2372 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

116 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. 98562 

(Sept. 27, 2023), 88 FR 68240. Comments on the 

proposed rule change are available at: https://

www.sec.gov/comments/sr-cboebzx-2023-072/ 

srcboebzx2023072.htm. 

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

5See Securities Exchange Act Release No. 98945, 

88 FR 81150 (Nov. 21, 2023). 

6See Securities Exchange Act Release No. 99030, 

88 FR 84004 (Dec. 1, 2023). 

a daily basis that could potentially be 

eliminated through access to a Spot 

Bitcoin ETP. As such, the Exchange 

believes that this proposal acts to limit 

the risk to U.S. investors that are 

increasingly seeking exposure to bitcoin 

by providing direct, 1-for-1 exposure to 

bitcoin in a regulated, transparent, 

exchange-traded vehicle, specifically by: 

(i) reducing premium volatility; (ii) 

reducing management fees through 

meaningful competition; (iii) providing 

an alternative to Bitcoin Futures ETFs 

which will eliminate roll cost; (iv) 

reducing risks associated with investing 

in operating companies that are 

imperfect proxies for bitcoin exposure; 

and (v) providing an alternative to 

custodying spot bitcoin. Finally, the 

Exchange notes that in addition to all of 

the arguments herein which it believes 

sufficiently establishes the CME Bitcoin 

Futures market as a regulated market of 

significant size, it is logically 

inconsistent to find that the CME 

Bitcoin Futures market is a significant 

market as it relates to the CME Bitcoin 

Futures market, but not a significant 

market as it relates to the bitcoin spot 

market for the numerous reasons laid 

out above. 

For the above reasons, the Exchange 

believes that the proposed rule change 

is consistent with the requirements of 

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

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purpose of the Act. The Exchange 

notes that the proposed rule change, 

rather will facilitate the listing and 

trading of an additional ETP that will 

enhance competition among both 

market participants and listing venues, 

to the benefit of investors and the 

marketplace. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange neither solicited nor 

received comments on the proposed 

rule change. 

III. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

CboeBZX–2023–044 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to file 

number SR–CboeBZX–2023–044. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

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

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

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

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–CboeBZX–2023–044 and should be 

submitted on or before February 2, 2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.116

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–00506 Filed 1–11–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–99286; File No. SR– 

CboeBZX–2023–072] 

Self-Regulatory Organizations; Cboe 

BZX Exchange, Inc.; Notice of Filing of 

Amendment No. 1 to a Proposed Rule 

Change To List and Trade Shares of 

the Franklin Bitcoin ETF Under BZX 

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

Trust Shares 

January 8, 2024. 

On September 26, 2023, Cboe BZX 

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

filed with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

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

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

19b–4 thereunder,2 a proposed rule 

change to list and trade shares 

(‘‘Shares’’) of the Franklin Bitcoin ETF 

under BZX Rule 14.11(e)(4), 

Commodity-Based Trust Shares. The 

proposed rule change was published for 

comment in the Federal Register on 

October 3, 2023.3 On November 15, 

2023, pursuant to section 19(b)(2) of the 

Act,4 the Commission designated a 

longer period within which to approve 

the proposed rule change, disapprove 

the proposed rule change, or institute 

proceedings to determine whether to 

disapprove the proposed rule change.5

On November 28, 2023, the Commission 

instituted proceedings to determine 

whether to disapprove the proposed 

rule change.6 On January 5, 2024, the 

Exchange filed Amendment No. 1 to the 

proposed rule change as described in 

Items I and II below, which Items have 

been prepared by the Exchange. 

Amendment No. 1 amended and 

replaced the proposed rule change in its 

entirety. The Commission is publishing 

this notice to solicit comments on the 

proposed rule change, as modified by 

Amendment No. 1, from interested 

persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

Cboe BZX Exchange, Inc. (‘‘BZX’’ or 

the ‘‘Exchange’’) is filing with the 

Securities and Exchange Commission 


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Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2373 

7The Trust was formed as a Delaware statutory 

trust on September 6, 2023. The Fund is operated 

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

Trust and Fund have no fixed termination date. 

8The Commission approved BZX Rule 14.11(e)(4) 

in Securities Exchange Act Release No. 65225 

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

(SR–BATS–2011–018). 

9Any of the statements or representations 

regarding the index composition, the description of 

the portfolio or reference assets, limitations on 

portfolio holdings or reference assets, dissemination 

and availability of index, reference asset, and 

intraday indicative values, or the applicability of 

Exchange listing rules specified in this filing to list 

a series of Other Securities (collectively, 

‘‘Continued Listing Representations’’) shall 

constitute continued listing requirements for the 

Shares listed on the Exchange. 

10See Pre-Effective Amendment No. 2 to Form S– 

1 Registration Statement filed on December 29, 

2023 (Registration No. 333–274474). The 

Registration Statement is not yet effective, and the 

Shares will not trade on the Exchange until such 

time that the Registration Statement is effective. 

11See Exchange Rule 14.11(f)(1). 

12See 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’’). 

13See 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 

Continued 

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

rule change to list and trade shares of 

the Franklin Bitcoin ETF (the ‘‘Fund’’), 

a series of Franklin Templeton Digital 

Holdings Trust (the ‘‘Trust’’),7 under 

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

Trust Shares. 

The text of the proposed rule change 

is also available on the Exchange’s 

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

equities/regulation/rule_filings/bzx/), at 

the Exchange’s Office of the Secretary, 

and at the Commission’s Public 

Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

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 

This Amendment No. 1 to SR– 

CboeBZX–2023–072 amends and 

replaces in its entirety the proposal as 

originally submitted on September 26, 

2023. The Exchange submits this 

Amendment No. 1 in order to clarify 

certain points and add additional details 

to the proposal. 

The Exchange proposes to list and 

trade the Shares under BZX Rule 

14.11(e)(4),8 which governs the listing 

and trading of Commodity-Based Trust 

Shares on the Exchange.9 Franklin 

Holdings, LLC is the sponsor of the 

Fund (‘‘Sponsor’’). The Shares will be 

registered with the Commission by 

means of the Trust’s registration 

statement on Form S–1 (the 

‘‘Registration Statement’’).10 Coinbase 

Custody Trust Company, LLC (the 

‘‘bitcoin Custodian’’), which is a thirdparty U.S.-based trust company and 

qualified custodian, will be responsible 

for custody of the Fund’s bitcoin 

holdings and Bank of New York Mellon 

will be the custodian for the Fund’s 

cash holdings, if any (the ‘‘Cash 

Custodian’’ and together with the 

bitcoin Custodian, the ‘‘Custodians’’). 

As further discussed below, the 

Commission has historically approved 

or disapproved exchange filings to list 

and trade series of Trust Issued 

Receipts,11 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.12 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.13


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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 

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). 

14See Exchange Rule 14.11(e)(5). 

15See Winklevoss Order at 37592. 

16See 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’’). 

17 Grayscale Investments, LLC v. Securities and 

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

‘‘Grayscale Order’’). 

18 Id. 

19See Winklevoss Order. 20 Digital assets that are securities under U.S. law 

are referred to throughout this proposal as ‘‘digital 

asset securities.’’ All other digital assets, including 

bitcoin, are referred to interchangeably as 

‘‘cryptocurrencies’’ or ‘‘virtual currencies.’’ The 

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 

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 14

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 First Gold 

Approval Order ‘‘was based on an 

assumption that the currency market 

and the spot gold market were largely 

unregulated.’’ 15

As such, the regulated market of 

significant size test does not require that 

the spot bitcoin 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 Chicago 

Mercantile Exchange (‘‘CME’’) bitcoin 

futures (‘‘Bitcoin Futures’’) market 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 CME Bitcoin Futures that are 

registered under the Securities Act of 

1933.16 In the Teucrium Approval, the 

Commission found the CME Bitcoin 

Futures market to be a regulated market 

of significant size as it relates to CME 

Bitcoin Futures; a position that 

represents a departure from prior 

disapproval orders for ETPs that would 

hold actual bitcoin instead of 

derivatives contracts (‘‘Spot Bitcoin 

ETPs’’) that use the exact same pricing 

methodology as the CME Bitcoin 

Futures. In the recently decided 

Grayscale Investments, LLC v Securities 

and Exchange Commission,17 however, 

the court addressed this conflict by 

finding that the SEC had failed to 

provide a coherent explanation as to 

why it had approved the Bitcoin Futures 

ETPs while disapproving the proposal 

to list and trade shares of the Grayscale 

Bitcoin Trust and vacating the 

disapproval order.18 As further 

discussed below, both the Exchange and 

the Sponsor believe that this proposal 

and the included analysis are sufficient 

to establish that the CME Bitcoin 

Futures market represents a regulated 

market of significant size as it relates 

both to the CME Bitcoin Futures market 

and to the spot bitcoin market and that 

this proposal should be approved, 

consistent with the Teucrium precedent 

and in view of the court’s findings 

relating to the Grayscale Order. 

Finally, as discussed in greater detail 

below, by using professional custodians 

and other service providers, the Fund 

provides investors interested in 

exposure to bitcoin via the securities 

markets with important protections that 

are not always available to investors that 

invest directly in bitcoin, including 

protection against counterparty 

insolvency, cyber attacks, and other 

risks. For example, an exchange-traded 

vehicle such as the Fund, which will be 

subject to the registration and periodic 

reporting requirements of the 1933 Act 

and the Exchange Act, would offer U.S. 

investors an alternative to directing 

their bitcoin investments into loosely 

regulated offshore vehicles (including 

loosely regulated centralized trading 

platforms that have since faced 

bankruptcy proceedings or other 

insolvencies). 

Background 

Bitcoin is a digital asset based on the 

decentralized, open source protocol of 

the peer-to-peer computer network 

launched in 2009 that governs the 

creation, movement, and ownership of 

bitcoin and hosts the public ledger, or 

‘‘blockchain,’’ on which all bitcoin 

transactions are recorded (the ‘‘Bitcoin 

Network’’ or ‘‘Bitcoin’’). The 

decentralized nature of the Bitcoin 

Network allows parties to transact 

directly with one another based on 

cryptographic proof instead of relying 

on a trusted third party. The protocol 

also lays out the rate of issuance of new 

bitcoin within the Bitcoin Network, a 

rate that is reduced by half 

approximately every four years with an 

eventual hard cap of 21 million. It’s 

generally understood that the 

combination of these two features—a 

systemic hard cap of 21 million bitcoin 

and the ability to transact trustlessly 

with anyone connected to the Bitcoin 

Network—gives bitcoin its value. The 

first rule filing proposing to list an ETP 

to provide exposure to bitcoin in the 

U.S. was submitted by the Exchange on 

June 30, 2016.19 At that time, 

blockchain technology, and digital 

assets that utilized it, were relatively 

new to the broader public. The market 

capitalization of all bitcoin in existence 

at that time was approximately $10 

billion. No registered offering of digital 

asset securities or shares in an 

investment vehicle with exposure to 

bitcoin or any other cryptocurrency had 

yet been conducted, and the regulated 

infrastructure for conducting a digital 

asset securities offering had not begun 

to develop.20 Similarly, regulated U.S. 


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term ‘‘digital assets’’ refers to all digital assets, 

including both digital asset securities and 

cryptocurrencies, together. 

21See ‘‘In the Matter of Coinflip, Inc.’’ 

(‘‘Coinflip’’) (CFTC Docket 15–29 (September 17, 

2015)) (order instituting proceedings pursuant to 

sections 6(c) and 6(d) of the CEA, making findings 

and imposing remedial sanctions), in which the 

CFTC stated: ‘‘Section 1a(9) of the CEA defines 

‘commodity’ to include, among other things, ‘all 

services, rights, and interests in which contracts for 

future delivery are presently or in the future dealt 

in.’ 7 U.S.C. 1a(9). The definition of a ‘commodity’ 

is broad. See, e.g., Board of Trade of City of Chicago 

v. SEC, 677 F. 2d 1137, 1142 (7th Cir. 1982). Bitcoin 

and other virtual currencies are encompassed in the 

definition and properly defined as commodities.’’ 

22A list of virtual currency businesses that are 

entities regulated by the NYDFS is available on the 

NYDFS website. See https://www.dfs.ny.gov/apps_

and_licensing/virtual_currency_businesses/ 

regulated_entities. 

23 Data as of March 31, 2016 according to publicly 

available filings. See Bitcoin Investment Trust Form 

S–1, dated May 27, 2016, available: https://

www.sec.gov/Archives/edgar/data/1588489/ 

000095012316017801/filename1.htm. 

24See letter from Dalia Blass, Director, Division 

of Investment Management, U.S. Securities and 

Exchange Commission to Paul Schott Stevens, 

President & CEO, Investment Company Institute 

and Timothy W. Cameron, Asset Management 

Group—Head, Securities Industry and Financial 

Markets Association (January 18, 2018), available at 

https://www.sec.gov/divisions/investment/ 

noaction/2018/cryptocurrency-011818.htm. 

25See Prospectus supplement filed pursuant to 

Rule 424(b)(1) for INX Tokens (Registration No. 

333–233363), available at: https://www.sec.gov/ 

Archives/edgar/data/1725882/ 

000121390020023202/ea125858-424b1_

inxlimited.htm. 

26See Prospectus filed by Stone Ridge Trust VI 

on behalf of NYDIG Bitcoin Strategy Fund 

Registration, available at: https://www.sec.gov/ 

Archives/edgar/data/1764894/ 

000119312519309942/d693146d497.htm. 

27See Investment Advisers Act Release No. 6240 

88 FR 14672 (March 9, 2023) (Safeguarding 

Advisory Client Assets). 

28See Securities Exchange Act Release No. 90788, 

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

25–20) (Custody of Digital Asset Securities by 

Special Purpose Broker-Dealers). 

29See letter from Elizabeth Baird, Deputy 

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

Securities and Exchange Commission to Kris 

Dailey, Vice President, Risk Oversight & 

Operational Regulation, Financial Industry 

Regulatory Authority (September 25, 2020), 

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

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

30See letter from Jeffrey S. Mooney, Associate 

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

Securities and Exchange Commission to Charles G. 

Cascarilla & Daniel M. Burstein, Paxos Trust 

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

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

17a.pdf. 

31See, e.g., Form TA–1/A filed by Tokensoft 

Transfer Agent LLC (CIK: 0001794142) on January 

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

edgar/data/1794142/000179414219000001/ 

xslFTA1X01/primary_doc.xml. 

32As of December 1, 2021, the total market 

capitalization of all bitcoin in circulation was 

approximately $1.08 trillion. 

33 Data sourced from the CME Bitcoin Futures 

Report: 30 March 2023, available at: https://www.

cmegroup.com/markets/cryptocurrencies/bitcoin/ 

bitcoin.volume.htm. 

34See, e.g., Id. 

35The CFTC’s annual report for Fiscal Year 2022 

(which ended on September 30, 2022) noted that 

the CFTC completed the fiscal year with 18 

enforcement filings related to digital assets. ‘‘Digital 

asset actions included manipulation, a $1.7 billion 

fraudulent scheme, and a decentralized 

autonomous organization (DAO) failing to register 

as a SEF or FCM or to seek DCM designation.’’ See 

CFTC FY 2022 Agency Financial Report, available 

at: https://www.cftc.gov/media/7941/2022afr/ 

download. Additionally, the CFTC filed on March 

27, 2023, a civil enforcement action against the 

owner/operators of the Binance centralized digital 

asset trading platform, which is one of the largest 

bitcoin derivative exchanges. See CFTC Release No. 

8680–23 (March 27, 2023), available at: https://

www.cftc.gov/PressRoom/PressReleases/8680-23. 

36See https://www.dfs.ny.gov/virtual_currency_

businesses. 

37See U.S. Department of the Treasury 

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

Settlement with BitGo, Inc. for Apparent Violations 

of Multiple Sanctions Programs Related to Digital 

Continued 

Bitcoin Futures contracts did not exist. 

The CFTC had determined that bitcoin 

is a commodity,21 but had not engaged 

in significant enforcement actions in the 

space. The New York Department of 

Financial Services (‘‘NYDFS’’) adopted 

its final ‘‘BitLicense’’ regulatory 

framework in 2015, but had only 

approved four entities to engage in 

activities relating to virtual currencies 

(whether through granting a BitLicense 

or a limited-purpose trust charter) as of 

June 30, 2016.22 While the first over-thecounter bitcoin fund launched in 2013, 

public trading was limited and the fund 

had only $60 million in assets.23 There 

were very few, if any, traditional 

financial institutions engaged in the 

space, whether through investment or 

providing services to digital asset 

companies. In January 2018, the staff of 

the Commission noted in a letter to the 

Investment Company Institute (‘‘ICI’’) 

and Securities Industry and Financial 

Markets Association (‘‘SIFMA’’) that it 

was not aware, at that time, of a single 

custodian providing fund custodial 

services for digital assets.24 The digital 

assets financial ecosystem, including 

bitcoin, has progressed significantly in 

the intervening years. The development 

of a regulated market for digital asset 

securities has significantly evolved, 

with market participants having 

conducted registered public offerings of 

both digital asset securities 25 and shares 

in investment vehicles holding Bitcoin 

Futures.26 Additionally, licensed and 

regulated service providers have 

emerged to provide fund custodial 

services for digital assets, among other 

services, including the bitcoin 

Custodian. For example, in February 

2023, the Commission proposed to 

amend Rule 206(4)–2 under the 

Advisers Act of 1940 (the ‘‘custody 

rule’’) to expand the scope beyond 

client funds and securities to include all 

crypto assets, among other assets; 27 in 

May 2021, the staff of the Commission 

released a statement permitting openend mutual funds to invest in cashsettled Bitcoin Futures; in December 

2020, the Commission adopted a 

conditional no-action position 

permitting certain special purpose 

broker-dealers to custody digital asset 

securities under Rule 15c3–3 under the 

Exchange Act (the ‘‘Custody 

Statement’’); 28 in September 2020, the 

staff of the Commission released a noaction letter permitting certain brokerdealers to operate a non-custodial 

Alternative Trading System (‘‘ATS’’) for 

digital asset securities, subject to 

specified conditions; 29 in October 2019, 

the staff of the Commission granted 

temporary relief from the clearing 

agency registration requirement to an 

entity seeking to establish a securities 

clearance and settlement system based 

on distributed ledger technology,30 and 

multiple transfer agents who provide 

services for digital asset securities 

registered with the Commission.31

Outside the Commission’s purview, 

the regulatory landscape has also 

changed significantly since 2016, and 

cryptocurrency markets have grown and 

evolved as well. The market for bitcoin 

is approximately 100 times larger, 

having at one point reached a market 

capitalization of over $1 trillion.32

According to the CME Bitcoin Futures 

report, from February 13, 2023 through 

March 27, 2023, CFTC regulated Bitcoin 

Futures represented between $750 

million and $3.2 billion in notional 

trading volume on CME Bitcoin Futures 

on a daily basis.33 Open interest was 

over $1.4 billion for the entirety of the 

period and at one point was over $2 

billion.34 ETPs that primarily hold CME 

Bitcoin Futures have raised over $1 

billion dollars in assets. The CFTC has 

exercised its regulatory jurisdiction in 

bringing a number of enforcement 

actions related to bitcoin and against 

trading platforms that offer 

cryptocurrency trading.35 As of 

February 14, 2023, the NYDFS has 

granted no fewer than thirty-four 

BitLicenses,36 including to established 

public payment companies like PayPal 

Holdings, Inc. and Square, Inc., and 

limited purpose trust charters to entities 

providing cryptocurrency custody 

services. In addition, the Treasury’s 

Office of Foreign Assets Control 

(‘‘OFAC’’) has brought enforcement 

actions over apparent violations of 

applicable sanctions laws in connection 

with the provision of wallet 

management services for digital assets.37


khammond on DSKJM1Z7X2PROD with NOTICES
2376 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

Currency Transactions’’ (December 30, 2020) 

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

126/20201230_bitgo.pdf. See also U.S. Department 

of the Treasury Enforcement Release: ‘‘Treasury 

Announces Two Enforcement Actions for over 

$24M and $29M Against Virtual Currency 

Exchange, Bittrex, Inc.’’ (October 11, 2022) 

available at: https://home.treasury.gov/news/pressreleases/jy1006. See also U.S. Department of 

Treasure Enforcement Release ‘‘OFAC Settles with 

Virtual Currency Exchange Kraken for $362,158.70 

Related to Apparent Violations of the Iranian 

Transactions and Sanctions Regulations’’ 

(November 28, 2022) available at: https://home.

treasury.gov/system/files/126/20221128_

kraken.pdf. 

38See the FSOC ‘‘Report on Digital Asset 

Financial Stability Risks and Regulation 2022’’ 

(October 3, 2022) (at footnote 26) at https://home.

treasury.gov/system/files/261/FSOC-Digital-AssetsReport-2022.pdf. 

39See Letter from Division of Corporation 

Finance, Office of Real Estate & Construction to 

Barry E. Silbert, Chief Executive Officer, Grayscale 

Bitcoin Trust (January 31, 2020) https://

www.sec.gov/Archives/edgar/data/1588489/ 

000000000020000953/filename1.pdf. 

40The premium and discount for OTC Bitcoin 

Funds is known to move rapidly. For example, over 

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

the largest OTC Bitcoin Fund went from 40.18% to 

2.79%. While the price of bitcoin appreciated 

significantly during this period and NAV per share 

increased by 41.25%, the price per share increased 

by only 3.58%. This means that investors are 

buying shares of a fund that experiences significant 

volatility in its premium and discount outside of 

the fluctuations in price of the underlying asset. 

Even operating within the normal premium and 

discount range, it’s possible for an investor to buy 

shares of an OTC Bitcoin Fund only to have those 

shares quickly lose 10% or more in dollar value 

excluding any movement of the price of bitcoin. 

That is to say—the price of bitcoin could have 

stayed exactly the same from market close on one 

day to market open the next, yet the value of the 

shares held by the investor decreased only because 

of the fluctuation of the premium. As more 

investment vehicles, including mutual funds and 

ETFs, seek to gain exposure to bitcoin, the easiest 

option for a buy and hold strategy for such vehicles 

is often an OTC Bitcoin Fund, meaning that even 

investors that do not directly buy OTC Bitcoin 

Funds can be disadvantaged by extreme premiums 

(or discounts) and premium/discount volatility. 

41A number of operating companies engaged in 

unrelated businesses—such as Tesla (a car 

manufacturer) and MicroStrategy (an enterprise 

software company)—have announced investments 

as large as $5.3 billion in bitcoin. Without access 

to bitcoin exchange-traded products, retail investors 

seeking investment exposure to bitcoin may end up 

purchasing shares in these companies in order to 

gain the exposure to bitcoin that they seek. In fact, 

mainstream financial news networks have written 

a number of articles providing investors with 

guidance for obtaining bitcoin exposure through 

publicly traded companies (such as MicroStrategy, 

Tesla, and bitcoin mining companies, among 

others) instead of dealing with the complications 

associated with buying spot bitcoin in the absence 

of a bitcoin ETP. See e.g., ‘‘7 public companies with 

exposure to bitcoin’’ (February 8, 2021) available at: 

https://finance.yahoo.com/news/7-publiccompanies-with-exposure-to-bitcoin154201525.html; and ‘‘Want to get in the crypto 

trade without holding bitcoin yourself? Here are 

some investing ideas’’ (February 19, 2021) available 

at: https://www.cnbc.com/2021/02/19/ways-toinvest-in-bitcoin-without-holding-thecryptocurrency-yourself-.html. 

42The 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 Bitcoin ETPs. 43See FTX Trading Ltd., et al., Case No. 22– 

11068. 44See Celsius Network LLC, et al., Case No. 22– 

10964. 45See BlockFi Inc., Case No. 22–19361. 46See Voyager Digital Holdings, Inc., et al., Case 

No. 22–10943. 

In addition to the regulatory 

developments laid out above, more 

traditional financial market participants 

have become more active in 

cryptocurrency trading and investment 

activity: large insurance companies, 

asset managers, university endowments, 

pension funds, and even historically 

bitcoin skeptical fund managers have 

allocated to bitcoin investments. As 

noted in the Financial Stability 

Oversight Council (‘‘FSOC’’) report on 

Digital Asset Financial Stability Risks 

and Regulation, ‘‘[i]ndustry surveys 

suggest that the scale of these 

investments grew quickly during the 

boom in crypto-asset markets through 

late 2021. In June 2022, PwC estimated 

that the number of crypto-specialist 

hedge funds was more than 300 

globally, with $4.1 billion in assets 

under management. In addition, in a 

survey PwC found that 38 percent of 

surveyed traditional hedge funds were 

currently investing in ‘digital assets,’ 

compared to 21 percent the year 

prior.’’ 38 The largest over-the-counter 

bitcoin fund previously filed a Form 10 

registration statement, which the staff of 

the Commission reviewed and which 

took effect automatically, and is now a 

reporting company.39 Established U.S. 

exchange-traded companies like Tesla, 

Inc., MicroStrategy Incorporated, and 

Square, Inc., among others, have 

announced substantial investments in 

bitcoin in amounts as large as $1.5 

billion (Tesla) and $425 million 

(MicroStrategy). The foregoing examples 

demonstrate that bitcoin has gained 

mainstream usage and recognition 

across the U.S. market. 

Despite these developments, access 

for U.S. retail investors to gain exposure 

to bitcoin via a transparent and U.S. 

regulated, U.S. exchange-traded vehicle 

remains limited. Instead current options 

include: (i) facing the counter-party risk, 

legal uncertainty, technical risk, and 

complexity associated with accessing 

spot bitcoin; (ii) over-the-counter 

bitcoin funds (‘‘OTC Bitcoin Funds’’) 

with high management fees and 

potentially volatile premiums and 

discounts; 40 (iii) purchasing shares of 

operating companies that they believe 

will provide proxy exposure to bitcoin 

with limited disclosure about the 

associated risks; 41 or (iv) purchasing 

Bitcoin Futures exchange-traded funds 

(‘‘ETFs’’), as defined below, which 

represent a sub-optimal structure for 

long-term investors that will cost them 

significant amounts of money every year 

compared to Spot Bitcoin ETPs, as 

further discussed below. Meanwhile, 

investors in many other countries, 

including Canada and Brazil, are able to 

use more traditional exchange listed and 

traded products (including ETFs 

holding physical bitcoin) to gain 

exposure to bitcoin. Similarly, investors 

in Switzerland and across Europe have 

access to ETPs 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 

bitcoin exposure, as described above.42

To this point, the lack of a Spot 

Bitcoin ETP exposes U.S. investor assets 

to significant risk because investors that 

would otherwise seek crypto asset 

exposure through a Spot Bitcoin ETP are 

forced to find alternative exposure 

through generally riskier means. For 

instance, many U.S. investors that held 

their digital assets in accounts at FTX,43

Celsius Network LLC,44 BlockFi Inc.45

and Voyager Digital Holdings, Inc.46

have become unsecured creditors in the 

insolvencies of those entities. If a Spot 

Bitcoin 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 Bitcoin ETP. To this 

point, approval of a Spot Bitcoin ETP 

would represent a major win for the 

protection of U.S. investors in the 

crypto asset space. As further described 

below, the Fund, 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 bitcoin 

on centralized platforms. 

Additionally, investors in other 

countries, specifically Canada, generally 

pay lower fees than U.S. retail investors 

that invest in OTC Bitcoin Funds due to 

the fee pressure that results from 

increased competition among available 

bitcoin investment options. Without an 

approved and regulated Spot Bitcoin 

ETP in the U.S. as a viable alternative, 

U.S. investors could seek to purchase 

shares of non-U.S. bitcoin vehicles in 

order to get access to bitcoin exposure. 

Given the separate regulatory regime 

and the potential difficulties associated 

with any international litigation, such 

an arrangement would create more risk 

exposure for U.S. investors than they 

would otherwise have with a U.S. 


khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2377 

47See Winklevoss Order at 37593, specifically 

footnote 202, which includes the language from 

numerous approval orders for which the underlying 

futures markets formed the basis for approving 

series of ETPs that hold physical metals, including 

gold, silver, palladium, platinum, and precious 

metals more broadly; and 37600, specifically where 

the Commission provides that ‘‘when the spot 

market is unregulated—the requirement of 

preventing fraudulent and manipulative acts may 

possibly be satisfied by showing that the ETP listing 

market has entered into a surveillance-sharing 

agreement with a regulated market of significant 

size in derivatives related to the underlying asset.’’ 

As noted above, the Exchange believes that these 

citations are particularly helpful in making clear 

that the spot market for a spot commodity ETP need 

not be ‘‘regulated’’ in order for a spot commodity 

ETP to be approved by the Commission, and in fact 

that it’s been the common historical practice of the 

Commission to rely on such derivatives markets as 

the regulated market of significant size because 

such spot commodities markets are largely 

unregulated. 

48As further outlined below, both the Exchange 

and the Sponsor believe that the Bitcoin Futures 

market represents a regulated market of significant 

size and that this proposal and others like it should 

be approved on this basis. 

49See Teucrium Approval at 21679. 

50 Grayscale Investments, LLC v. Securities and 

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

51See e.g., ‘‘Bitcoin ETF’s Success Could Come at 

Fundholders’ Expense,’’ Wall Street Journal 

(October 24, 2021), available at: https://

www.wsj.com/articles/bitcoin-etfs-success-couldcome-at-fundholders-expense-11635080580; 

‘‘Physical Bitcoin ETF Prospects Accelerate,’’ 

ETF.com (October 25, 2021), available at: https://

www.etf.com/sections/blog/physical-bitcoin-etfprospects-shine?nopaging=1&__cf_chl_jschl_tk__

=pmd_

JsK.fjXz9eAQW9zol0qpzhXDrrlpIVdoCloLXbLjl44-

1635476946-0-gqNtZGzNApCjcnBszQql. 

exchange listed ETP. In addition to the 

benefits to U.S. investors articulated 

throughout this proposal, approving this 

proposal (and others like it) would 

provide U.S. ETFs and mutual funds 

with a U.S.-listed and regulated product 

to provide such access rather than 

relying on either more expensive, riskier 

U.S. based products or products listed 

and primarily regulated in other 

countries. 

Bitcoin Futures ETFs 

The Exchange and Sponsor applaud 

the Commission for allowing the launch 

of ETFs registered under the Investment 

Company Act of 1940, as amended (the 

‘‘1940 Act’’), and the Bitcoin Futures 

Approvals that provide exposure to 

bitcoin primarily through CME Bitcoin 

Futures (‘‘Bitcoin Futures ETFs’’). 

Allowing such products to list and trade 

is a productive first step in providing 

U.S. investors and traders with 

transparent, exchange-listed tools for 

expressing an investment view on 

bitcoin. The Bitcoin Futures Approvals, 

however, have created a logical 

inconsistency in the application of the 

standard the Commission applies when 

considering Bitcoin ETP proposals. 

As discussed further below, the 

standard applicable to Bitcoin ETPs is 

whether the listing exchange has in 

place a comprehensive surveillance 

sharing agreement with a regulated 

market of significant size in the 

underlying asset. Previous disapproval 

orders have made clear that a market 

that constitutes a regulated market of 

significant size is generally a futures 

and/or options market based on the 

underlying reference asset rather than 

the spot commodity markets, which are 

often unregulated.47 Leaving aside the 

analysis of that standard until later in 

this proposal,48 the Exchange believes 

that the following rationale the 

Commission applied to a Bitcoin 

Futures ETF should result in the 

Commission approving this and other 

Spot Bitcoin ETP proposals: 

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 Bitcoin Futures market caused by a 

person attempting to manipulate the 

proposed futures ETP by manipulating the 

price of CME Bitcoin Futures contracts, 

whether that attempt is made by directly 

trading on the CME Bitcoin Futures market 

or indirectly by trading outside of the CME 

Bitcoin Futures market. 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.49

CME Bitcoin Futures pricing is based 

on pricing from spot bitcoin markets. 

The statement from the Teucrium 

Approval that ‘‘CME’s surveillance can 

reasonably be relied upon to capture the 

effects on the CME Bitcoin Futures 

market caused by a person attempting to 

manipulate the proposed futures ETP by 

manipulating the price of CME Bitcoin 

Futures contracts . . . indirectly by 

trading outside of the CME Bitcoin 

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 Bitcoin Futures. 

This was further acknowledged in the 

‘‘Grayscale lawsuit’’ 50 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 

Bitcoin Futures. 

The structure of Bitcoin Futures ETFs 

provides negative outcomes for buy and 

hold investors as compared to a Spot 

Bitcoin ETP.51 Specifically, the cost of 

rolling CME Bitcoin Futures contracts 

will cause the Bitcoin Futures ETFs to 

lag the performance of bitcoin itself and 

would cost U.S. investors significant 

amounts of money on an annual basis 

compared to Spot Bitcoin ETPs. Such 

rolling costs would not be required for 

Spot Bitcoin ETPs that hold bitcoin. 

Further, Bitcoin Futures ETFs could 

potentially hit CME position limits, 

which would force a Bitcoin Futures 

ETF to invest in non-futures assets for 

bitcoin exposure and cause potential 

investor confusion and lack of certainty 

about what such Bitcoin Futures ETFs 

are actually holding to try to get 

exposure to bitcoin, which would also 

materially change the risk profile 

associated with such an ETF. While 

Bitcoin Futures ETFs represent a useful 

trading tool, they are clearly suboptimal as the sole exchange traded 

vehicle structure for U.S. investors that 

are looking for long-term exposure to 

bitcoin and could, based on the 

calculations above, unnecessarily cost 

U.S. investors significant amounts of 

money every year compared to Spot 

Bitcoin ETPs. The Exchange believes 

that any proposal to list and trade a Spot 

Bitcoin ETP should be reviewed by the 

Commission with this important 

investor protection context in mind. 

Based on the foregoing, the Exchange 

and Sponsor believe that an objective 

review of the proposals to list Spot 

Bitcoin ETPs compared to and in view 

of the Bitcoin Futures ETFs and the 

Bitcoin Futures Approvals as well as 

limitations of existing approved product 

structures, would lead to the conclusion 

that Spot Bitcoin ETPs would benefit 

U.S. investors and should be available 

to U.S. investors. As such, this proposal 

and other comparable proposals to list 

and trade Spot Bitcoin ETPs should be 

approved by the Commission. In 

summary, U.S. investors lose significant 

amounts of money from holding Bitcoin 

Futures ETFs as compared to Spot 

Bitcoin ETPs, losses which could be 

prevented by the Commission approving 

Spot Bitcoin ETPs. 


khammond on DSKJM1Z7X2PROD with NOTICES
2378 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

52According to CME, the CME CF Bitcoin 

Reference Rate aggregates the trade flow of major 

bitcoin spot trading platforms during a specific 

calculation window into a once-a-day reference rate 

of the U.S. dollar price of bitcoin. Calculation rules 

are geared toward maximum transparency and realtime replicability in underlying spot markets, 

including Bitstamp, Coinbase, Gemini, itBit, 

Kraken, and LMAX Digital. For additional 

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

trading/cryptocurrency-indices/cf-bitcoin-referencerate.html?redirect=/trading/cf-bitcoin-referencerate.html. 

53Source: CME, Yahoo Finance 4/30/23. 

54A large open interest holder in Bitcoin Futures 

is an entity that holds at least 25 contracts, which 

is the equivalent of 125 bitcoin. At a price of 

approximately $29,268.81 per bitcoin on 4/30/2023, 

more than 100 firms had outstanding positions of 

greater than $3.65 million in Bitcoin Futures. 

Additionally, any concerns related to 

preventing fraudulent and manipulative 

acts and practices related to Spot 

Bitcoin ETPs would apply equally to the 

spot markets underlying the futures 

contracts held by a Bitcoin Futures ETF. 

Both the Exchange and Sponsor believe 

that the CME Bitcoin Futures market is 

a regulated market of significant size 

and that such manipulation concerns 

are mitigated, as described extensively 

below. After allowing and approving the 

listing and trading of Bitcoin Futures 

ETFs that hold primarily CME Bitcoin 

Futures, however, the only consistent 

outcome would be approving Spot 

Bitcoin ETPs on the basis that the CME 

Bitcoin Futures market is a regulated 

market of significant size. 

Given the current landscape, 

approving this proposal (and others like 

it) and allowing Spot Bitcoin ETPs to be 

listed and traded alongside Bitcoin 

Futures ETFs would establish a 

consistent regulatory approach, provide 

U.S. investors with choice in product 

structures for bitcoin exposure, and 

offer flexibility in the means of gaining 

exposure to bitcoin through transparent, 

regulated, U.S. exchange-listed vehicles. 

Bitcoin Futures 

CME began offering trading in Bitcoin 

Futures in 2017. Each contract 

represents five bitcoin and is based on 

the CME CF Bitcoin Reference Rate.52

The contracts trade and settle like other 

cash-settled commodity futures 

contracts. Nearly every measurable 

metric related to Bitcoin Futures has 

generally trended up since launch, 

although certain notional volume 

calculations have decreased roughly in 

line with the decrease in the price of 

bitcoin. For example, there were 

143,215 Bitcoin Futures contracts traded 

in April 2023 (approximately $20.7 

billion) compared to 193,182 ($5 

billion), 104,713 ($3.9 billion), 118,714 

($42.7 billion), and 111,964 ($23.2 

billion) contracts traded in April 2019, 

April 2020, April 2021, and April 2022, 

respectively.53

BILLING CODE 8011–01–P 

The number of large open interest 

holders 54 and unique accounts trading 

Bitcoin Futures have both increased, 

even in the face of heightened bitcoin 

price volatility. 


khammond on DSKJM1Z7X2PROD with NOTICESEN12JA24.014</GPH>

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Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2379 

55See Exchange Act Releases No. 94080 (January 

27, 2022), 87 FR 5527 (April 12, 2022) (specifically 

‘‘Amendment No. 1 to the Proposed Rule Change 

To List and Trade Shares of the Wise Origin Bitcoin 

Trust Under BZX Rule 14.11(3)(4), CommodityBased Trust Shares’’); 94982 (May 25, 2022), 87 FR 

33250 (June 1, 2022); 94844 (May 4, 2022), 87 FR 

28043 (May 10, 2022); and 93445 (October 28, 

2021), 86 FR 60695 (November 3, 2021). See also 

Hu, Y., Hou, Y. and Oxley, L. (2019). ‘‘What role 

do futures markets play in Bitcoin pricing? 

Causality, cointegration and price discovery from a 

time-varying perspective’’ (available at: https://

www.ncbi.nlm.nih.gov/pmc/articles/PMC7481826/). 

This academic research paper concludes that 

‘‘There exist no episodes where the Bitcoin spot 

markets dominates the price discovery processes 

with regard to Bitcoin futures. This points to a 

conclusion that the price formation originates solely 

in the Bitcoin futures market. We can, therefore, 

conclude that the Bitcoin futures markets dominate 

the dynamic price discovery process based upon 

time-varying information share measures. Overall, 

price discovery seems to occur in the Bitcoin 

futures markets rather than the underlying spot 

market based upon a time-varying perspective.’’ 

56See Exchange Rule 14.11(f). 

57Commodity-Based Trust Shares, as described in 

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

Issued Receipt. 

58As the Exchange has stated in a number of 

other public documents, it continues to believe that 

bitcoin is resistant to price manipulation and that 

‘‘other means to prevent fraudulent and 

manipulative acts and practices’’ exist to justify 

dispensing with the requisite surveillance sharing 

agreement. The geographically diverse and 

Continued 

BILLING CODE 8011–01–C 

The Sponsor further believes that 

publicly available research, including 

research done as part of rule filings 

proposing to list and trade shares of 

Spot Bitcoin ETPs, corroborates the 

overall trend outlined above and 

supports the thesis that the Bitcoin 

Futures pricing leads the spot market 

and, thus, a person attempting to 

manipulate the Shares would also have 

to trade on that market to manipulate 

the ETP. Specifically, the Sponsor 

believes that such research indicates 

that Bitcoin Futures lead the bitcoin 

spot market in price formation.55

Section 6(b)(5) and the Applicable 

Standards 

The Commission has approved 

numerous series of Trust Issued 

Receipts,56 including Commodity-Based 

Trust Shares,57 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; 58 and 


khammond on DSKJM1Z7X2PROD with NOTICESEN12JA24.015</GPH> EN12JA24.016</GPH>

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2023 
2380 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

continuous nature of bitcoin trading render it 

difficult and prohibitively costly to manipulate the 

price of bitcoin. The fragmentation across bitcoin 

platforms, the relatively slow speed of transactions, 

and the capital necessary to maintain a significant 

presence on each trading platform make 

manipulation of bitcoin prices through continuous 

trading activity challenging. To the extent that there 

are bitcoin trading platforms engaged in or allowing 

wash trading or other activity intended to 

manipulate the price of bitcoin on other markets, 

such pricing does not normally impact prices on 

other trading platforms because participants will 

generally ignore markets with quotes that they 

deem non-executable. Moreover, the linkage 

between the bitcoin markets and the presence of 

arbitrageurs in those markets means that the 

manipulation of the price of bitcoin price on any 

single venue would require manipulation of the 

global bitcoin price in order to be effective. 

Arbitrageurs must have funds distributed across 

multiple trading platforms in order to take 

advantage of temporary price dislocations, thereby 

making it unlikely that there will be strong 

concentration of funds on any particular bitcoin 

trading platform or OTC platform. As a result, the 

potential for manipulation on a trading platform 

would require overcoming the liquidity supply of 

such arbitrageurs who are effectively eliminating 

any cross-market pricing differences. 59As 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’’). 

60For a list of the current members and affiliate 

members of ISG, see www.isgportal.com. 

61See Wilshire Phoenix Disapproval. 

62See 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. 

63As further described below, the ‘‘Reference 

Rate’’ for the Fund is the CME CF Bitcoin Reference 

Rate—New York Variant. 

(ii) the requirement that an exchange 

proposal be designed, in general, to 

protect investors and the public interest. 

The Exchange believes that this 

proposal is consistent with the 

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

Act and that this filing sufficiently 

demonstrates that the CME Bitcoin 

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 59 with a regulated 

market of significant size. Both the 

Exchange and CME are members of the 

Intermarket Surveillance Group 

(‘‘ISG’’).60 The only remaining issue to 

be addressed is whether the Bitcoin 

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.61

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.62

(a) Manipulation of the ETP 

According to the research and 

analysis presented above, the Bitcoin 

Futures market is the leading market for 

bitcoin price formation. Where Bitcoin 

Futures lead the price in the spot market 

such that a potential manipulator of the 

bitcoin spot market (beyond just the 

constituents of the Reference Rate 63) 

would have to participate in the Bitcoin 

Futures market, it follows that a 

potential manipulator of the Shares 

would similarly have to transact in the 

Bitcoin Futures market because the 

Reference Rate is based on spot prices. 

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 trading of 

the Shares. 

(b) Predominant Influence on Prices in 

Spot and Bitcoin Futures 

The Exchange and Sponsor also 

believe that trading in the Shares would 

not be the predominant force 

influencing prices in the Bitcoin Futures 

market or spot market for a number of 

reasons, including the significant daily 

trading volume in the Bitcoin Futures 

market, the size of bitcoin’s market 

capitalization, and the significant 

liquidity available in the spot market. In 

addition to the Bitcoin Futures market 

data points cited above, the spot market 

for bitcoin is also very liquid. As the 

court found in the Grayscale Order, the 

Exchange and the Sponsor submit that 

‘‘[b]ecause the spot market is deeper and 

more liquid than the futures market, 

manipulation should be more difficult, 

not less.’’ 

(c) Other Means To Prevent Fraudulent 

and Manipulative Acts and Practices 

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. 

(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 

bitcoin through OTC Bitcoin Funds has 

grown into the tens of billions of 

dollars, including through Bitcoin 

Futures ETFs. With that growth, so too 

has grown the quantifiable investor 

protection issues to U.S. investors 

including in connection with roll costs 

for Bitcoin Futures ETFs and premium/ 

discount volatility and management fees 

for OTC Bitcoin Funds. The Exchange 

believes that the concerns related to the 

prevention of fraudulent and 

manipulative acts and practices have 

been sufficiently addressed for this 

proposal to be consistent with the Act 

and, to the extent that the Commission 

disagrees with that assertion, such 

concerns are now outweighed by 

investor protection concerns. As such, 


khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2381 

64Cash equivalents are short-term instruments 

with maturities of less than 3 months. 

65 15 U.S.C. 80a–1. 

66Any alternative method will only be employed 

on an ad hoc basis. Any permanent change to the 

calculation of the NAV would require a proposed 

rule change under Rule 19b-4. 

the Exchange believes that approving 

this proposal (and comparable 

proposals) provides the Commission 

with the opportunity to allow U.S. 

investors to access bitcoin in a regulated 

and transparent exchange-traded vehicle 

that would act to limit risk and benefit 

U.S. investors by: (i) reducing premium 

and discount volatility as compared to 

OTC investment vehicles; (ii) increasing 

competitive pressure on management 

fees resulting in fee compression/ 

reductions; (iii) reducing risks and costs 

as compared to those associated with 

investing in Bitcoin Futures ETFs and 

operating companies that represent 

imperfect proxies for bitcoin exposure; 

and (iv) providing an alternative to 

custodying spot bitcoin. 

Franklin Templeton Digital Holdings 

Trust 

Delaware Trust Company is the 

trustee (‘‘Trustee’’). Bank of New York 

Mellon serves as the Trust’s 

administrator (the ‘‘Administrator’’) and 

transfer agent (‘‘Transfer Agent’’). As 

noted above, Coinbase Custody Trust 

Company, LLC is the bitcoin Custodian 

and will be responsible for safekeeping 

of the Fund’s bitcoin, while the Bank of 

New York Mellon (the Cash Custodian) 

will act as custodian of the Fund’s cash 

and cash equivalents.64

According to the Registration 

Statement, each Share will represent a 

fractional undivided beneficial interest 

in the Fund. The Fund’s assets will only 

consist of bitcoin, cash, and cash 

equivalents. 

According to the Registration 

Statement, the Trust is neither an 

investment company registered under 

the Investment Company Act of 1940, as 

amended,65 nor a commodity pool for 

purposes of the Commodity Exchange 

Act (‘‘CEA’’), and none of the Trust, the 

Fund or the Sponsor is subject to 

regulation as a commodity pool operator 

or a commodity trading adviser in 

connection with the Shares. 

When the Fund sells or redeems its 

Shares, it will do so in cash transactions 

in large blocks of 50,000 Shares (a 

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

In such cases, a third party that is 

unaffiliated with the Fund and the 

Sponsor will use cash to buy and 

deliver bitcoin to create Shares or 

withdraw and sell bitcoin for cash to 

redeem Shares, on behalf of the Fund. 

Authorized participants will deliver, or 

facilitate the delivery of, cash to the 

Fund’s account with the Cash Custodian 

in exchange for Shares when they 

purchase Shares, and the Fund, through 

the Cash Custodian, will deliver cash to 

such authorized participants when they 

redeem Shares. Authorized participants 

may then offer Shares to the public at 

prices that depend on various factors, 

including the supply and demand for 

Shares, the value of the Fund’s assets, 

and market conditions at the time of a 

transaction. Shareholders who buy or 

sell Shares during the day from their 

broker may do so at a premium or 

discount relative to the NAV of the 

Shares of the Fund. 

Investment Objective 

According to the Registration 

Statement and as further described 

below, the investment objective of the 

Fund is to generally reflect the 

performance of the price of bitcoin 

before payment of the Fund’s expenses. 

In seeking to achieve its investment 

objective, the Fund will hold only 

bitcoin, cash, and cash equivalents. The 

Fund will value its Shares daily based 

on the value of bitcoin as reflected by 

the CME CF Bitcoin Reference Rate— 

New York Variant (the ‘‘Reference 

Rate’’), which is an independently 

calculated value based on an 

aggregation of executed trade flow of 

major bitcoin spot trading platforms. 

Specifically, the Reference Rate is 

calculated based on certain transactions 

of all of its constituent bitcoin trading 

platforms, which are currently Bitstamp, 

Coinbase, itBit, Kraken, Gemini, and 

LMAX Digital, and which may change 

from time to time. If the Reference Rate 

is not available or the Sponsor 

determines, in its sole discretion, that 

the Reference Rate should not be used, 

the Fund’s holdings may be fair valued 

in accordance with the policy approved 

by the Sponsor.66

The Reference Rate 

As described in the Registration 

Statement, the Fund will value its 

Shares daily based on the value of 

bitcoin as reflected by the Reference 

Rate. The Reference Rate is calculated 

daily and aggregates the notional value 

of bitcoin trading activity across major 

bitcoin spot trading platforms. The 

Reference Rate uses the same 

methodology as the CME CF Bitcoin 

Reference Rate (‘‘BRR’’), including 

utilizing the same constituent bitcoin 

trading platforms, which is the 

underlying rate to determine settlement 

of CME Bitcoin Futures contracts, 

except that the Reference Rate is 

calculated as of 4 p.m. ET, whereas the 

BRR is calculated as of 4 p.m. London 

time. The Reference Rate is designed 

based on the International Organization 

of Securities Commissions (‘‘IOSCO’’) 

Principals for Financial Benchmarks. 

The administrator of the Reference Rate 

is CF Benchmarks Ltd. (the ‘‘Reference 

Rate Provider’’). 

The Reference Rate was created to 

facilitate financial products based on 

bitcoin. It serves as a once-a-day 

benchmark rate of the U.S. dollar price 

of bitcoin (USD/BTC), calculated as of 

4:00 p.m. ET. The Reference Rate, which 

has been calculated and published since 

February 28, 2022, aggregates the trade 

flow of several bitcoin trading 

platforms, during an observation 

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

p.m. ET into the U.S. dollar price of one 

bitcoin at 4:00 p.m. ET. Specifically, the 

Reference Rate is calculated based on 

the ‘‘Relevant Transactions’’ (as defined 

below) of all of its constituent bitcoin 

trading platforms, which are currently 

Coinbase, Bitstamp, Kraken, itBit, 

LMAX Digital and Gemini (the 

‘‘Constituent Platforms’’), as follows: 

• All Relevant Transactions are added 

to a joint list, recording the time of 

execution, trade price and size for each 

transaction. 

• The list is partitioned by timestamp 

into 12 equally-sized time intervals of 5 

(five) minute length. 

• For each partition separately, the 

volume-weighted median trade price is 

calculated from the trade prices and 

sizes of all Relevant Transactions, i.e., 

across all Constituent Platforms. A 

volume-weighted median differs from a 

standard median in that a weighting 

factor, in this case trade size, is factored 

into the calculation. 

• The Reference Rate is then 

determined by the equally-weighted 

average of the volume medians of all 

partitions. 

The Reference Rate does not include 

any futures prices in its methodology. A 

‘‘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 Platform in the 

BTC/USD pair that is reported and 

disseminated by a Constituent Platform 

through its publicly available 

Application Programming Interface 

(‘‘API’’) and observed by the Reference 

Rate Provider. 

The Sponsor believes that the use of 

the Reference Rate is reflective of a 

reasonable valuation of the average spot 

price of bitcoin and that resistance to 

manipulation is a priority aim of its 

design methodology. The methodology: 

(i) takes an observation period and 


khammond on DSKJM1Z7X2PROD with NOTICES
2382 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

67As defined in Rule 11.23(a)(3), the term ‘‘BZX 

Official Closing Price’’ shall mean the price 

disseminated to the consolidated tape as the market 

center closing trade. 

68The term ‘‘cold storage’’ refers to a safeguarding 

method by which the private keys corresponding to 

bitcoins 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. 

divides it into equal partitions of time; 

(ii) then calculates the volume-weighted 

median of all transactions within each 

partition; and (iii) the value is 

determined from the arithmetic mean of 

the volume-weighted medians, equally 

weighted. By employing the foregoing 

steps, the Reference Rate thereby seeks 

to ensure that transactions in bitcoin 

conducted at outlying prices do not 

have an undue effect on the value of the 

Reference Rate, large trades or clusters 

of trades transacted over a short period 

of time will not have an undue 

influence on the Reference Rate value, 

and the effect of large trades at prices 

that deviate from the prevailing price 

are mitigated from having an undue 

influence on the Reference Rate value. 

In addition, the Sponsor notes that an 

oversight function is implemented by 

the Reference Rate Provider in seeking 

to ensure that the Reference Rate is 

administered through codified policies 

for Reference Rate integrity. 

Reference Rate data and the 

description of the Reference Rate are 

based on information made publicly 

available by the Reference Rate Provider 

on its website at https://

www.cfbenchmarks.com. 

Net Asset Value 

NAV means the total assets of the 

Fund (which includes bitcoin, cash and 

cash equivalents) less total liabilities of 

the Fund. The Administrator will 

determine the NAV of the Fund on each 

day that the Exchange is open for 

regular trading, as promptly as practical 

after 4:00 p.m. EST. The NAV of the 

Fund is the aggregate value of the 

Fund’s assets less its estimated accrued 

but unpaid liabilities (which include 

accrued expenses). In determining the 

Fund’s NAV, the Administrator values 

the bitcoin held by the Fund based on 

the price set by the Reference Rate as of 

4:00 p.m. EST. The Administrator also 

determines the NAV per Share. 

The NAV for the Fund will be 

calculated by the Administrator once a 

day and will be disseminated daily to 

all market participants at the same time. 

If the Reference Rate is not available 

or the Sponsor determines, in its sole 

discretion, that the Reference Rate 

should not be used, the Fund’s holdings 

may be fair valued in accordance with 

the policy approved by the Sponsor. 

Availability of Information 

The website for the Fund, which will 

be publicly accessible at no charge, will 

contain the following information: (a) 

the current NAV per Share daily and the 

prior business day’s NAV and the 

reported closing price; (b) the BZX 

Official Closing Price 67 in relation to 

the NAV as of the time the NAV is 

calculated and a calculation of the 

premium or discount of such price 

against such NAV; (c) data in chart form 

displaying the frequency distribution of 

discounts and premiums of the Official 

Closing Price against the NAV, within 

appropriate ranges for each of the four 

previous calendar quarters (or for the 

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

prospectus; and (e) other applicable 

quantitative information. The 

aforementioned information will be 

published as of the close of business 

available on the Fund’s website at 

https://www.franklintempleton.com/ 

investments/options/exchange-tradedfunds/products/39639/SINGLCLASS/ 

franklin-bitcoin-etf/EZBC, or any 

successor thereto. The Fund will also 

disseminate its holdings on a daily basis 

on its website. 

The Intraday Indicative Value (‘‘IIV’’) 

will be calculated by using the prior 

day’s closing NAV per Share as a base 

and updating that value during Regular 

Trading Hours to reflect changes in the 

value of the Fund’s bitcoin holdings 

during the trading day, which is based 

on the CME CF Bitcoin Real Time Index 

(‘‘BRTI’’). The IIV disseminated during 

Regular Trading Hours should not be 

viewed as an actual real-time update of 

the NAV, which will be calculated only 

once at the end of each trading day. The 

IIV will be widely disseminated on a per 

Share basis every 15 seconds during the 

Exchange’s Regular Trading Hours 

through the facilities of the consolidated 

tape association (CTA) and 

Consolidated Quotation System (CQS) 

high speed lines. In addition, the IIV 

will be available through on-line 

information services such as Bloomberg 

and Reuters. 

The price of bitcoin will be made 

available by one or more major market 

data vendors, updated at least every 15 

seconds during Regular Trading Hours. 

As noted above, the Reference Rate is 

calculated daily and aggregates the 

notional value of bitcoin trading activity 

across major bitcoin spot trading 

platforms. Reference Rate data, the 

Reference Rate value, and the 

description of the Reference Rate are 

based on information made publicly 

available by the Reference Rate Provider 

on its website at https://www.cfbench

marks.com. 

Quotation and last sale information 

for bitcoin is widely disseminated 

through a variety of major market data 

vendors, including Bloomberg and 

Reuters. Information relating to trading, 

including price and volume 

information, in bitcoin is available from 

major market data vendors and from the 

trading platforms on which bitcoin are 

traded. Depth of book information is 

also available from bitcoin trading 

platforms. The normal trading hours for 

bitcoin trading platforms are 24 hours 

per day, 365 days per year. 

Information regarding market price 

and trading volume of the Shares will be 

continually available on a real-time 

basis throughout the day on brokers’ 

computer screens and other electronic 

services. Information regarding the 

previous day’s closing price and trading 

volume information for the Shares will 

be published daily in the financial 

section of newspapers. Quotation and 

last-sale information regarding the 

Shares will be disseminated through the 

facilities of the Consolidated Tape 

Association (‘‘CTA’’). 

The Bitcoin Custodian 

The bitcoin Custodian carefully 

considers the design of the physical, 

operational and cryptographic systems 

for secure storage of the Fund’s private 

keys in an effort to lower the risk of loss 

or theft. The bitcoin Custodian utilizes 

a variety of security measures to ensure 

that private keys necessary to transfer 

digital assets remain uncompromised 

and that the Fund maintains exclusive 

ownership of its assets. The bitcoin 

Custodian will keep the private keys 

associated with the Fund’s bitcoin in 

‘‘cold storage’’ 68 (the ‘‘Cold Vault 

Balance’’). The hardware, software, 

systems, and procedures of the bitcoin 

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

directly. Only specific individuals are 

authorized to participate in the custody 

process, and no individual acting alone 

will be able to access or use any of the 

private keys. In addition, no 

combination of the executive officers of 

the Sponsor, acting alone or together, 

will be able to access or use any of the 

private keys that hold the Fund’s 

bitcoin. 

Creation and Redemption of Shares 

When the Fund sells or redeems its 

Shares, it will do so in cash transactions 


khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2383 

69For purposes of Rule 14.11(e)(4), the term 

commodity takes on the definition of the term as 

provided in the Commodity Exchange Act. As noted 

above, the CFTC has opined that bitcoin is a 

commodity as defined in section 1a(9) of the 

Commodity Exchange Act. See Coinflip. 

in blocks of 50,000 Shares that are based 

on the quantity of bitcoin attributable to 

each Share of the Fund (e.g., a Creation 

Basket) at the NAV. According to the 

Registration Statement, on any business 

day, an authorized participant may 

place an order to create one or more 

Creation Baskets. Purchase orders for 

cash transaction Creation Baskets must 

be placed by 3:00 p.m. Eastern Time, or 

the close of regular trading on the 

Exchange, whichever is earlier. The day 

on which an order is received is 

considered the purchase order date. The 

Administrator determines the required 

deposit for a given day by dividing the 

number of bitcoin held by the Fund as 

of the opening of business on that 

business day, adjusted for the amount of 

bitcoin constituting estimated accrued 

but unpaid fees and expenses of the 

Fund as of the opening of business on 

that business day, by the quotient of the 

number of Shares outstanding at the 

opening of business divided by the 

number of Shares in a Creation Basket. 

The procedures by which an authorized 

participant can redeem one or more 

Creation Baskets mirror the procedures 

for the creation of Creation Baskets. 

The authorized participants will 

deliver only cash to create Shares and 

will receive only cash when redeeming 

Shares. Further, authorized participants 

will not directly or indirectly purchase, 

hold, deliver, or receive bitcoin as part 

of the creation or redemption process or 

otherwise direct the Fund or a third 

party with respect to purchasing, 

holding, delivering, or receiving bitcoin 

as part of the creation or redemption 

process. 

The Fund will create Shares by 

receiving bitcoin from a third party that 

is not the authorized participant and the 

Fund—not the authorized participant— 

is responsible for selecting the third 

party to deliver the bitcoin. Further, the 

third party will not be acting as an agent 

of the authorized participant with 

respect to the delivery of the bitcoin to 

the Fund or acting at the direction of the 

authorized participant with respect to 

the delivery of the bitcoin to the Fund. 

The Fund will redeem Shares by 

delivering bitcoin to a third party that 

is not the authorized participant and the 

Fund—not the authorized participant— 

is responsible for selecting the third 

party to receive the bitcoin. Further, the 

third party will not be acting as an agent 

of the authorized participant with 

respect to the receipt of the bitcoin from 

the Fund or acting at the direction of the 

authorized participant with respect to 

the receipt of the bitcoin from the Fund. 

A third party, that is unaffiliated with 

the Fund and the Sponsor, will use cash 

to buy and deliver bitcoin to create 

Shares or withdraw and sell bitcoin for 

cash to redeem Shares, on behalf of the 

Fund. 

The Sponsor (including its delegates) 

will maintain ownership and control of 

the Fund’s bitcoin in a manner 

consistent with good delivery 

requirements for spot commodity 

transactions. 

Rule 14.11(e)(4)—Commodity-Based 

Trust Shares 

The Shares will be subject to BZX 

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

initial and continued listing criteria 

applicable to Commodity-Based Trust 

Shares. The Exchange represents that, 

for initial and continued listing, the 

Fund must be in compliance with Rule 

10A–3 under the Act. A minimum of 

100,000 Shares will be outstanding at 

the commencement of listing on the 

Exchange. The Exchange will obtain a 

representation that the NAV will be 

calculated daily and information about 

the NAV and the assets of the Fund will 

be made available to all market 

participants at the same time. The 

Exchange notes that, as defined in Rule 

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

issued by a trust that holds (1) a 

specified commodity 69 deposited with 

the trust, or (2) a specified commodity 

and, in addition to such specified 

commodity, cash; (b) issued by such 

trust in a specified aggregate minimum 

number in return for a deposit of a 

quantity of the underlying commodity 

and/or cash; and (c) when aggregated in 

the same specified minimum number, 

may be redeemed at a holder’s request 

by such trust which will deliver to the 

redeeming holder the quantity of the 

underlying commodity and/or cash. 

Upon termination of the Fund, the 

Shares will be removed from listing. 

The Trustee, Delaware Trust Company, 

is a trust company having substantial 

capital and surplus and the experience 

and facilities for handling corporate 

trust business, as required under Rule 

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

will be made to the trustee without prior 

notice to and approval of the Exchange. 

The Exchange also notes that, pursuant 

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

Exchange nor any agent of the Exchange 

shall have any liability for damages, 

claims, losses or expenses caused by 

any errors, omissions or delays in 

calculating or disseminating any 

underlying commodity value, the 

current value of the underlying 

commodity required to be deposited to 

the Fund in connection with issuance of 

Commodity-Based Trust Shares; 

resulting from any negligent act or 

omission by the Exchange, or any agent 

of the Exchange, or any act, condition or 

cause beyond the reasonable control of 

the Exchange, its agent, including, but 

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

extraordinary weather conditions; war; 

insurrection; riot; strike; accident; 

action of government; communications 

or power failure; equipment or software 

malfunction; or any error, omission or 

delay in the reports of transactions in an 

underlying commodity. Finally, as 

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

Exchange notes that any registered 

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

Shares must file with the Exchange in 

a manner prescribed by the Exchange 

and keep current a list identifying all 

accounts for trading in an underlying 

commodity, related commodity futures 

or options on commodity futures, or any 

other related commodity derivatives, 

which the registered Market Maker may 

have or over which it may exercise 

investment discretion. No registered 

Market Maker shall trade in an 

underlying commodity, related 

commodity futures or options on 

commodity futures, or any other related 

commodity derivatives, in an account in 

which a registered Market Maker, 

directly or indirectly, controls trading 

activities, or has a direct interest in the 

profits or losses thereof, which has not 

been reported to the Exchange as 

required by this Rule. In addition to the 

existing obligations under Exchange 

rules regarding the production of books 

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

registered Market Maker in CommodityBased Trust Shares shall make available 

to the Exchange such books, records or 

other information pertaining to 

transactions by such entity or registered 

or non-registered employee affiliated 

with such entity for its or their own 

accounts for trading the underlying 

physical commodity, related commodity 

futures or options on commodity 

futures, or any other related commodity 

derivatives, as may be requested by the 

Exchange. 

The Exchange is able to obtain 

information regarding trading in the 

Shares and the underlying bitcoin, 

Bitcoin Futures contracts, options on 

Bitcoin Futures, or any other bitcoin 

derivative through members acting as 

registered Market Makers, in connection 

with their proprietary or customer 

trades. 

As a general matter, the Exchange has 

regulatory jurisdiction over its members, 

and their associated persons. The 

Exchange also has regulatory 


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70For a list of the current members and affiliate 

members of ISG, see www.isgportal.com. 

71Regular Trading Hours is the time between 9:30 

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

72 15 U.S.C. 78f. 

73 15 U.S.C. 78f(b)(5). 

jurisdiction over any person or entity 

controlling a member, as well as a 

subsidiary or affiliate of a member that 

is in the securities business. A 

subsidiary or affiliate of a member 

organization that does business only in 

commodities would not be subject to 

Exchange jurisdiction, but the Exchange 

could obtain information regarding the 

activities of such subsidiary or affiliate 

through surveillance sharing agreements 

with regulatory organizations of which 

such subsidiary or affiliate is a member. 

Trading Halts 

With respect to trading halts, the 

Exchange may consider all relevant 

factors in exercising its discretion to 

halt or suspend trading in the Shares. 

The Exchange will halt trading in the 

Shares under the conditions specified in 

BZX Rule 11.18. Trading may be halted 

because of market conditions or for 

reasons that, in the view of the 

Exchange, make trading in the Shares 

inadvisable. These may include: (1) the 

extent to which trading is not occurring 

in the bitcoin underlying the Shares; or 

(2) whether other unusual conditions or 

circumstances detrimental to the 

maintenance of a fair and orderly 

market are present. Trading in the 

Shares also will be subject to Rule 

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

circumstances under which trading in 

the Shares may be halted. 

If the IIV or the value of the Reference 

Rate 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 Reference Rate 

occurs. If the interruption to the 

dissemination of the IIV or the value of 

the Reference Rate persists past the 

trading day in which it occurred, the 

Exchange will halt trading no later than 

the beginning of the trading day 

following the interruption. 

In addition, if the Exchange becomes 

aware that the NAV with respect to the 

Shares is not disseminated to all market 

participants at the same time, it will halt 

trading in the Shares until such time as 

the NAV is available to all market 

participants. 

Trading Rules 

The Exchange deems the Shares to be 

equity securities, thus rendering trading 

in the Shares subject to the Exchange’s 

existing rules governing the trading of 

equity securities. BZX will allow trading 

in the Shares during all trading sessions 

on the Exchange. The Exchange has 

appropriate rules to facilitate 

transactions in the Shares during all 

trading sessions. As provided in BZX 

Rule 11.11(a) the minimum price 

variation for quoting and entry of orders 

in securities traded on the Exchange is 

$0.01 where the price is greater than 

$1.00 per share or $0.0001 where the 

price is less than $1.00 per share. The 

Shares of the Fund will conform to the 

initial and continued listing criteria set 

forth in BZX Rule 14.11(e)(4). 

Surveillance 

The Exchange represents 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. FINRA 

conducts certain cross-market 

surveillances on behalf of the Exchange 

pursuant to a regulatory services 

agreement. The Exchange is responsible 

for FINRA’s performance under this 

regulatory services agreement. 

The Exchange or FINRA, on behalf of 

the Exchange, or both, will 

communicate as needed regarding 

trading in the Shares and Bitcoin 

Futures with other markets and other 

entities that are members of the ISG, and 

the Exchange, or FINRA on behalf of the 

Exchange, or both, may obtain trading 

information regarding trading in the 

Shares and Bitcoin Futures from such 

markets and other entities.70 The 

Exchange may obtain information 

regarding trading in the Shares and 

Bitcoin Futures via 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. 

In addition, the Exchange also has a 

general policy prohibiting the 

distribution of material, non-public 

information by its employees. 

The issuer has represented to the 

Exchange that it will advise the 

Exchange of any failure by the Fund 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 Fund or the Shares are not in 

compliance with the applicable listing 

requirements, the Exchange will 

commence delisting procedures under 

Exchange Rule 14.12. 

Information Circular 

Prior to the commencement of 

trading, the Exchange will inform its 

members in an Information Circular of 

the special characteristics and risks 

associated with trading the Shares. 

Specifically, the Information Circular 

will discuss the following: (i) the 

procedures for the creation and 

redemption of Creation Baskets (and 

that the Shares are not individually 

redeemable); (ii) BZX Rule 3.7, which 

imposes suitability obligations on 

Exchange members with respect to 

recommending transactions in the 

Shares to customers; (iii) how 

information regarding the IIV and the 

Fund’s NAV are disseminated; (iv) the 

risks involved in trading the Shares 

outside of Regular Trading Hours 71

when an updated IIV will not be 

calculated or publicly disseminated; (v) 

the requirement that members deliver a 

prospectus to investors purchasing 

newly issued Shares prior to or 

concurrently with the confirmation of a 

transaction; and (vi) trading 

information. The Information Circular 

will also reference the fact that there is 

no regulated source of last sale 

information regarding bitcoin, that the 

Commission has no jurisdiction over the 

trading of bitcoin as a commodity, and 

that the CFTC has regulatory 

jurisdiction over the trading of Bitcoin 

Futures contracts and options on 

Bitcoin Futures contracts. 

In addition, the Information Circular 

will advise members, prior to the 

commencement of trading, of the 

prospectus delivery requirements 

applicable to the Shares. Members 

purchasing the Shares for resale to 

investors will deliver a prospectus to 

such investors. The Information Circular 

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

the Commission from any rules under 

the Act. 

2. Statutory Basis 

The Exchange believes that the 

proposal is consistent with section 6(b) 

of the Act 72 in general and section 

6(b)(5) of the Act 73 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 


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74As the Exchange has stated in a number of 

other public documents, it continues to believe that 

bitcoin is resistant to price manipulation and that 

‘‘other means to prevent fraudulent and 

manipulative acts and practices’’ exist to justify 

dispensing with the requisite surveillance sharing 

agreement. The geographically diverse and 

continuous nature of bitcoin trading render it 

difficult and prohibitively costly to manipulate the 

price of bitcoin. The fragmentation across bitcoin 

platforms, the relatively slow speed of transactions, 

and the capital necessary to maintain a significant 

presence on each trading platform make 

manipulation of bitcoin prices through continuous 

trading activity challenging and impractical. To the 

extent that there are bitcoin trading platforms 

engaged in or allowing wash trading or other 

activity intended to manipulate the price of bitcoin 

on other markets, such pricing does not normally 

impact prices on other trading platforms because 

participants will generally ignore markets with 

quotes that they deem non-executable. Moreover, 

the linkage between the bitcoin markets and the 

presence of arbitrageurs in those markets means 

that the manipulation of the price of bitcoin price 

on any single venue would require manipulation of 

the global bitcoin price in order to be effective. 

Arbitrageurs must have funds distributed across 

multiple trading platforms in order to take 

advantage of temporary price dislocations, thereby 

making it unlikely that there will be strong 

concentration of funds on any particular bitcoin 

trading platform or OTC platform. As a result, the 

potential for manipulation on a trading platform 

would require overcoming the liquidity supply of 

such arbitrageurs who are effectively eliminating 

any cross-market pricing differences. 

75As 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 Wilshire Phoenix Disapproval). 

76 Id. 

77See 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. 

general, to protect investors and the 

public interest. 

The Commission has approved 

numerous series of Trust Issued 

Receipts, including Commodity-Based 

Trust Shares, to be listed on U.S. 

national securities exchanges. In order 

for any proposed rule change from an 

exchange to be approved, the 

Commission must determine that, 

among other things, the proposal is 

consistent with the requirements of 

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

including: (i) the requirement that a 

national securities exchange’s rules are 

designed to prevent fraudulent and 

manipulative acts and practices; 74 and 

(ii) the requirement that an exchange 

proposal be designed, in general, to 

protect investors and the public interest. 

The Exchange believes that this 

proposal is consistent with the 

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

Act and that this filing, in conjunction 

with precedent filings, sufficiently 

demonstrates that the CME Bitcoin 

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 75 with a regulated 

market of significant size. Both the 

Exchange and CME are members of ISG. 

The only remaining issue to be 

addressed is whether the Bitcoin 

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.76

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.77

(a) Manipulation of the ETP 

According to the research and 

analysis presented above, the Bitcoin 

Futures market is the leading market for 

bitcoin price formation. Where Bitcoin 

Futures lead the price in the spot market 

such that a potential manipulator of the 

bitcoin spot market (beyond just the 

constituents of the Reference Rate) 

would have to participate in the Bitcoin 

Futures market, it follows that a 

potential manipulator of the Shares 

would similarly have to transact in the 

Bitcoin Futures market because the 

Reference Rate is based on spot prices. 

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. 

(b) Predominant Influence on Prices in 

Spot and Bitcoin Futures 

The Exchange and Sponsor also 

believe that trading in the Shares would 

not be the predominant influence on 

prices in the Bitcoin Futures market or 

spot market for a number of reasons, 

including the significant daily trading 

volume in the Bitcoin Futures market, 

the size of bitcoin’s market 

capitalization, and the significant 

liquidity available in the spot market. In 

addition to the Bitcoin Futures market 

data points cited above, the spot market 

for bitcoin is also very liquid. As the 

court found in the Grayscale Order, the 

Exchange and the Sponsor submit that 

‘‘[b]ecause the spot market is deeper and 

more liquid than the futures market, 

manipulation should be more difficult, 

not less.’’ 

(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 in this case, in 

addition to the existence of a 

surveillance sharing agreement that 

meets the Commission’s previously 

articulated standards. 


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78As defined in Rule 11.23(a)(3), the term ‘‘BZX 

Official Closing Price’’ shall mean the price 

disseminated to the consolidated tape as the market 

center closing trade. 

(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 

bitcoin through OTC Bitcoin Funds has 

grown into the tens of billions of 

dollars, including through Bitcoin 

Futures ETFs. With that growth, so too 

has grown the quantifiable investor 

protection issues to U.S. investors 

including in connection with roll costs 

for Bitcoin Futures ETFs and premium/ 

discount volatility and management fees 

for OTC Bitcoin Funds. The Exchange 

believes that the concerns related to the 

prevention of fraudulent and 

manipulative acts and practices have 

been sufficiently addressed for this 

proposal to be consistent with the Act 

and, to the extent that the Commission 

disagrees with that assertion, such 

concerns are now 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 to access bitcoin in a regulated 

and transparent exchange-traded vehicle 

that would act to limit risk and benefit 

U.S. investors by: (i) reducing premium 

and discount volatility as compared to 

OTC investment vehicles; (ii) increasing 

competitive pressure on management 

fees resulting in fee compression/ 

reductions; (iii) reducing risks and costs 

as compared to those associated with 

investing in Bitcoin Futures ETFs and 

operating companies that represent 

imperfect proxies for bitcoin exposure; 

and (iv) providing an alternative to 

custodying spot bitcoin. 

Commodity-Based Trust Shares 

The Exchange believes that the 

proposed rule change is designed to 

prevent fraudulent and manipulative 

acts and practices in that the Shares will 

be listed on the Exchange pursuant to 

the initial and continued listing criteria 

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

Exchange believes that its surveillance 

procedures are adequate to properly 

monitor the trading of the Shares on the 

Exchange during all trading sessions 

and to deter and detect violations of 

Exchange rules and the applicable 

federal securities laws. Trading of the 

Shares through the Exchange will be 

subject to the Exchange’s surveillance 

procedures for derivative products, 

including Commodity-Based Trust 

Shares. The issuer has represented to 

the Exchange that it will advise the 

Exchange of any failure by the Fund 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 Fund or the Shares are not in 

compliance with the applicable listing 

requirements, the Exchange will 

commence delisting procedures under 

Exchange Rule 14.12. The Exchange 

may obtain information regarding 

trading in the Shares and listed bitcoin 

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 bitcoin and 

will be available regarding the Fund and 

the Shares. The website for the Fund, 

which will be publicly accessible at no 

charge, will contain the following 

information: (a) the current NAV per 

Share daily and the prior business day’s 

NAV and the reported closing price; (b) 

the BZX Official Closing Price 78 in 

relation to the NAV as of the time the 

NAV is calculated and a calculation of 

the premium or discount of such price 

against such NAV; (c) data in chart form 

displaying the frequency distribution of 

discounts and premiums of the Official 

Closing Price against the NAV, within 

appropriate ranges for each of the four 

previous calendar quarters (or for the 

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

prospectus; and (e) other applicable 

quantitative information. The 

aforementioned information will be 

published as of the close of business 

available on the Fund’s website at 

https://www.franklintempleton.com/ 

investments/options/exchange-tradedfunds/products/39639/SINGLCLASS/ 

franklin-bitcoin-etf/EZBC, or any 

successor thereto. The Fund will also 

disseminate its holdings on a daily basis 

on its website. 

The IIV will be calculated by using 

the prior day’s closing NAV per Share 

as a base and updating that value during 

Regular Trading Hours to reflect 

changes in the value of the Fund’s 

bitcoin holdings during the trading day, 

which is based on the CME CF Bitcoin 

Real Time Index (‘‘BRTI’’). The IIV 

disseminated during Regular Trading 

Hours should not be viewed as an actual 

real-time update of the NAV, which will 

be calculated only once at the end of 

each trading day. The IIV will be widely 

disseminated on a per Share basis every 

15 seconds during the Exchange’s 

Regular Trading Hours through the 

facilities of the consolidated tape 

association (CTA) and Consolidated 

Quotation System (CQS) high speed 

lines. In addition, the IIV will be 

available through on-line information 

services such as Bloomberg and Reuters. 

The price of bitcoin will be made 

available by one or more major market 

data vendors, updated at least every 15 

seconds during Regular Trading Hours. 

As noted above, the Reference Rate is 

calculated daily and aggregates the 

notional value of bitcoin trading activity 

across major bitcoin spot trading 

platforms. Reference Rate data, the 

Reference Rate value, and the 

description of the Reference Rate are 

based on information made publicly 

available by the Reference Rate Provider 

on its website at https://www.cfbench

marks.com. 

Quotation and last sale information 

for bitcoin is widely disseminated 

through a variety of major market data 

vendors, including Bloomberg and 

Reuters. Information relating to trading, 

including price and volume 

information, in bitcoin is available from 

major market data vendors and from the 

trading platforms on which bitcoin are 

traded. Depth of book information is 

also available from bitcoin trading 

platforms. The normal trading hours for 

bitcoin trading platforms are 24 hours 

per day, 365 days per year. 

Information regarding market price 

and trading volume of the Shares will be 

continually available on a real-time 

basis throughout the day on brokers’ 

computer screens and other electronic 

services. Information regarding the 

previous day’s closing price and trading 

volume information for the Shares will 

be published daily in the financial 

section of newspapers. Quotation and 

last-sale information regarding the 

Shares will be disseminated through the 

facilities of the Consolidated Tape 

Association (‘‘CTA’’). 

In sum, the Exchange believes that 

this proposal is consistent with the 

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

Act, that this filing sufficiently 

demonstrates that the CME Bitcoin 

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. 

The Exchange believes that the 

proposal is, in particular, designed to 


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Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2387 

79 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. 97461 

(May 9, 2023), 88 FR 31045. Comments received on 

the proposed rule change can be found at: https:// 

www.sec.gov/comments/sr-cboebzx-2023-028/ 

srcboebzx2023028.htm. 

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

5See Securities Exchange Act Release No. 97732, 

88 FR 40877 (June 22, 2023). 

6See Securities Exchange Act Release No. 98112, 

88 FR 55743 (Aug. 16, 2023). 

protect investors and the public interest. 

The investor protection issues for U.S. 

investors has grown significantly over 

the last several years, through roll costs 

for Bitcoin Futures ETFs and premium/ 

discount volatility and management fees 

for OTC Bitcoin Funds. As discussed 

herein, this growth investor protection 

concerns need to be reevaluated and 

rebalanced with the prevention of 

fraudulent and manipulative acts and 

practices concerns that previous 

disapproval orders have relied upon. 

Finally, the Exchange notes that in 

addition to all of the arguments herein 

which it believes sufficiently establish 

the CME Bitcoin Futures market as a 

regulated market of significant size, it is 

logically inconsistent to find that the 

CME Bitcoin Futures market is a 

significant market as it relates to the 

CME Bitcoin Futures market, but not a 

significant market as it relates to the 

bitcoin spot market for the numerous 

reasons laid out above. 

For the above reasons, the Exchange 

believes that the proposed rule change 

is consistent with the requirements of 

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

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purpose of the Act. The Exchange 

notes that the proposed rule change, 

rather will facilitate the listing and 

trading of an additional exchange-traded 

product that will enhance competition 

among both market participants and 

listing venues, to the benefit of investors 

and the marketplace. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange neither solicited nor 

received comments on the proposed 

rule change. 

III. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

CboeBZX–2023–072 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to file 

number SR–CboeBZX–2023–072. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

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

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

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

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–CboeBZX–2023–072 and should be 

submitted on or before February 2, 2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.79

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–00509 Filed 1–11–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–99288; File No. SRCboeBZX–2023–028] 

Self-Regulatory Organizations; Cboe 

BZX Exchange, Inc.; Notice of Filing of 

Amendment No. 5 to a Proposed Rule 

Change To List and Trade Shares of 

the ARK 21Shares Bitcoin ETF Under 

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

January 8, 2024. 

On April 25, 2023, Cboe BZX 

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

filed with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

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

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

19b–4 thereunder,2 a proposed rule 

change to list and trade shares 

(‘‘Shares’’) of the ARK 21Shares Bitcoin 

ETF under BZX Rule 14.11(e)(4), 

Commodity-Based Trust Shares. The 

proposed rule change was published for 

comment in the Federal Register on 

May 15, 2023.3 On June 15, 2023, 

pursuant to section 19(b)(2) of the Act,4

the Commission designated a longer 

period within which to approve the 

proposed rule change, disapprove the 

proposed rule change, or institute 

proceedings to determine whether to 

disapprove the proposed rule change.5

On June 28, 2023, the Exchange filed 

Amendment No. 1 to the proposed rule 

change, which amended and replaced 

the proposed rule change in its entirety. 

On June 30, 2023, the Exchange filed 

Amendment No. 2 to the proposed rule 

change, which amended and replaced 

the proposed rule change, as modified 

by Amendment No. 1, in its entirety. On 

July 11, 2023, the Exchange filed 

Amendment No. 3 to the proposed rule 

change, which amended and replaced 

the proposed rule change, as modified 

by Amendment No. 2, in its entirety. On 

August 11, 2023, the Commission 

noticed Amendment No. 3 and 

instituted proceedings to determine 

whether to disapprove the proposed 

rule change, as modified by Amendment 

No. 3.6 On September 26, 2023, the 

Commission designated a longer period 

for Commission action on the proposed 


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