84840 Federal Register / Vol. 88, No. 233 / Wednesday, December 6, 2023 / Notices 

7 15 U.S.C. 78s(b)(3)(A). 

8 17 CFR 240.19b–4(f)(6). 

9 In addition, Rule 19b–4(f)(6) requires a selfregulatory organization to give the Commission 

written notice of its intent to file the proposed rule 

change at least five business days prior to the date 

of filing of the proposed rule change, or such 

shorter time as designated by the Commission. The 

Exchange has satisfied this requirement. 

10 17 CFR 240.19b–4(f)(6)(iii). 

11For purposes only of waiving the 30-day 

operative delay, the Commission has also 

considered the proposed rule’s impact on 

efficiency, competition, and capital formation. See 

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

12 17 CFR 200.30–3(a)(12), (59). 

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

2 17 CFR 240.19b–4. 

3The Trust was formed as a Delaware statutory 

trust on October 31, 2023 and is operated as a 

grantor trust for U.S. federal tax purposes. The 

Trust has no fixed termination date. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Pursuant to Section 19(b)(3)(A) of the 

Act 7 and Rule 19b–4(f)(6) 8 thereunder, 

the Exchange has designated this 

proposal as one that effects a change 

that: (i) does not significantly affect the 

protection of investors or the public 

interest; (ii) does not impose any 

significant burden on competition; and 

(iii) by its terms, does not become 

operative for 30 days after the date of 

the filing, or such shorter time as the 

Commission may designate if consistent 

with the protection of investors and the 

public interest.9

A proposed rule change filed 

pursuant to Rule 19b–4(f)(6) under the 

Act normally does not become operative 

for 30 days after the date of its filing. 

However, Rule 19b–4(f)(6)(iii) 10 permits 

the Commission to designate a shorter 

time if such action is consistent with the 

protection of investors and the public 

interest. The Exchange requested that 

the Commission waive the 30-day 

operative delay so that the proposal may 

become operative immediately upon 

filing. The proposed change raises no 

novel legal or regulatory issues and 

modifies the Exchange’s rules to correct 

citations to Rule 600(b) of Regulation 

NMS, which should help prevent 

confusion and result in increased clarity 

within the Exchange’s rules. Therefore, 

the Commission believes that waiver of 

the 30-day operative delay is consistent 

with the protection of investors and the 

public interest. Accordingly, the 

Commission hereby waives the 30-day 

operative delay and designates the 

proposed rule change operative upon 

filing.11

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. 

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 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

NYSENAT–2023–27 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–NYSENAT–2023–27. 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–NYSENAT–2023–27 and should be 

submitted on or before December 27, 

2023. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.12

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–26726 Filed 12–5–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–99045; File No. SR– 

CboeBZX–2023–095] 

Self-Regulatory Organizations; Cboe 

BZX Exchange, Inc.; Notice of Filing of 

a Proposed Rule Change To List and 

Trade Shares of the Fidelity Ethereum 

Fund Under BZX Rule 14.11(e)(4), 

Commodity-Based Trust Shares 

November 30, 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 November 

17, 2023, Cboe BZX Exchange, Inc. 

(‘‘Exchange’’ or ‘‘BZX’’) filed with the 

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘Commission’’) the proposed 

rule change as described in Items I, II, 

and III below, which Items have been 

prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

Cboe BZX Exchange, Inc. (‘‘BZX’’ or 

the ‘‘Exchange’’) is filing with the 

Securities and Exchange Commission 

(‘‘Commission’’ or ‘‘SEC’’) a proposed 

rule change to list and trade shares of 

the Fidelity Ethereum Fund (the 

‘‘Trust’’),3 under BZX Rule 14.11(e)(4), 

Commodity-Based Trust Shares. 

The text of the proposed rule change 

is also available on the Exchange’s 

website (http://markets.cboe.com/us/ 

equities/regulation/rule_filings/bzx/), at 

the Exchange’s Office of the Secretary, 

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 


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Federal Register / Vol. 88, No. 233 / Wednesday, December 6, 2023 / Notices 84841 

4The Trust will file with the Commission an 

initial registration statement (the ‘‘Registration 

Statement’’) on Form S–1 under the Securities Act 

of 1933 (15 U.S.C. 77a). The description of the 

operation of the Trust herein is based, in part, on 

the Registration Statement. The Registration 

Statement is not yet effective and the Shares will 

not trade on the Exchange until such time that the 

Registration Statement is effective. 

5The Commission approved BZX Rule 14.11(e)(4) 

in Securities Exchange Act Release No. 65225 

(August 30, 2011), 76 FR 55148 (September 6, 2011) 

(SR–BATS–2011–018). 

6All statements and representations made in this 

filing regarding (a) the description of the portfolio, 

(b) limitations on portfolio holdings or reference 

assets, or (c) the applicability of Exchange rules and 

surveillance procedures shall constitute continued 

listing requirements for listing the Shares on the 

Exchange. 

7 15 U.S.C. 80a–1. 

8The premium and discount for OTC ETH Funds 

is known to move rapidly. For example, over the 

period of 12/21/20 to 1/21/21, the premium for the 

largest OTC ETH Fund went from 238.63% to 5.1%. 

While the price of ether appreciated significantly 

during this period and NAV per share increased by 

101.40%, the price per share decreased by 37.49%. 

This means that investors are holding shares of a 

fund with roughly $4.8 billion in assets under 

management that experiences significant volatility 

in its premium and discount outside of the 

fluctuations in price of the underlying asset. Even 

operating within the normal premium and discount 

range, it’s possible for an investor to buy shares of 

an OTC ETH Fund only to have those shares 

quickly lose 10% or more in dollar value excluding 

any movement of the price of ether. That is to say— 

the price of ether could have stayed exactly the 

same from market close on one day to market open 

the next, yet the value of the shares held by the 

investor decreased only because of the fluctuation 

of the premium. As more investment vehicles, 

including mutual funds and ETFs, seek to gain 

exposure to ether, the easiest option for a buy and 

hold strategy for such vehicles is often an OTC ETH 

Fund, meaning that even investors that do not 

directly buy OTC ETH Funds can be disadvantaged 

by extreme premiums (or discounts) and premium 

volatility. 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

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

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to list and 

trade the Shares of the Fidelity 

Ethereum Fund 4 under BZX Rule 

14.11(e)(4),5 which governs the listing 

and trading of Commodity-Based Trust 

Shares on the Exchange.6

According to the Registration 

Statement, the Trust is neither an 

investment company registered under 

the Investment Company Act of 1940, as 

amended,7 nor a commodity pool for 

purposes of the Commodity Exchange 

Act (‘‘CEA’’), and neither the Trust nor 

the Sponsor is subject to regulation as 

a commodity pool operator or a 

commodity trading adviser in 

connection with the Shares. 

Fidelity Ethereum Fund 

FD Funds Management LLC is the 

sponsor of the Trust (the ‘‘Sponsor’’). 

Fidelity Digital Assets Services, LLC 

(‘‘FDAS’’), a regulated custodian 

licensed by the New York Department of 

Financial Services (the ‘‘Custodian’’), 

will be responsible for custody of the 

Trust’s Ether (‘‘ETH’’). Delaware Trust 

Company is the trustee (‘‘Trustee’’). The 

Trust will engage Fidelity Service 

Company, Inc. (‘‘FSC’’), a Sponsor 

affiliate, to be the administrator 

(‘‘Administrator’’). A third-party transfer 

agent (the ‘‘Transfer Agent’’) will 

facilitate the issuance and redemption 

of Shares of the Trust and respond to 

correspondence by Trust Shareholders 

and others relating to its duties, 

maintain Shareholder accounts, and 

make periodic reports to the Trust. 

Another affiliate of Sponsor, Fidelity 

Distributors Corporation, will be the 

distributor (‘‘Distributor’’) in connection 

with the creation and redemption of 

‘‘Baskets’’ of Shares. 

According to the Registration 

Statement, each Share will represent a 

fractional undivided beneficial interest 

in the Trust’s net assets. The Trust’s 

assets will consist of ETH held by the 

Custodian on behalf of the Trust. The 

Trust generally does not intend to hold 

cash or cash equivalents. However, 

there may be situations where the Trust 

will unexpectedly hold cash on a 

temporary basis. 

When the Trust sells or redeems its 

Shares, it will do so in blocks of Shares 

(a ‘‘Creation Basket’’) at the Trust’s 

NAV. Authorized participants will 

deliver, or facilitate the delivery of, ETH 

to the Trust’s account with the 

Custodian in exchange for Shares when 

they purchase Shares, and the Trust, 

through the Custodian, will deliver ETH 

to such authorized participants when 

they redeem Shares with the Trust. 

Authorized participants may then offer 

Shares to the public at prices that 

depend on various factors, including the 

supply and demand for Shares, the 

value of the Trust’s assets, and market 

conditions at the time of a transaction. 

Shareholders who buy or sell Shares 

during the day from their broker may do 

so at a premium or discount relative to 

the NAV of the Shares of the Trust. 

Background 

Ethereum is free software that is 

hosted on computers distributed 

throughout the globe. It employs an 

array of logic, called a protocol, to create 

a unified understanding of ownership, 

commercial activity, and business logic. 

This allows users to engage in 

commerce without the need to trust any 

of its participants or counterparties. 

Ethereum code creates verifiable and 

unambiguous rules that assign clear, 

strong property rights to create a 

platform for unrestrained business 

formation and free exchange. It is 

widely understood that no single 

intermediary or entity operates or 

controls the Ethereum network (referred 

to as ‘‘decentralization’’), the transaction 

validation and recordkeeping 

infrastructure of which is collectively 

maintained by a disparate user base. 

The Ethereum network allows people to 

exchange tokens of value, or ETH, 

which are recorded on a distributed 

public recordkeeping system or ledger 

known as a blockchain (the ‘‘Ethereum 

Blockchain’’), and which can be used to 

pay for goods and services, including 

computational power on the Ethereum 

network, or converted to fiat currencies, 

such as the U.S. dollar, at rates 

determined on digital asset platforms or 

in individual peer-to-peer transactions. 

Furthermore, by combining the 

recordkeeping system of the Ethereum 

Blockchain with a flexible scripting 

language that is programmable and can 

be used to implement sophisticated 

logic and execute a wide variety of 

instructions, the Ethereum network is 

intended to act as a foundational 

infrastructure layer on top of which 

users can build their own custom 

software programs, as an alternative to 

centralized web servers. In theory, 

anyone can build their own custom 

software programs on the Ethereum 

network. In this way, the Ethereum 

network represents a project to expand 

blockchain deployment beyond a 

limited-purpose, peer-to-peer private 

money system into a flexible, 

distributed alternative computing 

infrastructure that is available to all. On 

the Ethereum network, ETH is the unit 

of account that users pay for the 

computational resources consumed by 

running their programs. 

Heretofore, U.S. retail investors have 

lacked a U.S. regulated, U.S. exchangetraded vehicle to gain exposure to ETH. 

Instead current options include: (i) 

facing the counter-party risk, legal 

uncertainty, technical risk, and 

complexity associated with accessing 

spot ether or (ii) over-the-counter ether 

funds (‘‘OTC ETH Funds’’) with high 

management fees and potentially 

volatile premiums and discounts; 8


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84842 Federal Register / Vol. 88, No. 233 / Wednesday, December 6, 2023 / Notices 

9The Exchange notes that the list of countries 

above is not exhaustive and that securities 

regulators in a number of additional countries have 

either approved or otherwise allowed the listing 

and trading of Spot ETH ETPs. 10See FTX Trading Ltd., et al., Case No. 22– 

11068. 11See Celsius Network LLC, et al., Case No. 22– 

10964. 12See BlockFi Inc., Case No. 22–19361. 13See Voyager Digital Holdings, Inc., et al., Case 

No. 22–10943. 

14See Securities Exchange Act Release No. 83723 

(July 26, 2018), 83 FR 37579 (August 1, 2018). This 

proposal was subsequently disapproved by the 

Commission. See Securities Exchange Act Release 

No. 83723 (July 26, 2018), 83 FR 37579 (August 1, 

2018) (the ‘‘Winklevoss Order’’). Prior orders from 

the Commission have pointed out that in every 

prior approval order for Commodity-Based Trust 

Shares, there has been a derivatives market that 

represents the regulated market of significant size, 

generally a Commodity Futures Trading 

Commission (the ‘‘CFTC’’) regulated futures market. 

Further to this point, the Commission’s prior orders 

have noted that the spot commodities and currency 

markets for which it has previously approved spot 

ETPs are generally unregulated and that the 

Commission relied on the underlying futures 

market as the regulated market of significant size 

that formed the basis for approving the series of 

Currency and Commodity-Based Trust Shares, 

including gold, silver, platinum, palladium, copper, 

and other commodities and currencies. The 

Commission specifically noted in the Winklevoss 

Order that the approval order issued related to the 

first spot gold ETP ‘‘was based on an assumption 

that the currency market and the spot gold market 

were largely unregulated.’’ See Winklevoss Order at 

37592. As such, the regulated market of significant 

size test does not require that the spot ether market 

be regulated in order for the Commission to approve 

this proposal, and precedent makes clear that an 

underlying market for a spot commodity or 

currency being a regulated market would actually 

be an exception to the norm. These largely 

unregulated currency and commodity markets do 

not provide the same protections as the markets that 

are subject to the Commission’s oversight, but the 

Commission has consistently looked to surveillance 

sharing agreements with the underlying futures 

market in order to determine whether such 

products were consistent with the Act. 

15See Exchange Act Release No. 94620 (April 6, 

2022), 87 FR 21676 (April 12, 2022) (the ‘‘Teucrium 

Approval’’) and 94853 (May 5, 2022) (collectively, 

with the Teucrium Approval, the ‘‘Bitcoin Futures 

Approvals’’). 

16The proposed spot bitcoin funds are nearly 

identical to the Trust but proposed to hold bitcoin 

instead of ETH (‘‘Spot Bitcoin ETPs’’). 

17 Grayscale Investments, LLC v. Securities and 

Exchange Commission, et al., Case No. 22–1142 (the 

‘‘Grayscale Order’’). 

18 Id. 

19The Sponsor’s affiliates have an ownership 

interest in Coin Metrics, Inc. 

Meanwhile, investors in other countries, 

including Germany, Switzerland and 

France, are able to use more traditional 

exchange listed and traded products 

(including exchange-traded funds 

holding physical ETH) to gain exposure 

to ETH. Investors across Europe have 

access to products which trade on 

regulated exchanges and provide 

exposure to a broad array of spot crypto 

assets. U.S. investors, by contrast, are 

left with fewer and more risky means of 

getting ether exposure.9

To this point, the lack of an ETP that 

holds spot ETH (a ‘‘Spot ETH ETP’’) 

exposes U.S. investor assets to 

significant risk because investors that 

would otherwise seek crypto asset 

exposure through a Spot ETH ETP are 

forced to find alternative exposure 

through generally riskier means. For 

example, investors in OTC ETH Funds 

are not afforded the benefits and 

protections of regulated Spot ETH ETPs, 

resulting in retail investors suffering 

losses due to drastic movements in the 

premium/discount of OTC ETH Funds. 

An investor who purchased the largest 

OTC ETH Fund in January 2021 and 

held the position at the end of 2022 

would have suffered a 69% loss due to 

the premium/discount, even if the price 

of ETH did not change. Many retail 

investors likely suffered losses due to 

this premium/discount in OTC ETH 

Fund trading; all such losses could have 

been avoided if a Spot ETH ETP had 

been available. Additionally, many U.S. 

investors that held their digital assets in 

accounts at FTX,10 Celsius Network 

LLC,11 BlockFi Inc.12 and Voyager 

Digital Holdings, Inc.13 have become 

unsecured creditors in the insolvencies 

of those entities. If a Spot ETH ETP was 

available, it is likely that at least a 

portion of the billions of dollars tied up 

in those proceedings would still reside 

in the brokerage accounts of U.S. 

investors, having instead been invested 

in a transparent, regulated, and wellunderstood structure—a Spot ETH ETP. 

To this point, approval of a Spot ETH 

ETP would represent a major win for the 

protection of U.S. investors in the 

crypto asset space. The Trust, like all 

other series of Commodity-Based Trust 

Shares, is designed to protect investors 

against the risk of losses through fraud 

and insolvency that arise by holding 

digital assets, including ETH, on 

centralized platforms. 

Applicable Standard 

The Commission has historically 

approved or disapproved exchange 

filings to list and trade series of Trust 

Issued Receipts, including spot-based 

Commodity-Based Trust Shares, on the 

basis of whether the listing exchange 

has in place a comprehensive 

surveillance sharing agreement with a 

regulated market of significant size 

related to the underlying commodity to 

be held.14 With this in mind, the CME 

Ether Futures (‘‘CME ETH Futures’’) 

market, which launched in February 

2021, is the proper market to consider 

in determining whether there is a 

related regulated market of significant 

size. 

The Commission has approved 

proposals related to the listing and 

trading of funds that would primarily 

hold CME Bitcoin Futures that are 

registered under the Securities Act of 

1933 (‘‘Bitcoin Futures ETPs’’),15

finding that the CME Bitcoin Futures 

market represents a regulated market of 

significant size. Meanwhile, the 

Commission has continued to 

disapprove proposals to list and trade 

funds that would hold spot bitcoin on 

the seemingly conflicting basis that the 

CME Bitcoin Futures market is not a 

regulated market of significant size.16 In 

the recently decided Grayscale 

Investments, LLC v. Securities and 

Exchange Commission,17 however, the 

court resolved this conflict by finding 

that the SEC had failed to provide a 

coherent explanation as to why it had 

approved the Bitcoin Futures ETPs 

while disapproving the proposal to list 

and trade shares of the Grayscale 

Bitcoin Trust and vacating the 

disapproval order.18

As further discussed below, both the 

Exchange and the Sponsor believe that 

this proposal and the included analysis 

are sufficient to establish that the CME 

ETH Futures market represents a 

regulated market of significant size as it 

relates both to the CME ETH Futures 

market and to the spot ETH market and 

that this proposal should be approved. 

Investment Objective 

According to the Registration 

Statement, the investment objective of 

the Trust is to seek to track the 

performance of ETH, as measured by the 

performance of the Fidelity Ethereum 

Index (the ‘‘Index’’), less the Trust’s 

expenses and other liabilities. In seeking 

to achieve its investment objective, the 

Trust will hold ETH and will value its 

Shares daily as of 4:00 p.m. Eastern time 

using the same methodology used to 

calculate the Index and process all 

creations and redemptions in 

transactions with authorized 

participants. The Trust is not actively 

managed. 

The Index 

The Index is designed to reflect the 

performance of ETH in U.S. dollars. The 

current digital trading platform 

composition of the Index is Bitstamp, 

Coinbase, Gemini, itBit, Kraken, and 

LMAX Digital. The Index methodology 

was developed by Fidelity Product 

Services, LLC (the ‘‘Index Provider’’) 

and is administered by the Fidelity 

Index Committee. Coin Metrics, Inc. is 

the third-party calculation agent for the 

Index.19

The Index is constructed using ETH 

price feeds from eligible ETH spot 


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20As defined in Rule 11.23(a)(3), the term ‘‘BZX 

Official Closing Price’’ shall mean the price 

disseminated to the consolidated tape as the market 

center closing trade. 

21New York state trust companies are subject to 

rigorous oversight similar to other types of entities, 

such as nationally chartered banking entities, that 

hold customer assets. Like national banks, they 

must obtain specific approval of their primary 

regulator for the exercise of their fiduciary powers. 

Moreover, limited purpose trust companies engaged 

in the custody of digital assets are subject to even 

more stringent requirements than national banks 

which, following initial approval of trust powers, 

generally can exercise those powers broadly 

without further approval of the OCC. In contrast, 

NYDFS requires in their approval orders that 

limited purpose trust companies obtain separate 

approval for all material changes in business. 

markets and a volume-weighted median 

price (‘‘VWMP’’) methodology, 

calculated every 15 seconds based on 

VWMP spot market data over rolling 5- 

minute increments to develop an ETH 

price composite. The Index market 

value is the volume-weighted median 

price of ETH in U.S. dollars over the 

previous five minutes, which is 

calculated by (1) ordering all individual 

transactions on eligible spot markets 

over the previous five minutes by price, 

and then (2) selecting the price 

associated with the 50th percentile of 

total volume. Using rolling five-minute 

segments means malicious actors would 

need to sustain efforts to manipulate the 

market over an extended period of time, 

or such malicious actors would need to 

replicate efforts multiple times across 

eligible ETH spot markets, potentially 

triggering review. This extended period 

also supports authorized participant 

activity by capturing volume over a 

longer time period, rather than forcing 

authorized participants to mark an 

individual close or auction. The use of 

a median price reduces the ability of 

outlier prices to impact the NAV, as it 

systematically excludes those prices 

from the NAV calculation. The use of a 

volume-weighted median (as opposed to 

a traditional median) serves as an 

additional protection against attempts to 

manipulate the NAV by executing a 

large number of low-dollar trades, 

because any manipulation attempt 

would have to involve a majority of 

global spot ETH volume in a five-minute 

window to have any influence on the 

NAV. 

Availability of Information 

In addition to the price transparency 

of the Index, the Trust will provide 

information regarding the Trust’s ETH 

holdings as well as additional data 

regarding the Trust. The Trust will 

provide an Intraday Indicative Value 

(‘‘IIV’’) per Share updated every 15 

seconds, as calculated by the Exchange 

or a third-party financial data provider 

during the Exchange’s Regular Trading 

Hours (9:30 a.m. to 4:00 p.m. Eastern 

time). The IIV will be calculated by 

using the prior day’s closing NAV per 

Share as a base and updating that value 

during Regular Trading Hours to reflect 

changes in the value of the Trust’s ETH 

holdings during the trading day. 

The IIV disseminated during Regular 

Trading Hours should not be viewed as 

an actual real-time update of the NAV, 

which will be calculated only once at 

the end of each trading day. The IIV will 

be widely disseminated on a per Share 

basis every 15 seconds during the 

Exchange’s Regular Trading Hours by 

one or more major market data vendors. 

In addition, the IIV will be available 

through on-line information services. 

The website for the Trust, which will 

be publicly accessible at no charge, will 

contain the following information: (a) 

the current NAV per Share daily and the 

prior business day’s NAV and the 

reported closing price; (b) the BZX 

Official Closing Price 20 in relation to 

the NAV as of the time the NAV is 

calculated and a calculation of the 

premium or discount of such price 

against such NAV; (c) data in chart form 

displaying the frequency distribution of 

discounts and premiums of the Official 

Closing Price against the NAV, within 

appropriate ranges for each of the four 

previous calendar quarters (or for the 

life of the Trust, if shorter); (d) the 

prospectus; and other applicable 

quantitative information. The Trust will 

also disseminate the Trust’s holdings on 

a daily basis on the Trust’s website. The 

value of the Index will be made 

available by one or more major market 

data vendors, updated at least every 15 

seconds during Regular Trading Hours. 

The NAV for the Trust will be 

calculated by the Administrator once a 

day and will be disseminated daily to 

all market participants at the same time. 

Quotation and last-sale information 

regarding the Shares will be 

disseminated through the facilities of 

the Consolidated Tape Association 

(‘‘CTA’’). 

Quotation and last sale information 

for ETH is widely disseminated through 

a variety of major market data vendors, 

including Bloomberg and Reuters, as 

well as the Index. 

Information relating to trading, 

including price and volume 

information, in ETH is available from 

major market data vendors and from the 

digital trading platforms on which ETH 

are traded. Depth of book information is 

also available from ETH trading 

platforms. The normal trading hours for 

ETH trading platforms are 24 hours per 

day, 365 days per year. 

The ETH Custodian 

The Sponsor has selected FDAS to be 

the Trust’s Custodian. FDAS is a New 

York state limited liability trust 21 that 

serves as ETH custodian to institutional 

and individual investors. The Custodian 

maintains a substantial portion of the 

private keys associated with the Trust’s 

ETH in ‘‘cold storage’’ or similarly 

secure technology. Cold storage is a 

safeguarding method with multiple 

layers of protections and protocols, by 

which the private key(s) corresponding 

to the Trust’s ETH is (are) generated and 

stored in an offline manner. Private keys 

are generated in offline computers that 

are not connected to the internet so that 

they are resistant to being hacked. Cold 

storage of private keys may involve 

keeping such keys on a non-networked 

computer or electronic device or storing 

the public key and private keys on a 

storage device or printed medium and 

deleting the keys from all computers. 

The Custodian may receive deposits 

of ETH but may not send ETH without 

use of the corresponding private keys. In 

order to send ETH when the private 

keys are kept in cold storage, either the 

private keys must be retrieved from cold 

storage and entered into a software 

program to sign the transaction, or the 

unsigned transaction must be sent to the 

‘‘cold’’ server in which the private keys 

are held for signature by the private 

keys. At that point, the Custodian can 

transfer the ETH. The Trust’s Transfer 

Agent will facilitate the settlement of 

Shares in response to the placement of 

creation orders and redemption orders 

from Authorized Participants. The Trust 

generally does not intend to hold cash 

or cash equivalents. However, there may 

be situations where the Trust will hold 

cash on a temporary basis. The Trust 

will enter into a cash custody agreement 

with an unaffiliated regulated bank as 

custodian of the Trust’s cash and cash 

equivalents. 

Net Asset Value 

As described in the Registration 

Statement, for purposes of calculating 

the Trust’s NAV per Share, the Trust’s 

holdings of ETH will be valued using 

the same methodology as used to 

calculate the Index. NAV means the 

total assets of the Trust including, but 

not limited to, all ETH and cash, if any, 

less total liabilities of the Trust, each 

determined on the basis of generally 

accepted accounting principles. The 

NAV of the Trust is calculated by taking 

the fair market value of its total assets 

based on the volume-weighted median 

price of ETH used for the calculation of 

the Index, subtracting any liabilities 

(which include accrued expenses), and 


lotter on DSK11XQN23PROD with NOTICES1
84844 Federal Register / Vol. 88, No. 233 / Wednesday, December 6, 2023 / Notices 

22For purposes of Rule 14.11(e)(4), the term 

commodity takes on the definition of the term as 

provided in the Commodity Exchange Act. The 

CFTC has stated that: ‘‘Certain digital assets, 

including BTC, ETH, LTC, and at least two fiatbacked stablecoins, tether (‘‘USDT’’) and the 

Binance USD (‘‘BUSD’’), as well as other virtual 

currencies as alleged herein, are ‘‘commodities,’’ as 

defined under Section 1a(9) of the [Commodities 

Exchange] Act, 7 U.S.C. 1a(9).’’ See Commodity 

Futures Trading Commission v. Changpeng Zhao, 

Binance Holdings Limited, Binance Holdings (IE) 

Limited, Binance (Services) Holdings Limited, and 

Samuel Lim, March 27, 2023 at 9. 

dividing that total by the total number 

of outstanding Shares. The 

Administrator calculates the NAV of the 

Trust once each Exchange trading day. 

The NAV for a normal trading day will 

be released after 4:00 p.m. Eastern time. 

Trading during the core trading session 

on the Exchange typically closes at 4:00 

p.m. Eastern time. However, NAVs are 

not officially struck until later in the 

day (often by 5:30 p.m. Eastern time and 

almost always by 8:00 p.m. Eastern 

time). The pause between 4:00 p.m. 

Eastern time and 5:30 p.m. Eastern time 

(or later) provides an opportunity to 

algorithmically detect, flag, investigate, 

and correct unusual pricing should it 

occur. 

Creation and Redemption of Shares 

When the Trust sells or redeems its 

Shares, it will do so in ‘‘in-kind’’ 

transactions in blocks of Shares (a 

‘‘Creation Basket’’) at the Trust’s NAV. 

Authorized participants will deliver, or 

facilitate the delivery of, ETH to the 

Trust’s account with the Custodian in 

exchange for Shares when they 

purchase Shares, and the Trust, through 

the Custodian, will deliver ETH to such 

authorized participants when they 

redeem Shares with the Trust. 

Authorized participants may then offer 

Shares to the public at prices that 

depend on various factors, including the 

supply and demand for Shares, the 

value of the Trust’s assets, and market 

conditions at the time of a transaction. 

Shareholders who buy or sell Shares 

during the day from their broker may do 

so at a premium or discount relative to 

the NAV of the Shares of the Trust. 

According to the Registration 

Statement, on any business day, an 

authorized participant may place an 

order to create one or more baskets. 

Purchase orders must be placed by the 

time noted in the Authorized 

Participant Agreement or as provided 

separately to all Authorized 

Participants. The day on which an order 

is received is considered the purchase 

order date. The total deposit of ETH 

required is an amount of ETH that is in 

the same proportion to the total assets 

of the Trust, net of accrued expenses 

and other liabilities, on the date the 

order to purchase is properly received, 

as the number of Shares to be created 

under the purchase order is in 

proportion to the total number of Shares 

outstanding on the date the order is 

received. Each night, the Sponsor will 

publish the amount of ETH that will be 

required in exchange for each creation 

order. The Administrator determines the 

required deposit for a given day by 

dividing the number of ETH held by the 

Trust as of the opening of business on 

that business day, adjusted for the 

amount of ETH constituting estimated 

accrued but unpaid fees and expenses of 

the Trust as of the opening of business 

on that business day, by the quotient of 

the number of Shares outstanding at the 

opening of business divided by the 

aggregation of Shares associated with a 

Creation Basket. The procedures by 

which an authorized participant can 

redeem one or more Creation Baskets 

mirror the procedures for the creation of 

Creation Baskets. 

Commodity-Based Trust Shares—Rule 

14.11(e)(4) 

The Shares will be subject to BZX 

Rule 14.11(e)(4), which sets forth the 

initial and continued listing criteria 

applicable to Commodity-Based Trust 

Shares. The Exchange will obtain a 

representation that the Trust’s NAV will 

be calculated daily and that these values 

and information about the assets of the 

Trust will be made available to all 

market participants at the same time. 

The Exchange notes that, as defined in 

Rule 14.11(e)(4)(C)(i), the Shares will be: 

(a) issued by a trust that holds a 

specified commodity 22 deposited with 

the trust; (b) issued by such trust in a 

specified aggregate minimum number in 

return for a deposit of a quantity of the 

underlying commodity; and (c) when 

aggregated in the same specified 

minimum number, may be redeemed at 

a holder’s request by such trust which 

will deliver to the redeeming holder the 

quantity of the underlying commodity. 

Upon termination of the Trust, the 

Shares will be removed from listing. 

The Trustee, Delaware Trust Company, 

is a trust company having substantial 

capital and surplus and the experience 

and facilities for handling corporate 

trust business, as required under Rule 

14.11(e)(4)(E)(iv)(a) and that no change 

will be made to the trustee without prior 

notice to and approval of the Exchange. 

The Exchange also notes that, pursuant 

to Rule 14.11(e)(4)(F), neither the 

Exchange nor any agent of the Exchange 

shall have any liability for damages, 

claims, losses or expenses caused by 

any errors, omissions or delays in 

calculating or disseminating any 

underlying commodity value, the 

current value of the underlying 

commodity required to be deposited to 

the Trust in connection with issuance of 

Commodity-Based Trust Shares; 

resulting from any negligent act or 

omission by the Exchange, or any agent 

of the Exchange, or any act, condition or 

cause beyond the reasonable control of 

the Exchange, its agent, including, but 

not limited to, an act of God; fire; flood; 

extraordinary weather conditions; war; 

insurrection; riot; strike; accident; 

action of government; communications 

or power failure; equipment or software 

malfunction; or any error, omission or 

delay in the reports of transactions in an 

underlying commodity. Finally, as 

required in Rule 14.11(e)(4)(G), the 

Exchange notes that any registered 

market maker (‘‘Market Maker’’) in the 

Shares must file with the Exchange in 

a manner prescribed by the Exchange 

and keep current a list identifying all 

accounts for trading in an underlying 

commodity, related commodity futures 

or options on commodity futures, or any 

other related commodity derivatives, 

which the registered Market Maker may 

have or over which it may exercise 

investment discretion. No registered 

Market Maker shall trade in an 

underlying commodity, related 

commodity futures or options on 

commodity futures, or any other related 

commodity derivatives, in an account in 

which a registered Market Maker, 

directly or indirectly, controls trading 

activities, or has a direct interest in the 

profits or losses thereof, which has not 

been reported to the Exchange as 

required by this Rule. In addition to the 

existing obligations under Exchange 

rules regarding the production of books 

and records (see, e.g., Rule 4.2), the 

registered Market Maker in CommodityBased Trust Shares shall make available 

to the Exchange such books, records or 

other information pertaining to 

transactions by such entity or registered 

or non-registered employee affiliated 

with such entity for its or their own 

accounts for trading the underlying 

physical commodity, related commodity 

futures or options on commodity 

futures, or any other related commodity 

derivatives, as may be requested by the 

Exchange. 

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 

BZX Rule 11.18. Trading may be halted 

because of market conditions or for 

reasons that, in the view of the 


lotter on DSK11XQN23PROD with NOTICES1
Federal Register / Vol. 88, No. 233 / Wednesday, December 6, 2023 / Notices 84845 

23For a list of the current members and affiliate 

members of ISG, see www.isgportal.com. 

24Regular Trading Hours is the time between 9:30 

a.m. and 4:00 p.m. Eastern Time. 

25Unless otherwise noted, all data and analysis 

presented in this section and referenced elsewhere 

in the filing has been provided by the Sponsor. 

26The CME CF Ether-Dollar Reference Rate is 

based on a publicly available calculation 

methodology based on pricing sourced from several 

crypto exchanges and trading platforms, including 

Bitstamp, Coinbase, Gemini, itBit, Kraken, and 

LMAX Digital. 

27Source: CME, 7/31/23. 

28A large open interest holder in CME ETH 

Futures is an entity that holds at least 25 contracts, 

which is the equivalent of 1250 ether. At a price 

of approximately $1,867 per ether on 7/31/2023, 

more than 59 firms had outstanding positions of 

greater than $2.3 million in CME ETH Futures. 

Exchange, make trading in the Shares 

inadvisable. These may include: (1) the 

extent to which trading is not occurring 

in the ETH underlying the Shares; or (2) 

whether other unusual conditions or 

circumstances detrimental to the 

maintenance of a fair and orderly 

market are present. Trading in the 

Shares also will be subject to Rule 

14.11(e)(4)(E)(ii), which sets forth 

circumstances under which trading in 

the Shares may be halted. 

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. BZX will allow trading 

in the Shares during all trading sessions 

on the Exchange. The Exchange has 

appropriate rules to facilitate 

transactions in the Shares during all 

trading sessions. As provided in BZX 

Rule 11.11(a) the minimum price 

variation for quoting and entry of orders 

in securities traded on the Exchange is 

$0.01 where the price is greater than 

$1.00 per share or $0.0001 where the 

price is less than $1.00 per share. 

Surveillance 

The Exchange believes that its 

surveillance procedures are adequate to 

properly monitor the trading of the 

Shares on the Exchange during all 

trading sessions and to deter and detect 

violations of Exchange rules and the 

applicable federal securities laws. 

Trading of the Shares through the 

Exchange will be subject to the 

Exchange’s surveillance procedures for 

derivative products, including 

Commodity-Based Trust Shares. The 

issuer has represented to the Exchange 

that it will advise the Exchange of any 

failure by the Trust or the Shares to 

comply with the continued listing 

requirements, and, pursuant to its 

obligations under Section 19(g)(1) of the 

Exchange Act, the Exchange will surveil 

for compliance with the continued 

listing requirements. If the Trust or the 

Shares are not in compliance with the 

applicable listing requirements, the 

Exchange will commence delisting 

procedures under Exchange Rule 14.12. 

The Exchange may obtain information 

regarding trading in the Shares and ETH 

Futures via the Intermarket Surveillance 

Group (‘‘ISG’’), from other exchanges 

who are members or affiliates of the ISG, 

or with which the Exchange has entered 

into a comprehensive surveillance 

sharing agreement.23

Information Circular 

Prior to the commencement of 

trading, 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: (i) the 

procedures for the creation and 

redemption of Baskets (and that the 

Shares are not individually redeemable); 

(ii) BZX Rule 3.7, which imposes 

suitability obligations on Exchange 

members with respect to recommending 

transactions in the Shares to customers; 

(iii) how information regarding the IIV 

and the Trust’s NAV are disseminated; 

(iv) the risks involved in trading the 

Shares outside of Regular Trading 

Hours 24 when an updated IIV will not 

be calculated or publicly disseminated; 

(v) the requirement that members 

deliver a prospectus to investors 

purchasing newly issued Shares prior to 

or concurrently with the confirmation of 

a transaction; and (vi) trading 

information. 

In addition, the Information Circular 

will advise members, prior to the 

commencement of trading, of the 

prospectus delivery requirements 

applicable to the Shares. Members 

purchasing the Shares for resale to 

investors will deliver a prospectus to 

such investors. The Information Circular 

will also discuss any exemptive, noaction and interpretive relief granted by 

the Commission from any rules under 

the Act. 

CME ETH Futures 25

CME began offering trading in Ether 

Futures in February 2021. Each contract 

represents 50 ETH and is based on the 

CME CF Ether-Dollar Reference Rate.26

The contracts trade and settle like other 

cash-settled commodity futures 

contracts. Most measurable metrics 

related to CME ETH Futures have 

generally trended up since launch, 

although some metrics have slowed 

recently. For example, there were 

76,293 CME ETH Futures contracts 

traded in July 2023 (approximately $7.3 

billion) compared to 70,305 ($11.1 

billion) and 158,409 ($7.5 billion) 

contracts traded in July 2021, and July 

2022 respectively.27

The number of large open interest 

holders 28 and unique accounts trading 

CME ETH Futures have both increased, 

even in the face of heightened Ether 

price volatility. 

BILLING CODE 8011–01–P 


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84846 Federal Register / Vol. 88, No. 233 / Wednesday, December 6, 2023 / Notices 


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29See Exchange Rule 14.11(f). 

30Commodity-Based Trust Shares, as described in 

Issued Receipt. 

Exchange Rule 14.11(e)(4), are a type of Trust 

31The Exchange believes that ETH is resistant to 

quotes that they deem non-executable. Moreover, 

participants will generally ignore markets with 

normally impact prices on other exchange because 

ETH on other markets, such pricing does not 

other activity intended to manipulate the price of 

exchanges engaged in or allowing wash trading or 

challenging. To the extent that there are ETH 

prices through continuous trading activity 

each trading platform make manipulation of ETH 

necessary to maintain a significant presence on 

slow speed of transactions, and the capital 

fragmentation across ETH platforms, the relatively 

costly to manipulate the price of ETH. The 

ETH trading render it difficult and prohibitively 

geographically diverse and continuous nature of 

requisite surveillance sharing agreement. The 

practices’’ exist to justify dispensing with the 

prevent fraudulent and manipulative acts and 

price manipulation and that ‘‘other means to 

cross-market pricing differences. 

arbitrageurs who are effectively eliminating any 

require overcoming the liquidity supply of such 

for manipulation on a trading platform would 

exchange or OTC platform. As a result, the potential 

concentration of funds on any particular ETH 

making it unlikely that there will be strong 

advantage of temporary price dislocations, thereby 

multiple trading platforms in order to take 

Arbitrageurs must have funds distributed across 

global ETH price in order to be effective. 

any single venue would require manipulation of the 

that the manipulation of the price of ETH price on 

presence of arbitrageurs in those markets means 

the linkage between the ETH markets and the 

Standards 

Section 6(b)(5) and the Applicable 

BILLING CODE 8011–01–C 

The Commission has approved 

Receipts,

numerous series of Trust Issued 29 including Commodity-Based 

Trust Shares,30 to be listed on U.S. 

including: (i) the requirement that a 

Section 6(b)(5) of the Act, specifically 

consistent with the requirements of 

among other things, the proposal is 

Commission must determine that, 

exchange to be approved, the 

for any proposed rule change from an 

national securities exchanges. In order 

manipulative acts and practices;

designed to prevent fraudulent and 

national securities exchange’s rules are 

31 and 

Act and that this filing sufficiently 

requirements of Section 6(b)(5) of the 

proposal is consistent with the 

The Exchange believes that this 

protect investors and the public interest. 

proposal be designed, in general, to 

(ii) the requirement that an exchange 


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84848 Federal Register / Vol. 88, No. 233 / Wednesday, December 6, 2023 / Notices 

32As previously articulated by the Commission, 

‘‘The standard requires such surveillance-sharing 

agreements since ‘‘they provide a necessary 

deterrent to manipulation because they facilitate the 

availability of information needed to fully 

investigate a manipulation if it were to occur.’’ The 

Commission has emphasized that it is essential for 

an exchange listing a derivative securities product 

to enter into a surveillance-sharing agreement with 

markets trading underlying securities for the listing 

exchange to have the ability to obtain information 

necessary to detect, investigate, and deter fraud and 

market manipulation, as well as violations of 

exchange rules and applicable federal securities 

laws and rules. The hallmarks of a surveillancesharing agreement are that the agreement provides 

for the sharing of information about market trading 

activity, clearing activity, and customer identity; 

that the parties to the agreement have reasonable 

ability to obtain access to and produce requested 

information; and that no existing rules, laws, or 

practices would impede one party to the agreement 

from obtaining this information from, or producing 

it to, the other party.’’ The Commission has 

historically held that joint membership in the ISG 

constitutes such a surveillance sharing agreement. 

See Securities Exchange Act Release No. 88284 

(February 26, 2020), 85 FR 12595 (March 3, 2020) 

(SR–NYSEArca–2019–39) (the ‘‘Wilshire Phoenix 

Disapproval’’). 

33See Wilshire Phoenix Disapproval. 

34See Winklevoss Order at 37580. The 

Commission has also specifically noted that it ‘‘is 

not applying a ‘cannot be manipulated’ standard; 

instead, the Commission is examining whether the 

proposal meets the requirements of the Exchange 

Act and, pursuant to its Rules of Practice, places the 

burden on the listing exchange to demonstrate the 

validity of its contentions and to establish that the 

requirements of the Exchange Act have been met.’’ 

Id. at 37582. 

35According to reports, the Commission is poised 

to allow the launch of ETFs registered under the 

Investment Company Act of 1940, as amended (the 

‘‘1940 Act’’), that provide exposure to ETH 

primarily through CME ETH Futures (‘‘ETH Futures 

ETFs’’) as early as October 2023. Allowing such 

products to list and trade is a productive first step 

in providing U.S. investors and traders with 

transparent, exchange-listed tools for expressing a 

view on ETH. https://www.bloomberg.com/news/ 

articles/2023-08-17/sec-said-to-be-poised-to-allowus-debut-of-ether-futures-etfs-eth#xj4y7vzkg. 

36See Teucrium Approval at 21679. 

37Self-Regulatory Organizations; NYSE Arca, 

Inc.; 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, 84 FR 

55382, 55411 (Oct 16, 2019). 

38 Id. 

demonstrates that the CME ETH Futures 

market represents a regulated market of 

significant size and that, on the whole, 

the manipulation concerns previously 

articulated by the Commission are 

sufficiently mitigated to the point that 

they are outweighed by quantifiable 

investor protection issues that would be 

resolved by approving this proposal. 

(i) Designed To Prevent Fraudulent and 

Manipulative Acts and Practices 

In order to meet this standard in a 

proposal to list and trade a series of 

Commodity-Based Trust Shares, the 

Commission requires that an exchange 

demonstrate that there is a 

comprehensive surveillance-sharing 

agreement in place 32 with a regulated 

market of significant size. Both the 

Exchange and CME are members of ISG. 

The only remaining issue to be 

addressed is whether the ETH Futures 

market constitutes a market of 

significant size, which both the 

Exchange and the Sponsor believe that 

it does. The terms ‘‘significant market’’ 

and ‘‘market of significant size’’ 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 manipulate the 

ETP, so that a surveillance-sharing 

agreement would assist the listing 

exchange 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.33

The Commission has also recognized 

that the ‘‘regulated market of significant 

size’’ standard is not the only means for 

satisfying Section 6(b)(5) of the act, 

specifically providing that a listing 

exchange could demonstrate that ‘‘other 

means to prevent fraudulent and 

manipulative acts and practices’’ are 

sufficient to justify dispensing with the 

requisite surveillance-sharing 

agreement.34 35

(a) Manipulation of the ETP 

The significant market test requires 

that there is a reasonable likelihood that 

a person attempting to manipulate the 

ETP would also have to trade on that 

market to manipulate the ETP, so that a 

surveillance-sharing agreement would 

assist the listing exchange in detecting 

and deterring misconduct. 

In light of the similarly high 

correlation between spot ETH/CME ETH 

Futures and spot bitcoin/CME Bitcoin 

Futures (.998 vs. .999, respectively), 

applying the same rationale that the 

Commission applied to a Bitcoin 

Futures ETF in the Bitcoin Futures 

Approvals also indicates that this test is 

satisfied for this proposal. In the 

Teucrium Approval, the SEC stated: 

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.’’ Thus, the 

CME’s surveillance can reasonably be relied 

upon to capture the effects on the CME 

futures market caused by a person attempting 

to manipulate the proposed futures ETP by 

manipulating the price of CME futures 

contracts, whether that attempt is made by 

directly trading on the CME futures market 

or indirectly by trading outside of the CME 

futures market. As such, 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 proposed ETP.36

The assumptions from this statement 

are also true for CME ETH Futures. CME 

ETH Futures pricing is based on pricing 

from spot ETH markets. The statement 

from the Teucrium Approval that 

‘‘CME’s surveillance can reasonably be 

relied upon to capture the effects on the 

CME BTC futures market caused by a 

person attempting to manipulate the 

proposed futures ETP by manipulating 

the price of CME BTC futures contracts 

. . . indirectly by trading outside of the 

CME BTC futures market,’’ makes clear 

that the Commission believes that 

CME’s surveillance can capture the 

effects of trading on the relevant spot 

markets on the pricing of CME BTC 

Futures. This same logic would extend 

to CME ETH Futures markets where 

CME’s surveillance would be able to 

capture the effects of trading on the 

relevant spot markets on the pricing of 

CME ETH Futures. This was further 

acknowledged in the Grayscale lawsuit 

when Judge Rao stated ‘‘. . . the 

Commission in the Teucrium order 

recognizes that the futures prices are 

influenced by the spot prices, and the 

Commission concludes in approving 

futures ETPs that any fraud on the spot 

market can be adequately addressed by 

the fact that the futures market is a 

regulated one . . .’’ The Exchange 

agrees with the Commission on this 

point and notes that the pricing 

mechanism applicable to the Shares is 

similar to that of the CME ETH Futures. 

This view is also consistent with the 

Sponsor’s research. 

The Commission has stated in a prior 

disapproval order that ‘‘the lead-lag 

relationship between the bitcoin futures 

market and the spot market . . . is 

central to understanding whether it is 

reasonably likely that a would-be 

manipulator of the ETP would need to 

trade on the bitcoin futures market to 

successfully manipulate prices on those 

spot platforms that feed into the 

proposed ETP’s pricing mechanism.’’ 37

The Commission further noted that ‘‘in 

particular, if the spot market leads the 

futures market, this would indicate that 

it would not be necessary to trade on the 

futures market to manipulate the 

proposed ETP, even if arbitrage worked 

efficiently, because the futures price 

would move to meet the spot price.’’ 38

Based on the Commission’s prior 

guidance and the commonality shared 

between bitcoin markets and ETH 

markets, Sponsor conducted a detailed 

price discovery study through its leadlag analysis of ETH spot and futures 


lotter on DSK11XQN23PROD with NOTICES1
Federal Register / Vol. 88, No. 233 / Wednesday, December 6, 2023 / Notices 84849 

39Robertson, Kevin, and Jiani Zhang. (2022) 

‘‘Suitable Price Discovery Measurement of Bitcoin 

Spot and Futures Markets.’’ Available at SSRN: 

https://ssrn.com/abstract=4012165 or http://

dx.doi.org/10.2139/ssrn.4012165. 40Hayashi, Takaki, and Nakahiro Yoshida. ‘‘On 

covariance estimation of non-synchronously 

observed diffusion processes.’’ Bernoulli 11, no. 2 

(2005): 359–379. http://www.jstor.org/stable/ 

3318933. The authors proposed a novel method (HY 

estimator) of estimating the covariance of two 

diffusion processes when they are observed only at 

discrete times in a non-synchronous manner. This 

methodology addresses the issue that the traditional 

realized covariance estimator encounters, which is 

that the choice of regular interval size and data 

interpolation scheme can lead to unreliable 

estimation. The new method Hayashi and Yoshida 

introduced in this paper is free from any 

interpolation and therefore avoids the bias and 

other problems caused by it. 

41This logic is reflected by the court in the 

Grayscale Order at 17–18. Specifically, the court 

found that ‘‘Because Grayscale owns no futures 

contracts, trading in Grayscale can affect the futures 

market only through the spot market. . .But 

Grayscale holds just 3.4 percent of outstanding 

bitcoin, and the Commission did not suggest 

Grayscale can dominate the price of bitcoin.’’ 

42Source: TokenTerminal. 

43According to a report from The Block, Coinbase 

represented 45%% of USD denominated exchange 

trading volume in August 2023. https://

www.theblock.co/data/crypto-markets/spot/usdsupport-exchange-volume-market-share. 

44For additional information regarding ISG and 

the hallmarks of surveillance-sharing between ISG 

members, see https://isgportal.org/overview. 

45The Exchange also notes that it already has in 

place ISG-like surveillance sharing agreement with 

Cboe Digital Exchange, LLC and Cboe Clear Digital, 

LLC. 

trading across markets located globally. 

As discussed below, Sponsor’s analysis 

concludes that the CME ETH Futures 

market is the leading market for price 

discovery across USD ETH markets 

located globally, including ETH spot 

markets and offshore, unregulated ETH 

futures markets. Thus, Sponsor’s 

analysis supports the conclusion that 

there is a reasonable likelihood that a 

person attempting to manipulate the 

Shares would also have to trade on the 

CME ETH Futures market to manipulate 

the Trust. 

In ‘‘Suitable Price Discovery 

Measurement of Bitcoin Spot and 

Futures Markets’’ 39 (Robertson and 

Zhang, 2022), the authors demonstrate 

that, for analyzing intraday information 

flow and accounting for the varying 

levels of sparsity among bitcoin 

markets, the framework of correlationbased lead-lag analysis using the 

Hayashi-Yoshida (HY) estimator 40 to 

compute correlation, along with lead-lag 

seconds and lead-lag ratio is suitable. 

Based on the similar market 

infrastructure (high level of sparsity) in 

both CME ETH Future market and CME 

Bitcoin Future market, Sponsor applied 

the same rationale and used the lead-lag 

framework on ETH spot and futures 

markets. Sponsor obtained tick level 

trade data for ETH spot prices and 

futures prices used in its analysis from 

Coin Metrics for the period spanning 

from January 1, 2021 to June 30, 2021. 

Sponsor’s analysis used all available 

spot and futures ETH markets, but, in 

order to exclude any impacts caused by 

exchange rate movements, Sponsor 

limited the dataset to ETH–USD and 

ETH–USDT trades. Sponsor’s results 

suggest that the CME ETH futures 

market plays the most important leading 

role in price discovery during the time 

period included in the analysis. As 

such, the part (a) of the significant 

market test outlined above is satisfied 

and that common membership in ISG 

between the Exchange and CME would 

assist the listing exchange in detecting 

and deterring misconduct in the Shares 

in the same way that it would be for 

both Bitcoin Futures ETPs and Spot 

Bitcoin ETPs. 

(b) Predominant Influence on Prices in 

Spot and ETH Futures 

The Exchange and Sponsor also 

believe that trading in the Shares would 

not be the predominant force on prices 

in the CME ETH Futures market for a 

number of reasons. First, because the 

Trust would not hold CME ETH Futures 

contracts, the only way that it could be 

the predominant force on prices in that 

market is through the spot markets that 

CME ETH Futures contracts use for 

pricing.41 The Sponsor notes that ETH 

total 24-hour spot trading volume has 

averaged $9.4 billion over the year 

ending September 1, 2023.42 The 

Sponsor expects that the Trust would 

represent a very small percentage of this 

daily trading volume in the spot ETH 

market even in its most aggressive 

projections for the Trust’s assets and, 

thus, the Trust would not have an 

impact on the spot market and therefore 

could not be the predominant force on 

prices in the CME ETH Futures market. 

Second, much like the CME Bitcoin 

Futures market, the CME ETH Futures 

market has progressed and matured 

significantly. As the court found in the 

Grayscale Order ‘‘Because the spot 

market is deeper and more liquid than 

the futures market, manipulation should 

be more difficult, not less.’’ The 

Exchange and sponsor agree with this 

sentiment and believe it applies equally 

to the spot ETH and CME ETH Futures 

markets. 

(c) Other Means To Prevent Fraudulent 

and Manipulative Acts and Practices 

As noted above, the Commission also 

permits a listing exchange to 

demonstrate that ‘‘other means to 

prevent fraudulent and manipulative 

acts and practices’’ are sufficient to 

justify dispensing with the requisite 

surveillance-sharing agreement. The 

Exchange and Sponsor believe that such 

conditions are present. 

The Exchange is proposing to take 

additional steps to those described 

above to supplement its ability to obtain 

information that would be helpful in 

detecting, investigating, and deterring 

fraud and market manipulation in the 

Commodity-Based Trust Shares. On 

June 21, 2023, the Exchange reached an 

agreement on terms with Coinbase, Inc. 

(‘‘Coinbase’’), an operator of a United 

States-based spot trading platform for 

ETH that represents a substantial 

portion of US-based and USD 

denominated ETH trading,43 to enter 

into a surveillance-sharing agreement 

(‘‘Spot Crypto SSA’’) and executed an 

associated term sheet. Based on this 

agreement on terms, the Exchange and 

Coinbase will finalize and execute a 

definitive agreement that the parties 

expect to be executed prior to allowing 

trading of the Commodity-Based Trust 

Shares. 

The Spot Crypto SSA is expected to 

be a bilateral surveillance-sharing 

agreement between the Exchange and 

Coinbase that is intended to supplement 

the Exchange’s market surveillance 

program. The Spot Crypto SSA is 

expected to have the hallmarks of a 

surveillance-sharing agreement between 

two members of the ISG, which would 

give the Exchange supplemental access 

to data regarding spot ETH trades on 

Coinbase where the Exchange 

determines it is necessary as part of its 

surveillance program for the 

Commodity-Based Trust Shares.44 This 

means that the Exchange expects to 

receive market data for orders and 

trades from Coinbase, which it will 

utilize in surveillance of the trading of 

Commodity-Based Trust Shares. In 

addition, the Exchange can request 

further information from Coinbase 

related to spot ETH trading activity on 

the Coinbase trading platform, if the 

Exchange determines that such 

information would be necessary to 

detect and investigate potential 

manipulation in the trading of the 

Commodity-Based Trust Shares.45

(ii) Designed To Protect Investors and 

the Public Interest 

The Exchange believes that the 

proposal is designed to protect investors 

and the public interest. Over the past 

several years, U.S. investor exposure to 

ETH through OTC ETH Funds is greater 

than $5 billion. With that growth, so too 

has grown the quantifiable investor 

protection issues to U.S. investors 


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46 15 U.S.C. 78f. 

47 15 U.S.C. 78f(b)(5). 

48The Exchange believes that ETH is resistant to 

price manipulation and that ‘‘other means to 

prevent fraudulent and manipulative acts and 

practices’’ exist to justify dispensing with the 

requisite surveillance sharing agreement. The 

geographically diverse and continuous nature of 

ETH trading render it difficult and prohibitively 

costly to manipulate the price of ETH. The 

fragmentation across ETH platforms, the relatively 

slow speed of transactions, and the capital 

necessary to maintain a significant presence on 

each trading platform make manipulation of ETH 

prices through continuous trading activity 

challenging. To the extent that there are ETH 

trading platforms engaged in or allowing wash 

trading or other activity intended to manipulate the 

price of ETH on other markets, such pricing does 

not normally impact prices on other exchange 

because participants will generally ignore markets 

with quotes that they deem non-executable. 

Moreover, the linkage between the ETH markets 

and the presence of arbitrageurs in those markets 

means that the manipulation of the price of ETH 

price on any single venue would require 

manipulation of the global ETH price in order to be 

effective. Arbitrageurs must have funds distributed 

across multiple trading platforms in order to take 

advantage of temporary price dislocations, thereby 

making it unlikely that there will be strong 

concentration of funds on any particular ETH 

trading platform or OTC platform. As a result, the 

potential for manipulation on a trading platform 

would require overcoming the liquidity supply of 

such arbitrageurs who are effectively eliminating 

any cross-market pricing differences. 

49See Wilshire Phoenix Disapproval. 

50See Winklevoss Order at 37580. The 

Commission has also specifically noted that it ‘‘is 

not applying a ‘cannot be manipulated’ standard; 

instead, the Commission is examining whether the 

proposal meets the requirements of the Exchange 

Act and, pursuant to its Rules of Practice, places the 

burden on the listing exchange to demonstrate the 

validity of its contentions and to establish that the 

requirements of the Exchange Act have been met.’’ 

Id. at 37582. 

51According to reports, the Commission is poised 

to allow the launch of ETFs registered under the 

Investment Company Act of 1940, as amended (the 

‘‘1940 Act’’), that provide exposure to ETH 

primarily through CME ETH Futures (‘‘ETH Futures 

ETFs’’) as early as October 2023. Allowing such 

products to list and trade is a productive first step 

in providing U.S. investors and traders with 

transparent, exchange-listed tools for expressing a 

view on ETH. https://www.bloomberg.com/news/ 

articles/2023-08-17/sec-said-to-be-poised-to-allowus-debut-of-ether-futures-etfs-eth#xj4y7vzkg. 

through premium/discount volatility 

and management fees for OTC ETH 

Funds. The Exchange believes that, as 

described above, the concerns related to 

the prevention of fraudulent and 

manipulative acts and practices have 

been sufficiently addressed to be 

consistent with the Act and, to the 

extent that the Commission disagrees 

with that assertion, such concerns are 

now at the very least outweighed by 

investor protection concerns. As such, 

the Exchange believes that approving 

this proposal (and comparable 

proposals) provides the Commission 

with the opportunity to allow U.S. 

investors with access to ETH in a 

regulated and transparent exchangetraded vehicle that would act to limit 

risk to U.S. investors by: (i) reducing 

premium and discount volatility; (ii) 

reducing management fees through 

meaningful competition; (iii) reducing 

risks and costs associated with investing 

in ETH Futures ETFs and operating 

companies that are imperfect proxies for 

ETH exposure; and (iv) providing an 

alternative to custodying spot ETH. 

2. Statutory Basis 

The Exchange believes that the 

proposal is consistent with Section 6(b) 

of the Act 46 in general and Section 

6(b)(5) of the Act 47 in particular in that 

it is designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, to foster cooperation and 

coordination with persons engaged in 

facilitating transactions in securities, to 

remove impediments to and perfect the 

mechanism of a free and open market 

and a national market system and, in 

general, to protect investors and the 

public interest. 

The Commission has approved 

numerous series of Trust Issued 

Receipts, including Commodity-Based 

Trust Shares, to be listed on U.S. 

national securities exchanges. In order 

for any proposed rule change from an 

exchange to be approved, the 

Commission must determine that, 

among other things, the proposal is 

consistent with the requirements of 

Section 6(b)(5) of the Act, specifically 

including: (i) the requirement that a 

national securities exchange’s rules are 

designed to prevent fraudulent and 

manipulative acts and practices; 48 and 

(ii) the requirement that an exchange 

proposal be designed, in general, to 

protect investors and the public interest. 

The Exchange believes that this 

proposal is consistent with the 

requirements of Section 6(b)(5) of the 

Act and that this filing sufficiently 

demonstrates that the CME ETH Futures 

market represents a regulated market of 

significant size and that, on the whole, 

the manipulation concerns previously 

articulated by the Commission are 

sufficiently mitigated to the point that 

they are outweighed by quantifiable 

investor protection issues that would be 

resolved by approving this proposal. 

(i) Designed To Prevent Fraudulent and 

Manipulative Acts and Practices 

In order to meet this standard in a 

proposal to list and trade a series of 

Commodity-Based Trust Shares, the 

Commission requires that an exchange 

demonstrate that there is a 

comprehensive surveillance-sharing 

agreement in place with a regulated 

market of significant size. Both the 

Exchange and CME are members of ISG. 

The only remaining issue to be 

addressed is whether the ETH Futures 

market constitutes a market of 

significant size, which both the 

Exchange and the Sponsor believe that 

it does. The terms ‘‘significant market’’ 

and ‘‘market of significant size’’ 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 manipulate the 

ETP, so that a surveillance-sharing 

agreement would assist the listing 

exchange 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.49

The Commission has also recognized 

that the ‘‘regulated market of significant 

size’’ standard is not the only means for 

satisfying Section 6(b)(5) of the act, 

specifically providing that a listing 

exchange could demonstrate that ‘‘other 

means to prevent fraudulent and 

manipulative acts and practices’’ are 

sufficient to justify dispensing with the 

requisite surveillance-sharing 

agreement.50 51

(a) Manipulation of the ETP 

The significant market test requires 

that there is a reasonable likelihood that 

a person attempting to manipulate the 

ETP would also have to trade on that 

market to manipulate the ETP, so that a 

surveillance-sharing agreement would 

assist the listing exchange in detecting 

and deterring misconduct. 

In light of the similarly high 

correlation between spot ETH/CME ETH 

Futures and spot bitcoin/CME Bitcoin 

Futures (.998 vs. .999, respectively), 

applying the same rationale that the 

Commission applied to a Bitcoin 

Futures ETF in the Bitcoin Futures 

Approvals also indicates that this test is 

satisfied for this proposal. In the 

Teucrium Approval, the SEC stated: 

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.’’ Thus, the 

CME’s surveillance can reasonably be relied 

upon to capture the effects on the CME 

futures market caused by a person attempting 

to manipulate the proposed futures ETP by 

manipulating the price of CME futures 

contracts, whether that attempt is made by 

directly trading on the CME futures market 

or indirectly by trading outside of the CME 

futures market. As such, when the CME 

shares its surveillance information with Arca, 

the information would assist in detecting and 


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52See Teucrium Approval at 21679. 

53Self-Regulatory Organizations; NYSE Arca, 

Inc.; 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, 84 FR 

55382, 55411 (Oct 16, 2019). 

54 Id. 

55Robertson, Kevin and Jiani Zhang. (2022) 

‘‘Suitable Price Discovery Measurement of Bitcoin 

Spot and Futures Markets.’’ Available at SSRN: 

https://ssrn.com/abstract=4012165 or http://

dx.doi.org/10.2139/ssrn.4012165. 56Hayashi, Takaki and Nakahiro Yoshida. ‘‘On 

covariance estimation of non-synchronously 

observed diffusion processes.’’ Bernoulli 11, no. 2 

(2005): 359–379. http://www.jstor.org/stable/ 

3318933. The authors proposed a novel method (HY 

estimator) of estimating the covariance of two 

diffusion processes when they are observed only at 

discrete times in a non-synchronous manner. This 

methodology addresses the issue that the traditional 

realized covariance estimator encounters, which is 

that the choice of regular interval size and data 

interpolation scheme can lead to unreliable 

estimation. The new method Hayashi and Yoshida 

introduced in this paper is free from any 

interpolation and therefore avoids the bias and 

other problems caused by it. 

57This logic is reflected by the court in the 

Grayscale Order at 17–18. Specifically, the court 

found that ‘‘Because Grayscale owns no futures 

contracts, trading in Grayscale can affect the futures 

market only through the spot market . . . But 

Grayscale holds just 3.4 percent of outstanding 

bitcoin, and the Commission did not suggest 

Grayscale can dominate the price of bitcoin.’’ 

58Source: TokenTerminal. 

deterring fraudulent or manipulative 

misconduct related to the non-cash assets 

held by the proposed ETP.52

The assumptions from this statement 

are also true for CME ETH Futures. CME 

ETH Futures pricing is based on pricing 

from spot ETH markets. The statement 

from the Teucrium Approval that 

‘‘CME’s surveillance can reasonably be 

relied upon to capture the effects on the 

CME BTC futures market caused by a 

person attempting to manipulate the 

proposed futures ETP by manipulating 

the price of CME BTC futures contracts 

. . . indirectly by trading outside of the 

CME BTC futures market,’’ makes clear 

that the Commission believes that 

CME’s surveillance can capture the 

effects of trading on the relevant spot 

markets on the pricing of CME BTC 

Futures. This same logic would extend 

to CME ETH Futures markets where 

CME’s surveillance would be able to 

capture the effects of trading on the 

relevant spot markets on the pricing of 

CME ETH Futures. This was further 

acknowledged in the Grayscale lawsuit 

when Judge Rao stated ‘‘. . . the 

Commission in the Teucrium order 

recognizes that the futures prices are 

influenced by the spot prices, and the 

Commission concludes in approving 

futures ETPs that any fraud on the spot 

market can be adequately addressed by 

the fact that the futures market is a 

regulated one . . .’’ The Exchange 

agrees with the Commission on this 

point and notes that the pricing 

mechanism applicable to the Shares is 

similar to that of the CME ETH Futures. 

This view is also consistent with the 

Sponsor’s research. 

The Commission has stated in a prior 

disapproval order that ‘‘the lead-lag 

relationship between the bitcoin futures 

market and the spot market . . . is 

central to understanding whether it is 

reasonably likely that a would-be 

manipulator of the ETP would need to 

trade on the bitcoin futures market to 

successfully manipulate prices on those 

spot platforms that feed into the 

proposed ETP’s pricing mechanism.’’ 53

The Commission further noted that ‘‘in 

particular, if the spot market leads the 

futures market, this would indicate that 

it would not be necessary to trade on the 

futures market to manipulate the 

proposed ETP, even if arbitrage worked 

efficiently, because the futures price 

would move to meet the spot price.’’ 54

Based on the Commission’s prior 

guidance and the commonality shared 

between bitcoin markets and ETH 

markets, Sponsor conducted a detailed 

price discovery study through its leadlag analysis of ETH spot and futures 

trading across markets located globally. 

As discussed below, Sponsor’s analysis 

concludes that the CME ETH Futures 

market is the leading market for price 

discovery across USD ETH markets 

located globally, including ETH spot 

markets and offshore, unregulated ETH 

futures markets. Thus, Sponsor’s 

analysis supports the conclusion that 

there is a reasonable likelihood that a 

person attempting to manipulate the 

Shares would also have to trade on the 

CME ETH Futures market to manipulate 

the Trust. 

In ‘‘Suitable Price Discovery 

Measurement of Bitcoin Spot and 

Futures Markets’’ 55 (Robertson and 

Zhang, 2022), the authors demonstrate 

that, for analyzing intraday information 

flow and accounting for the varying 

levels of sparsity among bitcoin 

markets, the framework of correlationbased lead-lag analysis using the 

Hayashi-Yoshida (HY) estimator 56 to 

compute correlation, along with lead-lag 

seconds and lead-lag ratio is suitable. 

Based on the similar market 

infrastructure (high level of sparsity) in 

both CME ETH Future market and CME 

Bitcoin Future market, Sponsor applied 

the same rationale and used the lead-lag 

framework on ETH spot and futures 

markets. Sponsor obtained tick level 

trade data for ETH spot prices and 

futures prices used in its analysis from 

Coin Metrics for the period spanning 

from January 1, 2021 to June 30, 2021. 

Sponsor’s analysis used all available 

spot and futures ETH markets, but, in 

order to exclude any impacts caused by 

exchange rate movements, Sponsor 

limited the dataset to ETH–USD and 

ETH–USDT trades. Sponsor’s results 

suggest that the CME ETH futures 

market plays the most important leading 

role in price discovery during the time 

period included in the analysis. As 

such, the part (a) of the significant 

market test outlined above is satisfied 

and that common membership in ISG 

between the Exchange and CME would 

assist the listing exchange in detecting 

and deterring misconduct in the Shares 

in the same way that it would be for 

both Bitcoin Futures ETPs and Spot 

Bitcoin ETPs. 

(b) Predominant Influence on Prices in 

Spot and ETH Futures 

The Exchange and Sponsor also 

believe that trading in the Shares would 

not be the predominant force on prices 

in the CME ETH Futures market for a 

number of reasons. First, because the 

Trust would not hold CME ETH Futures 

contracts, the only way that it could be 

the predominant force on prices in that 

market is through the spot markets that 

CME ETH Futures contracts use for 

pricing.57 The Sponsor notes that ETH 

total 24-hour spot trading volume has 

averaged $9.4B over the year ending 

September 1, 2023.58 The Sponsor 

expects that the Trust would represent 

a very small percentage of this daily 

trading volume in the spot ETH market 

even in its most aggressive projections 

for the Trust’s assets and, thus, the Trust 

would not have an impact on the spot 

market and therefore could not be the 

predominant force on prices in the CME 

ETH Futures market. Second, much like 

the CME Bitcoin Futures market, the 

CME ETH Futures market has 

progressed and matured significantly. 

As the court found in the Grayscale 

Order, ‘‘Because the spot market is 

deeper and more liquid than the futures 

market, manipulation should be more 

difficult, not less.’’ The Exchange and 

Sponsor agree with this sentiment and 

believe it applies equally to the spot 

ETH and CME ETH Futures markets. 

(c) Other Means To Prevent Fraudulent 

and Manipulative Acts and Practices 

As noted above, the Commission also 

permits a listing exchange to 

demonstrate that ‘‘other means to 

prevent fraudulent and manipulative 

acts and practices’’ are sufficient to 

justify dispensing with the requisite 

surveillance-sharing agreement. The 

Exchange and Sponsor believe that such 

conditions are present. 


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84852 Federal Register / Vol. 88, No. 233 / Wednesday, December 6, 2023 / Notices 

The Exchange is proposing to take 

additional steps to those described 

above to supplement its ability to obtain 

information that would be helpful in 

detecting, investigating, and deterring 

fraud and market manipulation in the 

Commodity-Based Trust Shares. On 

June 21, 2023, the Exchange reached an 

agreement on terms with Coinbase, Inc. 

(‘‘Coinbase’’), an operator of a United 

States-based spot trading platform for 

ETH that represents a substantial 

portion of US-based and USD 

denominated ETH trading, to enter into 

a Spot Crypto SSA and executed an 

associated term sheet. Based on this 

agreement on terms, the Exchange and 

Coinbase will finalize and execute a 

definitive agreement that the parties 

expect to be executed prior to allowing 

trading of the Commodity-Based Trust 

Shares. 

The Spot Crypto SSA is expected to 

be a bilateral surveillance-sharing 

agreement between the Exchange and 

Coinbase that is intended to supplement 

the Exchange’s market surveillance 

program. The Spot Crypto SSA is 

expected to have the hallmarks of a 

surveillance-sharing agreement between 

two members of the ISG, which would 

give the Exchange supplemental access 

to data regarding spot ETH trades on 

Coinbase where the Exchange 

determines it is necessary as part of its 

surveillance program for the 

Commodity-Based Trust Shares. This 

means that the Exchange expects to 

receive market data for orders and 

trades from Coinbase, which it will 

utilize in surveillance of the trading of 

Commodity-Based Trust Shares. In 

addition, the Exchange can request 

further information from Coinbase 

related to spot ETH trading activity on 

the Coinbase trading platform, if the 

Exchange determines that such 

information would be necessary to 

detect and investigate potential 

manipulation in the trading of the 

Commodity-Based Trust Shares. 

(ii) Designed To Protect Investors and 

the Public Interest 

The Exchange believes that the 

proposal is designed to protect investors 

and the public interest. Over the past 

several years, U.S. investor exposure to 

ETH through OTC ETH Funds is greater 

than $5 billion. With that growth, so too 

has grown the quantifiable investor 

protection issues to U.S. investors 

through premium/discount volatility 

and management fees for OTC ETH 

Funds. The Exchange believes that, as 

described above, the concerns related to 

the prevention of fraudulent and 

manipulative acts and practices have 

been sufficiently addressed to be 

consistent with the Act and, to the 

extent that the Commission disagrees 

with that assertion, such concerns are 

now at the very least outweighed by 

investor protection concerns. As such, 

the Exchange believes that approving 

this proposal (and comparable 

proposals) provides the Commission 

with the opportunity to allow U.S. 

investors with access to ETH in a 

regulated and transparent exchangetraded vehicle that would act to limit 

risk to U.S. investors by: (i) reducing 

premium and discount volatility; (ii) 

reducing management fees through 

meaningful competition; (iii) reducing 

risks and costs associated with investing 

in ETH Futures ETFs and operating 

companies that are imperfect proxies for 

ETH exposure; and (iv) providing an 

alternative to custodying spot ETH. 

Commodity-Based Trust Shares—Rule 

14.11(e)(4) 

The Exchange believes that the 

proposed rule change is designed to 

prevent fraudulent and manipulative 

acts and practices in that the Shares will 

be listed on the Exchange pursuant to 

the initial and continued listing criteria 

in Exchange Rule 14.11(e)(4). The 

Exchange believes that its surveillance 

procedures are adequate to properly 

monitor the trading of the Shares on the 

Exchange during all trading sessions 

and to deter and detect violations of 

Exchange rules and the applicable 

federal securities laws. Trading of the 

Shares through the Exchange will be 

subject to the Exchange’s surveillance 

procedures for derivative products, 

including Commodity-Based Trust 

Shares. The issuer has represented to 

the Exchange that it will advise the 

Exchange of any failure by the Trust or 

the Shares to comply with the 

continued listing requirements, and, 

pursuant to its obligations under 

Section 19(g)(1) of the Exchange Act, the 

Exchange will surveil for compliance 

with the continued listing requirements. 

If the Trust or the Shares are not in 

compliance with the applicable listing 

requirements, the Exchange will 

commence delisting procedures under 

Exchange Rule 14.12. The Exchange 

may obtain information regarding 

trading in the Shares and listed ETH 

derivatives via the ISG, from other 

exchanges who are members or affiliates 

of the ISG, or with which the Exchange 

has entered into a comprehensive 

surveillance sharing agreement. 

Availability of Information 

The Exchange also believes that the 

proposal promotes market transparency 

in that a large amount of information is 

currently available about ETH and will 

be available regarding the Trust and the 

Shares. In addition to the price 

transparency of the Index, the Trust will 

provide information regarding the 

Trust’s ETH holdings as well as 

additional data regarding the Trust. The 

Trust will provide an IIV per Share 

updated every 15 seconds, as calculated 

by the Exchange or a third-party 

financial data provider during the 

Exchange’s Regular Trading Hours (9:30 

a.m. to 4:00 p.m. E.T.). The IIV will be 

calculated by using the prior day’s 

closing NAV per Share as a base and 

updating that value during Regular 

Trading Hours to reflect changes in the 

value of the Trust’s ETH holdings 

during the trading day. 

The IIV disseminated during Regular 

Trading Hours should not be viewed as 

an actual real-time update of the NAV, 

which will be calculated only once at 

the end of each trading day. The IIV will 

be widely disseminated on a per Share 

basis every 15 seconds during the 

Exchange’s Regular Trading Hours by 

one or more major market data vendors. 

In addition, the IIV will be available 

through on-line information services. 

The website for the Trust, which will 

be publicly accessible at no charge, will 

contain the following information: (a) 

the current NAV per Share daily and the 

prior business day’s NAV and the 

reported closing price; (b) the BZX 

Official Closing Price in relation to the 

NAV as of the time the NAV is 

calculated and a calculation of the 

premium or discount of such price 

against such NAV; (c) data in chart form 

displaying the frequency distribution of 

discounts and premiums of the Official 

Closing Price against the NAV, within 

appropriate ranges for each of the four 

previous calendar quarters (or for the 

life of the Trust, if shorter); (d) the 

prospectus; and (e) other applicable 

quantitative information. The Trust will 

also disseminate the Trust’s holdings on 

a daily basis on the Trust’s website. The 

price of ETH will be made available by 

one or more major market data vendors, 

updated at least every 15 seconds 

during Regular Trading Hours. 

Information about the Index, including 

key elements of how the Index is 

calculated, will be publicly available at 

[sic]. 

The NAV for the Trust will be 

calculated by the Administrator once a 

day and will be disseminated daily to 

all market participants at the same time. 

Quotation and last-sale information 

regarding the Shares will be 

disseminated through the facilities of 

the CTA. 

Quotation and last sale information 

for ETH is widely disseminated through 

a variety of major market data vendors, 


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Federal Register / Vol. 88, No. 233 / Wednesday, December 6, 2023 / Notices 84853 

59 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

including Bloomberg and Reuters, as 

well as the Index. Information relating 

to trading, including price and volume 

information, in ETH is available from 

major market data vendors and from the 

trading platforms on which ETH are 

traded. Depth of book information is 

also available from ETH trading 

platforms. The normal trading hours for 

ETH trading platforms are 24 hours per 

day, 365 days per year. 

In sum, the Exchange believes that 

this proposal is consistent with the 

requirements of Section 6(b)(5) of the 

Act, that this filing sufficiently 

demonstrates that the CME ETH Futures 

market represents a regulated market of 

significant size, and that on the whole 

the manipulation concerns previously 

articulated by the Commission are 

sufficiently mitigated to the point that 

they are outweighed by investor 

protection issues that would be resolved 

by approving this proposal. For the 

above reasons, the Exchange believes 

that the proposed rule change is 

consistent with the requirements of 

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

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purpose of the Act. The Exchange 

notes that the proposed rule change, 

rather will facilitate the listing and 

trading of an additional exchange-traded 

product that will enhance competition 

among both market participants and 

listing venues, to the benefit of investors 

and the marketplace. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange neither solicited nor 

received comments on the proposed 

rule change. 

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 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

CboeBZX–2023–095 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–CboeBZX–2023–095. 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–CboeBZX–2023–095 and should be 

submitted on or before December 27, 

2023. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.59

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–26731 Filed 12–5–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–99044; File No. SR– 

NASDAQ–2023–049] 

Self-Regulatory Organizations; The 

Nasdaq Stock Market LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change To Adopt a 

New LSTY Routing Option Under Rule 

4758 

November 30, 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 November 

16, 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 adopt a 

new LSTY routing option under Rule 

4758. 

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 


lotter on DSK11XQN23PROD with NOTICES1