43912 Federal Register / Vol. 83, No. 167 / Tuesday, August 28, 2018 / Notices 

4As of September 30, 2017, there were 68 

terminated plans not yet receiving financial 

assistance and 72 insolvent plans that received 

financial assistance from PBGC. See PBGC FY 2017 

Annual Report, page 94 at https://www.pbgc.gov/ 

sites/default/files/pbgc-annual-report-2017.pdf. 

Approximately 65 of the plans have 500 or more 

participants. 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 82532 

(Jan 18, 2018), 83 FR 3380 (Jan. 24, 2018) 

(‘‘Notice’’). 

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

5See Securities Exchange Act Release No. 82795 

(Mar. 1, 2018), 83 FR 9768 (Mar. 7, 2018). 

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

7See Securities Exchange Act Release No. 83094 

(Apr. 23, 2018), 83 FR 18603 (Apr. 27, 2018) 

(‘‘Order Instituting Proceedings’’). 

8See Securities Exchange Act Release No. 83661 

(July 18, 2018), 83 FR 35040 (July 24, 2018). 

9See Letters from Steven Williams (May 17, 2018) 

(‘‘Williams Letter’’); Sharon Brown-Hruska, 

Managing Director, and Trevor Wagener, 

Consultant, NERA Economic Consulting (May 18, 

2018) (‘‘NERA Letter’’); John Galt (July 24, 2018) 

(‘‘Galt Letter’’); David (July 30, 2018) (‘‘David 

Letter’’); Sami Santos (Aug. 7, 2018) (‘‘Santos 

Letter’’); and Sam M. Ahn (Aug. 21, 2018) (‘‘Ahn 

Letter’’). All comments on the proposed rule change 

are available on the Commission’s website at: 

https://www.sec.gov/comments/sr-nysearca-2018- 

02/nysearca201802.htm. 

10See 15 U.S.C. 78f(b)(5). 

11See infra notes 32–34 and accompanying text. 

collection of withdrawal liability. 

Information provided to PBGC would be 

confidential to the extent provided in 

the Freedom of Information Act and the 

Privacy Act. 

On June 21, 2018, PBGC published (at 

83 FR 28871) a notice of its intent to 

request OMB approval of the survey of 

multiemployer pension plan withdrawal 

liability information described above. 

No comments were received on the 

proposed submission of information 

collection. 

PBGC is requesting that OMB approve 

PBGC’s use of this survey for three 

years. An agency may not conduct or 

sponsor, and a person is not required to 

respond to, a collection of information 

unless it displays a currently valid OMB 

control number. 

The survey initially would be sent to 

approximately 65 plans.4 PBGC 

estimates that each survey would 

require approximately 20 hours to 

complete by a combination of pension 

fund office staff (50%) and outside 

professionals (attorneys and actuaries) 

(50%). PBGC estimates a total hour 

burden of 650 hours (based on pension 

fund office time). The estimated dollar 

equivalent of this hour burden, based on 

an assumed hourly rate of $75 for 

administrative, clerical, and supervisory 

time is $48,750. PBGC estimates a total 

cost burden for the withdrawal liability 

survey of $260,000 (based on 650 

attorney and actuary hours assuming an 

average hourly rate of $400). PBGC 

further estimates that the average 

burden will be 10 hours of pension fund 

office staff time and $4,000 per plan. 

After the survey is sent initially, PBGC 

expects to send the survey to fewer than 

10 newly terminated and insolvent 

plans per year. 

Issued in Washington, DC. 

Hilary Duke, 

Assistant General Counsel for Regulatory 

Affairs, Pension Benefit Guaranty 

Corporation. 

[FR Doc. 2018–18593 Filed 8–27–18; 8:45 am] 

BILLING CODE 7709–02–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–83912; File No. SR– 

NYSEArca–2018–02] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Order Disapproving a 

Proposed Rule Change Relating to 

Listing and Trading of the Direxion 

Daily Bitcoin Bear 1X Shares, Direxion 

Daily Bitcoin 1.25X Bull Shares, 

Direxion Daily Bitcoin 1.5X Bull 

Shares, Direxion Daily Bitcoin 2X Bull 

Shares, and Direxion Daily Bitcoin 2X 

Bear Shares Under NYSE Arca Rule 

8.200–E 

August 22, 2018. 

I. Introduction 

On January 4, 2018, NYSE Arca, Inc. 

(‘‘NYSE Arca’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’), pursuant to Section 

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

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

19b–4 thereunder,2 a proposed rule 

change to list and trade the shares 

(‘‘Shares’’) of the following exchangetraded products under NYSE Arca Rule 

8.200–E, Commentary .02: Direxion 

Daily Bitcoin Bear 1X Shares (‘‘1X Bear 

Fund’’), Direxion Daily Bitcoin 1.25X 

Bull Shares (‘‘1.25X Bull Fund’’), 

Direxion Daily Bitcoin 1.5X Bull Shares 

(‘‘1.5X Bull Fund’’), Direxion Daily 

Bitcoin 2X Bull Shares (‘‘2X Bull 

Fund’’), and Direxion Daily Bitcoin 2X 

Bear Shares (‘‘2X Bear Fund’’) (each a 

‘‘Fund’’ and, collectively, the ‘‘Funds’’). 

The proposed rule change was 

published for comment in the Federal 

Register on January 24, 2018.3 The 

comment period for the Notice of 

Proposed Rule Change closed on 

February 14, 2018. 

On March 1, 2018, pursuant to 

Section 19(b)(2) of the Exchange Act,4

the Commission designated a longer 

period within which to approve the 

proposed rule change, disapprove the 

proposed rule change, or institute 

proceedings to determine whether to 

approve or disapprove the proposed 

rule change.5 On April 23, 2018, the 

Commission instituted proceedings 

under Section 19(b)(2)(B) of the 

Exchange Act 6 to determine whether to 

approve or disapprove the proposed 

rule change.7 The comment period and 

rebuttal comment period for the Order 

Instituting Proceedings closed on May 

18, 2018, and June 1, 2018, respectively. 

Finally, on July 18, 2018, the 

Commission extended the period for 

consideration of the proposed rule 

change to September 21, 2018.8 As of 

August 21, 2018, the Commission had 

received six comments on the proposed 

rule change.9

This order disapproves the proposed 

rule change. Although the Commission 

is disapproving this proposed rule 

change, the Commission emphasizes 

that its disapproval does not rest on an 

evaluation of whether bitcoin, or 

blockchain technology more generally, 

has utility or value as an innovation or 

an investment. Rather, the Commission 

is disapproving this proposed rule 

change because, as discussed below, the 

Exchange has not met its burden under 

the Exchange Act and the Commission’s 

Rules of Practice to demonstrate that its 

proposal is consistent with the 

requirements of the Exchange Act 

Section 6(b)(5), in particular the 

requirement that a national securities 

exchange’s rules be designed to prevent 

fraudulent and manipulative acts and 

practices.10 Among other things, the 

Exchange has offered no record 

evidence to demonstrate that bitcoin 

futures markets are ‘‘markets of 

significant size.’’ That failure is critical 

because, as explained below, the 

Exchange has failed to establish that 

other means to prevent fraudulent and 

manipulative acts and practices will be 

sufficient, and therefore surveillancesharing with a regulated market of 

significant size related to bitcoin is 

necessary to satisfy the statutory 

requirement that the Exchange’s rules be 

designed to prevent fraudulent and 

manipulative acts and practices.11

II. Description of the Proposal 

The Exchange proposes to list and 

trade the Shares under NYSE Arca Rule 

8.200–E, Commentary .02, which 


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Federal Register / Vol. 83, No. 167 / Tuesday, August 28, 2018 / Notices 43913 

12See NYSE Arca Rule 8.200–E, Commentary .02. 

NYSE Arca Rule 8.200–E permits the listing and 

trading of ‘‘Trust Issued Receipts,’’ defined as a 

security (1) that is issued by a trust which holds 

specific securities deposited with the trust; (2) that, 

when aggregated in some specified minimum 

number, may be surrendered to the trust by the 

beneficial owner to receive the securities; and (3) 

that pay beneficial owners dividends and other 

distributions on the deposited securities, if any are 

declared and paid to the trustee by an issuer of the 

deposited securities. Commentary .02 applies to 

Trust Issued Receipts that invest in any 

combination of investments, including cash; 

securities; options on securities and indices; futures 

contracts; options on futures contracts; forward 

contracts; equity caps, collars, and floors; and swap 

agreements. 

13See Notice, supra note 3, 83 FR at 3381. 

14See id. at 3384. 

15See id. at 3381. Bitcoin Futures Contracts will 

be cash-settled. According to the Exchange, the 

‘‘lead month’’ contract is the monthly contract with 

the earliest expiration date. See id. at 3381 n.6. 

16See id. at 3382. 

17See id. 

18See id. at 3381. 

19See id. at 3383. 

20See id. at 3381–82. 

21See id. at 3382. 

22See id. at 3383. 

23See id. at 3385. 

24See id. 

25 15 U.S.C. 78f(b)(5). 

26Rule 700(b)(3), Commission Rules of Practice, 

17 CFR 201.700(b)(3). 

27See id. 

28See id. 

29See Susquehanna Int’l Group, LLP v. Securities 

and Exchange Commission, 866 F.3d 442, 447 (D.C. 

Cir. 2017). 

governs the listing and trading of Trust 

Issued Receipts on the Exchange.12 Each 

Fund will be a series of the Direxion 

Shares ETF Trust II (‘‘Trust’’), and the 

Trust and the Funds will be managed 

and controlled by Direxion Asset 

Management, LLC (‘‘Sponsor’’). Bank of 

New York Mellon will be the custodian 

and transfer agent for the Funds. U.S. 

Bancorp Fund Services, LLC will serve 

as the administrator for the Funds, and 

Foreside Fund Services, LLC will serve 

as the distributor of the Shares 

(‘‘Distributor’’).13 According to the 

Notice, each Fund will create and 

redeem Shares in one or more Creation 

Units (a Creation Unit is a block of 

50,000 Shares of a Fund).14

According to the Notice, the Funds 

will seek to obtain daily short, leveraged 

long, or leveraged short exposure (before 

fees and expenses) to the target 

benchmark, which is the lead-month 

bitcoin futures contract traded on the 

Chicago Mercantile Exchange (‘‘CME’’), 

the Cboe Global Markets, Inc. (‘‘CBOE’’), 

or any other U.S. exchange that 

subsequently trades bitcoin futures 

contracts (‘‘Bitcoin Futures Contract’’).15

Specifically, the 1.25X Bull Fund, the 

1.5X Bull Fund, and the 2X Bull Fund 

will seek daily investment results 

(before fees and expenses) that are 

125%, 150%, or 200%, respectively, of 

the daily return of the target 

benchmark.16 The 1X Bear Fund and the 

2X Bear Fund will seek daily inverse 

investment results (before fees and 

expenses) that are ¥100% or ¥200%, 

respectively, of the daily return of the 

target benchmark.17

According to the Notice, the target 

benchmark’s value will be calculated as 

the last sale price published by CME or 

CBOE, or any other U.S. exchange that 

subsequently trades bitcoin futures 

contracts, on or before 11:00 a.m. E.T. 

for the Bitcoin Futures Contract and 

may reflect trades occurring and 

published by CME, CBOE, or another 

U.S. exchange that subsequently trades 

bitcoin futures contracts outside the 

normal trading session for the Bitcoin 

Futures Contract.18 Each Fund will 

compute its NAV as of 11:00 a.m. E.T., 

or such earlier time that the NYSE may 

close.19

According to the Notice, each Fund, 

under normal market conditions, will 

seek to achieve its daily investment 

objective by investing in the Bitcoin 

Futures Contract, swaps on the Bitcoin 

Futures Contract, or listed options on 

bitcoin or the Bitcoin Futures Contract 

(collectively, ‘‘Bitcoin Financial 

Instruments’’). The Funds’ investments 

in Bitcoin Financial Instruments will be 

used to produce economically 

‘‘leveraged’’ or ‘‘inverse leveraged’’ 

investment results for the Funds.20 A 

Fund may invest in the listed options 

and swaps described above in a manner 

consistent with its investment objective 

in situations where the Sponsor believes 

that investing in such financial 

instruments is in the best interests of a 

Fund. In addition, a Fund may invest in 

swap contracts referencing the Bitcoin 

Futures Contract if the market for a 

specific bitcoin futures contract 

experiences emergencies or if position, 

price, or accountability limits (if any) 

are reached with respect to a specific 

bitcoin futures contract. Each trading 

day at the close of the U.S. equity 

markets, each Fund will position its 

portfolio to ensure that the Fund’s 

exposure to the target benchmark is 

consistent with the Fund’s investment 

objective.21 The Notice also states: 

[U]nlike the futures markets for traditional 

physical commodities, the market for 

exchange-traded bitcoin futures contract[s] 

has limited trading history and operational 

experience and may be riskier, less liquid, 

more volatile and more vulnerable to 

economic, market and industry changes than 

more established futures markets. The 

liquidity of the market will depend on, 

among other things, the adoption of bitcoin 

and the commercial and speculative interest 

in the market for the ability to hedge against 

the price of bitcoin with exchange-traded 

bitcoin futures contracts.22

The Exchange represents that trading 

in the Shares of each Fund will be 

subject to the existing trading 

surveillances administered by the 

Exchange, as well as cross-market 

surveillances administered by FINRA on 

behalf of the Exchange, which are 

designed to detect violations of 

Exchange rules and applicable federal 

securities laws.23 The Exchange asserts 

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.24

III. Discussion 

A. The Applicable Standard for Review 

The Commission must consider 

whether the Exchange’s proposal is 

consistent with Exchange Act Section 

6(b)(5), which requires, in relevant part, 

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.’’ 25 Under the 

Commission’s Rules of Practice, the 

‘‘burden to demonstrate that a proposed 

rule change is consistent with the 

Exchange Act and the rules and 

regulations issued thereunder . . . is on 

the self-regulatory organization [‘SRO’] 

that proposed the rule change.’’ 26

The description of a proposed rule 

change, its purpose and operation, its 

effect, and a legal analysis of its 

consistency with applicable 

requirements must all be sufficiently 

detailed and specific to support an 

affirmative Commission finding,27 and 

any failure of an SRO to provide this 

information may result in the 

Commission not having a sufficient 

basis to make an affirmative finding that 

a proposed rule change is consistent 

with the Exchange Act and the 

applicable rules and regulations.28

Moreover, ‘‘unquestioning reliance’’ on 

an SRO’s representations in a proposed 

rule change is not sufficient to justify 

Commission approval of a proposed rule 

change.29

B. Preventing Fraudulent and 

Manipulative Practices 

1. Applicable Legal Standard 

To approve the Exchange’s proposal 

to list the Shares, the Commission must 

be able to find that the proposal is, 

consistent with Exchange Act Section 

6(b)(5), ‘‘designed to prevent fraudulent 


daltland on DSKBBV9HB2PROD with NOTICES
43914 Federal Register / Vol. 83, No. 167 / Tuesday, August 28, 2018 / Notices 

30 15 U.S.C. 78f(b)(5). 

31Order 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, 37580 (Aug. 1, 2018) 

(SR–BatsBZX–2016–30). 

32 Id. (citing Amendment to Rule Filing 

Requirements for Self-Regulatory Organizations 

Regarding New Derivative Securities Products, 

Securities Exchange Act Release No. 40761 (Dec. 8, 

1998), 64 FR 70952, 70954, 70959 (Dec. 22, 1998) 

(File No. S7–13–98)). 

33 15 U.S.C. 78f(b)(5). 

34See Winklevoss Order, supra note 31, 83 FR at 

37594. This definition is illustrative and not 

exclusive. There could be other types of ‘‘significant 

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

definition is an example that will provide guidance 

to market participants. See id. 

35Securities Exchange Act Release No. 53105 

(Jan. 11, 2006), 71 FR 3129, 3136 (Jan. 19, 2006) 

(SR–Amex–2005–059). Additionally, the 

Winklevoss Order discusses the broader history and 

importance of surveillance-sharing agreements 

relating to derivative securities products, quoting 

Commission statements dating from 1990 on. See 

Winklevoss Order, supra note 31, 83 FR at 37592– 

94. 

36See, e.g., Securities Exchange Act Release No. 

53105 (Jan. 11, 2006), 71 FR 3129, 3136 (Jan. 19, 

2006) (SR–Amex–2005–059) (approval order noted 

that Amex’s ‘‘Information Sharing Agreement with 

the NYMEX and the CBOT and [Amex’s] 

Memorandum of Understanding with the LME, 

along with the Exchange’s participation in the ISG, 

in which the CBOT participates . . . create the 

basis for the Amex to monitor for fraudulent and 

manipulative practices in the trading of the 

Shares’’); Securities Exchange Act Release No. 

53582 (Mar. 31, 2006), 71 FR 17510, 17518 (Apr. 

6, 2006) (SR–Amex–2005–127) (approval order 

noted that Amex’s ‘‘comprehensive surveillance 

sharing agreements with the NYMEX and ICE 

Futures . . . create the basis for the Amex to 

monitor for fraudulent and manipulative practices 

in the trading of the Units’’ and that ‘‘[s]hould the 

USOF invest in oil derivatives traded on markets 

such as the Singapore Oil Market, the Exchange 

represents that it will file a proposed rule change 

pursuant to Section 19(b) of the [Exchange] Act, 

seeking Commission approval of [Amex’s] 

surveillance agreement with such market’’); 

Securities Exchange Act Release No. 54013 (June 

16, 2006), 71 FR 36372, 36378–79 (June 26, 2006) 

(NYSE–2006–17) (approval order noted that NYSE’s 

‘‘comprehensive surveillance sharing agreements 

with the NYMEX, the Kansas City Board of Trade, 

ICE Futures, and the LME . . . create the basis for 

the NYSE to monitor for fraudulent and 

manipulative trading practices’’ and that ‘‘all of the 

other trading venues on which current Index 

components and CERFs are traded are members of 

the ISG’’); Securities Exchange Act Release No. 

54450 (Sept. 14, 2006), 71 FR 55230, 55236 (Sept. 

21, 2006) (SR–Amex–2006–44) (approval order 

noted that ‘‘CME, where the futures contract for 

each of the current Index components is traded, is 

a member of the ISG’’ and that in the event of new 

fund investments in ‘‘foreign currency futures 

contracts traded on futures exchanges other than 

CME, [Amex] must have a CSSA with that futures 

exchange or the futures exchange must be an ISG 

member’’); Securities Exchange Act Release No. 

55029 (Dec. 29, 2006), 72 FR 806, 809–10 (Jan. 8, 

2007) (SR–Amex–2006–76) (approval order noted 

that Amex’s ‘‘Comprehensive Surveillance Sharing 

Agreement with the ICE Futures, LME, and 

NYMEX, . . . and membership in the Intermarket 

Surveillance Group (‘ISG’) creates the basis for the 

Amex to monitor fraudulent and manipulative 

practices in the trading of the Shares’’); Securities 

Exchange Act Release No. 56880 (Dec. 3, 2007), 72 

FR 69259, 69261 (Dec. 7, 2007) (SR–Amex–2006– 

96) (approval order noted that Amex has 

‘‘information sharing agreements with the 

InterContinental Exchange, the Chicago Mercantile 

Exchange, and the New York Mercantile Exchange 

and may obtain market surveillance information 

from other exchanges, including the Chicago Board 

of Trade, London Metals Exchange, and the New 

York Board of Trade through the Intermarket 

Surveillance Group’’); Securities Exchange Act 

Release No. 55632 (Apr. 13, 2007), 72 FR 19987, 

19988 (Apr. 20, 2007) (SR–Amex–2006–112) 

(approval order noted that Amex ‘‘currently has in 

place an Information Sharing Agreement with the 

NYMEX and ICE Futures’’ and that if ‘‘USNG 

invests in Natural Gas Interests traded on other 

exchanges, the Amex represented that it will seek 

to enter into Information Sharing arrangements with 

those particular exchanges’’); Securities Exchange 

Act Release No. 57456 (Mar. 7, 2008), 73 FR 13599, 

13601 (Mar. 13, 2008) (NYSEArca–2007–91) 

(approval order noted that NYSEArca ‘‘can obtain 

market surveillance information, including 

customer identity information, with respect to 

transactions occurring on the NYM, the Kansas City 

Board of Trade, ICE, and the LME, pursuant to its 

comprehensive information sharing agreements 

with each of those exchanges’’ and that ‘‘[a]ll of the 

other trading venues on which current Index 

components are traded are members of the ISG’’); 

Securities Exchange Act Release No. 57838 (May 

20, 2008), 73 FR 30649, 30652, (May 28, 2008) (SR– 

NYSEArca–2008–09) (approval order noted that 

NYSEArca ‘‘may obtain information via the ISG 

from other exchanges who are members or affiliate 

members of the ISG,’’ that NYSEArca ‘‘has an 

information sharing agreement in place with ICE 

Futures,’’ and that NYSEArca will file a proposed 

rule change ‘‘if the Fund invests in EUAs . . . that 

constitute more than 10% of the weight of the Fund 

where the principal trading market for such 

component is not a member or affiliate member of 

the ISG or where the Exchange does not have a 

comprehensive surveillance sharing agreement with 

such market’’); Securities Exchange Act Release No. 

63635 (Jan. 3, 2011), 76 FR 1489, 1491 (Jan. 10, 

2011) (NYSEArca–2010–103) (approval order noted 

that ‘‘with respect to Fund components traded on 

exchanges, not more than 10% of the weight of such 

components in the aggregate will consist of 

components whose principal trading market is not 

a member of the Intermarket Surveillance Group or 

is a market with which [NYSEArca] does not have 

a comprehensive surveillance sharing agreement’’); 

Securities Exchange Act Release No. 66553 (Mar. 9, 

2012), 77 FR 15440, 15444 (Mar. 15, 2012) (SR– 

NYSEArca–2012–04) (approval order noted that 

NYSEArca ‘‘can obtain market surveillance 

information, including customer identity 

information, from ICE [Futures] and CME, which 

are members of the Intermarket Surveillance 

Group’’); Securities Exchange Act Release No. 

67223 (June 20, 2012), 77 FR 38117, 38124 (June 26, 

2012) (NYSEAmex–2012–24) (approval order noted 

and manipulative acts and practices.’’ 30

As the Commission recently explained 

in an order disapproving a listing 

proposal for the Winklevoss Bitcoin 

Trust (‘‘Winklevoss Order’’), although 

surveillance-sharing agreements are not 

the exclusive means by which an 

exchange-traded product (‘‘ETP’’) listing 

exchange can meet its obligations under 

Exchange Act Section 6(b)(5), such 

agreements are a widely used means for 

exchanges that list ETPs to meet their 

obligations, and the Commission has 

historically recognized their 

importance.31

The Commission has therefore 

determined that, if the listing exchange 

for an ETP fails to establish that other 

means to prevent fraudulent and 

manipulative acts and practices will be 

sufficient, the listing exchange must 

enter into a surveillance-sharing 

agreement with a regulated market of 

significant size because ‘‘[s]uch 

agreements provide a necessary 

deterrent to manipulation because they 

facilitate the availability of information 

needed to fully investigate a 

manipulation if it were to occur.’’ 32

Accordingly, a surveillance-sharing 

agreement with a regulated market of 

significant size is required to ensure 

that, in compliance with the Exchange 

Act, the proposal is ‘‘designed to 

prevent fraudulent and manipulative 

acts and practices.’’ 33 In this context, 

the Commission has interpreted the 

terms ‘‘significant market’’ and ‘‘market 

of significant size’’ to include a market 

(or group of markets) as to which (a) 

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, so that a surveillance-sharing 

agreement would assist the ETP listing 

market in detecting and deterring 

misconduct, and (b) it is unlikely that 

trading in the ETP would be the 

predominant influence on prices in that 

market.34 Thus, a surveillance-sharing 

agreement must be entered into with a 

‘‘significant market’’ to assist in 

detecting and deterring manipulation of 

the ETP, because someone attempting to 

manipulate the ETP is reasonably likely 

to also engage in trading activity on that 

‘‘significant market.’’ 

Although the Winklevoss Order 

applied these standards to a commoditytrust ETP based on bitcoin, the 

Commission believes that these 

standards are also appropriate for an 

ETP based on bitcoin futures. When 

approving the first commodity-futures 

ETP, the Commission specifically noted 

that ‘‘[i]nformation sharing agreements 

with primary markets trading index 

components underlying a derivative 

product are an important part of a selfregulatory organization’s ability to 

monitor for trading abuses in derivative 

products.’’ 35 And the Commission’s 

approval orders for commodity-futures 

ETPs consistently note the ability of an 

ETP listing exchange to share 

surveillance information either through 

surveillance-sharing agreements or 

through membership by the listing 

exchange and the relevant futures 

exchanges in the Intermarket 

Surveillance Group.36 While the 


daltland on DSKBBV9HB2PROD with NOTICES
Federal Register / Vol. 83, No. 167 / Tuesday, August 28, 2018 / Notices 43915 

that NYSEAmex ‘‘can obtain market surveillance 

information, including customer identity 

information, with respect to transactions occurring 

on exchanges that are members of ISG, including 

CME, CBOT, COMEX, NYMEX . . . and ICE 

Futures US,’’ that NYSEAmex ‘‘currently has in 

place a comprehensive surveillance sharing 

agreement with each of CME, NYMEX, ICE Futures 

Europe, and KCBOT,’’ and that ‘‘while the Fund 

may invest in futures contracts or options on 

futures contracts which trade on markets that are 

not members of ISG or with which [NYSEAmex] 

does not have in place a comprehensive 

surveillance sharing agreement, such instruments 

will never represent more than 10% of the Fund’s 

holdings’’); Securities Exchange Act Release No. 

73561 (Nov. 7, 2014), 79 FR 68329, 68330 (Nov. 14, 

2014) (NYSEArca–2014–102) (approval order noted 

that ‘‘FINRA may obtain trading information 

regarding trading in the Shares and Coal Futures 

from such markets and other entities that are 

members of ISG or with which [NYSEArca] has in 

place a comprehensive surveillance sharing 

agreement’’ and that ‘‘CME is a member of the 

ISG’’); Securities Exchange Act Release No. 82390 

(Dec. 22, 2017), 82 FR 61625, 61631, 61634 (Dec. 

28, 2017) (NYSEArca–2017–107) (approval order 

noted that NYSEArca ‘‘may obtain information 

regarding trading in the Shares and Freight Futures 

from markets and other entities that are members 

of ISG or with which [NYSEArca] has in place a 

CSSA’’ and that ‘‘not more than 10% of the net 

assets of the Fund in the aggregate invested in 

Freight Futures or options on Freight Futures shall 

consist of derivatives whose principal market is not 

a member of the ISG or is a market with which 

[NYSEArca] does not have a CSSA’’). 37See, e.g., Securities Exchange Act Release No. 

62213 (June 3, 2010), 75 FR 32828 (June 9, 2010) 

(SR–NYSEArca–2010–22) (notice of proposed rule 

change included NYSE Arca’s representations that: 

(i) Corn futures volume on Chicago Board of Trade 

(‘‘CBOT’’) for 2008 and 2009 (through November 30, 

2009) was 59,934,739 contracts and 47,754,866 

contracts, respectively, and as of March 16, 2010, 

CBOT open interest for corn futures was 1,118,103 

contracts, and open interest for near month futures 

was 447,554 contracts; (ii) the corn futures contract 

price was $18,337.50 ($3.6675 per bushel and 5,000 

bushels per contract), and the approximate value of 

all outstanding contracts was $20.5 billion; (iii) as 

of March 16, 2010, open interest in corn swaps 

cleared on CBOT was approximately 2,100 

contracts, with an approximate value of $38.5 

million; and (iv) the position limits for all months 

is 22,000 corn contracts, and the total value of 

contracts if position limits were reached would be 

approximately $403.5 million (based on the 

$18,337.50 contract price), Securities Exchange Act 

Release No. 61954 (Apr. 21, 2010), 75 FR 22663, 

22664 n.10 (Apr. 29, 2010)); Securities Exchange 

Act Release No. 63610 (Dec. 27, 2010), 76 FR 199 

(Jan. 3, 2011) (SR–NYSEArca–2010–101) (notice of 

proposed rule change included NYSE Arca’s 

representations that: (i) As of June 14, 2010, there 

was VIX futures contracts open interest on CFE of 

88,366 contracts, with a contract price of $25.55 

and value of open interest of $2,257,751,300; (ii) 

total CFE trading volume in 2009 in VIX futures 

contracts was 1,143,612 contracts, with average 

daily volume of 4,538 contracts; and (iii) total 

volume year-to-date (through May 31, 2010) was 

1,399,709 contracts, with average daily volume of 

13,458 contracts, Securities Exchange Act Release 

No. 63317 (Nov. 16, 2010), 75 FR 71158, 71159 n.9 

(Nov. 22, 2010)); Securities Exchange Act Release 

No. 63753 (Jan. 21, 2011), 76 FR 4963 (Jan. 27, 

2011) (SR–NYSEArca–2010–110) (notice of 

proposed rule change included NYSE Arca’s 

representations that: (i) Natural gas futures volume 

on New York Mercantile Exchange (‘‘NYMEX’’) for 

2009 and 2010 (through October 29, 2010) was 

47,864,639 contracts and 52,490,180 contracts, 

respectively; (ii) as of October 29, 2010, NYMEX 

open interest for natural gas futures was 794,741 

contracts, and open interest for near month futures 

was 47,313 contracts; (iii) the contract price was 

$40,380 ($4.038 per MMBtu and 10,000 MMBtu per 

contract), and the approximate value of all 

outstanding contracts was $32.1 billion; (iv) the 

position limits for all months is 12,000 natural gas 

contracts and the total value of contracts if position 

limits were reached would be approximately 

$484.56 million (based on the $40,380 contract 

price); and (v) as of October 29, 2010, open interest 

in natural gas swaps cleared on NYMEX was 

approximately 2,618,092 contracts, with an 

approximate value of $26.4 billion ($4.038 per 

MMBtu and 2,500 MMBtu per contract), Securities 

Exchange Act Release No. 63493 (Dec. 9, 2010), 75 

FR 78290, 78291 n.11 (Dec. 15, 2010)); Securities 

Exchange Act Release No. 63869 (Feb. 8, 2011), 76 

FR 8799 (Feb. 15, 2011) (SR–NYSEArca–2010–119) 

(notice of proposed rule change included NYSE 

Arca’s representations that: (i) WTI crude oil futures 

volume on NYMEX for 2009 and 2010 (through 

November 30, 2010) was 137,352,118 contracts and 

156,155,620 contracts, respectively; (ii) as of 

November 30, 2010, NYMEX open interest for WTI 

crude oil was 1,342,325 contracts, and open interest 

for near month futures was 323,184 contracts; (iii) 

the position limits for all months is 20,000 WTI 

crude oil contracts and the total value of contracts 

if position limits were reached would be 

approximately $1.68 billion (based on the $84.11 

contract price); and (iv) the contract price was 

$84,110 ($84.11 USD per barrel and 1,000 barrels 

per contract), and the approximate value of all 

outstanding contracts was $112.9 billion, Securities 

Exchange Act Release No. 63625 (Dec. 30, 2010), 76 

FR 807, 808 n.11 (Jan. 6, 2011)); Securities 

Exchange Act Release No. 65134 (Aug. 15, 2011), 

76 FR 52034 (Aug. 19, 2011) (SR–NYSEArca–2011– 

23) (notice of proposed rule change included NYSE 

Arca’s representations that: (i) As of January 31, 

2011, there was VIX futures contracts open interest 

on CFE of 163,396 contracts with a value of open 

interest of $3,461,984,900; (ii) total CFE trading 

volume in 2010 in VIX futures contracts was 

4,402,616 contracts, with average daily volume of 

17,741 contracts; and (iii) total volume year-to-date 

(through January 31, 2011) was 779,493 contracts, 

with average daily volume of 38,975 contracts, 

Securities Exchange Act Release No. 64470 (May 

11, 2011), 76 FR 28493, 28494 n.12 (May 17, 2011)); 

Securities Exchange Act Release No. 65136 (Aug. 

15, 2011), 76 FR 52037 (Aug. 19, 2011) (SR– 

NYSEArca–2011–24) (notice of proposed rule 

change included NYSE Arca’s representations that: 

(i) Natural gas futures volume on NYMEX for 2009 

and 2010 (through December 31, 2010) was 

47,864,639 contracts and 64,350,673 contracts, 

respectively; (ii) as of December 31, 2010, NYMEX 

open interest for all natural gas futures was 772,104 

contracts, and the approximate value of all 

outstanding contracts was $35,664,257,310 billion 

[sic]; (iii) open interest as of December 31, 2010 for 

the near month contract was 166,757 contracts and 

the near month contract value was $7,345,645,850 

($4.405 per MMBtu and 10,000 MMBtu per 

contract); (iv) the position accountability limits for 

all months is 12,000 natural gas contracts and the 

total value of contracts if position accountability 

limits were reached would be approximately 

$528,600,000 million (based on the $4.405 contract 

price); and (v) as of December 31, 2010, open 

interest in natural gas swaps cleared on NYMEX 

was approximately 1,493,013 contracts, with an 

approximate value of $16,463,384,003 ($4.411 per 

MMBtu and 2,500 MMBtu per contract), Securities 

Exchange Act Release No. 64464 (May 11, 2011), 76 

FR 28483, 28484 n.11 (May 17, 2011)); Securities 

Exchange Act Release No. 65344 (Sept. 15, 2011), 

76 FR 58549 (Sept. 21, 2011) (SR–NYSEArca–2011– 

48) (notice of proposed rule change included NYSE 

Arca’s representations that: (i) Wheat futures 

volume on CBOT for 2010 and 2011 (through April 

29, 2011) was 23,058,783 contracts and 8,860,135 

contracts, respectively; (ii) as of April 29, 2011, 

open interest for wheat futures was 456,851 

contracts; (iii) the wheat contract price was 

$40,062.50 (801.25 cents per bushel and 5,000 

bushels per contract), and the approximate value of 

all outstanding contracts was $18.3 billion; (iv) the 

position limits for all months was 6,500 wheat 

contracts and the total value of contracts if position 

limits were reached would be approximately $260.4 

million (based on the $40,062.50 contract price); (v) 

soybean futures volume on CBOT for 2010 and 2011 

(through April 29, 2011) was 36,962,868 contracts 

and 16,197,385 contracts, respectively; (vi) as of 

April 29, 2011, open interest for soybean futures 

was 572,959 contracts; (vii) the soybean contract 

price was $69,700.00 (1394 cents per bushel and 

5,000 bushels per contract), and the approximate 

value of all outstanding contracts was $39.9 billion; 

(viii) the position limits for all months is 6,500 

soybean contracts and the total value of contracts 

if position limits were reached would be 

approximately $453 million (based on the 

$69,700.00 contract price); (ix) sugar futures volume 

on ICE Futures for 2010 and 2011 (through April 

29, 2011) was 27,848,391 contracts and 9,045,069 

contracts, respectively; (x) as of April 29, 2011, 

open interest for sugar futures was 570,948 

contracts; (xi) the sugar contract price was 

$24,920.00 (22.25 cents per pound and 112,000 

pounds per contract), and the approximate value of 

all outstanding contracts was $14.2 billion; and (xii) 

the position limits for all months is 15,000 sugar 

contracts and the total value of contracts if position 

limits were reached would be approximately $373.8 

million (based on the $24,920.00 contract price), 

Securities Exchange Act Release No. 64967 (July 26, 

2011), 76 FR 45885, 45886 n.10, 45888 n.20, 45890 

n.24 (Aug. 1, 2011)); Securities Exchange Act 

Release No. 66553 (Mar. 9, 2012), 77 FR 15440 

(Mar. 15, 2012) (SR–NYSEArca–2012–04) (notice of 

proposed rule change included NYSE Arca’s 

representations that: (i) As of December 30, 2011, 

open interest in AUD/USD futures contracts traded 

on CME was $11.56 billion, and AUD/USD futures 

contracts had an average daily trading volume in 

2011 of 123,006 contracts; (ii) as of December 30, 

2011, open interest in CAD/USD futures contracts 

traded on CME was $11.66 billion, and CAD/USD 

futures contracts had an average daily trading 

volume in 2011 of 89,667 contracts; (iii) as of 

December 30, 2011, open interest in CHF/USD 

futures contracts traded on CME was $4.99 billion, 

and CHF/USD futures contracts had an average 

daily trading volume in 2011 of 40,955 contracts; 

(iv) futures contracts based on the U.S. Dollar Index 

(‘‘USDX’’) were listed on November 20, 1985, and 

options on the USDX futures contracts began 

trading on September 3, 1986; (v) as of December 

30, 2011, open interest in USDX futures contracts 

traded on ICE Futures was $5.44 billion, and USDX 

futures contracts had an average daily trading 

volume in 2011 of 30,341 contracts; (vi) as of 

December 30, 2011, open interest in EUR/USD 

futures contracts traded on CME was $46.12 billion, 

and EUR/USD futures contracts had an average 

daily trading volume in 2011 of 336,947 contracts; 

and (vii) as of December 30, 2011, open interest in 

JPY/USD futures contracts traded on CME was 

$25.75 billion, and JPY/USD futures contracts had 

an average daily trading volume in 2011 of 113,476 

contracts, Securities Exchange Act Release No. 

66180 (Jan. 18, 2012), 77 FR 3532, 3534–35 (Jan. 24, 

Continued 

Commission in those orders did not 

explicitly undertake an analysis of 

whether the related futures markets 

were of ‘‘significant size,’’ the exchanges 

proposing commodity-futures ETPs on a 

single reference asset or benchmark 

generally made representations 

regarding the trading volume of the 

underlying futures markets,37 and the 


daltland on DSKBBV9HB2PROD with NOTICES
43916 Federal Register / Vol. 83, No. 167 / Tuesday, August 28, 2018 / Notices 

2012)); Securities Exchange Act Release No. 68165 

(Nov. 6, 2012), 77 FR 67707 (Nov. 13, 2012) (SR– 

NYSEArca–2012–102) (notice of proposed rule 

change included NYSE Arca’s representations that: 

(i) Gold and silver futures contracts traded on 

Commodity Exchange, Inc. (‘‘COMEX’’) are the 

global benchmark contracts and most liquid futures 

contracts in the world for each respective 

commodity; (ii) as of March 15, 2012, open interest 

in gold futures contracts and silver futures contracts 

traded on CME was $23.7 billion and $8.5 billion, 

respectively; (iii) gold futures contracts and silver 

futures contracts had an average daily trading 

volume in 2011 of 138,964 contracts and 63,913 

contracts, respectively; (iv) CME constitutes the 

largest regulated foreign exchange marketplace in 

the world, with over $100 billion in daily liquidity; 

(v) as of March 15, 2012, open interest in Euro 

futures contracts and Yen futures contracts traded 

on CME and, for Dollar futures contracts, on ICE 

Futures, were $42.7 billion, $20.8 billion, and $4.8 

billion, respectively; and (vi) Euro futures contracts, 

Yen futures contracts, and Dollar futures contracts 

had an average daily trading volume in 2011 of 

325,103, 106,824, and 27,258 contracts, 

respectively, Securities Exchange Act Release No. 

67882 (Sept. 18, 2012), 77 FR 58881, 58883 n.10, 

58883 n.14 (Sept. 24, 2012)); Securities Exchange 

Act Release No. 81686 (Sept. 22, 2017), 82 FR 

45643, 45646 (Sept. 29, 2017) (SR–NYSEArca– 

2017–05) (order approving the listing and trading of 

the Direxion Daily Crude Oil Bull 3x Shares and 

Direxion Daily Crude Oil Bear 3x Shares, citing to 

NYSE Arca’s representations that: (i) The oil 

contract market was of significant size and 

liquidity, and had average daily volume of 650,000 

contracts and daily open interest of 450,000 

contracts; (ii) the Sponsor is registered as a 

commodity pool operator with the CFTC and is a 

member of the National Futures Association, and 

(iii) the CFTC has regulatory jurisdiction over the 

trading of futures contracts traded on U.S. markets); 

Securities Exchange Act Release No. 82390 (Dec. 

22, 2017), 82 FR 61625 (Dec. 28, 2017) (SR– 

NYSEArca–2017–107) (notice of proposed rule 

change included NYSE Arca’s representations that: 

(i) Freight futures liquidity has remained relatively 

constant, in lot terms, over the last five years with 

approximately 1.1 million lots trading annually; (ii) 

open interest currently stood at approximately 

290,000 lots across all asset classes representing an 

estimated value of more than $3 billion, and, of 

such open interest, Capesize contracts accounted 

for approximately 50%, Panamax for approximately 

40%, and Handymax for approximately 10%, 

Securities Exchange Act Release No. 81681 (Sept. 

22, 2017), 82 FR 45342, 45345 (Sept. 28, 2017)). See 

also Securities Exchange Act Release No. 53582 

(Mar. 31, 2006), 71 FR 17510 (Apr. 6, 2006) (SR– 

Amex–2005–127) (notice of proposed rule change 

included Amex’s representations that: (i) WTI light, 

sweet crude oil contract, listed and traded at 

NYMEX, trades in units of 42,000 gallons (1,000 

barrels), and annual daily contract volume on 

NYMEX from 2001 through October 2005 was 

149,028, 182,718, 181,748, 212,382 and 242,262, 

respectively; (ii) annual daily contract volume on 

ICE Futures for Brent crude contracts from 2001 

through October 2005 was 74,011, 86,499, 96,767, 

102,361 and 120,695 respectively; (iii) annual daily 

contract volume on NYMEX for heating oil futures 

from 2001 through October 2005 was 41,710, 

42,781, 46,327, 51,745 and 52,334, respectively; (iv) 

annual daily contract volume on NYMEX for 

natural gas contracts from 2001 through October 

2005 was 47,457, 97,431, 76,148, 70,048 and 

77,149, respectively; and (v) annual daily contract 

volume on NYMEX for gasoline contracts from 2001 

through October 2005 was 38,033, 43,919, 44,688, 

51,315 and 53,577, respectively, Securities 

Exchange Act Release No. 53324 (Feb. 16, 2006), 71 

FR 9614, 9618 (Feb. 24, 2006)); Securities Exchange 

Act Release No. 55632 (Apr. 13, 2007), 72 FR 19987 

(Apr. 20, 2007) (SR–Amex–2006–112) (notice of 

proposed rule change included Amex’s 

representations that annual daily contract volume 

on NYMEX for natural gas contracts from 2001 

through October 2006 was 47,457, 97,431, 76,148, 

70,048, 76,265, and 102,097, respectively, 

Securities Exchange Act Release No. 55372 (Feb. 28, 

2007), 72 FR 10267, 10268 (Mar. 7, 2007)). 

38For example, corn futures began trading in 

1877, see https://www.cmegroup.com/media-room/ 

historical-first-trade-dates.html, and the first ETP 

based on corn futures was approved for listing and 

trading in 2010. See Securities Exchange Act 

Release No. 62213 (June 3, 2010), 75 FR 32828 (June 

9, 2010) (SR–NYSEArca–2010–22). VIX futures 

began trading in 2004, see http://cfe.cboe.com/cfeproducts/vx-cboe-volatility-index-vix-futures/ 

contract-specifications, and the first ETPs based on 

VIX futures were approved for listing and trading 

in 2010. See Securities Exchange Act Release No. 

63610 (Dec. 27, 2010), 76 FR 199 (Jan. 3, 2011) (SR– 

NYSEArca–2010–10). Natural gas futures began 

trading in 1990, see https://www.cmegroup.com/ 

media-room/historical-first-trade-dates.html, and 

the first ETP based on natural gas was approved for 

listing and trading in 2007. See Securities Exchange 

Act Release No. 55632 (Apr. 13, 2007), 72 FR 19987 

(Apr. 20, 2007) (SR–Amex–2006–112). Crude oil 

futures began trading in 1983, see https://

www.cmegroup.com/media-room/historical-firsttrade-dates.html, and the first ETP based on crude 

oil futures was approved for listing and trading in 

2006. See Securities Exchange Act Release No. 

53582 (Mar. 31, 2006), 71 FR 17510 (Apr. 6, 2006) 

(SR–Amex–2005–127). Wheat futures, sugar futures, 

and soybean futures began trading in 1877, 1914, 

and 1936, respectively, see https://

www.cmegroup.com/media-room/historical-firsttrade-dates.html and https://www.theice.com/ 

publicdocs/ICE_Sugar_Brochure.pdf, and the first 

ETPs based on each of these commodity futures 

were approved for listing and trading in 2011. See 

Securities Exchange Act Release No. 65344 (Sept. 

15, 2011), 76 FR 58549 (Sept. 21, 2011) (SR– 

NYSEArca–2011–48). U.S. Dollar Index futures 

began trading in 1985, https://www.theice.com/ 

publicdocs/futures_us/ICE_Dollar_Index_FAQ.pdf, 

and the first ETPs based on U.S. Dollar Index 

futures was approved for listing and trading in 

2007. See Securities Exchange Act Release No. 

55292 (Feb. 14, 2007), 72 FR 8406 (Feb. 26, 2007) 

(SR–Amex–2006–86). Australian Dollar futures and 

Euro futures began trading in 1987 and 1999, 

respectively, and Canadian Dollar futures, Swiss 

Franc futures, and Yen futures began trading in 

2002, see https://www.cmegroup.com/media-room/ 

historical-first-trade-dates.html, and the first ETPs 

based on each of these individual currency futures 

were approved for listing and trading in 2012. See 

Securities Exchange Act Release No. 66553 (Mar. 9, 

2012), 77 FR 15440 (Mar. 15, 2012) (SR–NYSEArca– 

2012–04). Silver futures and gold futures began 

trading in 1933 and 1974, respectively, see https:// 

www.cmegroup.com/media-room/historical-firsttrade-dates.html, and the first ETPs based on each 

of these commodity futures were approved for 

listing and trading in 2006. See Securities Exchange 

Act Release No. 55029 (Dec. 29, 2006), 72 FR 806 

(Jan. 8, 2007) (SR–Amex–2006–76). Freight futures 

have been cleared since 2005, and the first ETP 

based on freight futures was approved for listing 

and trading in 2017. See Securities Exchange Act 

Release No. 82390 (Dec. 22, 2017), 82 FR 61625, 

61626 n.6 (Dec. 28, 2017) (SR–NYSEArca–2017– 

107) (noting that ‘‘Freight Futures have been cleared 

since 2005’’). 

39The Exchange filed its proposal less than one 

month after bitcoin futures began trading on either 

CME or CBOE. 

40At issue were futures on an index comprising 

futures on crude oil, Brent crude oil, natural gas, 

heating oil, gasoline, gas oil, live cattle, wheat, 

aluminum, corn, copper, soybeans, lean hogs, gold, 

sugar, cotton, red wheat, coffee, standard lead, 

feeder cattle, zinc, primary nickel, cocoa, and silver. 

See Securities Exchange Act Release No. 53659 

(Apr. 17, 2006), 71 FR 21074, 21080 (Apr. 24, 2006) 

(SR–NYSE–2006–17) (notice of proposed rule 

change to list shares of iShares GSCI CommodityIndexed Trust). The Commission concluded that 

requirements of Exchange Act Section 6(b)(5) had 

been met because concerns about manipulation 

would be addressed by the arbitrage relationship 

between the new index futures and the existing 

component futures, as well as the ETP listing 

exchange’s comprehensive surveillance-sharing 

agreements not only with the market for the index 

futures, but also with the markets for the 

component futures. See Securities Exchange Act 

Release No. 54013 (June 16, 2006), 71 FR 36372, 

36379 (June 26, 2006) (SR–NYSE–2006–17) (order 

approving listing of shares of iShares GSCI 

Commodity-Indexed Trust). Additionally, the 

approval order for the ETP noted that, if the volume 

in any futures contract that was part of the reference 

index fell below a specified multiple of production 

of the underlying commodity, that contract’s weight 

in the index would decrease. See id. at 36374. 

Commission was in each of those cases 

dealing with a large futures market that 

had been trading for a number of years 

before an exchange proposed an ETP 

based on those futures.38 And where the 

Commission has considered a proposed 

ETP based on futures that had only 

recently begun trading,39 the 

Commission specifically addressed 

whether the futures on which the ETP 

was based—which were futures on an 

index of well-established commodity 

futures—were illiquid or susceptible to 

manipulation.40

Accordingly, the Commission 

examines below whether the 

representations by the Exchange, and 

the comments received from the public, 

support a finding that the Exchange has 

entered into a surveillance-sharing 

agreement with a market of significant 

size relating to bitcoin, the asset 

underlying the proposed ETPs, or that 

alternative means of preventing fraud 

and manipulation would be sufficient to 

satisfy the requirement of Exchange Act 

Section 6(b)(5) that the proposed rule 

change be designed to prevent 

fraudulent and manipulative acts and 

practices. 

2. Comments Received 

One commenter states that the market 

for bitcoin derivatives other than bitcoin 

exchange-traded futures appears to be 

developing and that financial 

institutions are reportedly moving 

toward launching bitcoin-related trading 

desks and other operations. This 

commenter believes that the proposed 

offering of both long and short ETPs 

raises the possibility that market makers 

in bitcoin-related derivatives could 

make two-sided markets if interest in 

the long and short ETPs is similar in 

magnitude. The commenter further 

believes that interest outside of the 

bitcoin ETPs may be sufficient to 

motivate market makers to maintain 


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Federal Register / Vol. 83, No. 167 / Tuesday, August 28, 2018 / Notices 43917 

41See NERA Letter, supra note 9, at 2. 

42See id. 

43See id. at 4–5. 

44See id. at 5. 

45See id. 

46See Winklevoss Order, supra note 31, 83 FR at 

37582 (noting exchange argument that ‘‘intrinsic 

properties of bitcoin and bitcoin markets make 

manipulation ‘difficult and prohibitively costly ’’); 

Order Disapproving Proposed Rule Change, as 

Modified by Amendment No. 1, Relating to the 

Listing and Trading of Shares of the SolidX Bitcoin 

Trust, Securities Exchange Act Release No. 80319 

(Mar. 28, 2017), 82 FR 16247, 16251 (Apr. 3, 2017) 

(SR–NYSEArca–2016–101) (noting that study 

commissioned by trust sponsor argues that ‘‘the 

underlying market for bitcoin is inherently resistant 

to manipulation’’). 

47See Notice, supra note 3, 83 FR at 3385. 

48See supra notes 43–44 and accompanying text. 

This commenter also suggests that the 

Commission—in coordination with the CFTC, 

SROs, futures markets, and bitcoin spot platforms— 

could gather market surveillance data to 

independently analyze whether manipulative 

practices occur on bitcoin spot and futures 

platforms. See supra note 45 and accompanying 

text. As noted above, however, it is the Exchange 

that bears the burden to demonstrate that its 

proposal is designed to ‘‘prevent fraudulent and 

manipulative acts and practices.’’ See supra notes 

26–29 and accompanying text. 

49See Notice, supra note 3, at 83 FR 3385 (‘‘The 

Exchange is also able to obtain information 

regarding trading in the Shares, futures, the 

commodity underlying futures or options on futures 

through ETP [Exchange Trading Permit] Holders, in 

connection with such ETP Holders’ proprietary or 

customer trades which they effect through ETP 

Holders on any relevant market.’’). 

50See Winklevoss Order, supra note 31, 83 FR at 

37580. 

51See id. at 37591 (finding that ‘‘traditional 

means’’ of surveillance were not sufficient in the 

absence of a surveillance-sharing agreement with a 

regulated market of significant size related to the 

underlying asset). 

52See supra note 36 and accompanying text 

(noting previous commodity-futures ETPs where 

surveillance sharing in place between ETP listing 

exchange and underlying futures exchanges). 

53Winklevoss Order, supra note 31, 83 FR at 

37580 (quoting Amendment to Rule Filing 

Requirements for Self-Regulatory Organizations 

Regarding New Derivative Securities Products, 

Securities Exchange Act Release No. 40761 (Dec. 8, 

1998), 63 FR 70952, 70954, 70959 (Dec. 22, 1998) 

(File No. S7–13–98)). 

54See https://www.isgportal.org/isgPortal/public/ 

members.htm (listing the current members and 

affiliate members of the Intermarket Surveillance 

Group). 

55See Order Instituting Proceedings, supra note 7, 

83 FR at 18605. 

56Notice, supra note 3, 83 FR at 3383; see also 

supra note 22 and accompanying text. 

bitcoin derivatives desks.41 In addition, 

the commenter suggests that questions 

about bitcoin derivatives markets can be 

addressed through market depth 

analyses, discussions with potential 

bitcoin derivatives liquidity providers, 

and analyses of order and trade data 

across CME and CBOE to determine the 

plausibility of simultaneous liquidity 

collapses on both bitcoin future 

markets.42

This commenter states that a 

commonly cited factor mitigating 

possible susceptibility to manipulation 

is the securities exchanges’ own 

surveillance procedures, in addition to 

the futures exchanges’ surveillance 

procedures and market surveillance and 

oversight by the Commodity Futures 

Trading Commission (‘‘CFTC’’). This 

commenter cites statements by the 

CFTC that it has the legal authority and 

means to police certain spot markets for 

fraud and manipulation through 

‘‘heightened review’’ collaboration with 

exchanges, that exchanges will provide 

the CFTC surveillance team with trade 

settlement data upon request, and that 

the exchanges will enter into 

information-sharing agreements with 

spot market platforms and monitor 

trading activity on the spot markets. The 

commenter also states that the Gemini 

exchange has announced that it would 

use Nasdaq’s market surveillance 

system to monitor its marketplace.43

This commenter further asserts that 

market surveillance is generally a 

prerequisite to identifying potential 

market manipulation and discourages 

market manipulation. The commenter 

believes that the emergence of 

institutionalized market surveillance on 

both futures and spot markets is a 

positive sign for the long-term future of 

bitcoin markets.44 The commenter 

suggests that the Commission, in 

coordination with the CFTC, selfregulatory organizations, bitcoin futures 

exchanges, and bitcoin spot market 

platforms, could gather market 

surveillance data to conduct an 

independent analysis of trade and 

settlement patterns and determine 

whether potentially manipulative 

trading practices occur on bitcoin spot 

and futures markets.45

3. Analysis 

Unlike previous proposals for bitcoinbased ETPs,46 the Exchange does not 

assert here that bitcoin prices or markets 

are inherently resistant to manipulation. 

Instead, the Exchange asserts that its 

existing surveillance procedures 

(including its ability to review activity 

by its members) and its ability to share 

surveillance information with U.S. 

futures exchanges are sufficient to meet 

the requirements of Exchange Act 

Section 6(b)(5).47 One commenter also 

asserts that the exchange’s own 

surveillance procedures, along with 

market surveillance and oversight by the 

CFTC, can mitigate manipulation.48

While the Exchange would, pursuant 

to its listing rules, be able to obtain 

certain information regarding trading in 

the Shares and in the underlying bitcoin 

or any bitcoin derivative through 

registered market makers,49 this trade 

information would be limited to the 

activities of market participants who 

trade on the Exchange. Furthermore, 

neither the Exchange’s ability to surveil 

trading in the Shares nor its ability to 

share surveillance information with 

other securities exchanges trading the 

Shares would give the Exchange insight 

into the activity and identity of market 

participants who trade in bitcoin futures 

contracts or other bitcoin derivatives or 

who trade in the underlying bitcoin spot 

markets, where a substantial majority of 

trading, the Commission concluded in 

the Winklevoss Order, ‘‘occurs on 

unregulated venues overseas that are 

relatively new and that, generally, 

appear to trade only digital assets.’’ 50

Thus, consistent with its determination 

in the Winklevoss Order,51 and with the 

Commission’s previous orders 

approving commodity-futures ETPs,52

the Commission believes that the 

Exchange must demonstrate that it has 

in place a surveillance-sharing 

agreement with a regulated market of 

significant size related to bitcoin, 

because ‘‘[s]uch agreements provide a 

necessary deterrent to manipulation 

because they facilitate the availability of 

information needed to fully investigate 

a manipulation if it were to occur.’’ 53

The Exchange represents that it is able 

to share surveillance information with 

CME and CBOE, which are bitcoin 

futures markets regulated by the CFTC, 

through membership in the Intermarket 

Surveillance Group.54 Nonetheless, the 

Commission must disapprove the 

proposal, because there is no evidence 

in the record demonstrating that CME’s 

and CBOE’s bitcoin futures markets are 

markets of significant size. 

The Order Instituting Proceedings 

sought comment on whether the CME 

and CBOE bitcoin futures markets are 

markets of significant size,55 but the 

Exchange has not responded to any of 

the questions in the Order Instituting 

Proceedings, and the only analysis of 

the underlying futures markets the 

Exchange has provided in its proposed 

rule change are the generic statements 

that the market for bitcoin futures 

contracts ‘‘has limited trading history 

and operational experience’’ and that 

the liquidity of these markets will 

depend on the adoption of bitcoin and 

interest in the market for these futures.56

Thus, there is no basis in the record on 

which the Commission can conclude 

that the bitcoin futures markets are 

markets of significant size. Publicly 

available data show that the median 

daily notional trading volume, from 

inception through August 10, 2018, has 

been 14,185 bitcoins on CME and 5,184 


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57These volume figures were calculated by 

Commission staff using data published by CME and 

CBOE on their websites. 

58See Winklevoss Order, supra note 31, 83 FR at 

37601. 

59CFTC Chairman Giancarlo testified: ‘‘It is 

important to put the new Bitcoin futures market in 

perspective. It is quite small with open interest at 

the CME of 6,695 bitcoin and at Cboe Futures 

Exchange (Cboe) of 5,569 bitcoin (as of Feb. 2, 

2018). At a price of approximately $7,700 per 

Bitcoin, this represents a notional amount of about 

$94 million. In comparison, the notional amount of 

the open interest in CME’s WTI crude oil futures 

was more than one thousand times greater, about 

$170 billion (2,600,000 contracts) as of Feb[.] 2, 

2018 and the notional amount represented by the 

open interest of Comex gold futures was about $74 

billion (549,000 contracts).’’ See Written Testimony 

of J. Christopher Giancarlo, Chairman, Commodity 

Futures Trading Commission, Before the Senate 

Banking Committee at text accompanying nn. 14– 

15 (Feb. 6, 2018). See also Winklevoss Order, supra 

note 31, 83 FR at 37601 (citing Giancarlo 

testimony). 

60Letter from Chris Concannon, President and 

COO, Cboe Global Markets, to Dalia Blass, Director, 

Division of Investment Management, Commission, 

at 5 (Mar. 23, 2018), available at https://

www.sec.gov/divisions/investment/cboe-globalmarkets-innovation-cryptocurrency.pdf. 

61See Notice, supra note 3, 83 FR at 3381; see 

also supra note 20 and accompanying text. 

62See Notice, supra note 3, 83 FR at 3381–82. 

63The Commission also notes that the Exchange 

did not answer questions in the Order Instituting 

Proceedings regarding whether, with respect to the 

Funds that seek leveraged or leveraged-inverse 

returns, ‘‘trading of the Shares, hedging activity, or 

creation and redemption activity [would] affect the 

daily volume, volatility, or liquidity of the 

underlying Bitcoin Financial Instruments or of the 

spot bitcoin market any differently than a nonleveraged bitcoin futures exchange-traded product 

would.’’ Order Instituting Proceedings, supra note 

7, 83 FR at 18605. 

64See supra notes 41–42 and accompanying text. 

65See 15 U.S.C. 78f(b)(5). 

66See Santos Letter, supra note 9. 

67See David Letter, supra note 9. 

68See NERA Letter, supra note 9, at 5–6. 

bitcoins on CBOE, and that the median 

daily notional value of open interest on 

CME and CBOE during the same period 

has been 10,145 bitcoins and 5,601 

bitcoins, respectively.57 But while these 

futures contract figures are readily 

available, meaningful analysis of the 

size of the CME or CBOE markets 

relative to the underlying bitcoin spot 

market is challenging, because reliable 

data about the spot market, including its 

overall size, are unavailable.58

The Commission also notes that in 

recent testimony CFTC Chairman 

Giancarlo characterized the volume of 

the bitcoin futures markets as ‘‘quite 

small.’’ 59 Additionally, the President 

and COO of CBOE recently 

acknowledged in a letter to the 

Commission staff that ‘‘the current 

bitcoin futures trading volumes on Cboe 

Futures Exchange and CME may not 

currently be sufficient to support ETPs 

seeking 100% long or short exposure to 

bitcoin.’’ 60 These statements reinforce 

the Commission’s conclusion that there 

is insufficient evidence to determine 

that the CME and CBOE bitcoin futures 

markets are markets of significant size. 

Furthermore, according to the Notice, 

under normal market conditions, each 

Fund intends to obtain exposure to its 

target benchmark by investing in the 

Bitcoin Futures Contract as well as other 

Bitcoin Financial Instruments, which 

could be options on bitcoin or the 

Bitcoin Futures Contract and swaps on 

the Bitcoin Futures Contract.61 The 

Funds’ investments in Bitcoin Financial 

Instruments are used to produce 

economically ‘‘leveraged’’ or ‘‘inverse 

leveraged’’ investment results for the 

Funds.62 The Notice does not establish 

any limit on the Funds’ holdings of 

these other bitcoin-related derivatives; it 

provides no analysis of the size and 

liquidity of markets for those 

derivatives; 63 and it does not discuss 

whether the Exchange has the ability to 

share surveillance information with the 

markets for these derivatives. Thus, as 

to what might be a substantial 

proportion of the Funds’ portfolios, the 

Commission is unable to conclude that 

surveillance-sharing will be available, 

that the related markets are regulated, or 

that the related markets are of 

significant size. 

While one commenter suggests that 

the market for bitcoin derivatives other 

than exchange-traded futures appears to 

be developing—and that the offering of 

long and short bitcoin ETPs ‘‘raises the 

possibility that market makers in 

Bitcoin derivatives could make twosided markets if interest in both the long 

and short ETFs is similar in 

magnitude’’ 64—these speculative 

statements do not provide a basis for the 

Commission to conclude that the nonexchange-traded bitcoin derivatives 

market is now, or may eventually be, of 

significant size. 

The Commission therefore concludes 

that Exchange has not demonstrated that 

it has entered into a surveillancesharing agreement with a regulated 

market of significant size related to 

bitcoin, or that, given the current 

absence of such an agreement, the 

exchange’s own surveillance procedures 

described above would, by themselves, 

be sufficient to satisfy the requirement 

of Exchange Act Section 6(b)(5) that an 

exchange’s rules be designed to prevent 

fraudulent and manipulative acts and 

practices.65 While CME and CBOE are 

regulated markets for bitcoin 

derivatives, there is no basis in the 

record for the Commission to conclude 

that these markets are of significant size. 

Additionally, because bitcoin futures 

have been trading on CME and CBOE 

only since December 2017, the 

Commission has no basis on which to 

predict how these markets may grow or 

develop over time, or whether or when 

they may reach significant size. 

Although the Exchange has not 

demonstrated that a regulated bitcoin 

futures market of significant size 

currently exists, the Commission is not 

suggesting that the development of such 

a market would automatically require 

approval of a proposed rule change 

seeking to list and trade shares of an 

ETP holding bitcoins as an asset. The 

Commission would need to analyze the 

facts and circumstances of any 

particular proposal and examine 

whether any unique features of a bitcoin 

futures market would warrant further 

analysis before approval. 

C. Protecting Investors and the Public 

Interest 

1. Comments Received 

One commenter asserts that approval 

of the proposed ETPs would provide 

greater security in the cryptocurrency 

market, such as greater liquidity, 

transparency, and safe custody of 

assets.66 Another commenter asserts 

that promoting the adoption of bitcoin 

will allow ‘‘paradigms within the 

cryptocurrency ecosystem,’’ such as 

initial coin offerings, to ‘‘break up the 

stranglehold cartels have on accruing 

and owning capital, as the funding 

model becomes democratized.’’ 67

One commenter suggests that the 

Commission could address some of its 

concerns about the proposed ETPs by 

working with self-regulatory 

organizations, and in particular FINRA, 

to create bitcoin and cryptocurrencyrelated asset suitability requirements. In 

addition, this commenter suggests that 

targeted disclosure requirements could 

make investors aware of volatility, 

discourage retail investors from 

investing more than a small portion of 

their portfolio in cryptocurrency-related 

assets, and present historical scenarios 

to retail investors to demonstrate how 

an instrument such as a particular 

bitcoin ETP would have performed over 

time. This commenter believes that 

suitability requirements are less 

prescriptive than an effective ban on a 

class of product and that they could 

balance the Commission’s interest in 

protecting retail investors against its 

interest in allowing cryptocurrencyrelated asset markets to continue to 

develop in regulated markets where the 

Commission can observe their 

performance closely.68


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69See Notice, supra note 3, 83 FR at 3387. 

70See supra note 66 and accompanying text. 

71See supra note 68 and accompanying text. The 

Commission also notes that the Exchange did not 

respond to questions in the Order Instituting 

Proceedings seeking comment on how the Funds’ 

striking NAV as of 11:00 a.m. E.T. (five hours before 

the close of the regular trading session) would affect 

arbitrage, and what the potential effect on investors 

would be if the arbitrage mechanism were impaired. 

See Order Instituting Proceedings, supra note 7, 83 

FR at 18605. 

72See Ahn Letter, supra note 9. 

73See Galt Letter, supra note 9; Santos Letter, 

supra note 9. 

74See David Letter, supra note 9; Santos Letter, 

supra note 9. 

75See David Letter, supra note 9. 

76See Williams Letter, supra note 9, at 1. 

77See Santos Letter, supra note 9. 

78 In disapproving the proposed rule change, the 

Commission has considered its impact on 

efficiency, competition, and capital formation. See 

15 U.S.C. 78c(f). See also supra note 67 and 

accompanying text. 

79 17 CFR 200.30–3(a)(12). 

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

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

2. Analysis 

The Exchange asserts that approval of 

the proposal would enhance 

competition among market participants, 

to the benefit of investors.69 One 

commenter asserts that approval of the 

proposal will provide greater security, 

transparency, and liquidity, as well as 

safe custody, for investors in 

cryptocurrencies.70 And one commenter 

suggests that the Commission should 

seek to protect investors through 

disclosure requirements or suitability 

standards, rather than disapproving a 

bitcoin-ETP proposal.71

The Commission acknowledges that, 

compared to trading in unregulated 

bitcoin spot markets, trading a bitcoinbased ETP on a national securities 

exchange may provide some additional 

protection to investors, but the 

Commission must consider this 

potential benefit in the broader context 

of whether the proposal meets each of 

the applicable requirements of the 

Exchange Act. Pursuant to Section 

19(b)(2) of the Exchange Act, the 

Commission must disapprove a 

proposed rule change filed by a national 

securities exchange if it does not find 

that the proposed rule change is 

consistent with the applicable 

requirements of the Exchange Act— 

including the requirement under 

Section 6(b)(5) that the rules of a 

national securities exchange be 

designed to prevent fraudulent and 

manipulative acts and practices. 

Thus, even if a proposed rule change 

would provide certain benefits to 

investors and the markets, the proposed 

rule change may still fail to meet other 

requirements under the Exchange Act. 

For the reasons discussed above, the 

Exchange has not met its burden of 

demonstrating an adequate basis in the 

record for the Commission to find that 

the proposal is consistent with 

Exchange Act Section 6(b)(5), and, 

accordingly, the Commission must 

disapprove the proposal. 

D. Other Comments 

Comment letters also addressed the 

intrinsic value of bitcoin 72; the desire of 

individuals to invest in a bitcoin-based 

ETP 73; the ways in which approval of 

the proposal would increase investor 

confidence 74; the ways in which 

promoting the adoption of bitcoin and 

other cryptocurrencies would ease intergenerational tension and wealth 

inequality and foster the confidence of 

younger generations in the economic 

system 75; the Commission’s process for 

granting Exchange Act exemptive relief 

in connection with ETP approval 76; and 

the potential impact of Commission 

approval of the proposed ETPs on the 

price of bitcoin.77 Ultimately, however, 

additional discussion of these tangential 

topics is unnecessary, as they do not 

bear on the basis for the Commission’s 

decision to disapprove the proposal. 

E. Basis for Disapproval 

The record before the Commission 

does not provide a basis for the 

Commission to conclude that the 

Exchange has met its burden under the 

Exchange Act and the Commission’s 

Rules of Practice to demonstrate that its 

proposed rule change is consistent with 

Exchange Act Section 6(b)(5).78

IV. Conclusion 

For the reasons set forth above, the 

Commission does not find, pursuant to 

Section 19(b)(2) of the Exchange Act, 

that the proposed rule change is 

consistent with the requirements of the 

Exchange Act and the rules and 

regulations thereunder applicable to a 

national securities exchange, and in 

particular, with Section 6(b)(5) of the 

Exchange Act. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Exchange Act, 

that proposed rule change SR– 

NYSEArca–2018–02 is disapproved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.79

Brent J. Fields, 

Secretary. 

[FR Doc. 2018–18577 Filed 8–27–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–83898; File No. SR– 

NYSEAMER–2018–41] 

Self-Regulatory Organizations; NYSE 

American LLC; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Amend Rule 7.31E 

Relating to Reserve Orders and ReName an Order Type 

August 22, 2018. 

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

Securities Exchange Act of 1934 

(‘‘Act’’) 2 and Rule 19b–4 thereunder,3

notice is hereby given that on August 

10, 2018, NYSE American LLC 

(‘‘Exchange’’ or ‘‘NYSE American’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been prepared by the selfregulatory organization. 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 amend 

Rule 7.31E relating to Reserve Orders 

and re-name an order type. The 

proposed rule change is available on the 

Exchange’s website at www.nyse.com, 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 

self-regulatory organization included 

statements concerning the purpose of, 

and basis for, the proposed rule change 

and discussed any comments it received 

on the proposed rule change. The text 

of those statements may be examined at 

the places specified in Item IV below. 

The Exchange has prepared summaries, 

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

of the most significant parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to amend its 

Cash Equities Pillar Platform Rule 7.31E 


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