Federal Register / Vol. 88, No. 236 / Monday, December 11, 2023 / Notices 85945 

32 15 U.S.C. 78s(b)(3)(A)(ii). 

33 17 CFR 240.19b–4(f)(2). 34 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3The Commission approved Nasdaq Rule 5711 in 

Securities Exchange Act Release No. 66648 (March 

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

NASDAQ–2012–013). 

response to this comment would require 

the Exchange to obtain competitively 

sensitive information about other 

exchange architecture and how their 

members connect. The Exchange is not 

privy to this information. Further, the 

commenter compares the Exchange’s 

proposed rate to other exchanges that 

offer purge port functionality across all 

matching engines for a single fee, but 

fails to provide the same comparison to 

other exchanges that charge for purge 

functionality like proposed here. The 

Exchange does not have insight into the 

technical architecture of other 

exchanges so it is difficult to ascertain 

the number of purge ports a firm would 

need to connect to another exchanges 

entire market. Therefore, the Exchange 

is limited to comparing its proposed fee 

to other exchanges’ purge port fees as 

listed in their fee schedules. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change has become 

effective pursuant to section 

19(b)(3)(A)(ii) of the Act,32 and Rule 

19b–4(f)(2) 33 thereunder. 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. If the Commission 

takes such action, the Commission shall 

institute proceedings to determine 

whether the proposed rule should be 

approved or 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– 

EMERALD–2023–29 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–EMERALD–2023–29. 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–EMERALD–2023–29 and should be 

submitted on or before January 2, 2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.34

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–27067 Filed 12–8–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–99081; File No. SR– 

NASDAQ–2023–045] 

Self-Regulatory Organizations; The 

Nasdaq Stock Market LLC; Notice of 

Filing of Proposed Rule Change To 

List and Trade Shares of the iShares 

Ethereum Trust Under Nasdaq Rule 

5711(d) (Commodity-Based Trust 

Shares) 

December 5, 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 

21, 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 a proposed 

rule change to list and trade shares of 

the iShares Ethereum Trust (the 

‘‘Trust’’) under Nasdaq Rule 5711(d) 

(‘‘Commodity-Based Trust Shares’’). The 

shares of the Trust are referred to herein 

as the ‘‘Shares.’’ 

The text of the proposed rule change 

is available on the Exchange’s website at 

https://listingcenter.nasdaq.com/ 

rulebook/nasdaq/rules, at the principal 

office of the Exchange, and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

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

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to list and 

trade the Shares under Nasdaq Rule 

5711(d),3 which governs the listing and 

trading of Commodity-Based Trust 

Shares on the Exchange. iShares 

Delaware Trust Sponsor LLC, a 

Delaware limited liability company and 

an indirect subsidiary of BlackRock, Inc. 

(‘‘BlackRock’’), is the sponsor of the 

Trust (the ‘‘Sponsor’’). The Shares will 


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4The descriptions of the Trust contained herein 

are based, in part, on information in the 

Registration Statement. The Registration Statement 

in not yet effective and the Shares will not trade 

on the Exchange until such time that the 

Registration Statement is effective. 

5A portion of the Trust’s ether holdings and cash 

holdings from time to time may be held with the 

Prime Broker, an affiliate of the Ether Custodian, in 

the Trading Balance, in connection with in-kind 

creations and redemptions of Baskets and the sale 

of ether to pay the Sponsor’s Fee and Trust 

expenses not assumed by the Sponsor. These 

periodic holdings held in the Trading Balance with 

the Prime Broker represent an omnibus claim on the 

Prime Broker’s ether held on behalf of clients; these 

holdings exist across a combination of omnibus hot 

wallets, omnibus cold wallets, or in accounts in the 

Prime Broker’s name on a trading venue (including 

third-party venues and the Prime Broker’s own 

execution venue) where the Prime Broker executes 

orders to buy and sell ether on behalf of its clients. 

6The term ‘‘cold storage’’ refers to a safeguarding 

method by which the private keys corresponding to 

ether stored on a digital wallet are removed from 

any computers actively connected to the internet. 

Cold storage of private keys may involve keeping 

such wallet on a non-networked computer or 

electronic device or storing the public key and 

private keys relating to the digital wallet on a 

storage device (for example, a USB thumb drive) or 

printed medium (for example, papyrus or paper) 

and deleting the digital wallet from all computers. 

be registered with the SEC by means of 

the Trust’s registration statement on 

Form S–1 (the ‘‘Registration 

Statement’’).4

Description of the Trust 

The Shares will be issued by the 

Trust, a Delaware statutory trust. The 

Trust will operate pursuant to a trust 

agreement (the ‘‘Trust Agreement’’) 

between the Sponsor, BlackRock Fund 

Advisors (the ‘‘Trustee’’) as the trustee 

of the Trust and will appoint a Delaware 

Trustee of the Trust (the ‘‘Delaware 

Trustee’’) by such time that the 

Registration Statement is effective. The 

Trust issues Shares representing 

fractional undivided beneficial interests 

in its net assets. The assets of the Trust 

consist primarily of ether held by a 

custodian on behalf of the Trust. 

Coinbase Custody Trust Company, LLC 

(the ‘‘Ether Custodian’’), is the 

custodian for the Trust’s ether holdings; 

and another entity will be the custodian 

for the Trust’s cash holdings (the ‘‘Cash 

Custodian’’ and together with the Ether 

Custodian, the ‘‘Custodians’’) and the 

administrator of the Trust (the ‘‘Trust 

Administrator’’). Under the Trust 

Agreement, the Trustee may delegate all 

or a portion of its duties to any agent, 

and has delegated the bulk of the dayto-day responsibilities to the Trust 

Administrator and certain other 

administrative and record-keeping 

functions to its affiliates and other 

agents. The Trust is not an investment 

company registered under the 

Investment Company Act of 1940, as 

amended (the ‘‘1940 Act’’). 

The investment objective of the Trust 

is to reflect generally the performance of 

the price of ether. The Trust seeks to 

reflect such performance before 

payment of the Trust’s expenses and 

liabilities. The Shares are intended to 

constitute a simple means of making an 

investment similar to an investment in 

ether rather than by acquiring, holding 

and trading ether directly on a peer-topeer or other basis or via a digital asset 

exchange. The Shares have been 

designed to remove the obstacles 

represented by the complexities and 

operational burdens involved in a direct 

investment in ether, while at the same 

time having an intrinsic value that 

reflects, at any given time, the 

investment exposure to the price of 

ether owned by the Trust at such time, 

less the Trust’s expenses and liabilities. 

Although the Shares are not the exact 

equivalent of a direct investment in 

ether, they provide investors with an 

alternative method of achieving 

investment exposure to the price of 

ether through the public securities 

market, which may be more familiar to 

them. 

Custody of the Trust’s Ether 

An investment in the Shares is backed 

by ether held by the Ether Custodian on 

behalf of the Trust. The Ether Custodian 

will keep custody of all of the Trust’s 

ether, other than that which is 

maintained in the Trading Balance with 

the Prime Broker, in accounts that are 

required to be segregated from the assets 

held by the Ether Custodian as principal 

and the assets of its other customers (the 

‘‘Vault Balance’’), with any remainder of 

the Vault Balance held as part of a ‘‘hot 

storage’’.5 The Ether Custodian will 

keep a substantial portion of the private 

keys associated with the Trust’s ether in 

‘‘cold storage’’ 6 (the ‘‘Cold Vault 

Balance’’) The hardware, software, 

systems, and procedures of the Ether 

Custodian may not be available or costeffective for many investors to access 

directly. 

Net Asset Value 

The net asset value of the Trust will 

be equal to the total assets of the Trust, 

including but not limited to, all ether 

and cash less total liabilities of the 

Trust, each determined by the Trustee 

pursuant to policies established from 

time to time by the Trustee or its 

affiliates or otherwise described herein. 

The methodology used to calculate an 

index (the ‘‘Index’’) price to value ether 

in determining the net asset value of the 

Trust may not be deemed consistent 

with U.S. generally accepted accounting 

principles (‘‘GAAP’’). 

The Sponsor has the exclusive 

authority to determine the Trust’s net 

asset value, which it has delegated to 

the Trustee under the Trust Agreement. 

The Trustee has delegated to the Trust 

Administrator the responsibility to 

calculate the net asset value of the Trust 

and the NAV, based on a pricing source 

selected by the Trustee. In determining 

the Trust’s net asset value, the Trust 

Administrator values the ether held by 

the Trust based on the Index, unless 

otherwise determined by the Sponsor in 

its sole discretion. The CME CF EtherDollar Reference Rate -New York 

Variant (the ‘‘CF Benchmarks Index’’) 

shall constitute the Index, unless the CF 

Benchmarks Index is not available or 

the Sponsor in its sole discretion 

determines not to use the CF 

Benchmarks Index as the Index. If the 

CF Benchmarks Index is not available or 

the Sponsor determines, in its sole 

discretion, that the CF Benchmarks 

Index should not be used, the Trust’s 

holdings may be fair valued in 

accordance with the policy approved by 

the Sponsor. 

The Trust’s periodic financial 

statements may not utilize net asset 

value or NAV to the extent the 

methodology used to calculate the Index 

is deemed not to be consistent with 

GAAP. For purposes of the Trust’s 

periodic financial statements, the Trust 

will utilize a pricing source that is 

consistent with GAAP, as of the 

financial statement measurement date. 

The Sponsor will determine in its sole 

discretion the valuation sources and 

policies used to prepare the Trust’s 

financial statements in accordance with 

GAAP. 

The Sponsor may declare a 

suspension of the calculation of the 

NAV of the Trust under certain 

circumstances. 

Net Asset Value 

On each Business Day, as soon as 

practicable after 4:00 p.m. Eastern Time 

(‘‘ET’’), the Trust Administrator 

evaluates the ether held by the Trust as 

reflected by the CF Benchmarks Index 

and determines the net asset value of 

the Trust and the NAV. For purposes of 

making these calculations, a Business 

Day means any day other than a day 

when Nasdaq is closed for regular 

trading. 

The CF Benchmarks Index employed 

by the Trust is calculated on each 

Business Day by aggregating the 

notional value of ether U.S. dollar 

trading activity across major ether spot 

platforms. The CF Benchmarks Index is 

designed and administered in 

accordance with IOSCO Principles for 

Financial Benchmarks. The 


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Federal Register / Vol. 88, No. 236 / Monday, December 11, 2023 / Notices 85947 

7A ‘‘Relevant Transaction’’ is any cryptocurrency 

versus U.S. dollar spot trade that occurs during the 

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

p.m. ET on a Constituent Exchange in the ETH/USD 

pair that is reported and disseminated by a 

Constituent Exchange through its publicly available 

API and observed by the Index Administrator. 

8The Trust issues and redeems Shares only in 

blocks of a certain specified size or integral 

multiples thereof. A block of Shares is called a 

‘‘Basket.’’ These transactions take place in exchange 

for ether. Baskets will be offered continuously at the 

net asset value per Share (‘‘NAV’’) for the Basket 

of Shares on the day that an order to create a Basket 

is accepted by the Trust. The Trust may change the 

number of Shares in a Basket. Only registered 

broker-dealers that become authorized participants 

by entering into a contract with the Sponsor and the 

Trustee (‘‘Authorized Participants’’) may purchase 

or redeem Baskets. Shares will be offered to the 

public from time to time at varying prices that will 

reflect the price of ether and the trading price of the 

Shares on Nasdaq at the time of the offer. 

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. 

Administrator of the CF Benchmarks 

Index is CF Benchmarks Ltd. (the 

‘‘Index Administrator’’). The CF 

Benchmarks Index serves as a once-aday benchmark rate of the U.S. dollar 

price of ether denominated in U.S. 

dollars (USD/ETH), calculated as of 4:00 

p.m. ET. The CF Benchmarks Index 

aggregates the trade flow of ether-U.S. 

dollar markets operated by several ether 

spot trading platforms, during an 

observation window between 3:00 p.m. 

and 4:00 p.m. ET into the U.S. dollar 

price of ether at 4:00 p.m. ET. 

Specifically, the CF Benchmarks Index 

is calculated based on the ‘‘Relevant 

Transactions’’ 7 of all spot trading 

platforms for ether-USD that meet the 

CME CF Constituent Exchange Criteria, 

which are currently: Bitstamp, 

Coinbase, Gemini, itBit, Kraken, and 

LMAX Digital (the ‘‘Constituent 

Exchanges’’), and which may change 

from time to time. Any changes to this 

composition of spot trading platforms 

are announced on the Administrator’s 

website (www.cfbenchmarks.com). 

If the CF Benchmarks Index is not 

available or the Sponsor determines, in 

its sole discretion, that the CF 

Benchmarks Index should not be used, 

the Trust’s holdings may be fair valued 

in accordance with the policy approved 

by the Sponsor. 

The Trust is intended to provide a 

way for Shareholders to obtain exposure 

to ether by investing in the Shares rather 

than by acquiring, holding and trading 

ether directly on a peer-to-peer or other 

basis or via a digital asset exchange. An 

investment in Shares of the Trust is not 

the same as an investment directly in 

ether on a peer-to-peer or other basis or 

via a digital asset exchange. 

Creation and Redemption of Shares 

The Trust issues and redeems baskets 

(‘‘Baskets’’) 8 on a continuous basis. 

Baskets are only issued or redeemed in 

exchange for an amount of ether 

determined by the Trustee on each day 

that Nasdaq is open for regular trading. 

No Shares are issued unless the Ether 

Custodian or Prime Broker has allocated 

to the Trust’s account the corresponding 

amount of ether. The amount of ether 

necessary for the creation of a Basket, or 

to be received upon redemption of a 

Basket, will decrease over the life of the 

Trust, due to the payment or accrual of 

fees and other expenses or liabilities 

payable by the Trust. Baskets may be 

created or redeemed only by Authorized 

Participants, who pay BlackRock 

Investments, LLC (‘‘BRIL’’), an affiliate 

of the Trustee that has been retained by 

the Trust to perform certain order 

processing, Authorized Participant 

communications, and related services in 

connection with the issuance and 

redemption of Baskets (‘‘ETF Services’’), 

a transaction fee for each order to create 

or redeem Baskets. 

Background 

Ethereum is free software that is 

hosted on computers distributed 

throughout the globe. It employs an 

array of computer code-based logic, 

called a protocol, to create a unified 

understanding of ownership, 

commercial activity, and economic 

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. 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 ether 

(‘‘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 

exchanges 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 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. 

Up to now, 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. 

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 cryptoasset 

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 30% loss due to 

the change in 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, 


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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 streetTRACKS Gold Shares, Exchange Act 

Release No. 50603 (Oct. 28, 2004), 69 FR 64614, 

64618–19 (Nov. 5, 2004) (SR–NYSE–2004–22) (the 

‘‘First Gold Approval Order’’); iShares COMEX 

Gold Trust, Exchange Act Release No. 51058 (Jan. 

19, 2005), 70 FR 3749, 3751, 3754–55 (Jan. 26, 2005) 

(SR–Amex–2004–38); iShares Silver Trust, 

Exchange Act Release No. 53521 (Mar. 20, 2006), 71 

FR 14967, 14968, 14973–74 (Mar. 24, 2006) (SR– 

Amex–2005–072); ETFS Gold Trust, Exchange Act 

Release No. 59895 (May 8, 2009), 74 FR 22993, 

22994–95, 22998, 23000 (May 15, 2009) (SR– 

NYSEArca–2009–40); ETFS Silver Trust, Exchange 

Act Release No. 59781 (Apr. 17, 2009), 74 FR 18771, 

18772, 18775–77 (Apr. 24, 2009) (SR–NYSEArca– 

2009–28); ETFS Palladium Trust, Exchange Act 

Release No. 61220 (Dec. 22, 2009), 74 FR 68895, 

68896 (Dec. 29, 2009) (SR–NYSEArca–2009–94) 

(notice of proposed rule change included NYSE 

Arca’s representation that ‘‘[t]he most significant 

palladium futures exchanges are the NYMEX and 

the Tokyo Commodity Exchange,’’ that ‘‘NYMEX is 

the largest exchange in the world for trading 

precious metals futures and options,’’ and that 

NYSE Arca ‘‘may obtain trading information via the 

Intermarket Surveillance Group,’’ of which NYMEX 

is a member, Exchange Act Release No. 60971 (Nov. 

9, 2009), 74 FR 59283, 59285–86, 59291 (Nov. 17, 

2009)); ETFS Platinum Trust, Exchange Act Release 

No. 61219 (Dec. 22, 2009), 74 FR 68886, 68887–88 

(Dec. 29, 2009) (SR–NYSEArca–2009–95) (notice of 

proposed rule change included NYSE Arca’s 

representation that ‘‘[t]he most significant platinum 

futures exchanges are the NYMEX and the Tokyo 

Commodity Exchange,’’ that ‘‘NYMEX is the largest 

exchange in the world for trading precious metals 

futures and options,’’ and that NYSE Arca ‘‘may 

obtain trading information via the Intermarket 

Surveillance Group,’’ of which NYMEX is a 

member, Exchange Act Release No. 60970 (Nov. 9, 

2009), 74 FR 59319, 59321, 59327 (Nov. 17, 2009)); 

Sprott Physical Gold Trust, Exchange Act Release 

No. 61496 (Feb. 4, 2010), 75 FR 6758, 6760 (Feb. 

10, 2010) (SR–NYSEArca–2009–113) (notice of 

proposed rule change included NYSE Arca’s 

representation that the COMEX is one of the ‘‘major 

world gold markets,’’ that NYSE Arca ‘‘may obtain 

trading information via the Intermarket 

Surveillance Group,’’ and that NYMEX, of which 

COMEX is a division, is a member of the 

Intermarket Surveillance Group, Exchange Act 

Release No. 61236 (Dec. 23, 2009), 75 FR 170, 171, 

174 (Jan. 4, 2010)); Sprott Physical Silver Trust, 

Exchange Act Release No. 63043 (Oct. 5, 2010), 75 

FR 62615, 62616, 62619, 62621 (Oct. 12, 2010) (SR– 

NYSEArca–2010–84); ETFS Precious Metals Basket 

Trust, Exchange Act Release No. 62692 (Aug. 11, 

2010), 75 FR 50789, 50790 (Aug. 17, 2010) (SR– 

NYSEArca–2010–56) (notice of proposed rule 

change included NYSE Arca’s representation that 

‘‘the most significant gold, silver, platinum and 

palladium futures exchanges are the COMEX and 

the TOCOM’’ and that NYSE Arca ‘‘may obtain 

trading information via the Intermarket 

Surveillance Group,’’ of which COMEX is a 

member, Exchange Act Release No. 62402 (Jun. 29, 

2010), 75 FR 39292, 39295, 39298 (July 8, 2010)); 

ETFS White Metals Basket Trust, Exchange Act 

Release No. 62875 (Sept. 9, 2010), 75 FR 56156, 

56158 (Sept. 15, 2010) (SR–NYSEArca–2010–71) 

(notice of proposed rule change included NYSE 

Arca’s representation that ‘‘the most significant 

silver, platinum and palladium futures exchanges 

are the COMEX and the TOCOM’’ and that NYSE 

Arca ‘‘may obtain trading information via the 

Intermarket Surveillance Group,’’ of which COMEX 

is a member, Exchange Act Release No. 62620 (July 

30, 2010), 75 FR 47655, 47657, 47660 (Aug. 6, 

2010)); ETFS Asian Gold Trust, Exchange Act 

Release No. 63464 (Dec. 8, 2010), 75 FR 77926, 

77928 (Dec. 14, 2010) (SR–NYSEArca–2010–95) 

(notice of proposed rule change included NYSE 

Arca’s representation that ‘‘the most significant gold 

futures exchanges are the COMEX and the Tokyo 

Commodity Exchange,’’ that ‘‘COMEX is the largest 

exchange in the world for trading precious metals 

futures and options,’’ and that NYSE Arca ‘‘may 

obtain trading information via the Intermarket 

Surveillance Group,’’ of which COMEX is a 

member, Exchange Act Release No. 63267 (Nov. 8, 

2010), 75 FR 69494, 69496, 69500–01 (Nov. 12, 

2010)); Sprott Physical Platinum and Palladium 

Trust, Exchange Act Release No. 68430 (Dec. 13, 

2012), 77 FR 75239, 75240–41 (Dec. 19, 2012) (SR– 

NYSEArca–2012–111) (notice of proposed rule 

change included NYSE Arca’s representation that 

‘‘[f]utures on platinum and palladium are traded on 

two major exchanges: The New York Mercantile 

Exchange . . . and Tokyo Commodities Exchange’’ 

and that NYSE Arca ‘‘may obtain trading 

information via the Intermarket Surveillance 

Group,’’ of which COMEX is a member, Exchange 

Act Release No. 68101 (Oct. 24, 2012), 77 FR 65732, 

65733, 65739 (Oct. 30, 2012)); APMEX Physical— 

1 oz. Gold Redeemable Trust, Exchange Act Release 

No. 66930 (May 7, 2012), 77 FR 27817, 27818 (May 

11, 2012) (SR–NYSEArca–2012–18) (notice of 

proposed rule change included NYSE Arca’s 

representation that NYSE Arca ‘‘may obtain trading 

information via the Intermarket Surveillance 

Group,’’ of which COMEX is a member, and that 

gold futures are traded on COMEX and the Tokyo 

Commodity Exchange, with a cross-reference to the 

proposed rule change to list and trade shares of the 

ETFS Gold Trust, in which NYSE Arca represented 

that COMEX is one of the ‘‘major world gold 

markets,’’ Exchange Act Release No. 66627 (Mar. 

20, 2012), 77 FR 17539, 17542–43, 17547 (Mar. 26, 

2012)); JPM XF Physical Copper Trust, Exchange 

Act Release No. 68440 (Dec. 14, 2012), 77 FR 75468, 

75469–70, 75472, 75485–86 (Dec. 20, 2012) (SR– 

NYSEArca–2012–28); iShares Copper Trust, 

Exchange Act Release No. 68973 (Feb. 22, 2013), 78 

FR 13726, 13727, 13729–30, 13739–40 (Feb. 28, 

2013) (SR–NYSEArca–2012–66); First Trust Gold 

Trust, Exchange Act Release No. 70195 (Aug. 14, 

2013), 78 FR 51239, 51240 (Aug. 20, 2013) (SR– 

NYSEArca–2013–61) (notice of proposed rule 

change included NYSE Arca’s representation that 

FINRA, on behalf of the exchange, may obtain 

trading information regarding gold futures and 

options on gold futures from members of the 

Intermarket Surveillance Group, including COMEX, 

or from markets ‘‘with which [NYSE Arca] has in 

place a comprehensive surveillance sharing 

agreement,’’ and that gold futures are traded on 

COMEX and the Tokyo Commodity Exchange, with 

a cross-reference to the proposed rule change to list 

and trade shares of the ETFS Gold Trust, in which 

NYSE Arca represented that COMEX is one of the 

‘‘major world gold markets,’’ Exchange Act Release 

No. 69847 (June 25, 2013), 78 FR 39399, 39400, 

39405 (July 1, 2013)); Merk Gold Trust, Exchange 

Act Release No. 71378 (Jan. 23, 2014), 79 FR 4786, 

4786–87 (Jan. 29, 2014) (SR–NYSEArca–2013–137) 

(notice of proposed rule change included NYSE 

Arca’s representation that ‘‘COMEX is the largest 

gold futures and options exchange’’ and that NYSE 

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 well-understood 

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 

cryptoasset 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 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 regulated 

futures market.15 Further to this point, 


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Federal Register / Vol. 88, No. 236 / Monday, December 11, 2023 / Notices 85949 

Arca ‘‘may obtain trading information via the 

Intermarket Surveillance Group,’’ including with 

respect to transactions occurring on COMEX 

pursuant to CME and NYMEX’s membership, or 

from exchanges ‘‘with which [NYSE Arca] has in 

place a comprehensive surveillance sharing 

agreement,’’ Exchange Act Release No. 71038 (Dec. 

11, 2013), 78 FR 76367, 76369, 76374 (Dec. 17, 

2013)); Long Dollar Gold Trust, Exchange Act 

Release No. 79518 (Dec. 9, 2016), 81 FR 90876, 

90881, 90886, 90888 (Dec. 15, 2016) (SR– 

NYSEArca–2016–84). 

16See Winklevoss Order at 37592. 

17See 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’’). 

18The proposed spot bitcoin funds are nearly 

identical to the Trust but proposed to hold bitcoin 

instead of ETH. 

19 Grayscale Investments, LLC v. Securities and 

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

‘‘Grayscale Order’’). 

20 Id. 

21These ETFs included the Bitwise Ethereum 

Strategy ETF, Bitwise Bitcoin & Ether Equal Weight 

Strategy ETF, Hashdex Ether Strategy ETF, 

ProShares Ether Strategy ETF, ProShares Bitcoin & 

Ether Strategy ETF, ProShares Bitcoin & Ether Equal 

Weight Strategy ETF, Valkyrie Bitcoin & Ethereum 

Strategy ETF, VanEck Ethereum Strategy ETF, and 

Volatility Shares Ethereum Strategy ETF 

(collectively, the ‘‘ETH Futures Approvals’’). 

22See, e.g., Chair Gary Gensler Public Statement, 

‘‘Remarks Before the Aspen Security Forum,’’ 

(August 3, 2021), stating that the Chair looked 

forward to the Commission’s review of Bitcoinbased ETF proposals registered under the 1940 Act, 

‘‘particularly if those are limited to [the] CMEtraded Bitcoin futures,’’ noting the ‘‘significant 

investor protection’’ offered by the 1940 Act, 

https://www.sec.gov/news/public-statement/ 

gensler-aspen-security-forum-2021-08-03; Securities 

Exchange Act Release No. 93559 (November 12, 

2021), 86 FR 64539 (November 18, 2021) (SR– 

CboeBZX–2021–019) (Order Disapproving a 

Proposed Rule Change to List and Trade Shares of 

the VanEck Bitcoin Trust under BZX Rule 

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

(‘‘VanEck Order’’) (denying the first spot bitcoin 

ETP registered under the 1933 Act following the 

first approval of a bitcoin futures ETF registered 

under the 1940 Act, noting the differences in the 

standard of review that applies to such products); 

Securities Exchange Act Release No. 94620 (April 

6, 2022), 87 FR 21676 (April 12, 2022) (SR– 

NYSEArca–2021–53) (Order Granting Approval of a 

Proposed Rule Change, as Modified by Amendment 

No. 2, to List and Trade Shares of the Teucrium 

Bitcoin Futures Fund under NYSE ARCA Rule 

8.200–E, Commentary .02 (Trust Issued Receipts)) 

(‘‘Teucrium Order’’) (approving the first bitcoin 

futures ETP registered under the 1933 Act, stating 

that ‘‘With respect to the proposed ETP, the 

underlying bitcoin assets are CME bitcoin futures 

contracts. The relevant analysis, therefore, is 

whether Arca has a comprehensive surveillance 

sharing agreement with a regulated market of 

significant size related to CME bitcoin futures 

contracts. As discussed below, taking into 

consideration the direct relationship between the 

regulated market with which Arca has a 

surveillance-sharing agreement and the assets held 

by the proposed ETP, as well as developments with 

respect to the CME bitcoin futures market— 

including the launch of exchange-traded funds 

registered under the Investment Company Act of 

1940 (‘‘1940 Act’’) that hold CME bitcoin futures 

(‘‘Bitcoin Futures ETFs’’)—the Commission 

concludes that the Exchange has the requisite 

surveillance-sharing agreement.’’). 

the Commission’s prior orders have 

noted that the spot commodities and 

currency markets for which it has 

previously approved spot exchange 

traded products (‘‘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 CommodityBased Trust Shares, including gold, 

silver, platinum, palladium, copper, and 

other commodities and currencies. The 

Commission specifically noted in the 

Winklevoss Order that the First Gold 

Approval Order ‘‘was based on an 

assumption that the currency market 

and the spot gold market were largely 

unregulated.’’ 16

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. With this in mind, the Bitcoin 

Futures market, as defined below, is the 

proper market to consider in 

determining whether there is a related 

regulated market of significant size. 

Further to this point, the Exchange 

notes that the Commission has approved 

proposals related to the listing and 

trading of funds that would primarily 

hold Bitcoin Futures that are registered 

under the Securities Act of 1933 (‘‘1933 

Act’’) instead of the 1940 Act.17 In the 

Teucrium Approval, the Commission 

found the Bitcoin Futures market to be 

a regulated market of significant size as 

it relates to Bitcoin Futures, which was 

inconsistent with prior disapproval 

orders for ETPs that would hold actual 

bitcoin instead of derivatives contracts 

(‘‘Spot Bitcoin ETPs’’) that use the same 

pricing methodology as the Bitcoin 

Futures. However, and as discussed 

below, in recent weeks the SEC has 

approved a number of ETH-based 

exchange-traded funds (‘‘ETFs’’) for 

trading. 

Meanwhile, the Commission has 

continued to disapprove proposals to 

list and trade Spot Bitcoin ETPs that 

would hold spot bitcoin on the 

seemingly conflicting basis that the 

CME Bitcoin Futures market is not a 

regulated market of significant size.18 In 

the recently decided Grayscale 

Investments, LLC v. Securities and 

Exchange Commission,19 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.20

As mentioned above, on October 2, 

2023 the SEC approved nine ETH-based 

ETFs for trading.21 The ETFs hold ETH 

futures contracts that trade on the CME 

and settle using the CME CF Ethereum 

Reference Rate (‘‘ERR’’), which is priced 

based on the spot ETH markets 

Coinbase, Kraken, LMAX, Bitstamp, 

Gemini, and itBit, essentially the same 

spot markets that are included in the 

Index that the Trust uses to value its 

ETH holdings. Given that the 

Commission has approved ETFs that 

offer exposure to ETH futures, which 

themselves are priced based on the 

underlying spot ETH market, the 

Sponsor believes that the Commission 

must also approve ETPs that offer 

exposure to spot ETH, like the Trust. 

In the context of other digital assetbased ETF and ETP proposals for 

Bitcoin, the SEC has sought to justify 

treating futures-based ETFs differently 

from spot-based ETFs because of (i) 

distinctions between the regulations 

under which the two products would be 

registered (under the 1940 Act for 

digital-asset futures ETFs and 1933 Act 

for spot digital-asset ETPs), and (ii) the 

existence of regulation and surveillancesharing over the CME digital-asset 

futures market through the Intermarket 

Surveillance Group (‘‘ISG’’), as 

compared to the spot market for those 

digital assets.22

While the 1940 Act has certain added 

investor protections that the 1933 Act 

does not require, these protections do 

not seek to allay harms arising from 

underlying assets or markets of assets 

that ETFs hold, such as the potential for 

fraud or manipulation in such markets. 

In other words, the Sponsor does not 

believe that the application of the 1940 

Act supports the purported 

justifications the Commission has made 

in denying other spot digital asset ETPs. 

Instead, the 1940 Act seeks to remedy 

certain abusive practices in the 

management of investment companies 

such as ETFs, and thus places certain 

restrictions on ETFs and ETF sponsors. 

The 1940 Act explicitly lists out the 

types of abuses it seeks to prevent, and 

places certain restrictions related to 


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85950 Federal Register / Vol. 88, No. 236 / Monday, December 11, 2023 / Notices 

23The 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. 

24Source: Bloomberg, BlackRock calculations. 

Data as of 10/18/2023 for period shown (2/8/2021 

to 9/30/2023). 

25Source: S&P Ethereum Index, S&P CME Ether 

Futures Index (Spot). 

26A 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. 

accounting, borrowing, custody, fees, 

and independent boards, among others. 

Notably, none of these restrictions 

address an ETF’s underlying assets, 

whether ETH futures or spot ETH, or the 

markets from which such assets’ pricing 

is derived, whether the CME ETH 

futures market or spot ETH markets. As 

a result, the Sponsor believes that the 

distinction between registration of ETH 

futures ETFs under the 1940 Act and the 

registration of spot ETH ETPs under the 

1933 Act is one without a difference in 

the context of ETH-based ETP 

proposals. 

As to (i) above, the Sponsor believes 

that because the CME ETH futures 

market is priced based on the 

underlying spot ETH market, any fraud 

or manipulation in the spot market 

would necessarily affect the price of 

ETH futures, thereby affecting the net 

asset value of an ETP holding spot ETH 

or an ETF holding ETH futures, as well 

as the price investors pay for such 

product’s shares. Accordingly, either 

CME surveillance can detect spotmarket fraud that affects both futures 

ETFs and spot ETPs, or that surveillance 

cannot do so for either type of product. 

Having approved ETH futures ETFs in 

part on the basis of such surveillance, 

the Commission has clearly determined 

that CME surveillance can detect spotmarket fraud that would affect spot 

ETPs, and the Sponsor thus believes 

that it must also approve spot ETH ETPs 

on that basis. 

In summary, 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. 

Additionally, the Sponsor believes 

that the distinctions between the 1940 

Act and the 1933 Act, and the 

surveillance-sharing available for the 

CME ETH futures market versus the spot 

ETH market, are not meaningful in the 

context of ETH-based ETF and ETP 

proposals, and that such reasoning 

cannot be a basis for the Commission 

treating ETH futures ETFs differently 

from spot ETH ETPs like the Trust. The 

Sponsor believes that the Commission’s 

approval of ETH futures ETFs means it 

must also approve spot ETH ETPs like 

the Trust. 

CME ETH Futures 

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.23

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 

78,571 CME ETH Futures contracts 

traded in September 2023 

(approximately $6.3 billion) compared 

to 163,114 ($11.9 billion) and 130,546 

($21.2 billion) contracts traded in 

September 2022, and September 2022 

respectively.24 The daily correlation 

between the spot ETH and the CME ETH 

Futures is 0.9993 from the period of 10/ 

13/22 through 10/13/23.25 The number 

of large open interest holders 26 and 

unique accounts trading CME ETH 

Futures have both increased, even in the 

face of heightened Ether price volatility. 

BILLING CODE 8011–01–P 


lotter on DSK11XQN23PROD with NOTICES1
27The Exchange believes that ETH is resistant to 

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 

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 

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 

cross-market pricing differences. 

arbitrageurs who are effectively eliminating any 

require overcoming the liquidity supply of such 

for manipulation on a trading platform would 

Manipulative Practices 

Preventing Fraudulent and 

BILLING CODE 8011–01–C 

In order for any proposed rule change 

from an exchange to be approved, the 

manipulative acts and practices;

designed to prevent fraudulent and 

national securities exchange’s rules are 

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, 

27 and 

protect investors and the public interest. 

proposal be designed, in general, to 

(ii) the requirement that an exchange 


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85952 Federal Register / Vol. 88, No. 236 / Monday, December 11, 2023 / Notices 

28As 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’’). 

29For a list of the current members and affiliate 

members of ISG, see https://www.isgportal.com/. 

30See Wilshire Phoenix Disapproval. 

31See 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. 

32Source: S&P Ethereum Index, S&P CME Ether 

Futures Index (Spot), S&P Bitcoin Index, and S&P 

CME Bitcoin Futures Index (Spot). 

33See Teucrium Approval at 21679. 

34See supra footnote 21. 

35This 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.’’ 

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 28 with a regulated 

market of significant size. Both the 

Exchange and CME are members of 

ISG.29 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.30

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.31

(A) Reasonable Likelihood That a 

Person Attempting To Manipulate the 

ETP Would Also Have To Trade on That 

Market To Manipulate the ETP 

In light of the similarly high 

correlation between spot ETH/CME ETH 

Futures and spot bitcoin/CME Bitcoin 

Futures (.998 vs. .999, respectively),32

applying the same rationale that the 

Commission applied to a Bitcoin 

Futures ETF in the Bitcoin Futures 

Approvals and the ETH Futures ETFs in 

the ETH 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.33

The assumptions from this statement 

are also true for CME ETH Futures, a 

number of which have recently been 

approved by the Commission.34 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. 

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 the 

Bitcoin Futures ETPs, the ETH 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 or spot 

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.35 The Sponsor 

notes that ETH total 24-hour spot 


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36Source: CoinGecko. 

37Source: CoinGecko, The Block, and BlackRock 

calculations. 

38This analysis is based on the following spot 

ether platforms: Coinbase, Binance US, Kraken, 

Bitstamp, Gemini, and itBit. 

trading volume has averaged $9.1B over 

the year ending October 16, 2023,36 with 

approximately $1.7B occurring on 

venues whose trades are included in the 

sponsor’s benchmark.37 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. 

SSA With Ether Spot Market 

The Exchange is also 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 8, 2023, the Exchange 

reached an agreement on terms with 

Coinbase, Inc. (‘‘Coinbase’’) to enter into 

a Surveillance-Sharing Agreement, and 

the associated term sheet became 

effective as of June 16, 2023. 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. Trading of ETH on Coinbase 

represents a significant portion of USbased ETH trading. The Sponsor has 

stated to the Exchange that, based on 

publicly available data reported by spot 

ether platforms active in the U.S. 

market, trading on Coinbase has 

represented approximately 66% of USdollar to ether trading on such U.S.- 

based platforms out of total YTD volume 

across these platforms of approximately 

U.S. $93 billion, as of October 16, 

2023.38

The Surveillance Sharing Agreement 

is expected to be a bilateral 

surveillance-sharing agreement between 

Nasdaq and Coinbase that is intended to 

supplement the Exchange’s market 

surveillance program. The Surveillance 

Sharing Agreement 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 ether 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 ether trading activity on 

the Coinbase exchange 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. 

Spot and Proxy Exposure to Ether 

Exposure to ether through an ETP also 

presents certain advantages for retail 

investors compared to buying spot ether 

directly. The most notable advantage 

from the Sponsor’s perspective is the 

elimination of the need for an 

individual retail investor to either 

manage their own private keys or to 

hold ether through a cryptocurrency 

exchange that lacks sufficient 

protections. Typically, retail exchanges 

hold most, if not all, retail investors’ 

ether in ‘‘hot’’ (internet connected) 

storage and do not make any 

commitments to indemnify retail 

investors or to observe any particular 

cybersecurity standard. Meanwhile, a 

retail investor holding spot ether 

directly in a self-hosted wallet may 

suffer from inexperience in private key 

management (e.g., insufficient password 

protection, lost key, etc.), which point of 

failure could cause them to lose some or 

all of their ether holdings. Thus, with 

respect to custody of the Trust’s ether 

assets, the Trust presents advantages 

from an investment protection 

standpoint for retail investors compared 

to owning spot ether directly or via a 

digital asset exchange. 

Availability of Information 

The website for the Trust, which will 

be publicly accessible at no charge, will 

contain the following information: (a) 

the prior business day’s NAV; (b) the 

prior business day’s Official Closing 

Price; (c) calculation of the premium or 

discount of such Official Closing Price 

against such NAV; (d) 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); (e) the 

prospectus; and (f) other applicable 

quantitative information. The Trust 

Administrator will also disseminate the 

Trust’s holdings on a daily basis on the 

Trust’s website. The price of ether will 

be made available by one or more major 

market data vendors, updated at least 

every 15 seconds during the Regular 

Market Session. Information about the 

CF Benchmarks Index, including key 

elements of how the CF Benchmarks 

Index is calculated, will be publicly 

available at https:// 


lotter on DSK11XQN23PROD with NOTICES1
85954 Federal Register / Vol. 88, No. 236 / Monday, December 11, 2023 / Notices 

www.cfbenchmarks.com/. Also, an 

estimated value that reflects an 

estimated intraday value of the Trust’s 

portfolio (the ‘‘Intraday Indicative 

Value’’ or ‘‘IIV’’), will be disseminated. 

One or more major market data 

vendors 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 Market Session 

(9:30 a.m. to 4:00 p.m. (ET)). The IIV 

will be calculated by using the prior 

day’s closing NAV per Share as a base 

and updating that value during the 

Exchange’s Regular Market Session to 

reflect changes in the value of the 

Trust’s NAV during the trading day. 

The IIV disseminated during the 

Exchange’s Regular Market Session 

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 Market Session by one or more 

major market data vendors. In addition, 

the IIV will be available through online 

information services. 

The NAV for the Trust will be 

calculated by the Trust 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’’). 

Initial and Continued Listing 

The Shares will be subject to Nasdaq 

Rule 5711(d)(vi), 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 will be made 

available to all market participants at 

the same time. Upon termination of the 

Trust, the Shares will be removed from 

listing. The Delaware Trustee, will be a 

trust company having substantial capital 

and surplus and the experience and 

facilities for handling corporate trust 

business, as required under Nasdaq Rule 

5711(d)(vi)(D) and no change will be 

made to the Delaware Trustee without 

prior notice to and approval of the 

Exchange. 

As required in Nasdaq Rule 

5711(d)(vii), 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 the 

underlying commodity, related futures 

or options on futures, or any other 

related derivatives, which the registered 

Market Maker may have or over which 

it may exercise investment discretion. 

No registered Market Maker in the 

Shares shall trade in the underlying 

commodity, related futures or options 

on futures, or any other related 

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 

Nasdaq Rule 5711(d). In addition to the 

existing obligations under Exchange 

rules regarding the production of books 

and records, the registered Market 

Maker in the Shares shall make 

available to the Exchange such books, 

records or other information pertaining 

to transactions by such entity or any 

limited partner, officer or approved 

person thereof, registered or nonregistered employee affiliated with such 

entity for its or their own accounts in 

the underlying commodity, related 

futures or options on futures, or any 

other related derivatives, as may be 

requested by the Exchange. 

Trading Rules 

The Exchange deems the Shares to be 

equity securities, thus rendering trading 

in the Shares subject to the Exchange’s 

existing rules governing the trading of 

equity securities. The Exchange will 

allow trading in the Shares from 4:00 

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

has appropriate rules to facilitate 

transactions in the Shares during all 

trading sessions. The Shares of the Trust 

will conform to the initial and 

continued listing criteria set forth in 

Nasdaq Rule 5711(d). 

Trading Halts 

With respect to trading halts, the 

Exchange may consider all relevant 

factors in exercising its discretion to 

halt or suspend trading in the Shares. 

The Exchange will halt trading in the 

Shares under the conditions specified in 

Nasdaq Rules 4120 and 4121, including 

without limitation the conditions 

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

the trading pauses under Nasdaq Rules 

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

Trading may be halted because of 

market conditions or for reasons that, in 

the view of the Exchange, make trading 

in the Shares inadvisable. These may 

include: (1) the extent to which trading 

is not occurring in the ether underlying 

the Shares; or (2) whether other unusual 

conditions or circumstances detrimental 

to the maintenance of a fair and orderly 

market are present. 

If the IIV or the value of the 

underlying futures contract is not being 

disseminated as required, the Exchange 

may halt trading during the day in 

which the interruption to the 

dissemination of the IIV or the value of 

the underlying futures contract occurs. 

If the interruption to the dissemination 

of the IIV or the value of the underlying 

ether persists past the trading day in 

which it occurred, the Exchange will 

halt trading no later than the beginning 

of the trading day following the 

interruption. 

In addition, if the Exchange becomes 

aware that the NAV with respect to the 

Shares is not disseminated to all market 

participants at the same time, it will halt 

trading in the Shares until such time as 

the NAV is available to all market 

participants. 

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 Shares on the Exchange will 

be subject to the Exchange’s 

surveillance procedures for derivative 

products. The Exchange will require the 

Trust to represent to the Exchange that 

it will advise the Exchange of any 

failure by the Trust 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 is not in compliance with 

the applicable listing requirements, the 

Exchange will commence delisting 

procedures under the Nasdaq 5800 

Series. In addition, the Exchange also 

has a general policy prohibiting the 

distribution of material, non-public 

information by its employees. 

Additionally, on June 8, 2023, the 

Exchange reached an agreement on 

terms with Coinbase to enter into a 

Surveillance Sharing Agreement, and 

the associated term sheet became 

effective as of June 16, 2023. 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. Trading of ether on Coinbase 

represents a significant portion of USbased ether trading. The Sponsor has 

stated to the Exchange that, based on 

publicly available data reported by spot 

ether platforms active in the U.S. 

market, trading on Coinbase has 

represented approximately 66% of USdollar to ETH trading on such U.S.- 

based platforms out of total YTD volume 


lotter on DSK11XQN23PROD with NOTICES1
Federal Register / Vol. 88, No. 236 / Monday, December 11, 2023 / Notices 85955 

39This analysis is based on the following spot 

ether platforms: Coinbase, Binance US, Kraken, 

Bitstamp, Gemini, and itBit. 

40 15 U.S.C. 78f. 

41 15 U.S.C. 78f(b)(5). 

42See Exchange Rule 5720. 

43Commodity-Based Trust Shares, as described in 

Exchange Rule 5711(d), are a type of Trust Issued 

Receipt. 

44For a list of the current members and affiliate 

members of ISG, see https://www.isgportal.com/. 

45See Wilshire Phoenix Disapproval. 

46See 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. 

47Source: S&P Ethereum Index, S&P CME Ether 

Futures Index (Spot), S&P Bitcoin Index, and S&P 

CME Bitcoin Futures Index (Spot). 

across these platforms of approximately 

U.S. $93 billion, as of October 16, 

2023.39

The Surveillance Sharing Agreement 

is expected to be a bilateral 

surveillance-sharing agreement between 

Nasdaq and Coinbase that is intended to 

supplement the Exchange’s market 

surveillance program. The Surveillance 

Sharing Agreement 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 ether 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 ether trading activity on 

the Coinbase exchange 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. 

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: (1) the 

procedures for purchases and 

redemptions of Shares in Creation Units 

(and that Shares are not individually 

redeemable); (2) Section 10 of Nasdaq 

General Rule 9, which imposes 

suitability obligations on Nasdaq 

members with respect to recommending 

transactions in the Shares to customers; 

(3) how information regarding the IIV is 

disseminated; (4) the risks involved in 

trading the Shares during the PreMarket and Post Market Sessions when 

an updated IIV will not be calculated or 

publicly disseminated; (5) the 

requirement that members deliver a 

prospectus to investors purchasing 

newly issued Shares prior to or 

concurrently with the confirmation of a 

transaction; and (6) trading information. 

The Information Circular will also 

discuss any exemptive, no action and 

interpretive relief granted by the 

Commission from any rules under the 

Act. 

Additionally, the Information Circular 

will reference that the Trust is subject 

to various fees and expenses described 

in the Draft Registration Statement. The 

Information Circular will also disclose 

the trading hours of the Shares. The 

Information Circular will disclose that 

information about the Shares will be 

publicly available on the Trust’s 

website. 

2. Statutory Basis 

The Exchange believes that the 

proposal is consistent with section 6(b) 

of the Act 40 in general and section 

6(b)(5) of the Act 41 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,42 including Commodity-Based 

Trust Shares,43 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; 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 because 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. 

Designed To Prevent Fraudulent and 

Manipulative Acts and Practices 

In order for a proposal to list and 

trade a series of Commodity-Based Trust 

Shares to be deemed consistent with the 

Act, 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.44 As such, the only remaining issue 

to be addressed is whether the ETH 

Futures market constitutes a market of 

significant size, which the Exchange 

and the Sponsor believes 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.45

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.46

(a) Reasonable Likelihood That a Person 

Attempting To Manipulate the ETP 

Would Also Have To Trade on That 

Market To Manipulate 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),47


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48See Teucrium Approval at 21679. 

49This 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.’’ 

50Source: CoinGecko. 

51Source: CoinGecko, The Block, and BlackRock 

calculations. 

52This analysis is based on the following spot 

ether platforms: Coinbase, Binance US, Kraken, 

Bitstamp, Gemini, and itBit. 

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.48

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. 

As such, the Exchange believes that 

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 CME ETH Futures market or spot 

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.49 The Sponsor 

notes that ETH total 24-hour spot 

trading volume has averaged $9.1B over 

the year ending October 16, 2023,50 with 

approximately $1.7B occurring on 

venues whose trades are included in the 

sponsor’s benchmark.51 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. 

Surveillance Sharing Agreement With 

Ether Spot Market 

The Exchange is also 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 8, 2023 the Exchange reached 

an agreement on terms with Coinbase, to 

enter into a Surveillance-Sharing 

Agreement, and the associated term 

sheet became effective as of June 16, 

2023. 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 CommodityBased Trust Shares. Trading of ETH on 

Coinbase represents a significant 

portion of US-based ETH trading. The 

Sponsor has stated to the Exchange that, 

based on publicly available data 

reported by spot ether platforms active 

in the U.S. market, trading on Coinbase 

has represented approximately 66% of 

US-dollar to ether trading on such U.S.- 

based platforms out of total YTD volume 

across these platforms of approximately 

U.S. $93 billion, as of October 16, 

2023.52

The Surveillance Sharing Agreement 

is expected to be a bilateral 

surveillance-sharing agreement between 

Nasdaq and Coinbase that is intended to 

supplement the Exchange’s market 

surveillance program. The Surveillance 

Sharing Agreement 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 ether 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 ether trading activity on 

the Coinbase exchange 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. 


lotter on DSK11XQN23PROD with NOTICES1
Federal Register / Vol. 88, No. 236 / Monday, December 11, 2023 / Notices 85957 

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— 

Nasdaq Rule 5711(d) 

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 Nasdaq Rule 5711(d). 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 the Nasdaq 5800 

Series. 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 CF Benchmarks 

Index, the Trust will provide 

information regarding the Trust’s ETH 

holdings as well as additional data 

regarding the Trust. 

The website for the Trust, which will 

be publicly accessible at no charge, will 

contain the following information: (a) 

the prior business day’s NAV; (b) the 

prior business day’s Official Closing 

Price; (c) calculation of the premium or 

discount of such Official Closing Price 

against such NAV; (d) 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); (e) the 

prospectus; and (f) other applicable 

quantitative information. The Trust 

Administrator will also disseminate the 

Trust’s holdings on a daily basis on the 

Trust’s website. The price of ether will 

be made available by one or more major 

market data vendors, updated at least 

every 15 seconds during the Regular 

Market Session. Information about the 

CF Benchmarks Index, including key 

elements of how the CF Benchmarks 

Index is calculated, will be publicly 

available at https:// 

www.cfbenchmarks.com/. Also, an 

estimated value that reflects an 

estimated IIV, will be disseminated. 

One or more major market data 

vendors 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 Market Session 

(9:30 a.m. to 4:00 p.m. (ET)). The IIV 

will be calculated by using the prior 

day’s closing NAV per Share as a base 

and updating that value during the 

Exchange’s Regular Market Session to 

reflect changes in the value of the 

Trust’s NAV during the trading day. 

The IIV disseminated during the 

Exchange’s Regular Market Session 

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 Market Session by one or more 

major market data vendors. In addition, 

the IIV will be available through online 

information services. 

The NAV for the Trust will be 

calculated by the Trust 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 ether is widely disseminated through 

a variety of major market data vendors, 

including Bloomberg and Reuters, as 

well as CF Benchmarks. Information 

relating to trading, including price and 

volume information, in ETH is available 

from major market data vendors and 

from the exchanges on which ETH is 

traded. Depth of book information is 

also available from ETH exchanges. The 

normal trading hours for ETH exchanges 

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 e 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 additional exchange-traded 

product that will enhance competition 

among both market participants and 

listing venues, to the benefit of investors 

and the marketplace. 


lotter on DSK11XQN23PROD with NOTICES1
85958 Federal Register / Vol. 88, No. 236 / Monday, December 11, 2023 / Notices 

53 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 98585 

(September 28, 2023), 88 FR 68692 (October 4, 

2023) (‘‘Notice’’). 

4 15 U.S.C. 78s(b)(3)(A). A proposed rule change 

may take effect upon filing with the Commission if 

it is designated by the exchange as ‘‘establishing or 

changing a due, fee, or other charge imposed by the 

self-regulatory organization on any person, whether 

or not the person is a member of the self-regulatory 

organization.’’ 15 U.S.C. 78s(b)(3)(A)(ii). 

5See Notice, supra note 3. 

6See Securities Exchange Act Release No. 99017, 

88 FR 83590 (November 30, 2023). 

7 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3The proposed fee change is based on a recent 

proposal by Nasdaq Phlx LLC (‘‘Phlx’’) to adopt fees 

for purge ports. See Securities Exchange Act 

Release No. 97825 (June 30, 2023), 88 FR 43405 

(July 7, 2023) (SR–Phlx–2023–28). 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were either 

solicited or received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the Exchange consents, the Commission 

shall: (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– 

NASDAQ–2023–045 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to file 

number SR–NASDAQ–2023–045. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

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

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

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

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–NASDAQ–2023–045 and should be 

submitted on or before January 2, 2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.53

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–27062 Filed 12–8–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–99095; File No. SR–MEMX– 

2023–25] 

Self-Regulatory Organizations; MEMX 

LLC; Notice of Withdrawal of a 

Proposed Rule Change To Amend the 

Exchange’s Fee Schedule To Establish 

an Options Regulatory Fee 

December 6, 2023. 

On September 27, 2023, MEMX LLC 

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

the Securities and Exchange 

Commission (the ‘‘Commission’’), 

pursuant to section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

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

proposed rule change (File No. SR– 

MEMX–2023–25) to establish an 

Options Regulatory Fee.3 The proposed 

rule change was immediately effective 

upon filing with the Commission 

pursuant to section 19(b)(3)(A) of the 

Act.4 The proposed rule change was 

published for comment in the Federal 

Register on October 4, 2023.5 On 

November 24, 2023, pursuant to section 

19(b)(3)(C) of the Act, the Commission 

temporarily suspended the proposed 

rule change and instituted proceedings 

under section 19(b)(2)(B) of the Act to 

determine whether to approve or 

disapprove the proposed rule change.6

On December 1, 2023, the Exchange 

withdrew the proposed rule change 

(SR–MEMX–2023–25). 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.7

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–27165 Filed 12–8–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–99088; File No. SR–MIAX– 

2023–43] 

Self-Regulatory Organizations; Miami 

International Securities Exchange, 

LLC; Notice of Filing and Immediate 

Effectiveness of a Proposed Rule 

Change To Amend the Fee Schedule 

for Purge Ports 

December 5, 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 

22, 2023, Miami International Securities 

Exchange, LLC (‘‘MIAX’’ or ‘‘Exchange’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been prepared by the 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 amend the 

MIAX Options Exchange Fee Schedule 

(the ‘‘Fee Schedule’’) to amend fees for 

Purge Ports.3

The text of the proposed rule change 

is available on the Exchange’s website at 

https://www.miaxglobal.com/markets/ 

us-options/miax-options/rule-filings, at 


lotter on DSK11XQN23PROD with NOTICES1