 

(‘‘CT’’). Accordingly, for purposes of 

developing a useful proxy, the 

Sponsor’s analysis uses the arithmetic 

average of the Benchmark closing prices 

at 14:59:00 and 15:00:00 CT, which is 

not sensitive to the fluctuations that 

occur within this minute. By design, 

this difference in the price metric 

introduces an artificial distortion in the 

comparison, resulting in figures that are 

less adherent than in reality. Therefore, 

the figures set forth below represent a 

conservative estimation of the true 

adherence between FBSP and the 

Benchmark, considering that the actual 

adherence to the Benchmark is higher 

than these results can indicate.50

Using data available on Bloomberg on 

August 28, 2023, the Sponsor compared 

FBSP to NQETHS and ETHUSD_RR 

from February 16, 2023 to August 28, 

2023 and determined that FBSP behaves 

very similarly to both indexes. The 

following charts show a direct 

comparison between those two 

benchmark values and FBSP: 

BILLING CODE 8011–01–P 


ddrumheller on DSK120RN23PROD with NOTICES1EN03OC23.002</GPH>

First future tenor 

Future 27days 21 days 15days 9days 3days 

1st 130.81% 125.92% 120.~ 113.79% 105.33% 

2nd 1.91% -0.84% -2.94% -3.80% -2.26% 

3rd -8.92% •7.57% .S.86% -3.76% -1.31% 

4th -9.19% -7.05% -4.89% -2.78% -0.83% 

5th -7.81% .S.73% -3.78% -2.02% -0.57% 

6th -6.26% -4.47% -2.86% -1.47% -0.39% 

9th -2.61% -1.76% -1.05% -0.50% -0.12% 

12th -0.29% -0.14% -0.04% 0.01% 0.01% 

18th 2.35% 1.65% 1.04% 0.53% 0.14% 

Total 100.00% 100.00% 100.00% 100.00% 100.00% 
68224 Federal Register / Vol. 88, No. 190 / Tuesday, October 3, 2023 / Notices 

In the above charts, each black point 

indicates one day, and their proximity 

to the red line shows how similar FBSP 

is to each of NQETHS and ETHUSD_RR. 

The correlations between FBSP and 

each of NQETHS and ETHUSD_RR 

exceed 99.8%, and the mean absolute 

percentage divergences are 21 basis 

points (‘‘bps’’) and 21 bps, respectively, 

while the median absolute percentage 

divergences are 12 bps and 13 bps, 

respectively. 

The charts below provide another 

visualization of the results of this 

comparison, as time series of the 

percentage divergences: 


ddrumheller on DSK120RN23PROD with NOTICES1EN03OC23.003</GPH>
Federal Register / Vol. 88, No. 190 / Tuesday, October 3, 2023 / Notices 68225 

BILLING CODE 8011–01–C 

These charts show that there are no 

clusters of abnormal divergences. In 

both cases, more than 90% of the days 

exhibit percentage divergences below 51 

bps. The highest percentage divergence 

in absolute terms, with 91 bps for the 

NQETHS and 89 bps for the ETHUSD_

RR, was observed on March 31, 2023, 

and coincided with significant volatility 

in the Ether markets; on that day, 

NQETHS gain 2.60% from $1780.66 to 

$1826.99 and the FBSP, which settles 

one hour later, gain 3.54%, from 

$1781.28 to $1844.39. The Sponsor 

notes that, even on the day with the 

highest percentage divergence between 

FBSP and the other two benchmarks, 

that percentage divergence was 

insignificant in comparison to the 

intraday volatility of Ether itself and 

could be attributable to the different 

market structures of the regulated CME 

Market and the unregulated spot 

markets. 

The Sponsor believes that this data 

strongly suggests that FBSP is a suitable 

choice for the NAV calculation, both for 

the settlement and the real time proxy, 

and that the following additional 

considerations further support the 

soundness of the FBSP methodology: 

• Ether is a highly volatile asset 

traded in multiple venues across the 

world, and divergences of the 

magnitude found in this analysis are not 

unusual across different price sources or 

exchanges. 

• As noted above, the mean absolute 

percentage divergences are 21 bps and 

21 bps respectively, the median absolute 

percentage divergences are 12 bps and 

13 bps, and March 31, 2023 was the day 

with the highest percentage divergence 

in absolute terms, with 91 bps for the 

NQETHS and 89 bps for ETHUSD_RR. 

The Sponsor believes that these 

divergences between FBSP and the 

underlying benchmarks are in a 

reasonable range and support that FBSP 

closely tracks NQETHS and ETHUSD_

RR. 

Finally, the Sponsor notes that, even 

considering that FBSP could create 

some level of uncertainty due to the 

potential divergences between the FBSP 

and the spot prices observed in 

unregulated markets, the authorized 

participants (‘‘APs’’) are able to hedge 

potential exposure by buying the basket 

of futures that represents FBSP and 

selling it during the futures settlement 

window. In doing so, APs can emulate 

a situation where they know ex ante the 

value of the creation basket. The 

opposite trade can have the same effect 

for the case of redemptions. Thus, the 

APs providing liquidity on the 

secondary market during the day will 

always be in a position to hedge their 

exposure using exclusively the CME 

Market, which will make them more 

likely to provide liquidity to the Fund 

thus making its market price converge to 

its NAV. 

Preventing Manipulation 

While the Commission has raised 

valid concerns about the potential 

influence of unregulated Ether markets 

on the daily settlement price on CME 

Market, the Sponsor believes that the 

proposed methodology described above 

provides a significant and sufficient 


ddrumheller on DSK120RN23PROD with NOTICES1EN03OC23.004</GPH>

2023Apr01 2023Jul01 

Dates 

2023,\J:H'01 2023Jui01 

Dares 
68226 Federal Register / Vol. 88, No. 190 / Tuesday, October 3, 2023 / Notices 

51This date range represents days with intraday 

data available on Bloomberg as of September 6. 

Days with less than 40 observations for a given AEP 

were excluded from the analysis of such AEP. 

52The market depth information was obtained 

from CoinMarketCap on August 31, 2023. The AEPs 

with blank cells in this table were not included in 

the August 31, 2023 snapshot. 

degree of insulation from such 

influences, for the following reasons: 

1. Regulated market influence: The 

daily settlement price of Ether Futures 

Contracts on the CME Market, which is 

the basis for the NAV calculation of 

both futures contracts and physical 

holdings of the Fund, is primarily 

influenced by trading activity within the 

regulated futures market itself. This 

market is subject to stringent oversight 

and surveillance mechanisms designed 

to detect and deter manipulative and 

fraudulent practices, thus significantly 

limiting the possible influence of 

unregulated Ether markets on the daily 

settlement price. 

2. High liquidity and volume: The 

CME Market is characterized by high 

liquidity and trading volume, such that 

any attempt to influence the daily 

settlement price through trading activity 

in other, unregulated Ether markets 

would require a significant amount of 

capital and coordination. The Sponsor 

thus believes that any such 

manipulation attempts would be highly 

detectable by the CME Market’s market 

surveillance. 

3. Complex pricing methodology: The 

NAV calculation methodology is 

comprehensive and accounts for both 

the tenor and final settlement price of 

each futures contract. In addition, the 

FBSP used in the NAV calculation 

methodology incorporates all maturities 

of Ether Futures Contracts, which 

exhibit a robust price relationship 

among themselves. As a result, 

attempting to manipulate these prices in 

a coordinated manner to generate a 

substantial impact on NAV would be 

very challenging for potential 

manipulators and likely financially 

unfeasible. The Sponsor thus believes 

that the complexity of the methodology 

provides an additional layer of 

protection against manipulation, as it 

would be extremely difficult for a 

manipulator to influence all these 

factors in a coordinated way to impact 

the Fund’s NAV without leaving a 

detectable trail that would alert market 

surveillance. 

4. Focus on near-term contracts: The 

Fund’s methodology gives more 

importance to futures contracts that are 

due for settlement in the near term 

because such contracts are more heavily 

traded, and their prices are more 

reliable indicators of the current spot 

price of Ether. The Sponsor believes that 

the methodology’s focus on near-term 

contracts further reduces the potential 

for manipulation, as these contracts are 

less susceptible to manipulation due to 

their higher trading volumes and 

liquidity. 

The Sponsor also believes that it is 

highly unlikely that a person attempting 

to manipulate the NAV of the Fund 

could do so successfully by trading on 

unregulated spot and derivatives 

markets. Because of direct arbitrage, it is 

reasonable to assume that the ETP’s 

market price (in the secondary market) 

would be highly adherent to the Fund’s 

Intraday Net Asset Value, since APs can 

always create and redeem shares of the 

Fund hedging with a basket of Ether 

Futures Contracts and the value of the 

creation basket is determined based on 

the NAV of the Fund, which is 

calculated using the FBSP prices that is 

based on such basket of Ether Futures 

Contracts. Consequently, the likelihood 

of a potential manipulator of the ETP to 

succeed by exclusively trading in 

unregulated Ether markets would 

depend on how much the prices in 

these markets have an impact over the 

CME Ether Futures Contracts prices. 

The likelihood that a potential 

manipulator would undertake such an 

effort is also decreased when 

considering the financial burden of 

manipulating the unregulated markets 

and the overall expected profitability of 

any such manipulation. 

To further assess such likelihood, the 

Sponsor carried out the following 

analysis to investigate the relationship 

between prices from relevant 

unregulated Ether markets and the 

prices of the CME Ether Futures 

Contracts, to assess the impact that a 

manipulation on those markets would 

have on CME. The Sponsor collected 

one-minute bars data between February 

21 and September 6 51 of prices for the 

nearest CME Ether Futures Contract 

(‘‘CME Futures’’) and the following 

alternative Ether prices (‘‘AEP’’): spot 

Ether (in USD) on BitStamp, Coinbase, 

Gemini and Kraken, spot Ether (in 

USDT), and ETHUSDT USDs-Margined 

Perpetuals on Binance. For each day 

and each AEP, a simple regression 

model was estimated with one-minute 

CME Futures log-returns as the 

dependent variable, and two 

independent variables: (1) the log CME 

Futures closing price of the previous 

minute (as a control variable) and (2) the 

difference between the AEP log return 

and the CME Futures log return in the 

previous minute (as the variable of 

interest). 

The estimated coefficients associated 

with the variable of interest are a 

measure of the expected response from 

the CME Futures (as measured by its 

returns) to a divergence between its own 

return information and the one from 

AEP in the near past (one-minute lagged 

returns). Such divergences are expected 

to occur in cases of manipulation. A 

higher coefficient (closer to one) would 

indicate that CME Futures are more 

sensitive to and strongly influenced by 

the divergence, while a lower coefficient 

(closer to zero) would suggest that CME 

Futures are less responsive and not 

significantly influenced by the 

information coming from AEP. The 

Sponsor believes that these coefficients 

can be considered a conservative 

estimation of the real impact that 

manipulation in an AEP would have 

over the CME Futures price because the 

estimations are calculated under normal 

circumstances rather than under a 

manipulative attack, in which some 

other indicators, such as abnormal 

volume and volatility, would warn 

market participants and undermine 

their perception of the attacked AEP as 

a reliable price reference. The results of 

the Sponsor’s analysis are summarized 

in the table below:52


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 88, No. 190 / Tuesday, October 3, 2023 / Notices 68227 

The Sponsor’s analysis suggests that 

the influence of AEP over the CME 

Futures prices is relatively low. For 

instance, if a would-be manipulator 

chose to attack Binance Spot (ETH– 

USDT), which is an AEP with higher 

coefficients and thus higher potential to 

impact CME futures, the average 

coefficient of 0.33 means that in order 

to manipulate CME Futures prices by 

1%, the would-be manipulator would 

have to distort Binance’s prices by 3% 

(1% divided by 0.33) on average. To be 

successful with 90% confidence (1st 

Decile) this manipulator would have to 

distort Binance’s prices by more than 

8.3% (1% divided by 0.12). The 

Sponsor believes that its analysis 

supports that, even considering these 

conservative estimations, indirect 

manipulation would be extremely 

inefficient. 

The market depth columns in the 

above table indicate that substantial 

financial resources, running into 

millions of dollars, are present on both 

sides of the order book for the most 

influential AEPs (even without 

including hidden orders, bots, and 

arbitrageurs that effectively enhance 

liquidity). The considerable financial 

commitment that would be required 

makes the manipulation of these prices 

an expensive endeavor. 

The Sponsor believes that its analysis 

demonstrates that the low efficiency of 

attempts to manipulate AEPs, coupled 

with the significant cost involved in 

influencing impactful AEPs, makes 

potential manipulation of spot Ether 

markets an unattractive proposition, and 

that it is therefore highly unlikely that 

a potential manipulator of the ETP 

could succeed by exclusively trading in 

unregulated Ether markets. The 

combination of the high costs and the 

inefficiencies associated with 

manipulation makes it a daunting and 

unprofitable venture. 

In summary, while the Sponsor 

acknowledges the potential for 

influence from trades settled in 

unregulated Ether markets, the Sponsor 

believes that the NAV calculation 

methodology, coupled with the inherent 

characteristics of the CME, provides a 

significant degree of protection against 

such influence being deliberately used 

to manipulate the Fund’s market price 

or NAV without it being subject to 

detection by CME market surveillance. 

Investment Strategy 

The Sponsor believes that the 

investment strategy of the Fund is 

designed to mitigate the risk of 

manipulation by diversifying its 

holdings and is responsive to the 

Commission’s concerns with respect to 

an ETP that holds spot Ether. Instead of 

holding 100% spot Ether, which could 

make it more susceptible to price 

manipulation in the spot market, the 

Fund will hold a mix of Spot Ether, 

Ether Futures Contracts, and cash. This 

diversified portfolio is subject to 

investment restrictions, which further 

reduces the potential for manipulation, 

as explained below: 

1. Diversification: By holding a 

combination of Spot Ether, Ether 

Futures Contracts, and cash, the Fund 

reduces its exposure to any single asset 

class. This diversification also makes it 

more difficult for a would-be 

manipulator to influence the NAV of the 

Fund by manipulating the price of spot 

Ether alone; for instance, even if a 

manipulator were able to influence the 

spot price of Ether, their actions would 

only affect a portion of the Fund’s 

portfolio, thereby limiting the overall 

impact of such manipulation on the 

Fund’s NAV. 

2. Investment restrictions: The Fund’s 

holdings of Spot Ether would be subject 

to investment restrictions, which are 

further discussed below. These 

restrictions cap the amount of Spot 

Ether that the Fund can hold, further 

reducing the potential for manipulation 

by, for example, preventing the Fund 

from becoming so large in relation to the 

spot market that it could be 

manipulated without influencing the 

futures market. The Sponsor believes 

that these investment restrictions ensure 

that any significant trading activity 

aimed at manipulating the Fund would 

likely spill over into the CME Market, a 

regulated market with robust 

surveillance mechanisms in place to 

detect and deter manipulation, and with 

which the Exchange could receive 

information pursuant to common ISG 

membership. 

3. Reduced dependence on spot 

market: By holding Ether Futures 

Contracts and cash in addition to Spot 

Ether, the Fund reduces its dependence 

on the spot market, thereby mitigating 

concerns about potential manipulation 

in unregulated Ether spot exchanges. 

Instead, the Fund will rely on Ether 

Futures Contracts and Ether futures 

EFPs that are traded on the CME Market, 

a regulated exchange, which provides a 

higher level of transparency and 

oversight compared to unregulated spot 

exchanges. 

4. Dynamic adjustment: The mix of 

Spot Ether, Ether Futures Contracts, and 

cash in the Fund’s portfolio can be 

dynamically adjusted based on market 

conditions and regulatory 

developments. This flexibility allows 

the Fund to respond quickly to any 

signs of potential manipulation or other 

market abuses, further enhancing its 

resilience against manipulation. 

In summary, by diversifying its 

holdings and imposing investment 

restrictions, the Fund reduces its 

vulnerability to manipulation in any 

single market, thereby protecting 

investors and maintaining the integrity 

of the Fund. 

Investment Restrictions on Spot Ether 

According to the Sponsor, the Fund 

will be subject to investment restrictions 

on Spot Ether (the ‘‘Investment 

Restrictions’’) that are specific 

constraints on its exposure to Ether, 

particularly with respect to spot 

holdings. These investment restrictions, 

which are designed to mitigate the risk 

of manipulation of the Fund’s Shares by 

insulating the Fund from events 

impacting the Ether spot market, are 

variable based on factors such as the 

Commission’s recognition of the CME as 

a regulated market of significant size 

related to spot Ether, the NAV of the 

Fund, and the prevailing trading 

conditions on the core exchanges of the 

Benchmark. 


ddrumheller on DSK120RN23PROD with NOTICES1EN03OC23.005</GPH>

Estfmated·Pvameters Market Depth 

ASP Average 1st Decile ~an 9th0eclle +%%Depth -2".4Depth 

Binance (spot USDT) 0.33 0.12 0.33 0.47 $6,931,230 $9,006,045 

Binance (perpetuatUSDT) 0~32 0;15 0.33 0.47 

Coinbase (spot USO) 0;23 -.0.03 0.24 0.53 $9,540,548 $10,509,099 

Krake!l (spOt USO) 0;18 -0:02 0;19 0.37 $3;401.,860 $5,115,258 

Bitstainp {spot USO) 0.18 0.02 o.18 0.36 

Gemini (spot USO) 0;15 -0.05 0:15 0.32 
68228 Federal Register / Vol. 88, No. 190 / Tuesday, October 3, 2023 / Notices 

53See https://www.theblock.co/data/cryptomarkets/spot/the-block-legitimate-volume-indexeth-only. 54See Messari, volume data is for USD, USDT and 

USDC traded against Bitcoin. Core Exchanges. 

The first constraint, termed in the 

Registration Statement as the ‘‘Spot 

Ether Relative Position Restriction,’’ 

caps the Fund’s exposure to the ether 

spot market to a specified proportion of 

the Fund’s NAV. This limit is designed 

to curb the potential success of any 

attempts to materially manipulate the 

Fund’s Share prices through undue 

influence on the ether spot market. 

The second constraint, referred to in 

the Registration Statement as the ‘‘Spot 

Ether Notional Exposure Restriction,’’ 

restricts the Fund’s notional exposure to 

ether to a set proportion. The dual 

objectives of this second constraint are: 

(a) to deter potential manipulative 

actions on the Shares by making the 

cost-benefit tradeoff highly unfavorable 

for the manipulator, as it would require 

them to transact a volume that surpasses 

the Fund’s total exposure in the ether 

spot market, thus making the potential 

costs of manipulation outweigh the 

benefits, and (b) to restrict the Fund’s 

trading activities in such a way that they 

are not expected to become the primary 

driving force behind price variations in 

the ether spot market. 

The Sponsor believes that the 

Investment Restrictions serve two main 

purposes: 

1. They deter potential manipulative 

actions directed towards the Fund’s 

Shares by making the cost-benefit 

tradeoff highly unfavorable for the 

manipulator. To manipulate the Fund’s 

price using an unregulated spot market, 

a manipulator would need to transact a 

volume that surpasses the Fund’s total 

exposure in spot Ether, making the 

potential costs of manipulation 

outweigh the benefits. 

2. They ensure that the Fund’s trading 

activities do not become the primary 

driving force behind price variations in 

the Ether spot market. By restricting the 

Fund’s notional exposure to a 

proportion of the ADTV, this constraint 

ensures that the Fund’s trading 

activities are always a fraction of the 

overall market activity, thereby reducing 

the potential for the Fund to unduly 

influence market prices. 

As an example, in the 30-day period 

ending on August 31, 2023, the ADTV 

of spot Ether on Coinbase was $146 

million. Thus, the Fund’s notional 

exposure to Ether is restricted to up to 

$146 million, meaning that if the Fund’s 

AUM is, for example, $100 million, it 

could have up to 100% allocation to 

Spot Ether. However, if the Fund’s AUM 

is, for example, $1 billion, it could still 

only have up to $146 million of notional 

exposure to Spot Ether, which would be 

the equivalent of up to 14.6% of the 

Fund’s NAV, and the rest of the 

portfolio would need to be allocated to 

Ether Futures Contracts, cash, or cash 

equivalents. 

To ensure that the Fund’s trading 

activities do not become the primary 

driving force of the Spot Ether price, the 

Sponsor intends to keep its notional 

allocation to spot Ether as a small 

proportion of the overall trading activity 

of spot Ether. 

The Sponsor intends to do so by 

restricting the maximum notional 

exposure to Spot Ether to a proportion 

of the 30-day ADTV, with the ADTV 

data based on the most trusted 

exchanges (meeting the double 

requirements of being a core exchange 

per the NQETHS methodology and 

being subject to regulatory and reporting 

rules in the United States, which make 

them liable for any false volume data 

reporting). 

Currently, only one exchange meets 

those requirements, and over the last 

three months, it accounted for 9.75% to 

11.83% of all Ether trading, whereas the 

largest unregulated spot Ether exchange 

accounted for 35% to 40% of the spot 

Ether volume over the same period.53

SPOT ETHER 30-DAY ADTV 54

June 30, 2023 July 31, 2023 August 31 2023 

Top 10 Exchanges ....................................................................................................... $2,012.24 million $1,560.15 million $1,499.43 million 

Single Core Exchange meeting Sponsor’s requirement .............................................. $203.56 million ... $184.64 million ... $146.22 million 

Single Core Exchange’s market share ........................................................................ 10.12% ................ 11.83% ................ 9.75% 

All 5 Core Exchanges .................................................................................................. $271.02 million ... $227.84 million ... $187.53 million 

All 5 Core Exchanges’ market share ........................................................................... 13.47% ................ 14.60% ................ 12.51% 

The Sponsor believes that it is 

therefore unlikely that the single 

exchange on which the Sponsor bases 

the ADTV data on will be the primary 

driver of spot Ether price given its 

relatively small market share. As a 

result, even with the Fund’s notional 

Spot Ether exposure limited at 100% of 

the ADTV on that single exchange, the 

Fund’s Spot Ether holdings would likely 

represent only 9.75% to 11.83% of the 

daily liquidity of the spot Ether market 

(on the biggest 10 exchanges by volume) 

and thus is unlikely to become the 

primary driver of the spot market price 

formation. 

Additionally, with the spot Ether 

notional exposure at 9.75% to 11.83 of 

ADTV, a would-be manipulator would 

need to trade on exchanges that account 

for most of the liquidity and, in 

particular, the largest one. The Sponsor 

believes that the cost benefit analysis of 

attempting to distort the price on the 

largest exchange, which accounts for 

approximately 35% to 40% of the 

liquidity (or approximately 3 to 4 times 

the size of the Fund), to manipulate the 

price of the Fund would not be 

compelling. 

In summary, the Sponsor believes that 

the Investment Restrictions are a key 

tool in the Fund’s strategy to prevent 

manipulation. By limiting the Fund’s 

exposure to the spot market and 

ensuring that the Fund’s trading 

activities do not become the 

predominant influence on market 

prices, these restrictions provide a 

robust defense against potential 

manipulation attempts. 

Investor Protection and Spot and Proxy 

Exposure 

The Sponsor believes that U.S. 

investor exposure to Ether directly 

through holding Ether itself has grown 

and the potential risk to U.S. investors 

has also grown. As described, premium 

and discount volatility, high fees, 

insufficient disclosures, and technical 

hurdles are exposing U.S. investors to 

risks that could potentially be 

eliminated through access to an Ether 

futures-based fund with investment 

restrictions on its exposure to Spot 

Ether. The Sponsor believes that the 

Commission’s concerns have been 

sufficiently mitigated by the use of 

futures contracts, the investment 

restrictions and EFP transactions. 

Accordingly, the Sponsor believes that 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 88, No. 190 / Tuesday, October 3, 2023 / Notices 68229 

55See https://www.cmegroup.com/clearing/ 

operations-and-deliveries/accepted-trade-types/efpefr-eoo-trades.html. 

the Fund represents an opportunity for 

U.S. investors to gain price exposure to 

Ether in a regulated and transparent 

exchange-traded vehicle that limits risks 

by: (i) reducing premium and discount 

volatility; (ii) reducing management fees 

through meaningful competition; and 

(iii) reducing risks associated with 

investing in operating companies that 

are imperfect proxies for Ether 

exposure. 

According to the Sponsor, exposure to 

Ether through the Fund also presents 

certain advantages for retail investors 

compared to buying spot Ether directly. 

A retail investor holding Spot Ether 

directly in a self-hosted wallet may 

suffer from inexperience in private key 

management (e.g., insufficient password 

protection, lost key, etc.), which could 

cause them to lose some or all of their 

Ether holdings. In addition, retail 

investors will be able to hold the Shares 

in traditional brokerage accounts which 

provide SIPC protection if a brokerage 

firm fails. 

Creations and Redemptions 

According to the Sponsor (and as 

discussed further below), the Fund uses 

cash creations and redemptions. With 

respect to Spot Ether, an AP delivers 

cash to the Fund instead of Spot Ether 

in the creation process, and an AP 

receives cash instead of Spot Ether in 

the redemption process. The cash 

delivered or received during the 

creation or redemption process is then 

used by the Sponsor to purchase or sell 

Ether Futures Contracts with an 

aggregate market value that 

approximates the amount of cash 

received or paid upon the creation or 

redemption. On a daily basis, the 

Sponsor will analyze the current 

portfolio allocation of the Fund between 

Spot Ether and Ether Futures Contracts 

and, based on the Investment 

Restrictions and target portfolio 

exposure, may decide to engage in an 

EFP transaction on CME to buy or sell 

Spot Ether for the equivalent position in 

Ether Futures Contracts. 

The Sponsor believes that this method 

protects against manipulation in the 

creation and redemption process and of 

the Fund’s market price from trading in 

unregulated spot markets. Investment in 

spot Ether will not be directly related to 

creation or redemption of Fund Shares, 

but instead on target portfolio exposure, 

such that trades can be performed in 

smaller sizes and at unpredictable 

times, reducing the risk of creation or 

redemption manipulation. 

The Sponsor believes that the use of 

cash creations and redemptions in the 

Fund serves as a deterrent to 

manipulation in several ways: 

1. Decoupling from spot market: By 

using cash instead of Spot Ether for 

creations and redemptions, the Fund’s 

operations are decoupled from the 

unregulated spot market. The creation 

and redemption process does not 

directly influence the unregulated spot 

market or vice versa, thereby reducing 

the potential for manipulation through 

this process. 

2. Unpredictable trading times: The 

Fund’s investment in Spot Ether is not 

directly related to creations or 

redemptions, but instead on target 

portfolio exposure. As a result, trading 

can be done in smaller sizes and at 

unpredictable times, making it harder 

for potential manipulators to time their 

actions. 

3. Reduced impact of large trades: By 

effecting creations and redemptions in 

cash, large trades that could potentially 

influence the unregulated spot market 

are mitigated. Instead, these trades are 

absorbed in the CME Market, which is 

sufficiently liquid and can reasonably 

be relied upon to assist in detecting and 

deterring fraudulent or manipulative 

misconduct. 

4. Reduced influence of Ether sourced 

from unregulated spot exchanges: Inkind creation may create a direct 

relationship between the Fund’s market 

price and prices on unregulated 

exchanges such as Binance by arbitrage, 

because an AP could buy or sell Ether 

from Binance and receive or deliver 

Ether from the Fund through the 

creation or redemption process. With 

creations and redemptions in cash, 

however, that arbitrage cannot be 

executed without going through pricing 

and trading on the CME Market. 

The Sponsor believes that the Fund’s 

creation and redemption process is 

designed to minimize the potential for 

market manipulation, thereby protecting 

investors and maintaining the integrity 

of the markets. 

Exchange for Physical Transactions 

EFP transactions, also known as 

Exchange for Related Position or EFRP 

transactions,55 are a type of private 

agreement between two parties to trade 

a futures position for the underlying 

asset. In the context of the Fund, these 

transactions will be used to purchase 

and sell Spot Ether by delivering or 

receiving the equivalent futures 

position. 

In an EFP transaction, two parties 

exchange equivalent but offsetting 

positions in an Ether Futures Contract 

and the underlying physical Ether. One 

party is the buyer of futures and the 

seller of the physical Ether, and the 

other party takes the opposite position 

(seller of futures and buyer of physical). 

While the EFP is a privately-negotiated 

transaction between the two parties to 

the trade, the consummated transaction 

must be reported to CME Market and its 

conditions and prices are subject to 

CME Market’s market regulation 

oversight. 

EFPs may be transacted at such 

commercially reasonable prices as are 

mutually agreed upon by the parties to 

the transaction, provided that the price 

conforms to the applicable futures price 

increments set forth for the relevant 

futures contract. The Sponsor believes 

that EFPs executed at off-market prices 

are more likely to be reviewed by CME’s 

Market Regulation. CME’s Rule 538 

establishes that ‘‘EFPs may not be 

priced off-market for the purpose of 

shifting substantial sums of cash from 

one party to another, to allocate gains 

and losses between the futures or 

options on futures and the cash or OTC 

derivative components of the EFRP, to 

evade taxes, to circumvent financial 

controls by disguising a firm’s financial 

condition, or to accomplish some other 

unlawful purpose.’’ 

Because both sides of the trade track 

the same benchmark (Ether), an EFP is 

market-neutral. As such, the pricing of 

an EFP is quoted in terms of the basis 

between the price of the futures contract 

and the level of the underlying Ether. 

Because the Fund proposes to use EFP 

transactions to purchase and sell Spot 

Ether, the only non-cash assets held by 

the Fund (Ether Futures Contracts and 

Ether) are traded on CME Market. 

Because the Exchange and the CME 

Market are both ISG members, 

information shared by the CME Market 

with the Exchange can be used to assist 

in detecting and deterring fraudulent or 

manipulative misconduct related to 

those assets. 

In the proposed strategy for the 

operation of the Fund, every time the 

Fund is required to purchase or sell 

Ether, the Sponsor will perform a 

request for quotation auction (‘‘RFQ 

Auction’’) with multiple market makers 

using the settlement price as the 

reference for the futures contracts. 

Market makers present their quotes in 

terms of basis points (‘‘bps’’), where 1bp 

= 0.01% between the futures contract 

price and the spot price. The Sponsor 

will then confirm the trade with the best 

offer and report the EFP transaction to 

the CME Market. The Sponsor believes 

that performing an RFQ Auction with 

multiple market makers is an efficient 

price formation mechanism that 

generates enough competition and 


ddrumheller on DSK120RN23PROD with NOTICES1
68230 Federal Register / Vol. 88, No. 190 / Tuesday, October 3, 2023 / Notices 

56See https://www.cmegroup.com/trading/ 

bitcoin-brokers-and-block-liquidity-providers.html. 

57See https://www.cmegroup.com/rulebook/files/ 

cme-group-Rule-538.pdf. 

58 VWAP is calculated based first on Tier 1 (if 

there are trades during the settlement period); then 

Tier 2 (if there are no trades during the settlement 

period); and then Tier 3 (in the absence of any trade 

activity or bid/ask in a given contract month during 

the current trading day, as follows: Tier 1: Each 

contract month settles to its VWAP of all trades that 

occur between 14:59:00 and 15:00:00 CT, the 

settlement period, rounded to the nearest tradable 

tick. If the VWAP is exactly in the middle of two 

tradable ticks, then the settlement will be the 

tradable price that is closer to the contract’s prior 

day settlement price. Tier 2: If no trades occur on 

CME Globex between 14:59:00 and 15:00:00 CT, the 

settlement period, then the last trade (or the 

attracts sufficient liquidity to minimize 

the transaction costs for the ETP. 

As an example, assume that the Fund 

needs to buy 500 ethers (ETH) in 

exchange for 10 units of the next 

maturity of Ether Futures Contracts 

(‘‘ETHA’’). The Sponsor will perform an 

RFQ Auction by requesting 3 market 

makers to provide their best price for 

buying ETHA versus ETH. The Market 

Makers provide a bid/ask quote in terms 

of basis between the futures and spot. 

Market Maker 1 (MM1) bids +22bps, 

Market Maker 2 (MM2) bids +20bps, 

and Market Maker 3 (MM3) bids 

+25bps. The Sponsor will then agree to 

pay the best bid of +25bps from MM3. 

Assuming ETHA is at $1,634, the price 

for the spot transaction is fixed at 

$1,629.92. The transaction is then 

reported within the time period and in 

the manner specified by the CME 

Market. Upon completion of the EFP, 

the Fund and MM3 would have 

different positions but same exposure: 

• The Fund was long 10 Ether 

Futures Contracts and now has 

converted this exposure into 500 Ethers. 

• MM3 had 500 Ethers and now holds 

an equal position long 10 Ether Futures 

Contracts. 

The table below illustrates the steps 

in this EFP transaction: 

Steps MM3 Fund 

1. Starting Position ..................................................................... 500 ETH ..................................................................................... 10 ETHA. 

2. EFP is privately negotiated .................................................... MM3 and the Fund agree to terms of the EFP: 

• Fund sells/MM3 buys 10 ETHA at $1,634. 

• Fund buys/MM3 sells 500 ETH at 1,629.92 (+25bps).

3. MM3 sends Ether to the Fund ............................................... ¥500 ETH ................................................................................. + 500 ETH. 

4. EFP reported to CME ............................................................. + 10 ETHA ................................................................................. ¥10 ETHA. 

5. Final Position .......................................................................... 10 ETHA .................................................................................... 500 ETH. 

As required by CME Market’s 

regulation, the Fund and all other 

parties related to the transaction will 

maintain all records relevant to this 

transaction, including order tickets, 

RFQ Auction message history, and 

custody transaction records, and 

provide them to CME upon request for 

surveillance purposes pursuant to CFTC 

Regulation 1.35. 

EFP volumes are reported daily on the 

CME Group website. Historically, 

trading activity in EFP transactions is 

sporadic as it depends on the demand 

for a regulated conversion between 

futures and spot positions. Nonetheless, 

the Sponsor believes that a large number 

of liquidity providers are ready to 

execute this type of transaction and can 

provide enough liquidity to support the 

proposed ETP’s demand. A subset of 

firms that are ready to provide liquidity 

on EFP Ether transactions is available 

on CME’s website.56

1. Regulated environment: EFP 

transactions occur on the CME Market, 

which is a regulated exchange with 

processes in place to prevent market 

manipulation, including monitoring 

transaction prices and investigating 

potential manipulations, as outlined in 

CME Rule 538.57 All transactions are 

monitored and subject to rules and 

regulations designed to prevent market 

manipulation. Moreover, all parties to 

an EFP transaction are required to 

maintain all records relevant to the 

transaction pursuant to CFTC 

Regulation 1.35, thus providing the 

ability for CME and the CFTC to 

conduct surveillance inquiries and 

investigations in an efficient and 

effective manner for the protection of 

customers and ensuring market 

integrity. Since the transactions are 

quoted as basis points based on the 

ethereum futures contracts prices, the 

Sponsor believes that there is a direct 

and unequivocal lead-lag relationship 

between the prices on CME and the spot 

market price that the Fund trades. 

Furthermore, as an additional protection 

measure, to enforce the highest standard 

on the sourcing of such underlying 

physical Ether, the Sponsor represents 

that it will only participate in EFP 

transactions with broker-dealers that are 

FINRA regulated or part of corporate 

groups that are, which would provide 

another layer of regulatory oversight in 

how Ether exposures are sourced, as 

those counterparties already have an 

ongoing commercial relationship with 

the Sponsor and are active participants 

in trading Ether regulated products 

worldwide. 

2. Surveillance-sharing agreement: 

Nasdaq and the CME Market are both 

members of the ISG, which allows for 

the sharing of information and 

cooperation in investigations, which can 

help detect and deter market 

manipulation. 

3. Transparency: EFP transactions 

must be reported to the CME Market, 

which is a regulated exchange, 

providing transparency and making it 

more difficult for manipulative practices 

to go unnoticed. Parties to EFP 

transactions must maintain all records 

relevant to the CME futures contract and 

the related position transaction, 

pursuant to CFTC Regulation 1.35, 

adding another layer of regulatory 

scrutiny and transparency. In addition, 

EFP transactions volumes are required 

to be reported with the daily large trader 

positions by each clearing member, 

omnibus account, and foreign broker. 

4. Market-neutrality: Because EFP 

transactions involve exchanging 

equivalent but offsetting positions, they 

are market-neutral. As a result, EFP 

transactions do not create imbalances in 

the market that could be exploited for 

manipulative purposes. 

5. Unpredictability: EFP transactions 

are privately negotiated between the 

fund and other parties, making them 

less predictable and therefore more 

difficult to manipulate. 

The Sponsor believes that, by using 

EFP transactions to purchase and sell 

spot Ether, the Fund would ensure that 

its operations are conducted in a 

regulated, transparent, and marketneutral manner, significantly reducing 

the dependency on and the risk of 

manipulation from unregulated spot 

exchanges. 

Settlement of ETH and MET Contracts 

According to the Registration 

Statement, each ETH Contract and MET 

Contract settles daily to the ETH 

Contract volume-weighted average price 

(‘‘VWAP’’) of all trades that occur 

between 2:59 p.m. and 3:00 p.m., 

Central Time, the settlement period, 

rounded to the nearest tradable tick.58


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 88, No. 190 / Tuesday, October 3, 2023 / Notices 68231 

contract’s settlement price from the previous day in 

the absence of a last trade price) is used to 

determine whether to settle to the bid or the ask 

during this period. a. If the last trade price is 

outside of the bid/ask spread, then the contract 

month settles to the nearest bid or ask price. b. If 

the last trade price is within the bid/ask spread, or 

if a bid/ask spread is not available, then the contract 

month settles to the last trade price. Tier 3: In the 

absence of any trade activity or bid/ask in a given 

contract month during the current trading day, the 

daily settlement price will be determined by 

applying the net change from the preceding contract 

month to the given contract month’s prior daily 

settlement price.] 

59The ETHUSD_RR is a daily reference rate of the 

U.S. dollar price of one ether calculated daily as of 

4:00 p.m. London time. It is calculated by the CME 

based on the ether trading activity on CMEspecified constituent spot ether exchanges during a 

calculation window between 3 p.m. and 4 p.m. 

London time. The CME launched the ETHUSD_RR 

in May 2018. 

ETH Contracts and MET Contracts each 

expire on the last Friday of the contract 

month and are settled with cash. The 

final settlement value is based on the 

ETHUSD_RR at 4:00 p.m. London time 

on the expiration day of the futures 

contract.59

As proposed, the Fund will rollover 

its soon to expire Ether Futures 

Contracts to extend the expiration or 

maturity of its position forward by 

closing the initial contract holdings and 

opening a new longer-term contract 

holding for the same underlying asset at 

the then-current market price. The Fund 

does not intend to hold any Ether 

futures positions into cash settlement. 

Net Asset Value 

According to the Registration 

Statement, the Fund’s NAV per Share 

will be calculated by taking the current 

market value of its total assets, 

subtracting any liabilities, and dividing 

that total by the number of Shares. 

The Sub-Administrator of the Fund 

will calculate the NAV once each 

trading day, as of the earlier of the close 

of the Nasdaq or 4:00 p.m. New York 

time. 

According to the Registration 

Statement, to determine the value of 

Ether Futures Contracts, the Fund’s SubAdministrator will use the Ether Futures 

Contract settlement price on the 

exchange on which the contract is 

traded, except that the ‘‘fair value’’ of 

Ether Futures Contracts (as described in 

more detail below) may be used when 

Ether Futures Contracts close at their 

price fluctuation limit for the day. The 

Fund’s Sub-Administrator will 

determine the value of Fund 

investments as of the earlier of the close 

of the New York Stock Exchange or 4:00 

p.m. New York time. The Fund’s NAV 

will include any unrealized profit or 

loss on open Ether futures contacts and 

any other credit or debit accruing to the 

Fund but unpaid or not received by the 

Fund. 

According to the Registration 

Statement, the value of spot Ether held 

by the Fund is determined by the 

Sponsor in good faith based on a 

methodology that is entirely derived 

from the settlement prices of Ether 

Futures Contracts on the CME. The 

method involves a calculation that is a 

function of both the length of time (the 

tenor) until each Ether Futures Contract 

is due for settlement, and the final 

settlement price for each contract on 

that day. The calculation takes into 

account each contract’s tenor and the 

tenor squared. This approach is 

designed to give more importance to 

contracts that are due for settlement in 

the near term, considering that the 

prices of these near-term contracts are 

more reliable indicators of the current 

spot price of Ether and are also more 

heavily traded. The calculation 

produces a set of weighting factors, with 

each factor indicating the contribution 

of the corresponding Ether Futures 

Contract to the estimated current spot 

price of Ether. The estimated spot price 

is the component of the result 

corresponding to a tenor of zero days. 

The Fund does not use data from ether 

exchanges or from spot ether trading 

activity. By way of example, the table 

below shows how the weights of each 

hypothetical Ether Futures Contract 

change over time as the first contract 

gets closer to maturity. 

BILLING CODE 8011–01–P 


ddrumheller on DSK120RN23PROD with NOTICES1
68232 Federal Register / Vol. 88, No. 190 / Tuesday, October 3, 2023 / Notices 

60Several major market data vendors display and/ 

or make widely available IFVs taken from the 

Consolidated Tape Association (‘‘CTA’’) or other 

data feeds. 

BILLING CODE 8011–01–C 

The Fund’s Sub-Administrator will 

determine the value of Fund 

investments as of the earlier of the close 

of the Nasdaq or 4:00 p.m. New York 

time. The Fund’s NAV will include any 

unrealized profit or loss on open Ether 

futures contacts and any other credit or 

debit accruing to the Fund but unpaid 

or not received by the Fund. 

According to the Registration 

Statement, the fair value of the Fund’s 

holdings will be determined by the 

Fund’s Sponsor in good faith and in a 

manner that assesses the future Ether 

market value based on a consideration 

of all available facts and all available 

information on the valuation date. 

When an Ether Futures Contract has 

closed at its price fluctuation limit, the 

fair value determination will attempt to 

estimate the price at which such Ether 

Futures Contract would be trading in 

the absence of the price fluctuation limit 

(either above such limit when an 

upward limit has been reached or below 

such limit when a downward limit has 

been reached). Typically, this estimate 

will be made primarily by reference to 

exchange traded instruments at 4:00 

p.m. New York time on settlement day. 

The fair value of ETH Contracts and 

MET Contracts may not reflect such 

security’s market value or the amount 

that the Fund might reasonably expect 

to receive for the ETH Contracts and 

MET Contracts upon its current sale. 

According to the Registration 

Statement and as discussed above, the 

value of Spot Ether held by the Fund 

would be determined by the Sponsor 

and by Hashdex Asset Management Ltd. 

(the ‘‘Digital Asset Adviser’’) via an 

FBSP methodology that is sensitive to 

both the tenor of an Ether Futures 

Contract and the final settlement price 

for such contract. The calculation 

produces a set of weighting factors, with 

each factor indicating the contribution 

of the corresponding Ether Futures 

Contract to the estimated current spot 

price of Ether. The estimated spot price 

is the component of the result 

corresponding to a tenor of zero days. 

The Sponsor and Digital Asset Advisor 

will not use data from Ether exchanges 

or directly from spot Ether trading 

activity in determining the value of Spot 

Ether held by the Fund. 

Indicative Fund Value 

According to the Registration 

Statement, in order to provide updated 

information relating to the Fund for use 

by investors and market professionals, a 

third party financial data provider will 

calculate an updated Indicative Fund 

Value (‘‘IFV’’). The IFV will be 

calculated by using the prior day’s 

closing NAV per Share of the Fund as 

a base and will be updated throughout 

the Core Trading Session of 9:30 a.m. 

E.T. to 4:00 p.m. E.T. to reflect changes 

in the value of the Fund’s holdings 

during the trading day. 

The IFV will be disseminated on a per 

Share basis every 15 seconds during the 

Exchange’s Core Trading Session and be 

widely disseminated by one or more 

major market data vendors during the 

Exchange’s Core Trading Session.60

Creation and Redemption of Shares 

According to the Registration 

Statement, the Shares issued by the 

Fund may only be purchased by APs 

and only in blocks of 10,000 Shares 

called ‘‘Creation Baskets.’’ The amount 

of the purchase payment for a Creation 

Basket is equal to the total NAV of 

Shares in the Creation Basket. Similarly, 

only APs may redeem Shares and only 


ddrumheller on DSK120RN23PROD with NOTICES1EN03OC23.006</GPH>

Future 

1st 

2nd 

3rd 

4th 

5th 

6th 

9th 

12th 

18th 

Total 

1st 

2nd 

3rd 

4tl'i 

5ff t 

6Ul: 

OOi 

12th 

1attr. 

Total 

27days 

130.81% 

1.91% 

~.92% 

-9.19% 

-7.81% 

-6.26% 

-2.61% 

-0.29% 

2.35% 

100.00% 

27days 

130.81% 

U1% 

"8.92% 

-(t19% 

.7;s1% 

.fi;26% 

-2.61% 

.O.M 

.2.353⁄4. 

21 days 

125.92% 

-0.84% 

-7.57% 

-7.05% 

-5.73% 

-4.47% 

-1.76% 

-0.14% 

1.65% 

100.00% 

Fli'$t future tenor 

21days 15days 

125.92% 120.~ 

.;(J:.84% -2.94% 

.7;57,i. -5.86% 

-7;05% -4.89% 

-5.7$% -3.781& 

-4;47% -2;86% 

-1.76% -1;05% 

.0.14% ~i:t04% 

Hl5% 1.04% 

100.00% 100.00% 

First future tenor 

15days 9days 

120.39% 113.79% 

-2.94% -3.80% 

-5.86% -3.76% 

-4.89% -2.78% 

-3.78% -2.02% 

-2.86% -1.47% 

-1.05% -0.50% 

-0.04% 0.01% 

1.04% 0.53% 

100.00% 100.00% 

$days 

113.79% 

-3;80% 

-3.76% 

-2.78% 

-2.02% 

..:1.47% 

.0,50tk 

Q.01% 

0.53% 

100.00% 

3days 

105.33% 

-2.26% 

-1.31% 

-0.83% 

-0.57% 

-0.39% 

-0.12% 

0.01% 

0.14% 

100.00% 

105.53% 

-2;26% 

-1.31% 

.();83% 

-o.57% 

.();$9% 

a(U~ 

0.01% 

0.14% 

100;00% 
Federal Register / Vol. 88, No. 190 / Tuesday, October 3, 2023 / Notices 68233 

in blocks of 10,000 Shares called 

‘‘Redemption Baskets.’’ The amount of 

the redemption proceeds for a 

Redemption Basket is equal to the total 

NAV of Shares in the Redemption 

Basket. The purchase price for Creation 

Baskets and the redemption price for 

Redemption Baskets are the actual NAV 

calculated at the end of the business day 

when a request for a purchase or 

redemption is received by the Fund. 

‘‘APs’’ will be the only persons that 

may place orders to create and redeem 

Creation Baskets. APs must be (1) either 

registered broker-dealers or other 

securities market participants, such as 

banks and other financial institutions, 

that are not required to register as 

broker-dealers to engage in securities 

transactions, and (2) DTC Participants. 

An AP is an entity that has entered into 

an Authorized Purchaser Agreement 

with the Sponsor. 

With respect to Spot Ether, an AP 

delivers cash to the Fund instead of 

Spot Ether in the creation process, and 

an AP receives cash instead of Spot 

Ether in the redemption process. The 

cash delivered or received during the 

creation or redemption process is then 

used by the Sponsor to purchase or sell 

Ether Futures Contracts with an 

aggregate market value that 

approximates the amount of cash 

received or paid upon the creation or 

redemption. On a daily basis, the 

Sponsor will analyze the current 

portfolio allocation of the Fund between 

Spot Ether and Ether Futures Contracts 

and, based on the Investment 

Restrictions and target portfolio 

exposure, may decide to engage in an 

EFP transaction on CME to buy or sell 

Spot Ether for the equivalent position in 

Ether Futures Contracts. 

Creation Procedures 

According to the Registration 

Statement, on any ‘‘Business Day,’’ an 

AP may place an order with the Transfer 

Agent to create one or more Creation 

Baskets. For purposes of processing both 

purchase and redemption orders, a 

‘‘Business Day’’ means any day other 

than a day when the CME or Nasdaq is 

closed for regular trading. Purchase 

orders for Creation Baskets must be 

placed by 3:00 p.m. New York time or 

one hour prior to the close of trading on 

Nasdaq, whichever is earlier. The day 

on which the Distributor receives a 

valid purchase order is referred to as the 

purchase order date. If the purchase 

order is received after the applicable 

cut-off time, the purchase order date 

will be the next Business Day. Purchase 

orders are irrevocable. 

By placing a purchase order, an AP 

agrees to deposit cash with the 

Custodian. 

Redemption Procedures 

According to the Registration 

Statement, the procedures by which an 

AP can redeem one or more Creation 

Baskets will mirror the procedures for 

the creation of Creation Baskets. On any 

Business Day, an AP may place an order 

with the Transfer Agent to redeem one 

or more Creation Baskets. 

The redemption procedures allow 

APs to redeem Creation Baskets. 

Individual shareholders may not redeem 

directly from the Fund. By placing a 

redemption order, an AP agrees to 

deliver the Creation Baskets to be 

redeemed through DTC’s book entry 

system to the Fund by the end of the 

next Business Day following the 

effective date of the redemption order or 

by the end of such later business day. 

Determination of Redemption 

Distribution 

According to the Registration 

Statement, the redemption distribution 

from the Fund will consist of an amount 

of cash, that is in the same proportion 

to the total assets of the Fund on the 

date that the order to redeem is properly 

received as the number of Shares to be 

redeemed under the redemption order is 

in proportion to the total number of 

Shares outstanding on the date the order 

is received. 

Delivery of Redemption Distribution 

According to the Registration 

Statement, an AP who places a purchase 

order will transfer to the Custodian the 

required amount of cash, cash 

equivalents and/or Ether futures by the 

end of the next business day following 

the purchase order date or by the end of 

such later business day, not to exceed 

three business days after the purchase 

order date, as agreed to between the AP 

and the Custodian when the purchase 

order is placed (the ‘‘Purchase 

Settlement Date’’). Upon receipt of the 

deposit amount, the Custodian will 

direct DTC to credit the number of 

Creation Baskets ordered to the AP’s 

DTC account on the Purchase 

Settlement Date. 

Availability of Information 

The NAV for the Fund’s Shares will 

be disseminated daily to all market 

participants at the same time. The 

intraday, closing prices, and settlement 

prices of the Ether Futures Contracts 

will be readily available from the 

applicable futures exchange websites, 

automated quotation systems, published 

or other public sources, or 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. 

Complete real-time data for the Ether 

Futures Contracts will be available by 

subscription through on-line 

information services. Nasdaq and CME 

also provide delayed futures and 

options on futures information on 

current and past trading sessions and 

market news free of charge on their 

respective websites. The specific 

contract specifications for Ether Futures 

Contracts will also be available on such 

websites, as well as other financial 

informational sources. Quotation and 

last-sale information regarding the 

Shares will be disseminated through the 

facilities of the CTA. Quotation 

information for cash equivalents and 

commodity futures may be obtained 

from brokers and dealers who make 

markets in such instruments. Intra-day 

price and closing price level 

information for the Benchmark will be 

available from major market data 

vendors. The Benchmark value will be 

disseminated once every 15 seconds. 

The IFV will be available through online information services. 

In addition, the Fund’s website, 

https://hashdex-etfs.com/, will display 

the applicable end of day closing NAV 

and the daily holdings of the Fund. The 

Fund’s website will also include a form 

of the prospectus for the Fund that may 

be downloaded. The website will 

include the Shares’ ticker and CUSIP 

information along with additional 

quantitative information updated on a 

daily basis, including: (1) the prior 

Business Day’s reported NAV and 

closing price and a calculation of the 

premium and discount of the closing 

price or mid-point of the bid/ask spread 

at the time of NAV calculation (the 

‘‘Bid/Ask Price’’) against the NAV; and 

(2) data in chart format displaying the 

frequency distribution of discounts and 

premiums of the daily closing price or 

Bid/Ask Price against the NAV, within 

appropriate ranges, for at least each of 

the four previous calendar quarters. The 

website disclosure of portfolio holdings 

will be made daily and will include, as 

applicable, (i) the name, quantity, price, 

and market value of the Fund’s 

holdings, (ii) the counterparty to and 

value of forward contracts and any other 

financial instruments tracking the 

Benchmark, and (iii) the total cash and 

cash equivalents held in the Fund’s 

portfolio, if applicable. 

The Fund’s website will be publicly 

available at the time of the public 


ddrumheller on DSK120RN23PROD with NOTICES1
68234 Federal Register / Vol. 88, No. 190 / Tuesday, October 3, 2023 / Notices 

61FINRA 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. 

offering of the Shares and accessible at 

no charge. 

Trading Halts 

With respect to trading halts, the 

Exchange may consider all relevant 

factors in exercising its discretion to 

halt or suspend trading in the Shares. 

The Exchange will halt trading in the 

Shares under the conditions specified in 

Nasdaq Rules 4120 and 4121, including 

without limitation the conditions 

specified in Nasdaq Rule 4120(a)(9) and 

the trading pauses under Nasdaq Rules 

4120(a)(11) and (12). 

Trading may be halted because of 

market conditions or for reasons that, in 

the view of the Exchange, make trading 

in the Shares inadvisable. These may 

include: (i) the extent to which trading 

is not occurring in the Ether Futures 

Contracts or the Ether underlying the 

Shares; or (ii) whether other unusual 

conditions or circumstances detrimental 

to the maintenance of a fair and orderly 

market are present. 

If the intraday indicative value of the 

Fund’s NAV (‘‘IIV’’) or the value of the 

underlying Ether Futures Contracts or 

underlying Ether is not being 

disseminated as required, the Exchange 

may halt trading during the day in 

which the interruption to the 

dissemination of the IIV or the value of 

the underlying Ether Futures Contracts 

or underlying Ether occurs. If the 

interruption to the dissemination of the 

IIV or the value of the underlying Ether 

Futures Contracts or underlying Ether 

persists past the trading day in which it 

occurred, the Exchange will halt trading 

no later than the beginning of the 

trading day following the interruption. 

In addition, if the Exchange becomes 

aware that the NAV with respect to the 

Shares is not disseminated to all market 

participants at the same time, it will halt 

trading in the Shares until such time as 

the NAV is available to all market 

participants. 

Trading Rules 

The Exchange deems the Shares to be 

equity securities, thus rendering trading 

in the Shares subject to the Exchange’s 

existing rules governing the trading of 

equity securities. The Exchange will 

allow trading in the Shares from 4:00 

a.m. to 8:00 p.m. (ET). The Exchange 

has appropriate rules to facilitate 

transactions in the Shares during all 

trading sessions. The Shares of the Fund 

will conform to the initial and 

continued listing criteria set forth in 

Nasdaq Rule 5711(i). 

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, Inc. (‘‘FINRA’’) on 

behalf of the Exchange, which are 

designed to detect violations of 

Exchange rules and applicable federal 

securities laws.61 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 applicable to trading on 

the Exchange. 

The surveillances referred to above 

generally focus on detecting securities 

trading outside their normal patterns, 

which could be indicative of 

manipulative or other violative activity. 

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 as needed regarding 

trading in the Shares and the Fund’s 

holdings with other markets and other 

entities that are members of the ISG, and 

the Exchange or FINRA, on behalf of the 

Exchange, or both, may obtain trading 

information regarding trading in the 

Shares and the Fund’s holdings from 

such markets and other entities. In 

addition, the Exchange may obtain 

information regarding trading in the 

Shares and the Fund’s holdings from 

markets and other entities that are 

members of ISG or with which the 

Exchange has in place a CSSA. The 

Exchange is also able to obtain 

information regarding trading in the 

Shares, the physical commodities 

underlying the futures contracts through 

ETP Holders, in connection with such 

ETP Holders’ proprietary or customer 

trades which they effect through ETP 

Holders on any relevant market. The 

Exchange can obtain market 

surveillance information, including 

customer identity information, with 

respect to transactions (including 

transactions in futures contracts) 

occurring on US futures exchanges, 

which are members of the ISG. 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 portfolios of the 

Funds or Benchmark, (b) limitations on 

portfolio holdings or the Benchmark, 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 issuer has represented to the 

Exchange that it will advise the 

Exchange of any failure by the Fund 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 Fund is not in 

compliance with the applicable listing 

requirements, the Exchange will 

commence delisting procedures under 

the Nasdaq Rule 5800 Series. 

Information Circular 

Prior to the commencement of trading 

of the Shares, the Exchange will inform 

its members in an Information Circular 

of the special characteristics and risks 

associated with trading the Shares. 

Specifically, the Information Circular 

will discuss the following: (1) the 

procedures for purchases and 

redemptions of Shares in Creation Units 

(and that Shares are not individually 

redeemable); (2) Section 10 of Nasdaq 

General Rule 9, which imposes 

suitability obligations on Nasdaq 

members with respect to recommending 

transactions in the Shares to customers; 

(3) how information regarding the IIV is 

disseminated; (4) the risks involved in 

trading the Shares during the PreMarket and Post-Market Sessions when 

an updated IIV will not be calculated or 

publicly disseminated; (5) the 

requirement that members deliver a 

prospectus to investors purchasing 

newly issued Shares prior to or 

concurrently with the confirmation of a 

transaction; and (6) trading information. 

The Information Circular will also 

discuss any exemptive, no-action and 

interpretive relief granted by the 

Commission from any rules under the 

Act. 

Additionally, the Information Circular 

will reference that the Trust is subject 

to various fees and expenses described 

in the Registration Statement. The 

Information Circular will also disclose 

the trading hours of the Shares. The 

Information Circular will disclose that 

information about the Shares will be 

publicly available on the Trust’s 

website. 


ddrumheller on DSK120RN23PROD with NOTICES1
Federal Register / Vol. 88, No. 190 / Tuesday, October 3, 2023 / Notices 68235 

62 15 U.S.C. 78f(b)(5). 

2. Statutory Basis 

The basis under the Act for this 

proposed rule change is the requirement 

under Section 6(b)(5) 62 that an 

exchange have rules that are 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, in general, to protect investors and 

the public interest. 

The Exchange believes that the 

proposed rule change is designed to 

prevent fraudulent and manipulative 

acts and practices and to protect 

investors and the public interest in that 

the Shares will be listed and traded on 

the Exchange pursuant to the initial and 

continued listing criteria set forth in 

Nasdaq Rule 5711(i). The Exchange has 

in place surveillance procedures that are 

adequate to properly monitor trading in 

the Shares in all trading sessions and to 

deter and detect violations of Exchange 

rules and applicable federal securities 

laws. The Exchange or FINRA, on behalf 

of the Exchange, or both, will 

communicate as needed regarding 

trading in the Shares and the Fund’s 

holdings with other markets and other 

entities that are members of the ISG, and 

the Exchange or FINRA, on behalf of the 

Exchange, or both, may obtain trading 

information regarding trading in the 

Shares and the Fund’s holdings from 

such markets and other entities. In 

addition, the Exchange may obtain 

information regarding trading in the 

Shares and the Fund’s holdings from 

markets and other entities that are 

members of ISG or with which the 

Exchange has in place a CSSA. The 

Exchange is also able to obtain 

information regarding trading in the 

Shares and the Fund’s holdings through 

ETP Holders, in connection with such 

ETP Holders’ proprietary or customer 

trades which they effect through ETP 

Holders on any relevant market. The 

Exchange can obtain market 

surveillance information, including 

customer identity information, with 

respect to transactions (including 

transactions in Ether Futures Contracts) 

occurring on US futures exchanges, 

which are members of the ISG. The 

intraday, closing prices, and settlement 

prices of the Ether Futures Contracts 

will be readily available from the 

applicable futures exchange websites, 

automated quotation systems, published 

or other public sources, or major market 

data vendors website or on-line 

information services. 

Complete real-time data for the Ether 

Futures Contracts will be available by 

subscription from on-line information 

services. Nasdaq and CME also provide 

delayed futures information on current 

and past trading sessions and market 

news free of charge on the Fund’s 

website. The specific contract 

specifications for Ether Futures 

Contracts will also be available on such 

websites, as well as other financial 

informational sources. Information 

regarding options will be available from 

the applicable exchanges or major 

market data vendors. Quotation and 

last-sale information regarding the 

Shares will be disseminated through the 

facilities of the CTA. The IFV will be 

disseminated on a per Share basis every 

15 seconds during the Exchange’s Core 

Trading Session and be widely 

disseminated by one or more major 

market data vendors during the 

Exchange’s Core Trading Session. The 

Fund’s website will also include a form 

of the prospectus for the Fund that may 

be downloaded. The website will 

include the Share’s ticker and CUSIP 

information along with additional 

quantitative information updated on a 

daily basis, including, for the Fund: (1) 

the prior business day’s reported NAV 

and closing price and a calculation of 

the premium and discount of the closing 

price or mid-point of the Bid/Ask Price 

against the NAV; and (2) data in chart 

format displaying the frequency 

distribution of discounts and premiums 

of the daily closing price or Bid/Ask 

Price against the NAV, within 

appropriate ranges, for at least each of 

the four previous calendar quarters. The 

website disclosure of portfolio holdings 

will be made daily and will include, as 

applicable, (i) the name, quantity, price, 

and market value of Ether Futures 

Contracts, (ii) the counterparty to and 

value of forward contracts, and (iii) 

other financial instruments, if any, and 

the characteristics of such instruments 

and cash equivalents, and amount of 

cash held in the Fund’s portfolio, if 

applicable. 

Trading in Shares of the Fund will be 

halted if the circuit breaker parameters 

have been reached or because of market 

conditions or for reasons that, in the 

view of the Exchange, make trading in 

the Shares inadvisable. These may 

include: (1) the extent to which trading 

is not occurring in ETH and/or MET 

Contracts and the securities and/or the 

financial instruments composing the 

daily disclosed portfolio of the Fund; or 

(2) whether other unusual conditions or 

circumstances detrimental to the 

maintenance of a fair and orderly 

market are present. 

The proposed rule change is designed 

to perfect the mechanism of a free and 

open market and, in general, to protect 

investors and the public interest in that 

it will facilitate the listing and trading 

of Trust Units based on Ether that will 

enhance competition among market 

participants, to the benefit of investors 

and the marketplace. As noted above, 

the Exchange has in place surveillance 

procedures that are adequate to properly 

monitor trading in the Shares in all 

trading sessions and to deter and detect 

violations of Exchange rules and 

applicable federal securities laws. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purpose of the Act. The Exchange 

notes that the proposed rule change will 

facilitate the listing and trading of Trust 

Units based on Ether and that will 

enhance competition among market 

participants, to the benefit of investors 

and the marketplace. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were either 

solicited or received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the Exchange consents, the Commission 

will: (a) by order approve or disapprove 

such proposed rule change, or (b) 

institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (https://www.sec.gov/ 

rules/sro.shtml); or 


ddrumheller on DSK120RN23PROD with NOTICES1
68236 Federal Register / Vol. 88, No. 190 / Tuesday, October 3, 2023 / Notices 

63 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 98457 

(Sept. 20, 2023), 88 FR 66076. 

4 15 U.S.C. 78s(b)(2). 

5 15 U.S.C. 78s(b)(2). 

6 17 CFR 200.30–3(a)(31). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 97368 

(April 24, 2023), 88 FR 26353, (April 28, 2023) 

(‘‘Notice’’). 

4 15 U.S.C. 78s(b)(2). 

5See Securities Exchange Act Release No. 97672 

(June 8, 2023), 88 FR 38930 (June 14, 2023). The 

Commission designated July 20, 2023, as the date 

by which it should approve, disapprove, or institute 

proceedings to determine whether to disapprove the 

proposed rule change. 

6 15 U.S.C. 78s(b)(2)(B). 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

NASDAQ–2023–035 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to file 

number SR–NASDAQ–2023–035. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (https://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of the filing also 

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–NASDAQ–2023–035 and should be 

submitted on or before October 24, 

2023. 

For the Commission, by the Division 

of Trading and Markets, pursuant to 

delegated authority.63

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–21788 Filed 10–2–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98566; File No. SR– 

CboeBZX–2023–069] 

Self-Regulatory Organizations; Cboe 

BZX Exchange, Inc.; Notice of 

Designation of a Longer Period for 

Commission Action on a Proposed 

Rule Change To List and Trade Shares 

of the VanEck Ethereum ETF Under 

BZX Rule 14.11(e)(4), CommodityBased Trust Shares 

September 27, 2023. 

On September 6, 2023, Cboe BZX 

Exchange, Inc. (‘‘BZX’’ or ‘‘Exchange’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

to Section 19(b)(1) of the Securities 

Exchange Act of 1934 (‘‘Act’’) 1 and Rule 

19b–4 thereunder,2 a proposed rule 

change to list and trade shares of the 

VanEck Ethereum ETF under BZX Rule 

14.11(e)(4), Commodity-Based Trust 

Shares. The proposed rule change was 

published for comment in the Federal 

Register on September 26, 2023.3 The 

Commission has received no comments 

on the proposal. 

Section 19(b)(2) of the Act 4 provides 

that within 45 days of the publication of 

notice of the filing of a proposed rule 

change, or within such longer period up 

to 90 days as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or as to which the 

self-regulatory organization consents, 

the Commission shall either approve the 

proposed rule change, disapprove the 

proposed rule change, or institute 

proceedings to determine whether the 

proposed rule change should be 

disapproved. The 45th day after 

publication of the notice for this 

proposed rule change is November 10, 

2023. The Commission is extending this 

45-day time period. 

The Commission finds it appropriate 

to designate a longer period within 

which to take action on the proposed 

rule change so that it has sufficient time 

to consider the proposed rule change 

and the issues raised therein. 

Accordingly, the Commission, pursuant 

to Section 19(b)(2) of the Act,5

designates December 25, 2023, as the 

date by which the Commission shall 

either approve or disapprove, or 

institute proceedings to determine 

whether to disapprove, the proposed 

rule change (File No. SR–CboeBZX– 

2023–069). 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.6

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–21791 Filed 10–2–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98557 File No. SR–CBOE– 

2023–018] 

Self-Regulatory Organizations; Cboe 

Exchange, Inc.; Notice of Designation 

of a Longer Period for Commission 

Action on Proceedings To Determine 

Whether To Approve or Disapprove a 

Proposed Rule Change To Make 

Permanent the Operation of Its Flexible 

Exchange Options Pilot Program 

Regarding Permissible Settlement 

Values for FLEX Index Options 

September 27, 2023. 

On April 10, 2023, Cboe Exchange, 

Inc. (‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’), pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Act’’) 1 and Rule 19b–4 

thereunder,2 a proposed rule change to 

make permanent the operation of its 

Flexible Exchange Options (‘‘FLEX 

Options’’) pilot program (‘‘Pilot 

Program’’) regarding permissible 

exercise settlement values for FLEX 

Index Options. The proposed rule 

change was published for comment in 

the Federal Register on April 28, 2023.3

On June 8, 2023, pursuant to Section 

19(b)(2) of the 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 July 19, 2023, the 

Commission instituted proceedings 

under Section 19(b)(2)(B) of the Act 6 to 


ddrumheller on DSK120RN23PROD with NOTICES1