2338 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

43 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. 97899 

(July 13, 2023), 88 FR 46249. Comments on the 

proposed rule change are available at: https://

www.sec.gov/comments/sr-cboebzx-2023-044/ 

srcboebzx2023044.htm. 

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

5See Securities Exchange Act Release No. 98263, 

88 FR 61642 (Sept. 7, 2023). 

6See Securities Exchange Act Release No. 98639, 

88 FR 68888 (Oct. 4, 2023). 

7The Trust was formed as a Delaware statutory 

trust on March 17, 2021, and is operated as a 

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

Trust has no fixed termination date. 

inconsistent to find that the Bitcoin 

Futures market is a significant market as 

it relates to the 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 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 

No written comments were either 

solicited or received. 

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– 

NASDAQ–2023–016 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to file 

number SR–NASDAQ–2023–016. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

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

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

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

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–NASDAQ–2023–016 and should be 

submitted on or before February 2, 2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.43

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–00508 Filed 1–11–24; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–99290; File No. SR– 

CboeBZX–2023–044] 

Self-Regulatory Organizations; Cboe 

BZX Exchange, Inc.; Notice of Filing of 

Amendment No. 3 to a Proposed Rule 

Change To List and Trade Shares of 

the Fidelity Wise Origin Bitcoin Fund 

Under BZX Rule 14.11(e)(4), 

Commodity-Based Trust Shares 

January 8, 2024. 

On June 30, 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 Fidelity Wise Origin 

Bitcoin Fund (f/k/a Wise Origin Bitcoin 

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

Commodity-Based Trust Shares. On July 

11, 2023, the Exchange filed 

Amendment No. 1 to the proposed rule 

change, which amended and replaced 

the proposed rule change in its entirety. 

On July 13, 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. 

The proposed rule change, as modified 

by Amendment No. 2, was published for 

comment in the Federal Register on July 

19, 2023.3 On August 31, 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, as modified by 

Amendment No. 2.5 On September 28 

2023, the Commission instituted 

proceedings to determine whether to 

disapprove the proposed rule change, as 

modified by Amendment No. 2.6 On 

January 5, 2024, the Exchange filed 

Amendment No. 3 to the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the Exchange. Amendment No. 3 

amended and replaced the proposed 

rule change, as modified by Amendment 

No. 2, in its entirety. The Commission 

is publishing this notice to solicit 

comments on the proposed rule change, 

as modified by Amendment No. 3, from 

interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

Cboe BZX Exchange, Inc. (‘‘BZX’’ or 

the ‘‘Exchange’’) is filing with the 

Securities and Exchange Commission 

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

rule change to list and trade shares of 

the Fidelity Wise Origin Bitcoin Fund 

(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. 


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Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2339 

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 draft Amendment No. 3 to the Registration 

Statement on Form S–1, dated December 29, 2023, 

submitted to the Commission by the Sponsor on 

behalf of the Trust. The descriptions of the Trust, 

the Shares, and the Index (as defined below) 

contained herein are based, in part, on information 

in the Registration Statement. The Registration 

Statement is not yet effective, and the Shares will 

not trade on the Exchange until such time that the 

Registration Statement is effective. 

11See above. 

12See above. 

13See Exchange Rule 14.11(f)(1). 

14See Securities Exchange Act Release No. 83723 

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

proposal was subsequently disapproved by the 

Commission. See Securities Exchange Act Release 

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

2018) (the ‘‘Winklevoss Order’’). 

15See streetTRACKS Gold Shares, Exchange Act 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2009–28); ETFS Palladium Trust, Exchange Act 

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

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

(notice of proposed rule change included NYSE 

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

palladium futures exchanges are the NYMEX and 

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

the largest exchange in the world for trading 

precious metals futures and options,’’ and that 

NYSE Arca ‘‘may obtain trading information via the 

Intermarket Surveillance Group,’’ of which NYMEX 

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

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

2009)); ETFS Platinum Trust, Exchange Act Release 

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

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

proposed rule change included NYSE Arca’s 

representation that ‘‘[t]he most significant platinum 

futures exchanges are the NYMEX and the Tokyo 

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

exchange in the world for trading precious metals 

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

obtain trading information via the Intermarket 

Surveillance Group,’’ of which NYMEX is a 

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

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

Sprott Physical Gold Trust, Exchange Act Release 

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

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

proposed rule change included NYSE Arca’s 

representation that the COMEX is one of the ‘‘major 

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

trading information via the Intermarket 

Surveillance Group,’’ and that NYMEX, of which 

COMEX is a division, is a member of the 

Intermarket Surveillance Group, Exchange Act 

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

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

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

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

NYSEArca–2010–84); ETFS Precious Metals Basket 

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

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

NYSEArca–2010–56) (notice of proposed rule 

change included NYSE Arca’s representation that 

‘‘the most significant gold, silver, platinum and 

palladium futures exchanges are the COMEX and 

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

trading information via the Intermarket 

Surveillance Group,’’ of which COMEX is a 

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

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

ETFS White Metals Basket Trust, Exchange Act 

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

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

(notice of proposed rule change included NYSE 

Arca’s representation that ‘‘the most significant 

silver, platinum and palladium futures exchanges 

are the COMEX and the TOCOM’’ and that NYSE 

Arca ‘‘may obtain trading information via the 

Intermarket Surveillance Group,’’ of which COMEX 

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

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

2010)); ETFS Asian Gold Trust, Exchange Act 

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

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

(notice of proposed rule change included NYSE 

Arca’s representation that ‘‘the most significant gold 

futures exchanges are the COMEX and the Tokyo 

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

exchange in the world for trading precious metals 

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

obtain trading information via the Intermarket 

Surveillance Group,’’ of which COMEX is a 

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

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

2010)); Sprott Physical Platinum and Palladium 

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

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

NYSEArca–2012–111) (notice of proposed rule 

change included NYSE Arca’s representation that 

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

two major exchanges: The New York Mercantile 

Exchange . . . and Tokyo Commodities Exchange’’ 

and that NYSE Arca ‘‘may obtain trading 

information via the Intermarket Surveillance 

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

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

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

1 oz. Gold Redeemable Trust, Exchange Act Release 

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

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

proposed rule change included NYSE Arca’s 

representation that NYSE Arca ‘‘may obtain trading 

information via the Intermarket Surveillance 

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

gold futures are traded on COMEX and the Tokyo 

Continued 

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. 3 to SR– 

CboeBZX–2023–044 amends and 

replaces in its entirety the proposal as 

originally submitted on June 30, 2023 

and as amended by Amendment No. 1 

on July 11, 2023 and Amendment No. 2 

on July 13, 2023. The Exchange submits 

this Amendment No. 3 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 FD Funds 

Management LLC is the sponsor of the 

Trust (‘‘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 Fidelity 

Digital Assets Services, LLC (‘‘FDAS’’), 

a regulated custodian licensed by the 

New York Department of Financial 

Services, will be responsible for custody 

of the Trust’s bitcoin (the ‘‘Custodian’’). 

The Trust is not permitted or required 

to register under the Investment 

Company Act of 1940, as amended (the 

‘‘1940 Act’’), and therefore is not subject 

to regulation under the 1940 Act.11

Further, the Registration Statement 

states that the Trust will not hold or 

trade in commodity interests regulated 

by the Commodity Exchange Act of 

1936, as amended (the ‘‘CEA’’), and 

therefore is not a commodity pool for 

purposes of the CEA.12 The Exchange 

represents that the Shares satisfy the 

requirements of BZX Rule 14.11(e)(4) 

and thereby qualify for listing on the 

Exchange. 

As further discussed below, the 

Commission has historically approved 

or disapproved exchange filings to list 

and trade series of Trust Issued 

Receipts,13 including spot-based 

Commodity-Based Trust Shares, on the 

basis of whether the listing exchange 

has in place a comprehensive 

surveillance sharing agreement with a 

regulated market of significant size 

related to the underlying commodity to 

be held.14 Prior orders from the 

Commission have pointed out that in 

every prior approval order for 

Commodity-Based Trust Shares, there 

has been a derivatives market that 

represents the regulated market of 

significant size, generally a Commodity 

Futures Trading Commission (the 

‘‘CFTC’’) regulated futures market.15


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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). 

16See Exchange Rule 14.11(e)(5). 

17See Winklevoss Order at 37592. 

18See 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’’). 

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 

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.’’ 

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 16

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.’’ 17

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 

1933.18 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, an odd tautological 

truth that is also inconsistent with 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. 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. 

Finally, as discussed in greater detail 

below, by using professional custodians 

and other service providers, the Trust 

provides investors interested in 

exposure to bitcoin with important 

protections that are not always available 

to investors that invest directly in 

bitcoin, including protection against 

insolvency of non-qualified custodians, 

cyber-attacks, and other risks. If U.S. 

investors had access to vehicles such as 

the Trust for their bitcoin investments, 

instead of directing their bitcoin 

investments into loosely regulated 

offshore platforms (such as loosely 

regulated centralized exchanges that 

have since faced bankruptcy 

proceedings or other insolvencies), then 

countless investors could have 

protected their principal investments in 

bitcoin and thus benefited. 

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 

cap 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. 

Bitcoin Futures contracts did not exist. 

The CFTC had determined that bitcoin 

is a commodity,21 but had not engaged 


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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 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). 

27See 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. 

28See 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. 

29See, 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. 

30As of December 1, 2021, the total market cap 

of all bitcoin in circulation was approximately 

$1.08 trillion. 

31 Data sourced from the CME Bitcoin Futures 

Report: 19 Nov 2021, available at: https://

www.cmegroup.com/ftp/bitcoinfutures/Bitcoin_

Futures_Liquidity_Report.pdf. 

32The CFTC’s annual report for Fiscal Year 2020 

(which ended on September 30, 2020) noted that 

the CFTC ‘‘continued to aggressively prosecute 

misconduct involving digital assets that fit within 

the CEA’s definition of commodity’’ and ‘‘brought 

a record setting seven cases involving digital 

assets.’’ See CFTC FY2020 Division of Enforcement 

Annual Report, available at: https://www.cftc.gov/ 

media/5321/DOE_FY2020_AnnualReport_120120/ 

download. Additionally, the CFTC filed on October 

1, 2020, a civil enforcement action against the 

owner/operators of the BitMEX trading platform, 

which was one of the largest bitcoin derivative 

exchanges. See CFTC Release No. 8270–20 (October 

1, 2020) available at: https://www.cftc.gov/ 

PressRoom/PressReleases/8270-20. 

33See https://www.dfs.ny.gov/virtual_currency_

businesses. 

34See U.S. Department of the Treasury 

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

Settlement with BitGo, Inc. for Apparent Violations 

of Multiple Sanctions Programs Related to Digital 

Currency Transactions’’ (December 30, 2020) 

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

126/20201230_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. 

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

Fast forward to today and the digital 

assets financial ecosystem, including 

bitcoin, has progressed significantly. 

The development of a regulated market 

for digital asset securities has 

significantly evolved, with market 

participants having conducted 

registered public offerings of both 

digital asset securities 25 and shares in 

investment vehicles holding Bitcoin 

Futures, including Bitcoin Futures 

exchange-traded funds (‘‘ETFs’’) (as 

defined below). Additionally, licensed 

and regulated service providers have 

emerged to provide fund custodial 

services for digital assets, among other 

services. For example, in May 2021, the 

staff of the Commission released a 

statement permitting open-end mutual 

funds to invest in cash-settled Bitcoin 

Futures; in December 2020, the 

Commission adopted a conditional noaction position permitting certain 

special purpose broker-dealers to 

custody digital asset securities under 

Rule 15c3–3 under the Exchange Act 

(the ‘‘Custody Statement’’); 26 in 

September 2020, the staff of the 

Commission released a no-action letter 

permitting certain broker-dealers to 

operate a non-custodial Alternative 

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

securities, subject to specified 

conditions; 27 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,28 and 

multiple transfer agents who provide 

services for digital asset securities 

registered with the Commission.29

Outside the Commission’s purview, 

the regulatory landscape has 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 

cap of over $1 trillion.30 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 Bitcoin Futures on a daily basis and 

notional volume was never below $670 

million.31 Open interest was over $1.4 

billion for the entirety of the period and 

at one point was over $2 billion. 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.32 As 

of February 14, 2023 the NYDFS has 

granted no fewer than thirty-four 

BitLicenses,33 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 the 

sanctions laws in connection with the 

provision of wallet management 

services for digital assets.34


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35See e.g., ‘‘Bridgewater: Our Thoughts on 

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

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

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

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

www.cnbc.com/2020/10/22/-paul-tudor-jones-sayshe-likes-bitcoin-even-more-now-rally-still-in-thefirst-inning.html. 

36See 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-DigitalAssets-Report-2022.pdf. 

37See 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. 

38The largest OTC Bitcoin Fund has an AUM of 

$23 billion. The premium and discount for OTC 

Bitcoin Funds is known to move rapidly. For 

example, over the period of 12/21/20 to 1/21/20, 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 volatility. 

39A 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. Such operating 

companies, however, are imperfect bitcoin proxies 

and provide investors with partial bitcoin exposure 

paired with a host of additional risks associated 

with whichever operating company they decide to 

purchase. Additionally, the disclosures provided by 

such operating companies with respect to risks 

relating to their bitcoin holdings are generally 

substantially smaller than the registration statement 

of a bitcoin ETP, including the Registration 

Statement, typically amounting to a few sentences 

of narrative description and a handful of risk 

factors. In other words, investors seeking bitcoin 

exposure through publicly traded companies are 

gaining only partial exposure to bitcoin and are not 

fully benefitting from the risk disclosures and 

associated investor protections that come from the 

securities registration process. 

40The 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. 41See FTX Trading Ltd., et al., Case No. 22– 

11068. 42See Celsius Network LLC, et al., Case No. 22– 

10964. 43See BlockFi Inc., Case No. 22–19361. 44See 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: large insurance 

companies, asset managers, university 

endowments, pension funds, and even 

historically bitcoin skeptical fund 

managers 35 have allocated to bitcoin. 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.’’ 36 The largest over-thecounter 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.37

Established companies like Tesla, Inc., 

MicroStrategy Incorporated, and Square, 

Inc., among others, have made 

substantial investments in bitcoin. The 

foregoing examples demonstrate that 

bitcoin has gained mainstream usage 

and recognition. 

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; 38 (iii) purchasing shares of 

operating companies that they believe 

will provide proxy exposure to bitcoin 

with limited disclosure about the 

associated risks; 39 or (iv) purchasing 

Bitcoin Futures 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.40

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, 41

Celsius Network LLC,42 BlockFi Inc.43

and Voyager Digital Holdings, Inc.44

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 

cryptoasset space. As further described 

below, the Trust, like all other series of 

Commodity-Based Trust Shares, is 

designed to protect investors against the 

risk of losses through fraud and 

insolvency that arise by holding digital 

assets, including 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. 

exchange listed ETP. Further to this 


khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2343 

45See 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. 

46As 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. 

47See Teucrium Approval at 21679. 

48See 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.fjXz9eAQW9zol0qpzhXDrrlpIVdoClo

LXbLjl44-1635476946-0-gqNtZGzNApCjcnBszQql. 

point, the lack of a U.S.-listed Spot 

Bitcoin ETP is not preventing U.S. funds 

from gaining exposure to bitcoin— 

several U.S. ETFs are using Canadian 

bitcoin ETPs to gain exposure to spot 

bitcoin. 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 

flawed 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 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 a 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.45 Leaving aside the 

analysis of that standard until later in 

this proposal,46 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.47

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 Bitcoin Futures. If CME is 

able to detect such attempts at 

manipulation in the complex and 

interconnected spot bitcoin market, how 

would such an ability to detect 

attempted manipulation and the utility 

in sharing that information with the 

listing exchange apply only to Bitcoin 

Futures ETFs and not Spot Bitcoin 

ETPs? Stated a different way, given that 

there is significant trading volume on 

numerous bitcoin trading platforms that 

are not part of the CME CF Bitcoin 

Reference Rate and that arbitrage 

opportunities across bitcoin trading 

platforms means that such trading 

volume will influence spot bitcoin 

prices across the market and, despite 

this, the Commission still believes that 

CME can detect attempted manipulation 

of the Bitcoin Futures through ‘‘trading 

outside of the CME bitcoin futures 

market,’’ it is clear that such ability 

would apply equally to both Bitcoin 

Futures ETFs and Spot Bitcoin ETPs. To 

take it a step further, such an ability 

would also seem to be a strong 

indication that the CME Bitcoin Futures 

market represents a regulated market of 

significant size. 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 CF Bitcoin Futures. 

The structure of Bitcoin Futures ETFs 

provides negative outcomes for buy and 

hold investors as compared to a Spot 

Bitcoin ETP.48 Specifically, the cost of 

rolling CME Bitcoin Futures contracts 

will cause the Bitcoin Futures ETFs to 

lag the performance of bitcoin itself and, 

at over a billion dollars in assets under 

management, 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, not to 

mention completely changing the risk 

profile associated with such an ETF. 

While Bitcoin Futures ETFs represent a 

useful trading tool, they are clearly a 

sub-optimal structure for U.S. investors 

that are looking for long-term exposure 

to bitcoin that will, based on the 

calculations above, unnecessarily cost 

U.S. investors significant amounts of 

money every year compared to Spot 

Bitcoin ETPs and 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 any objective 

review of the proposals to list Spot 

Bitcoin ETPs compared to the Bitcoin 

Futures ETFs and the Bitcoin Futures 

Approvals would lead to the conclusion 

that Spot Bitcoin ETPs should be 

available to U.S. investors and, as such, 

this proposal and other comparable 

proposals to list and trade Spot Bitcoin 


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49 In August 2017, the Commission’s Office of 

Investor Education and Advocacy warned investors 

about situations where companies were publicly 

announcing events relating to digital coins or 

tokens in an effort to affect the price of the 

company’s publicly traded common stock. See 

https://www.sec.gov/oiea/investor-alerts-andbulletins/ia_icorelatedclaims. 

50See e.g., ‘‘7 public companies with exposure to 

bitcoin’’ (February 8, 2021) available at: https://

finance.yahoo.com/news/7-public-companies-withexposure-to-bitcoin-154201525.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-to-invest-in-bitcoin-without-holdingthe-cryptocurrency-yourself-.html. 

51See, e.g., Tesla 10–K for the year ended 

December 31, 2020, which mentions bitcoin just 

nine times: https://www.sec.gov/ix?doc=/Archives/ 

edgar/data/1318605/000156459021004599/tsla10k_20201231.htm. 

52The CME CF Bitcoin Reference Rate is based on 

a publicly available calculation methodology based 

on pricing sourced from several crypto trading 

platforms, including Bitstamp, Coinbase, Gemini, 

itBit, Kraken, and LMAX Digital. 

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

ETPs should be approved by the 

Commission. Stated simply, U.S. 

investors will continue to 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. 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. While the 1940 Act does 

offer certain investor protections, those 

protections do not relate to mitigating 

potential manipulation of the holdings 

of an ETF in a way that warrants 

distinction between Bitcoin Futures 

ETFs and Spot Bitcoin ETPs. To be 

clear, both the Exchange and Sponsor 

believe that the Bitcoin Futures market 

is a regulated market of significant size 

and that such manipulation concerns 

are mitigated as described throughout 

this proposal. After issuing the Bitcoin 

Futures Approvals which conclude the 

CME Bitcoin Futures market is a 

regulated market of significant size as it 

relates to Bitcoin Futures, the only 

consistent outcome would be approving 

Spot Bitcoin ETPs on the basis that the 

CME Bitcoin Futures market is also a 

regulated market of significant size as it 

relates to the bitcoin spot market. 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. 

Spot and Proxy Exposure to Bitcoin 

Exposure to bitcoin through an ETP 

also presents certain advantages for 

retail investors compared to buying spot 

bitcoin directly. The most notable 

advantage from the Sponsor’s 

perspective is the elimination of the 

need for an individual retail investor to 

either manage their own private keys or 

to hold bitcoin through a 

cryptocurrency trading platform that 

lacks sufficient protections. Typically, 

retail exchanges hold most, if not all, 

retail investors’ bitcoin in ‘‘hot’’ 

(internet-connected) storage and do not 

make any commitments to indemnify 

retail investors or to observe any 

particular cybersecurity standard. 

Meanwhile, a retail investor holding 

spot bitcoin directly in a self-hosted 

wallet may suffer from inexperience in 

private key management (e.g., 

insufficient password protection, lost 

key, etc.), which could cause them to 

lose some or all of their bitcoin 

holdings. Thus, with respect to custody 

of the Trust’s bitcoin assets, the Trust 

presents advantages from an investment 

protection standpoint for retail investors 

compared to owning spot bitcoin 

directly. 

Finally, as described in the 

Background section above, a number of 

operating companies largely engaged in 

unrelated businesses—such as Tesla (a 

car manufacturer) and MicroStrategy (an 

enterprise software company)—have 

announced significant investments in 

bitcoin. Without access to bitcoin ETPs, 

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.49 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.50 Such operating 

companies, however, are imperfect 

bitcoin proxies and provide investors 

with partial bitcoin exposure paired 

with a host of additional risks 

associated with whichever operating 

company they decide to purchase. 

Additionally, the disclosures provided 

by the aforementioned operating 

companies with respect to risks relating 

to their bitcoin holdings are generally 

substantially smaller than the 

registration statement of a bitcoin ETP, 

including the Registration Statement, 

typically amounting to a few sentences 

of narrative description and a handful of 

risk factors.51 In other words, investors 

seeking bitcoin exposure through 

publicly traded companies are gaining 

only partial exposure to bitcoin and are 

not fully benefitting from the risk 

disclosures and associated investor 

protections that come from the 

securities registration process. 

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 $20.07 

billion) compared to 193,182 ($5 

billion), 104,713 ($3.9 billion) 118714 

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

billion) contracts traded in April 2019, 

April 2020, and April 2021, and April 

2022, respectively.53

BILLING CODE 8011–01–P 


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Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2345 

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. 

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. 


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2346 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

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 

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 

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 

(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 


khammond on DSKJM1Z7X2PROD with NOTICESEN12JA24.028</GPH>

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Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2347 

from obtaining this information from, or producing 

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

historically held that joint membership in the 

Intermarket Surveillance Group (‘‘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’’). 

60Self-Regulatory Organizations; Bats BZX 

Exchange, Inc.; Order Setting Aside Action by 

Delegated Authority and Disapproving a Proposed 

Rule Change, as Modified by Amendments No. 1 

and 2, To List and Trade Shares of the Winklevoss 

Bitcoin trust, 83 FR 37579, 37600 (Aug 1, 2018). 

61 Id. 

62Self-Regulatory Organizations; NYSE Arca, 

Inc.; Order Disapproving a Proposed Rule Change, 

as Modified by Amendment No. 1, Relating to the 

Listing and Trading of Shares of the Bitwise Bitcoin 

ETF Trust Under NYSE Arca Rule 8.201–E, 84 FR 

55382, 55411 (Oct 16, 2019). 

63 Id. 

64See 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. 

65See Winklevoss Order at 37594. 

66For a list of the current members and affiliate 

members of ISG, see www.isgportal.com. 

market of significant size. Specifically, 

the Commission has previously stated 

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. 

That is because, where a market of significant 

size exists with respect to derivatives on the 

asset underlying the commodity-trust ETP, 

the Commission believes that there is a 

reasonable likelihood that a person 

attempting to manipulate the ETP by 

manipulating the underlying spot market 

would also have to trade in the derivatives 

market in order to succeed, since arbitrage 

between the derivative and spot markets 

would tend to counter an attempt to 

manipulate the spot market alone.60

The Commission has provided 

illustrative guidance in interpreting the 

terms ‘‘significant market’’ and ‘‘market 

of significant size’’ to include ‘‘a market 

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

there is a reasonable likelihood that a 

person attempting to manipulate the 

ETP would also have to trade on that 

market to successfully manipulate the 

ETP, so a surveillance-sharing 

agreement would assist the ETP listing 

market in detecting and deterring 

misconduct, and (b) it is unlikely that 

trading in the ETP would be the 

predominant influence on prices in that 

market.’’ 61

The Commission has stated in a prior 

disapproval order that ‘‘the lead-lag 

relationship between the Bitcoin 

Futures market and the spot market . . . 

is central to understanding whether it is 

reasonably likely that a would-be 

manipulator of the ETP would need to 

trade on the Bitcoin Futures market to 

successfully manipulate prices on those 

spot platforms that feed into the 

proposed ETP’s pricing mechanism.’’ 62

The Commission further noted that ‘‘in 

particular, if the spot market leads the 

futures market, this would indicate that 

it would not be necessary to trade on the 

futures market to manipulate the 

proposed ETP, even if arbitrage worked 

efficiently, because the futures price 

would move to meet the spot price.’’ 63

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.64

The Exchange believes that this 

proposal is consistent with the 

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

Act and that the Sponsor’s analysis 

demonstrates that the Exchange can 

meet such requirements in that the CME 

Bitcoin Futures Market (i) is a regulated 

market; (ii) has a comprehensive 

surveillance-sharing agreement with the 

Exchange; and (iii) satisfies the 

Commission’s ‘‘significant market’’ 

definition. 

1. The CME Bitcoin Futures Market Is a 

Regulated Market and ISG Member 

The CME is regulated by the CFTC 

and is a member of the Intermarket 

Surveillance Group (‘‘ISG’’), which was 

established to provide a framework for 

sharing information and coordinating 

regulatory efforts among exchanges 

trading securities and related products 

and to address potential intermarket 

manipulations and trading abuses. The 

Commission has previously stated that 

membership by a regulated futures 

exchange in ISG is sufficient to meet the 

surveillance-sharing requirement.65

Both the Exchange and CME are 

members of the Intermarket 

Surveillance Group (the ‘‘ISG’’).66

2. The CME Bitcoin Futures Market Is a 

Market of Significant Size 

Based on the Commission’s prior 

guidance, Sponsor conducted a detailed 

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

trading across markets located globally. 

As discussed below, Sponsor’s analysis 

concludes that the CME Bitcoin Futures 

market is consistently the leading 

market for price discovery across USD 

bitcoin markets located globally, 

including bitcoin spot markets and 

offshore, unregulated Bitcoin Futures 

markets. Thus, Sponsor’s analysis 

supports the conclusion that there is a 

reasonable likelihood that a person 

attempting to manipulate the Shares 

would also have to trade on the CME 

Bitcoin Futures market to manipulate 

the Trust. Sponsor also conducted an 

additional lead-lag analysis including 

data from a recently launched Bitcoin 

Futures-based ETF to evaluate the 

likelihood of whether trading in the 

Trust could become the predominant 

influence on prices in the CME Bitcoin 

Futures market and concluded that it is 

unlikely that trading in the Trust would 

be the predominant influence on prices 

in the CME Bitcoin Futures market. 

Sponsor’s analysis on price discovery 

in the bitcoin spot and futures markets 

is described below. 

Data Description and Sources 

Sponsor obtained tick level trade data 

for bitcoin spot prices and futures prices 

used in its analysis from Coin Metrics 

for the period spanning from January 1, 

2019, to March 31, 2021. Table 1 

summarizes the dataset by trading 

platform, market type, and quote 

currency. 

Sponsor aggregated the tick level 

trades to the one second floor level 

using a volume weighted average price 

(VWAP) approach. Compared to the 

daily/minute level granularity of 

timestamps, Sponsor believes the 

second level can capture more intra-day 

price dynamics and is more useful here 

to investigate price discovery, as both 

arbitrage and manipulative activities 

can occur within a matter of seconds. To 

preprocess the tick level trade data to 

second level granularity, two typical 

methods are often used. One is to use 

the last observed trade price within a 

second, and the other is to use VWAP 

within a second. Since multiple trades 

can occur with simultaneous 

timestamps but with different 

transaction prices, a VWAP can 

represent the price information from 

each trade instead of randomly selecting 

the last price. It is worth mentioning 

that although the price time series’ have 

second level resolution (timestamped to 

seconds), this does not mean that the 

price time series’ values are evenly 

spaced at each second since a market 

may not have trades within every 

second. Given this non-synchronous 

nature of trading and the potential 

model issues arising from utilizing data 


khammond on DSKJM1Z7X2PROD with NOTICES
2348 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

with numerous imputed values, 

Sponsor’s analysis leverages a method 

that eliminates the need for imputation 

for the timestamps without trades. This 

approach allows the model inputs of 

price time series from different markets 

to stay non-synchronous without further 

data processing. 

In order to exclude any impacts 

caused by exchange rate movements, 

Sponsor limited the dataset to BTC– 

USD and BTC–USDT trades. Markets 

with an average correlation lower than 

0.1 to other bitcoin markets, in any 

given quarter, were removed from the 

analysis. For futures markets, Sponsor 

included both ordinary futures and 

perpetuals. Contract frequencies were 

validated and recorded via respective 

trading platform websites, and, for CME 

data, the sponsor compared data from 

the trading platform directly with data 

provided by Coin Metrics to verify 

accuracy. 

Within the ordinary futures market, 

one exchange, quote and contract 

lifespan combination can often have 

same-day trading on contracts with 

different expiration dates. To remove 

price gaps in this market, Sponsor 

constructed a continuous time-series of 

prices by choosing the contract with the 

highest volume per day within an 

exchange, quote, and contract lifespan 

combination. For each combination, 

successive contracts are backwards 

adjusted using the price difference 

between the two contracts at the time of 

rollover. 

TABLE 1—SUMMARY OF INSTRUMENTS

Exchange 

Spot Ordinary 

Futures * 

Perpetual 

Futures 

USD USDT USD USDT USD USDT 

Binance ............................................................................ ✓ ✓ ✓ ✓ ✓ 

Binance.US ...................................................................... ✓ .................... .................... .................... .................... ....................

Bitfinex ............................................................................. ✓ ✓ ✓ 

bitFlyer ............................................................................. ✓ .................... .................... .................... .................... ....................

BitMEX ............................................................................. ✓ ✓ ....................

Bitstamp ........................................................................... ✓ .................... .................... .................... .................... ....................

Bittrex ............................................................................... ✓ .................... .................... .................... .................... ....................

Bybit ................................................................................. ✓ ✓ 

CEX.IO ............................................................................. ✓ .................... .................... .................... .................... ....................

CME ................................................................................. ✓ .................... .................... ....................

Coinbase .......................................................................... ✓ .................... .................... .................... .................... ....................

Deribit ............................................................................... ✓ ✓ ....................

FTX .................................................................................. ✓ ✓ ✓ ....................

Gemini .............................................................................. ✓ .................... .................... .................... .................... ....................

HitBTC .............................................................................. ✓ .................... .................... .................... ....................

Huobi ................................................................................ ✓ ✓ ✓ ✓ 

itBit ................................................................................... ✓ .................... .................... .................... .................... ....................

Kraken .............................................................................. ✓ ✓ ✓ ✓ ....................

LBank ............................................................................... ✓ .................... .................... .................... ....................

Liquid ................................................................................ ✓ .................... .................... .................... .................... ....................

OKEx ................................................................................ ✓ ✓ ✓ ✓ ✓ 

ZB.COM ........................................................................... ✓ .................... .................... .................... ....................

* One trading platform with the same market type and quote currency can have multiple ordinary futures contracts with different expiration cycles/lifespans. 

Research Design 

Price discovery between spot and 

futures markets plays an important role 

in financial research due to its 

association with market maturity. In 

theory, the futures market is expected to 

lead price discovery in established asset 

classes due to its inherent features, such 

as lower transaction fees, built-in 

leverage, unconstrained short-selling, 

and greater transparency. Since Bitcoin 

Futures contracts began trading on 

regulated exchanges in December 2017, 

several academic and market research 

papers have studied spot-futures price 

discovery in bitcoin markets. Sponsor 

started its research by reviewing the 

existing literature. Table 2 summarizes 

the metrics, data ranges, frequency 

levels, and conclusions for thirteen 

papers. 

BILLING CODE 8011–01–P 


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Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2349 


khammond on DSKJM1Z7X2PROD with NOTICESEN12JA24.030</GPH>

Table 2: Previous bitcoin spot/futures price discovery research 

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2350 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

67Buccheri, Giuseppe, Giacomo Bormetti, Fulvio 

Corsi, and Fabrizio Lillo. ‘‘Comment on: Price 

discovery in high resolution.’’ Journal of Financial 

Econometrics 19, no. 3 (2021): 439–451. https://

doi.org/10.1093/jjfinec/nbz008. The authors 

comment on the limitations of using information 

share within markets with trades on high resolution 

frequencies. The paper illustrates why the 

application of a VECM methodology like 

information share would be mis-specified and the 

OLS estimates could be biased because of high 

sparsity in the data. 

BILLING CODE 8011–01–C 

Sponsor noted that each of the studies 

reviewed used metrics derived from the 

Vector Error Correction Model (VECM) 

or an extension of VECM to examine 

price discovery. Within the column of 

metrics, Information Share (IS) 

proposed by Hasbrouk (1995) and 

Component Share (CS) pioneered by 

Gonzalo and Granger (1995) are mostly 

used. Hasbrouk transforms the VECM 

into a vector moving average with a 

common factor component and 

transitory component and defines the 

metric IS to measure the proportion of 

the variance of the permanent 

component of prices coming from each 

market with Cholesky factorization. The 

IS is not unique if switching the order 

of input price data of the underlying 

two markets. To overcome it, Lien and 

Shrestha (2009) use eigenvalue 

decomposition instead of Cholesky 

factorization—this metric is called 

Modified Information Share. Both 

Information Share and Modified 

Information Share are used for pair-wise 

analysis. The extension of Modified 

Information Share to more than two 

markets is called Generalized 

Information Share (Lien and Shrestha, 

2014). Component Share is calculated 

from the normalized orthogonal 

coefficients to the vector of the lagged 

error correlation term in the VECM. 

Fractional Component Share is derived 

similarly to CS but from a version of 

VECM that uses a fractional difference 

operator instead of the first order 

difference operator. Information 

Leadership Share (Yan and Zivot, 2010) 

and Information Leadership Share 

(Putnin ̧sˇ, 2013) combine Information 

Share and Component Share nonlinearly. 

Although the metrics used in 

reviewed studies are similar, the 

conclusions from these papers are 

mixed as to which markets lead or lag 

in price discovery. Buccheri (2021) 67

discussed the limitations for VECM 

derived metrics and noted that when 

price observations are sparse (See CME 

price observations in Figure 1 as an 

example), a lot of zero returns are 

produced through imputation; therefore, 

the time series of prices strongly deviate 

from the standard semi-martingale 

assumption and sample covariances can 

be downward biased. The authors in 

Buccheri (2021) conclude that when the 

prices have a high level of sparsity, the 

VECM is clearly mis-specified and the 

estimates are potentially biased. 


khammond on DSKJM1Z7X2PROD with NOTICESEN12JA24.031</GPH>

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Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2351 

68Robertson, Kevin, and Jiani Zhang. (2022) 

‘‘Suitable Price Discovery Measurement of Bitcoin 

Spot and Futures Markets.’’ Available at SSRN: https://ssrn.com/abstract=4012165 or http://

dx.doi.org/10.2139/ssrn.4012165. 

This conclusion in Buccheri (2021) 

provides theorical support on why 

VECM derived metrics are not suitable 

to use when the underlying data has 

high level of sparsity but does not 

quantify the actual impact in practice. 

In ‘‘Suitable Price Discovery 

Measurement of Bitcoin Spot and 

Futures Markets’’ 68 (Robertson and 

Zhang, 2022), the authors demonstrate 

that the conclusions of Buccheri (2019) 

are of high importance by quantifying 

the impact of sparsity within bitcoin 

markets. 

The authors show IS and CS are 

sensitive to input data’s level of sparsity 

with numerical experiments. When the 

sparsity level is about 10% for a 

designed-to-lead market, IS and CS 

show the known-leading market clearly 

contributes a majority to price 

discovery. However, as the sparsity is 

increased, the known-leading market 

begins to contribute less to price 

discovery and, when the level of 

sparsity is higher than 30%, using IS 

and CS produces mixed results or the 

opposite conclusion of what is true. 

Buccheri explains the effect of using 

VECM based metrics with violation of 

model assumptions from theorical 

perspective, and Robertson and Zhang 

show the effect with numerical 

experiments and provide empirical 

evidence about to what extent using 

VECM can give unreliable results. Both 

emphasize that sparsity level is 

important regarding price discovery 

measurement using VECM based 

metrics. 

Although Robertson and Zhang state 

that the choice of market to create the 

experiment data does not change the 

conclusion, Sponsor replicated their 

experiment using a different market to 

provide additional evidence on the 

impact of sparsity on VECM based 

metrics. Sponsor calculates the IS and 

CS every day from Q1 2019 through Q1 

2021 (821 days) between the artificially 

leading (by 3 seconds) version of the 

BitMEX USD perpetual futures market 

at 9 different levels of sparsity 

(measured by the percent of random 

data removed, 10% increments starting 

at 10% and ending at 90%) and the 

original BitMEX USD perpetual futures 

market. To satisfy the VECM 

assumption that prices/returns are 

synchronous, Sponsor used the typical 

and commonly used form of forward 

filling using previous second values. 

Figure 2 shows the distributions of daily 

IS and CS values for the designed-tolead market. The x axis is the sparsity 

level, and the y axis is IS/CS. The 

plotted results show that, as the level of 

sparsity is increased, the known leading 

market begins to contribute less to price 

discovery causing mixed results (both IS 

and CS dropped from above 0.8 to less 

than 0.2) and the opposite conclusion of 

what is true. The market is considered 

leading when IS/CS is above 0.5. 


khammond on DSKJM1Z7X2PROD with NOTICESEN12JA24.032</GPH>

Figure 1: Bitcoin Price Observations 

Bitcoin Prices on 2021-03-30 

62000 

61000 

60000 

·i 59000 

58000 \ 1_ 

57000 
2352 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

69Hayashi, Takaki, and Nakahiro Yoshida. ‘‘On 

covariance estimation of non-synchronously 

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

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

3318933. The authors proposed a novel method (HY 

estimator) of estimating the covariance of two 

diffusion processes when they are observed only at 

discrete times in a non-synchronous manner. This 

methodology addresses the issue that the traditional 

realized covariance estimator encounters, which is 

that the choice of regular interval size and data 

interpolation scheme can lead to unreliable 

estimation. The new method Hayashi and Yoshida 

introduced in this paper is free from any 

interpolation and therefore avoids the bias and 

other problems caused by it. 

70Hoffmann, Marc, Mathieu Rosenbaum, and 

Nakahiro Yoshida. ‘‘Estimation of the lead-lag 

parameter from non-synchronous data.’’ Bernoulli 

19, no. 2 (2013): 426–461. http://www.jstor.org/ 

stable/23525731. The authors propose a 

methodology for modeling the lead-lag effect 

between two financial assets with non-synchronous 

data based on Hayashi and Yoshida’s work (2015). 

It has been applied in various price discovery 

research publications. The Sponsor’s analysis 

utilized this methodology to obtain pairwise leadlag seconds between two markets. 

71Huth, Nicolas, and Fre ́de ́ric Abergel. ‘‘High 

frequency lead/lag relationships—empirical facts.’’ 

Journal of Empirical Finance 26 (2014): 41–58. 

https://doi.org/10.1016/j.jempfin.2014.01.003. 

72 Dao, Thong Minh, Frank McGroarty, and 

Andrew Urquhart. ‘‘Ultra-high-frequency lead-lag 

relationship and information arrival.’’ Quantitative 

Finance 18, no. 5 (2018): 725–735. https://doi.org/ 

10.1080/14697688.2017.1414484. 

The observations from Sponsor’s 

experiment confirm the conclusions of 

Buccheri (2019) and Robertson and 

Zhang (2022) that VECM derived 

metrics are sensitive to the level of 

sparsity within market data. 

Robertson and Zhang (2022) show 

that only about half of the markets 

included in the quarter of 2021 have 

trades for every second increment. 

Taking the CME USD futures market, 

Coinbase USD spot market, and BitMEX 

USD perpetual futures markets as 

representatives of Bitcoin Futures 

market, spot market, and perpetual 

market, Table 3 shows their comparison 

in average time in seconds between 

trades in each quarter. In the first 

quarter of 2019, on average, CME 

records a trade every 111 seconds (∼2 

minutes) while Coinbase records a trade 

every 3 seconds. In more recent time 

periods, the sparsity level decreases for 

CME, but is still 25 times higher than 

the Coinbase USD spot market and 

BitMEX USD perpetual futures market 

in the first quarter of 2021. 

TABLE 3—AVERAGE TIME BETWEEN TRADES

Exchange 2019 

Q1 

2019 

Q2 

2019 

Q3 

2019 

Q4 

2020 

Q1 

2020 

Q2 

2020 

Q3 

2020 

Q4 

2021 

Q1 

CME ................................................................................. 111 36 57 68 34 53 43 37 25 

Coinbase .......................................................................... 3 2 2 2 2 2 2 1 1 

BitMEX ............................................................................. 2 1 1 1 1 1 2 2 1 

Due to the high sparsity of CME 

Bitcoin Futures data, the Sponsor 

attributes the ‘‘mixed results’’ in 

previous academic studies that have 

failed to demonstrate that the CME 

Bitcoin Futures market constitutes a 

market of significant size to the 

problems associated with using 

econometric models without 

considering the suitability. When 

analyzing information flow with daily 

data that has low sparsity level, the 

analysis using metrics derived from 

VECM (e.g., Hu, et al., 2019) is 

convincing. However, for analyzing 

intraday information flow and 

accounting for the varying levels of 

sparsity among the bitcoin market, the 

sponsor believes the framework of 

correlation-based lead-lag analysis using 

the Hayashi-Yoshida (HY) estimator 69

to compute correlation and its extension 

by other academic researchers, 

including Hoffman (2013) 70 and Huth 

(2011),71 to obtain the lead-lag seconds 

and lead-lag ratio is more suitable. 

Lead-lag seconds and lead-lag ratio 

are the typical output metrics in 

correlation-based lead-lag analysis. The 

former measures the relative time in 

lead or lag between two markets and the 

latter measures the relative strength of 

the lead-lag relationship between two 

markets. They are both free from any 

imputation or sampling within nonsynchronous and/or infrequent data and 

have proven to be useful in price 

discovery research in other markets. Dao 

(2018) 72 applied the Hayashi-Yoshida 

estimator in a lead-lag framework with 

these two metrics on price discovery 

research of the S&P 500 index and the 

two most liquid ETFs that track it. This 

academic study is the first to analyze 

the effect of information arrival on the 

lead-lag relationship among related spot 

instruments and concludes that 

sophisticated investors have a more 

significant effect on the lead-lag 

relationship. The analysis from this 

study confirms that using the HayashiYoshida estimator in a lead-lag 

framework is suitable for analyzing high 

frequency, tick level, non-synchronous 

data even timestamped to milliseconds. 


khammond on DSKJM1Z7X2PROD with NOTICESEN12JA24.033</GPH>

Figure 2: Effect of Sparsity on Information Share and Component Share 

Artificially Modified BitMEX vs. BltMEX Artificially Modified 8itMEX vs, BitMEX 

l,0 ,,--,,----,---"'------------. 10 ~~---~---------~ 

0,8 

0,2 

m m m • m oo w m ~ 

Random Percent Removed 

OJl 

m m • • m oo w oo ~ 

RandOm Percent Removed 

I I I I I I I I I 
Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2353 

73Schei, Norheim Schei. ‘‘High Frequency LeadLag Relationships in the Bitcoin Market.’’ 

(unpublished master’s thesis, 2019). Copenhagen 

Business School, Copenhagen, Denmark. 

74C. Alexander & D. Heck ‘‘Price discovery in 

Bitcoin: The impact of unregulated markets’’, 50 J. 

Financial Stability 100776 (2020). 

Sponsor notes that there is academic 

research studying high-frequency leadlag relationships between multiple 

bitcoin spot markets using the HayashiYoshida estimator with lead-lag seconds 

and lead-lag ratio from Schei (2019).73

The suitability test performed by 

Robertson and Zhang (2022) shows that 

these two metrics are not sensitive to 

the level of sparsity within markets. 

Their experiment shows that the 

accuracy of lead-lag seconds is 

consistent across the varying levels of 

sparsity and the lead-lag ratio moves 

closer to 1 (i.e., provides less certainty 

about the result) when the level of 

sparsity increases. Lead-lag ratio 

quantifies how strong the relationship 

is, and the strength can be considered as 

the confidence level associated with the 

conclusion that one market leads or lags 

another. The closer the lead-lag ratio is 

to 1, the less certain one can conclude 

the relationship is of one market’s lead/ 

lag over the other market. 

Again, Sponsor replicated the 

suitability test using the HY estimator in 

a lead-lag framework performed by 

Robertson and Zhang (2022) but on the 

BitMEX USD perpetual futures market. 

As mentioned by the authors, no 

interpolation is needed in this version 

of the experiment because the HY 

estimator computes directly from nonsynchronous data. Figure 3 shows the 

distribution of daily lead-lag seconds 

and daily lead-lag ratios between the 

artificially leading and sparse versions 

of the BitMEX USD perpetual futures 

market and the original BitMEX USD 

perpetual futures market. 

The observations from Sponsor’s 

experiment match those of Robertson 

and Zhang (2022) that the HY estimator 

used in a lead-lag framework is not 

sensitive to the level of sparsity within 

market data. The distribution of lead-lag 

seconds shows that the time shift 

parameter that maximizes the HY 

estimator is consistently +3 seconds— 

which is the amount of time the 

artificial market was advanced by. The 

distribution of the lead-lag ratios are 

consistently above 1, showing that the 

leading relationship of the artificial 

market over the original is strong. As 

Robertson and Zhang also noted, the 

lead-lag ratios decay towards the level 

of 1 with increasing levels of sparsity, 

which matches the expectation that the 

lead-lag relationship becomes weak 

when one of the markets rarely has data. 

Sponsor’s analysis expands the 

research of Schei by using the HayashiYoshida estimator with a lead-lag 

framework and the same metrics but on 

both bitcoin spot and futures markets. It 

is worth mentioning, the lead-lag 

framework is different than a VECM 

based approach. A VECM based 

approach, for example IS, measures the 

proportion of the variance of the 

permanent component of prices coming 

from each market and the total variance 

and the variance proportion change 

when the number of markets included 

changes. Therefore, ‘‘omitting 

substantial information flows from other 

markets [by using a two-dimensional 

methodology] can produce misleading 

results’’, which Alexander and Heck 

(2020) 74 state in their study as the 

motivation to use Generalized 

Information Share instead of the original 

Information Share metric. This is a 

limitation for two-dimensional VECM 

based metrics and does not apply to 

Sponsor’s correlation-based lead-lag 

analysis. This is because VECM based 

metrics measure the proportion of price 

discovery among markets while a leadlag framework measures how much time 

one market leads/lags another without 

the need to compute the total variance 

of the permanent component of prices. 

Lead-Lag Analysis 

In the lead-lag analysis, Sponsor 

examined the pairwise lead-lag 

relationship within the spot market and 

futures market, as well as across them. 

For each pair, Sponsor computed the 

correlation coefficients using the HY 

estimator between one market price 

time series and a second market price 

time series as well as timestampadjusted (leading/lagging) versions of 

the second market to find the time delta 

that maximizes their correlation. The 

range of time deltas is from -N seconds 

to N seconds in one second increments. 

In the Sponsor’s analysis, the parameter 

N is set as 15. In the Sponsor’s analysis, 

the parameter N is set as 15. For 

illustration below, Sponsor uses the pair 

of CME USD Futures (denoted as price 

time series X) and Coinbase USD Spot 

(denoted as price time series Y) as an 

example to describe the process. 

Step 1: Fix the timestamp of CME and 

adjust the timestamps of Coinbase from 

N seconds lagging to N seconds leading. 

Figure 4 shows this process with time 

deltas equal to 1 and ¥1 for illustration 

purpose. 


khammond on DSKJM1Z7X2PROD with NOTICESEN12JA24.034</GPH>

Figure 3: Effect of Sparsity on Lead-Lag Seconds and Lead-Lag Ratio 

Artificially Modified BitMEX vs. BltMEX 6T--------'-------------, 

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10------------- 1 

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-4 

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1 Q.75 

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w 

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~~~soro10~~ 

Random Pem!nt Removed 
2354 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

Step 2: Compute the correlation 

coefficients between CME price time 

series and each of timestamp-adjusted 

time series of Coinbase with l seconds 

(l ∈ [¥N, N]) lead/lag using HY 

estimator. The correlation coefficient is 

defined as (Hayashi & Yoshida 2005): 

BILLING CODE 8011–01–P 

The numerator of r√ is the covariance 

between CME and Coinbase, which 

equates to the sum of pf every product 

of price changes that share a time 

overlap. Figure 5 shows this process 

with a simple example. 


khammond on DSKJM1Z7X2PROD with NOTICESEN12JA24.035</GPH> EN12JA24.036</GPH>

Figure 4: Adjustment of Timestamps 

X • • • • .. Time 

t1 t2 t3 t4 

y Time 

S1 s2 

+ 1 sec lead adj. + 1 sec lead adj. 

Y(l) Time 

si. Sz 

-+ 1 sec lag adj. -+ 1 sec lag adj. 

Y(-1) Time 

si' Sz 

Notes: Each dot is a price observation; fi and Sj are the observation timestamps ofX and Y; Y(l) 

and Y(-1) are timestamp adjusted price time series with 1 second backward shift and 1 second 

forward shift respectively. 

where 

• X and Y are trade prices on two different markets 

• rj = Xti - Xti-1 and ti is the ith observed time of X 

• r..j = Ysi - Ysi_1 and Sj is the ith observed time ofY 

• The observed times, ti and si for X and Y are independent 

• Oii is the overlapping time between interval (ti-i, ti) and interval (si-v sa 

• d fi d • di fun • {1' Oii * (l} • I 1s e me as an m cator ctlon, I= O, 0 ij = 0. 
Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2355 

Step 3: Collect the correlation 

coefficients with different lead-lag 

seconds as a correlation curve and 

search for the value lmax from ¥N to N 

that maximizes their correlation. 

Meanwhile,compute the lead-lag ratio 

between CME and Coinbase, llr, to 

measure the strength of the lead-lag 

relationship (Huth & Abergel 2012. It is 

defined as 

The further the llr is from 1, the 

stronger the relationship is of one 

market’s lead/lag over the other market. 

The llris used in conjunction with the 

HY correlation coefficient and the leadlag seconds to provide a more 

comprehensive analysis. If llr ∈ [0.95, 

1.05] and lmax is zero, we conclude 

neither market leads. If llr is not in 

range [0.95, 1.05] and lmax is positive, 

CME leads Coinbase by lmax seconds and 

vice versa. Figure 6 shows an example 

of the correlation curve. 

These three steps provide the 

pairwise lead-lag seconds between two 

markets. To measure a market’s overall 

price discovery leadership, the results 

are aggregated by taking the average 

lead-lag seconds it has with all other 

markets included in a quarter. 

Conclusion of Reasonable Likelihood— 

Lead Lag Analysis 

Sponsor’s results suggest that, out of 

the 20 spot markets and 26 futures 

markets analyzed, the CME Bitcoin 

Futures market plays the most 

important role in price discovery during 

each quarter spanning from the first 

quarter of 2019 to the first quarter of 

2021. Figure 7 shows the average 

pairwise lead-lag seconds between CME 

Bitcoin Futures and other bitcoin 

markets with 95% confidence intervals 

using the calculations introduced in 

previous session. The blue dots 


khammond on DSKJM1Z7X2PROD with NOTICESEN12JA24.037</GPH> EN12JA24.038</GPH> EN12JA24.039</GPH>

Figure 5: Data Points Used in HY Estimator 

X ... Time 

y • ~---•----r---~---~~••••,••••• • • 

St l S: ' Sa 

Time 

Notes: The interval (t1, t 2) is overlapped with the interval (s1,s 2), and the interval 

(t2 , t 3 ) is overlapped with both the interval (s1, s2 ) and the interval (s2 , s 3 ). Therefore, 

the covariance is calculated by summing the products of the following pairs of price 

changes: (Xtz - xt1' Ys2 - }';1), (Xt3 - xtz' YSz - Ysl), and (Xt3 - xtz• Ys3 - Ysz). 

Figure 6: Example of the Correlation Curve 

-N 

A 

p Pm.ax 

-1 0 1 Zmaz 

lead.fag seconds 

N 

Notes: lmax is the lead-lag seconds and Pmax is the corresponding maximum HY 

correlation. 
Table 4 lists the detailed results for 

every pair of CME against other markets Figure 7 along with lead-lag ratios. 

with lead-lag seconds used to create 


EN12JA24.040</GPH>khammond on DSKJM1Z7X2PROD with NOTICES

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Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2357 


khammond on DSKJM1Z7X2PROD with NOTICESEN12JA24.041</GPH>

Table 4: Pairwise Lead-Lag Leadership (Lead-Lag Seconds I Lead-Lag Ratio) of CME 

Bitcoin Futures Market 

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2358 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

75For more information, see Memorandum from 

the Division of Trading and Markets regarding a 

September 8, 2021 meeting with representatives 

from Fidelity Digital Assets, et al. (Sept. 8, 2021) 

available at https://www.sec.gov/comments/srcboebzx-2021-039/srcboebzx2021039-250110.pdf. 

Additionally, Sponsor compared the 

CME Bitcoin Futures market’s 

leadership with other markets by 

aggregating each market’s lead-lag by 

taking the average of each markets leadlag seconds over all other markets in a 

quarter. 

Figure 8 shows that, while other 

category leaders can change rank each 

quarter, they consistently rank below 

CME futures in average seconds leading. 

This consistency, along with the 

Sponsor’s inclusion standards of strict 

overall average market correlations and 

demonstrative lead-lag ratios, speaks to 

the strength of CME futures’ leadership 

across spot and futures markets 

globally.75

BILLING CODE 8011–01–C 

Figure 9 shows the average lead over 

all other markets for each market 

category leader by quarter. For example, 

the market leader within the USD 

Futures category (which is consistently 

CME) leads all other markets by an 

average of ∼5.8 seconds in Q1 2019. 


khammond on DSKJM1Z7X2PROD with NOTICESEN12JA24.042</GPH> EN12JA24.043</GPH>

:usM'Spot 

USQTSpot 

:usM'Spot 

Figure 8: Leading Market Category -Based on the Leading Market within each Category 

Leading Category 

1st Lagging Category 

2nd Lagging Category 

3,d Lagging Category 

4th Lagging Category 

5th Lagging Category 

6th Lagging Category 

Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 
Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2359 

Another observation from Figure 9 is 

that there is a clear decline in secondsleading through time for these market 

category leaders. As discussed further 

below (Figure 10 & 11), this declining 

lead-lag time does not mean that a 

particular market category leader’s 

strength in leadership is deteriorating, 

as it is not only evident for market 

category leaders, but all markets, and 

suggests efficiency within the bitcoin 

markets has continued to improve. 

The lead-lag relationships between 

and among Bitcoin Futures and spot 

markets provide insights into the 

directional influences of markets on 

price discovery, with the CME Bitcoin 

Futures market playing the most 

important role in price discovery during 

each quarter spanning from the first 

quarter of 2019 to the first quarter of 

2021, as noted above. Arbitrage between 

the CME Bitcoin Futures market and 

spot markets would tend to counter an 

attempt to manipulate the spot market 

alone. Thus, the Sponsor’s analysis 

supports the conclusion that there is a 

reasonable likelihood that a person 

attempting to manipulate the Shares 

would also have to trade on the CME 

Bitcoin Futures market to manipulate 

the ETP. 

Figure 10 shows that the absolute 

average of every market’s overall leadlag seconds (average lead-lag seconds 

over all other markets) has steadily 

decreased from the first quarter of 2019 

to the first quarter of 2021. This suggests 

that the efficiency within bitcoin 

markets has continued to improve, and 

the window of arbitrage opportunity has 

closed with increasing speed. 


khammond on DSKJM1Z7X2PROD with NOTICESEN12JA24.044</GPH> EN12JA24.045</GPH>

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,;, ~ ~ 

Ql 2019 Q2 2019 

Figure 9: Category Leaders' Average Lead Among All Markets 

Q32019 Q4 2019 Ql 2020 Q2 2020 Q32020 Q4 2020 Ql 2021 

nme Period 

Figure 10: Absolute Average Lead/Lag Seconds Among All Markets 

Absolute Average Lead/Lag Seconds Among All Markets 

3 

2.5 

2 

1.5 

1 

0.5 

0 

Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q12020 Q2 2020 Q3 2020 Q4 2020 Ql 2021 

... 
2360 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

76See 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’’). 

While average lead/lag among markets 

has decreased over time, this does not 

mean that relative leadership among 

markets has decreased over time. To 

understand relative leadership among 

markets during different time periods, 

Sponsor standardizes each market’s 

average lead/lag with other markets by 

dividing the market’s average lead with 

other markets by the average of every 

market’s absolute average lead with 

other markets. This relative leadership 

score (RLS) of market x is defined as: 

where, 

∑ x is a market 

∑ mx is the average lead of market x over all 

other markets 

∑ Sn

i|mi| is the sum of each market’s absolute 

lead all other markets 

∑ n is the number of markets included in the 

time peroid 

The RLS of the CME Bitcoin Futures 

market indicates that the strength of 

CME leadership has not deteriorated, 

shown in Figure 11. The RLS for the 

CME USD futures market is relatively 

stable—indicating that there is no 

deterioration in the strength of this 

market and even a slight increase in 

strength during the last three quarters 

observed—even the average lead/lag 

(the denominator of RLS plotted in 

Figure 10) among markets has decreased 

over time. 

To summarize, the top rank in average 

leading seconds and the pairwise 

leading results with confidence 

intervals for the CME Bitcoin Futures 

market, support the conclusion that 

there is a reasonable likelihood that a 

person attempting to manipulate the 

Shares would also have to trade on the 

CME Bitcoin Futures market to 

manipulate the ETP. The RLS of the 

CME Bitcoin Futures market provides 

evidence that that likelihood has stayed 

consistent while the efficiency within 

the bitcoin markets has continued to 

improve. 

3. Trading in the Shares Unlikely To Be 

Predominant Influence on Prices in 

CME Bitcoin Futures Market 

As described above, the Commission 

requires the Exchange to conclude that 

it is unlikely that trading in the Shares 

would become the predominant 

influence on prices in the CME Bitcoin 

Futures market. In a recent approval 

order 76 of a bitcoin-futures ETP, the 

Commission concluded that it is 

unlikely that trading in the proposed 

bitcoin-futures ETP would be the 

predominant influence on prices in the 

CME Bitcoin Futures market. The 

Commission specifies as reasons for its 

conclusion ‘‘the maturation of the CME 

bitcoin futures market since its 

inception in 2017-including, but not 

limited to, the overall size, volume, 

liquidity, and number of years of trading 

in the CME bitcoin futures market and 

evidence from the 1940 Act-registered 

Bitcoin Futures ETFs’’. Sponsor agrees 

with the Commission’s remarks on the 

maturation of the CME Bitcoin Futures 

market and would also add ‘‘price 

discovery leadership’’, as discussed 

above, to the list of maturation 

evidence. As evidence from the 1940 

Act-registered Bitcoin Futures ETFs, the 

Commission states it ‘‘has neither 

observed any disruption to the CME 

Bitcoin Futures market, nor any 

evidence that the Bitcoin Futures ETFs 

have exerted dominant influence on 

CME Bitcoin Futures prices.’’ Through 

its own analysis, Sponsor again agrees 

with the Commission’s remarks and, as 

discussed below, also found that the 

level of price discovery leadership 

associated with the CME Bitcoin 

Futures market remained unchanged 

since the launch of Bitcoin Futures 

ETFs. 

In considering the question of 

whether the proposed bitcoin-spot ETP 

would be the predominant influence on 

prices in the CME Bitcoin Futures 

market, Sponsor conducted a numerical 

experiment to best estimate the effect 

since it is not feasible to directly 

evaluate the effect for the proposed ETP 

before its existence. The experiment is 

designed to observe whether the price 

discovery leadership of the CME Bitcoin 

Futures market can be changed by a new 

market (specifically an ETP) entering 

with high trade activity. If it is, it is 

reasonable to assume that the proposed 

bitcoin-spot ETP could be the 

predominant influence on prices in the 

CME Bitcoin Futures market if it has 

high trade activity. However, if it is not, 

it is also reasonable to assume that the 

proposed bitcoin-spot ETP would not be 

the predominant influence. From the 

numerical experiment, Sponsor aims to 

demonstrate that high trade activity or 

volume is not the key factor in price 

discovery. 

Sponsor used trade data from a 

recently launched Bitcoin Futures-based 

ETF, ProShares Bitcoin Strategy ETF 

(‘‘BITO’’), which caused high trading 

activity after its launch, as the model in 

its experiment. BITO is a Commissionregistered ETF that is listed and traded 

on a US regulated national securities 

exchange and was launched on October 

18, 2021. As described in its prospectus, 


khammond on DSKJM1Z7X2PROD with NOTICESEN12JA24.046</GPH> EN12JA24.047</GPH>

Figure 11: CME Bitcoin Futures Market Relative Leadership Score 

25 

2 

0 i 1.5 

a::: 

1 

05 

0 

Ql 2019 Q2 2019 Q3 2019 Q4 2019 Ql 2020 02 2020 03 2020 Q4 2020 Ql 2021 
Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2361 

BITO seeks to invest primarily in CME 

Bitcoin Futures contracts. 

Sponsor selected two periods, 

representing a regular period with 

normal trading activity and a period 

with new information and heightened 

trading activity (from approximately $15 

billion to $34 billion) in the CME 

Bitcoin Futures market as seen from 

Figure 12. The experiment is to compare 

whether the leadership of CME 

increased during the second period. If 

not, it is reasonable to conclude the 

heightened trading activity in the 

futures market did not increase the 

leadership of the futures market. With 

that same logic, the potential heightened 

trading activity in the spot market 

would not increase the leadership of the 

spot market. 

Sponsor obtained tick level data from 

Coin Metrics for all markets included in 

the lead-lag analysis described above 

spanning two specific periods: 11 days 

before the launch of BITO (10/8/2021– 

10/18/2021) and 11 days after the 

launch (10/19/2021–10/29/2021). For 

the 11 days after the launch of BITO, 

Sponsor obtained tick-level trade data 

on BITO via Bloomberg and aggregated 

to the one second floor level using the 

same method described above. 

Sponsor examined the pairwise leadlag relationship between CME Bitcoin 

Futures and all other markets included. 

For each pair, Sponsor computed the 

correlation coefficients using the same 

lead-lag framework and HY estimator 

between CME Bitcoin Futures and the 

second market price timeseries as well 

as timestamp-adjusted (leading/lagging) 

versions of the second market to find 

the time delta that maximized their 

correlation. The only differences 

between Sponsor’s BITO analysis and 

the quarterly analysis spanning Q1 2019 

through Q1 2021 discussed above are 

the timeframes and a stricter average 

correlation threshold (.2 instead of .1) in 

the BITO analysis given the shorter 

timeframe. 

The results of this experiment in 

Figure 13 show the CME Bitcoin Futures 

market leading all markets for the 

period of 11 days prior to the launch of 

BITO. The price discovery leadership of 

the CME Bitcoin Futures market still 

leads after BITO’s launch in the period 

of 10/19/2021 to 10/29/2020, but CME’s 

leadership does not become stronger 

even though the trading volume 

increased significantly. 


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V, 

C 

~ iii 

Figure 12: Volume Comparison Before and After BITO Launch on Fidelity Whitelisted 

Spot Exchanges and CME 

$40 

$35 

$30 

$25 

$20 

$15 

$10 

$5 

$-

Volume Before and after BITO launch on Fidelity Whitelisted Spot 

Exchanges and CME 

------·-·-------11•1---

Bitstamp CME Coinbase Gemini it Bit Kraken 

II 10/8/2021-10/18/2021 Ill 10/19/2021-10/29/2021 
2362 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

77Futures with much smaller trading volumes 

compared to the underlying spot market can still 

Given that the CME Bitcoin Futures 

market did not see an increase in price 

discovery leadership even during a 

period of heightened activity (trading 

volume increased from 15 billion to 34 

billion) on that market after BITO’s 

launch, Sponsor believes it would be 

unreasonable to assume that the level of 

the spot markets’ leadership would 

increase (CME Bitcoin Futures market 

price leadership would deteriorate) due 

to the potential heightened trade 

activity in the spot markets after the 

proposed spot-based ETP launch. This 

dynamic is illustrated in Figure 14. 

Based on the experiment, Sponsor 

concludes the inherent features of 

futures are more important factors in 

price discovery and allow this market to 

dominate even with lower or changing 

levels of volume. This conclusion is also 

supported in academic research 77


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s 

4 

Figure 13: CME's Lead-lag Seconds Relative to Other Market Before and After BITO's 

Launch 

CME's Lead-lag Seconds Relative to other Markets 

iim~_perlOd 

al 20211008_20211018 

11111111 20211019 20211029 n ,, "'" ,'~,, """ 

Figure 14: Impact of heightened market activity on CME BTC futures market price 

discovery leadership 

neither decreases nor 

increases 

• ;..R~asonaple assumption: 

Price discovery leadership 

of CME BTC futures market 

neither decreases nor 

increases 
Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2363 

dominate price discovery. See Hauptfleisch, Martin, 

Ta ̄lis J. Putnin ̧sˇ, and Brian Lucey. ‘‘Who sets the 

price of gold? London or New York.’’ Journal of 

Futures Markets 36, no. 6 (2016): 564–586. https:// 

doi.org/10.1002/fut.21775 for more information. 

78See Hauptfleisch, et. al. 

79Sehgal, Sanjay, Neharika Sobti, and Florent 

Diesting. ‘‘Who leads in intraday gold price 

discovery and volatility connectedness: Spot, 

futures, or exchange-traded fund?’’ Journal of 

Futures Markets 41, no. 7 (2021): 1092–1123. 

https://doi.org/10.1002/fut.22208. 

80For more information, see Memorandum from 

the Division of Trading and Markets regarding a 

September 8, 2021 meeting with representatives 

from Fidelity Digital Assets, et al. (Sept. 8, 2021) 

available at https://www.sec.gov/comments/srcboebzx-2021-039/srcboebzx2021039-250110.pdf. 

81These statistics are based on samples of bitcoin 

liquidity in USD (excluding stablecoins or Euro 

liquidity) based on executable quotes on Coinbase 

Pro, Gemini, Bitstamp, Kraken, LMAX Exchange, 

BinanceUS, and OKCoin during February 2021. 

studying similar patterns in other asset 

classes. It is worth mentioning that it is 

not feasible to directly evaluate the 

effect for the proposed ETP before its 

existence. The numerical experiment 

above is to best estimate the effect and 

eliminate the concern on the potential 

high trade activity in spot markets 

caused by the proposed ETP. 

Moreover, Sponsor believes that there 

will be no material effect of the Shares’ 

trade prices on CME Bitcoin Futures 

prices from secondary market trading 

activities. To estimate this effect, 

Sponsor uses BITO in its analysis as the 

first ETP launched in US and a 

reasonable example of a general ETP. 

Sponsor examined the pairwise lead-lag 

relationship between BITO and all other 

markets included in previous analysis. 

As seen in Table 5, only four markets 

have a lead-lag ratio (the strength 

measurement of the lead-lag 

relationship) outside the range of 

[.95,1.05] and non-zero lead-lag seconds 

to conclude they are leading or lagging. 

Sponsor interprets this result as BITO’s 

lead-lag relationship with other bitcoin 

markets is not significant. 

TABLE 5—MARKETS WITH SIGNIFICANT LEAD/LAG RELATIONSHIPS TO BITO 

BITO leadership 

(lead-lag seconds) 

Lead-lag 

ratio 

CME USD Ordinary Futures ............................................................................................................................ ¥1 0.909 

Kraken USD Ordinary Futures ........................................................................................................................ ¥1 0.926 

Huobi USD Ordinary Futures (Bi-Quarterly) .................................................................................................... ¥1 0.933 

CEX.IO USD Spot ........................................................................................................................................... 12 1.067 

Regarding BITO’s price discovery 

contribution measured by lead-lag 

seconds, it does not lead any bitcoin 

markets except CEX.IO USD spot 

market, which not only lags BITO but 

also lags all other bitcoin markets. More 

importantly, the CME Bitcoin Futures 

market leads BITO with the highest 

level of certainty as seen from the leadlag ratio. As such, Sponsor concludes 

that the proposed ETP would have no 

material impact on CME Bitcoin Futures 

prices. 

The gold market shares certain 

characteristics with the bitcoin market— 

both gold and bitcoin have a finite 

supply, are traded globally in various 

market venues against various currency 

pairs and have a robust futures market. 

In addition, many investors view bitcoin 

as a form of digital gold and in looking 

to determine the potential impact of 

price discovery in trading in the ETP 

shares on the secondary market, the 

Sponsor looks to the gold market as an 

analogous market to bitcoin when 

looking to determine the impact of price 

discovery. According to a previous 

study 78 the Sponsor reviewed, the 

authors analyzed intraday data on gold 

prices from 1997–2014 and concluded 

that futures markets tend to lead price 

discovery in the gold market despite the 

spot market having ten times more 

volume than the US futures market. A 

second study 79 that the sponsor 

analyzed, came to the same conclusion 

that futures are the global leader in price 

discovery for gold, with a growing 

influence of ETPs. 

The Exchange also believes that 

trading in the Shares would not be the 

predominant force on prices in the 

Bitcoin Futures market (or spot market) 

for several additional reasons, including 

the significant volume in the Bitcoin 

Futures market, the size of bitcoin’s 

market cap (approximately $1 trillion), 

and the significant liquidity available in 

the spot market. According to the 

Sponsor’s analysis, in the second 

quarter of 2021, Bitcoin Futures volume 

greatly exceeded volumes in the spot 

markets. The volume of the Bitcoin 

Futures market was approximately $7.1 

trillion where the volume of the bitcoin 

spot markets was approximately $1.4 

trillion.80 In addition to the Bitcoin 

Futures market data points cited above, 

the spot market for bitcoin is also very 

liquid. According to data from 

CoinRoutes from February 2021, the 

cost to buy or sell $5 million worth of 

bitcoin averages roughly 10 basis points 

with a market impact of 30 basis 

points.81 For a $10 million market order, 

the cost to buy or sell is roughly 20 basis 

points with a market impact of 50 basis 

points. Stated another way, a market 

participant could enter a market buy or 

sell order for $10 million of bitcoin and 

only move the market 0.5%. More 

strategic purchases or sales (such as 

using limit orders and executing 

through OTC bitcoin trade desks) would 

likely have less obvious impact on the 

market—which is consistent with 

MicroStrategy, Tesla, and Square being 

able to collectively purchase billions of 

dollars in bitcoin. As such, the 

combination of Bitcoin Futures leading 

price discovery, the overall size of the 

bitcoin market, and the ability for 

market participants, including 

authorized participants creating and 

redeeming with the Trust, to buy or sell 

large amounts of bitcoin without 

significant market impact will help 

prevent the Shares from becoming the 

predominant force on pricing in either 

the bitcoin spot or Bitcoin Futures 

markets, satisfying part (b) of the test 

outlined above. 

(b) SEC Approval of Bitcoin Futures 

ETFs and CME Surveillance 

Bitcoin Futures represent a growing 

influence on pricing in the spot bitcoin 

market as has been laid out above and 

in other proposals to list and trade Spot 

Bitcoin ETPs. Pricing in Bitcoin Futures 

is based on pricing from spot bitcoin 

markets. As noted above, 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 


khammond on DSKJM1Z7X2PROD with NOTICES
2364 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

82ProShares Bitcoin Strategy ETF (BITO); VanEck 

Bitcoin Strategy ETF (XBTF); Valkyrie Bitcoin 

Strategy ETF (BTF). 

83See CME CF Bitcoin Reference Rate Index data 

at https://www.cmegroup.com/trading/ 

cryptocurrency-indices/cf-bitcoin-referencerate.html. 

84As further described below, the ‘‘Index’’ for the 

Fund is the Fidelity Bitcoin Reference Rate PR. 

85See Letter from Joseph A. Hall et al. to Vanessa 

Countryman on SR–NYSEArca–2021–90 (Nov. 29, 

2021). 

86Order Disapproving a Proposed Rule Change to 

List and Trade Shares of the VanEck Bitcoin Trust 

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

Trust Shares, Securities Exchange Act Release No. 

93559 (Nov. 12, 2021), 86 FR 64 539 (Nov. 18, 2021) 

(SR–CboeBZX–2021–019) (‘‘VanEck Order’’). 

87Self-Regulatory Organizations; NYSE Arca, 

Inc.; Notice of Filing of Amendment No. 2 and 

Order Granting Accelerated Approval of a Proposed 

Rule Change, as Modified by Amendment No. 2, to 

Adopt NYSE Arca Rule 5.2–E(j)(8) Governing the 

Listing and Trading of Exchange-Traded Fund 

Shares (Apr. 13, 2020) (SR–NYSEArca–2019–81). 

88 Id. 

89 Id. 

the pricing of Bitcoin Futures. While the 

Commission makes clear in the 

Teucrium Approval that the analysis 

only applies to the Bitcoin Futures 

market as it relates to an ETP that 

invests in Bitcoin Futures as its only 

non-cash or cash equivalent holding, if 

CME’s surveillance is sufficient to 

mitigate concerns related to trading in 

Bitcoin Futures for which the pricing is 

based directly on pricing from spot 

bitcoin markets, it’s not clear how such 

a conclusion could apply only to ETPs 

based on Bitcoin Futures and not extend 

to Spot Bitcoin ETPs. 

Recently, the Commission allowed 

three ETFs primarily invested in CME 

Bitcoin Futures to register and list on a 

national securities exchange (‘‘Bitcoin 

Futures ETFs’’).82 As described in its 

prospectus, BITO does not invest 

directly in bitcoin but rather seeks to 

provide capital appreciation primarily 

through managed exposure to cashsettled Bitcoin Futures contracts traded 

on commodity exchanges registered 

with the Commodity Futures Trading 

Commission (‘‘CFTC’’). Currently, the 

only such contracts that are traded on, 

or subject to the rules of, the CME. CME 

Bitcoin Futures are cash-settled in US 

dollars based on the CME CF Bitcoin 

Reference Rate (‘‘BRR’’), which is a 

volume-weighted composite of U.S. 

dollar-bitcoin trading activity on certain 

constituent trading platforms including 

Bitstamp, Coinbase, Gemini, itBit, 

Kraken, and LMAX Digital.83

The CME reference rate is based on 

substantially the same pricing data from 

digital asset trading platforms as the 

Index 84 used by the Trust. The Index is 

designed to reflect the performance of 

bitcoin in U.S. dollars and the current 

constituent trading platform 

composition of the Index is Bitstamp, 

Coinbase, Gemini, itBit, Kraken, and 

LMAX Digital. As noted recently by a 

commenter on another Rule 19b–4 

application for a bitcoin spot ETP, 

Bitcoin Futures ETFs and the Trust are 

exposed to the same underlying pricing 

data and the same risks of 

manipulation.85

There is no basis, in law or in fact, for 

determining that the Bitcoin Futures 

ETFs satisfy the standards of section 

6(b)(5) of the Exchange Act while the 

Trust does not. Bitcoin pricing, whether 

in the spot market or the futures market, 

is determined in the digital asset trading 

platforms where supply and demand 

interact; and there is almost complete 

overlap in the underlying digital asset 

trading platforms that supply pricing 

information for the reference indices 

used by both the CME Bitcoin Futures 

market and the Trust. 

Just three weeks after the Bitcoin 

Futures ETFs began trading, the 

Commission again rejected a 19b–4 

application filed by a spot bitcoin ETP 

on the grounds that the listing exchange 

had failed to demonstrate satisfaction of 

the section 6(b)(5) standard.86 The 

Commission specifically disagreed with 

the exchange’s premises that (i) it is 

inconsistent with the section 6(b)(5) 

standard for the Commission to permit 

a Bitcoin Futures ETF registered under 

the 1940 Act to launch but to 

disapprove the approval of a bitcoin 

spot ETP; (ii) it is inconsistent for the 

Commission to approve a Bitcoin 

Futures ETF that trades exclusively in 

CME Bitcoin Futures contracts and 

conclude that the CME Bitcoin Futures 

market is not a ‘‘market of significant 

size’’ under the section 6(b)(5) standard; 

and (iii) there is no basis of fact or law 

that the 1940 Act is designed to prevent 

market manipulation in the markets in 

which the Bitcoin Futures ETF trades. 

Instead, the Commission stated that it 

considers each proposed rule change on 

its own merits and noted that the 

proposed rule did not relate to a product 

regulated under the 1940 Act and did 

not relate to the same underlying 

holdings as the Bitcoin Futures ETFs. In 

practice, however, the Commission did 

not address why a bitcoin spot ETP fails 

to satisfy the section 6(b)(5) standard 

when it is exposed to the same 

underlying risks of manipulation as the 

CME Bitcoin Futures contracts primarily 

held by Bitcoin Futures ETFs, which 

have been allowed to register and list. 

As recently as 2020, the Commission 

approved new exchange listing rules 

permitting ETFs registered under the 

1940 Act, including Bitcoin Futures 

ETFs, to list under an exchange’s 

generic listing standards without having 

to submit separate rule filing pursuant 

to section 19(b).87 In determining that 

the rule change was reasonably 

designed to help prevent fraudulent and 

manipulative acts and practice, the SEC 

stated that ETFs would be required to 

disclose its portfolio holdings under the 

1940 Act and that the exchange rule 

included requirements relating to fire 

walls and procedures to prevent the use 

and dissemination of material, nonpubic information regarding the 

applicable ETF index and portfolio.88

Importantly, with regard to surveillance, 

the Commission stated only that the rule 

change required the exchange to 

implement and maintain written 

surveillance procedures for ETF shares 

and noted that the exchange would use 

its existing surveillance procedures 

applicable to derivative products to 

monitor trading in ETF shares. In 

approving the generic listing standards, 

the SEC did not require in-depth 

analyses into any particular markets or 

index components.89 While noting the 

ability of an exchange to rely on FINRA 

for information related to certain 

securities held by ETPs, the 

Commission focused its determination 

on the exchange’s surveillance of the 

market for ETF shares. As a result, 

Bitcoin Futures ETFs are permitted to 

list and trade under generic listing 

standards based solely on the oversight 

of the underlying futures by the CFTC 

and futures exchanges with no 

acknowledgement or assessment by the 

Commission of the actual risk of fraud 

or manipulation related to underlying 

bitcoin spot markets referenced by such 

Bitcoin Futures—even when such 

bitcoin markets mirror those proposed 

as reference markets in the Index used 

by the Trust and other spot bitcoin ETP 

listing proposals. 

Because (i) the risks of manipulation 

in the bitcoin markets impacting the 

Trust are thus indistinguishable from 

those same risks impacting Bitcoin 

Futures ETFs; (ii) the Trust will have 

the same pricing sources, and (iii) the 

Trust will be subject to the same risks 

of manipulation as shares of Bitcoin 

Futures ETFs; the Exchange believes 

that the proposed rule change is 

sufficiently designed to prevent 

fraudulent and manipulative acts and 

practice. Approving this change is 

consistent with the treatment of 

substantially similar products, and the 

Exchange believes that any finding to 

the contrary would result in arbitrarily 

disparate treatment to the Trust. 


khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2365 

90See 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. 

91These statistics are based on samples of bitcoin 

liquidity in USD (excluding stablecoins or Euro 

liquidity) based on executable quotes on Coinbase 

Pro, Gemini, Bitstamp, Kraken, LMAX Exchange, 

BinanceUS, and OKCoin during February 2021. 

92Cash equivalents are short-term instruments 

with maturities of less than 3 months. 

93 15 U.S.C. 80a–1. 

94The Sponsor’s affiliates have an ownership 

interest in Coin Metrics, Inc. 

(c) Other Means To Prevent Fraudulent 

and Manipulative Acts and Practices 

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.90

The Exchange believes that such 

conditions are present. Specifically, the 

significant liquidity in the spot market 

and the impact of market orders on the 

overall price of bitcoin mean that 

attempting to move the price of bitcoin 

is costly and has grown more expensive 

over the past year. In January 2020, for 

example, the cost to buy or sell $5 

million worth of bitcoin averaged 

roughly 30 basis points (compared to 10 

basis points in 2/2021) with a market 

impact of 50 basis points (compared to 

30 basis points in 2/2021).91 For a $10 

million market order, the cost to buy or 

sell was roughly 50 basis points 

(compared to 20 basis points in 2/2021) 

with a market impact of 80 basis points 

(compared to 50 basis points in 2/2021). 

As the liquidity in the bitcoin spot 

market increases, it follows that the 

impact of $5 million and $10 million 

orders will continue to decrease the 

overall impact in spot price. 

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. 

Fidelity Wise Origin Bitcoin Fund 

The Registration Statement includes 

the following description of the Trust 

and its operations. The Trust will issue 

Shares that represent fractional 

undivided beneficial interests in and 

ownership of the Trust. The Trust is a 

Delaware statutory trust that operates 

pursuant to the Declaration of Trust and 

Trust Agreement (the ‘‘Trust 

Agreement’’), between Sponsor and 

Delaware Trust Company, the Delaware 

trustee of the Trust (the ‘‘Trustee’’). 

Sponsor manages the Trust and is 

responsible for the ongoing registration 

of the Shares. The Trust will engage 

Fidelity Service Company, Inc. (‘‘FSC’’), 

a Sponsor affiliate, to be the 

administrator (‘‘Administrator’’). State 

Street and Trust Company (the 

‘‘Transfer Agent’’ and ‘‘Cash 

Custodian’’)) will facilitate the issuance 

and redemption of Shares of the Trust 

and respond to correspondence by Trust 

shareholders and others relating to its 

duties, maintain shareholder accounts, 

and make periodic reports to the Trust. 

Another affiliate of Sponsor, Fidelity 

Distributors Corporation, will be the 

distributor (‘‘Distributor’’) in connection 

with the creation and redemption of 

‘‘Creation Baskets’’ of Shares. The 

Sponsor will provide assistance in the 

marketing of the Shares. FDAS, another 

Sponsor affiliate, will serve as the 

Custodian. 

According to the Registration 

Statement, each Share will represent a 

fractional undivided beneficial interest 

in the Trust. The Trust’s assets will only 

consist of bitcoin, cash, and cash 

equivalents.92 Except for cash 

temporarily held to pay Trust expenses, 

facilitate redemption transactions, or 

received in creation transactions, the 

Trust will only invest in bitcoin. 

According to the Registration 

Statement, the Trust is neither an 

investment company registered under 

the Investment Company Act of 1940, as 

amended (the ‘‘1940 Act’’),93 nor a 

commodity pool for purposes of the 

Commodity Exchange Act (‘‘CEA’’), and 

neither the Trust nor the Sponsor is 

subject to regulation as a commodity 

pool operator or a commodity trading 

adviser in connection with the Shares. 

Investment Objective 

The Trust’s investment objective is to 

seek to track the performance of bitcoin, 

as measured by the performance of the 

Fidelity Bitcoin Reference Rate PR (the 

‘‘Index’’), less the Trust’s expenses and 

other liabilities. In seeking to achieve its 

investment objective, the Trust will 

hold bitcoin, cash, and cash equivalents 

and will value its Shares daily as of 4:00 

p.m. Eastern time using the Index price 

to value the bitcoin and process all 

creations and redemptions in cash 

transactions with authorized 

participants. The Trust is not actively 

managed. 

The Index 

The Index is designed to reflect the 

performance of bitcoin in U.S. dollars. 

The current trading platform 

composition of the Index is Bitstamp, 

Coinbase, Gemini, itBit, Kraken, and 

LMAX Digital. The Index methodology 

was developed by Fidelity Product 

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

and is administered by the Fidelity 

Index Committee. Coin Metrics, Inc. is 

the third-party calculation agent for the 

Index.94

The Index is constructed using bitcoin 

price feeds from eligible bitcoin spot 

markets and a volume-weighted median 

price (‘‘VWMP’’) methodology, 

calculated every 15 seconds based on 

VWMP spot market data over rolling 1- 

hour increments to develop a bitcoin 

price composite. The Index market 

value is the volume-weighted median 

price of bitcoin in U.S. dollars over the 

previous one hour, which is calculated 

by (1) ordering all individual 

transactions on eligible spot markets 

over the previous one hour by price, and 

then (2) selecting the price associated 

with the 50th percentile of total volume. 

Using rolling one-hour segments means 

malicious actors would need to sustain 

efforts to manipulate the market over an 

extended period of time, or such 

malicious actors would need to replicate 

efforts multiple times across eligible 

bitcoin spot markets, potentially 

triggering review. This extended period 

also supports authorized participant 

activity by capturing volume over a 

longer time period, rather than forcing 

authorized participants to mark an 

individual close or auction. The use of 

a median price reduces the ability of 

outlier prices to impact the NAV, as it 

systematically excludes those prices 

from the NAV calculation. The use of a 

volume-weighted median (as opposed to 

a traditional median) serves as an 

additional protection against attempts to 

manipulate the NAV by executing a 

large number of low-dollar trades, 

because any manipulation attempt 

would have to involve a majority of 

global spot bitcoin volume in a one-hour 

window to have any influence on the 

NAV. 

Index data and the description of the 

Index are based on information made 

publicly available by the Index Provider 

on its website at http://i.fidelity.com/ 

indices. 


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2366 Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 

95Such 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. 

96As 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. 

97Blockstream provides cryptocurrency data 

feeds delivering real-time and historical trade data 

from the world’s leading cryptocurrency venues. 

See https://blockstream.com/cryptofeed/. 

98New York state trust companies are subject to 

rigorous oversight similar to other types of entities, 

such as nationally chartered banking entities, that 

hold customer assets. Like national banks, they 

must obtain specific approval of their primary 

regulator for the exercise of their fiduciary powers. 

Moreover, limited purpose trust companies engaged 

in the custody of digital assets are subject to even 

more stringent requirements than national banks 

which, following initial approval of trust powers, 

generally can exercise those powers broadly 

without further approval of the OCC. In contrast, 

NYDFS requires in their approval orders that 

limited purpose trust companies obtain separate 

approval for all material changes in business. 

Net Asset Value 

As described in the Registration 

Statement, for purposes of calculating 

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

holdings of bitcoin will be valued using 

the Index value as of 4:00 p.m. Eastern 

time. NAV means the total assets of the 

Trust which will include only bitcoin, 

cash, and cash equivalents, if any, less 

total liabilities of the Trust, each 

determined on the basis of generally 

accepted accounting principles. The 

Administrator calculates the NAV of the 

Trust once each Exchange trading day. 

The NAV for a normal trading day will 

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

Trading during the core trading session 

on the Exchange typically closes at 4:00 

p.m. Eastern time. However, NAVs are 

not officially struck until later in the 

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

almost always by 8:00 p.m. Eastern 

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

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

(or later) provides an opportunity to 

algorithmically detect, flag, investigate, 

and correct unusual pricing should it 

occur. 

The NAV for the Trust will be 

calculated by the Administrator once a 

day and will be disseminated daily to 

all market participants at the same time. 

If the Sponsor determines in good faith 

that the Index does not reflect an 

accurate bitcoin price, then the Trust 

will cause to be employed an alternative 

method to determine the fair value of 

the Trust’s assets as reviewed and 

approved by the Sponsor’s valuation 

committee.95

Availability of Information 

In addition to the price transparency 

of the Index, the Trust will provide 

information regarding the Trust’s 

bitcoin holdings as well as additional 

data regarding the Trust. The website for 

the Trust, which will be publicly 

accessible at no charge, will contain the 

following information: (a) the current 

NAV per Share daily and the prior 

business day’s NAV and the reported 

closing price; (b) the BZX Official 

Closing Price 96 in relation to the NAV 

as of the time the NAV is calculated and 

a calculation of the premium or 

discount of such price against such 

NAV; (c) data in chart form displaying 

the frequency distribution of discounts 

and premiums of the Official Closing 

Price against the NAV, within 

appropriate ranges for each of the four 

previous calendar quarters (or for the 

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

prospectus; and other applicable 

quantitative information. The Trust will 

also disseminate its holdings on a daily 

basis on its website. The 

aforementioned information will be 

published as of the close of business 

and available on the Sponsor’s website 

at www.fidelity.com, or any successor 

thereto. 

The Trust will provide an Intraday 

Indicative Value (‘‘IIV’’) per Share 

updated every 15 seconds, as calculated 

by the Exchange or a third-party 

financial data provider during the 

Exchange’s Regular Trading Hours (9:30 

a.m. to 4:00 p.m. Eastern time). The IIV 

will be 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 IIV calculation agent 

will use the Trust’s bitcoin holdings and 

cash and cash equivalents expected to 

comprise that day’s NAV calculation to 

calculate the IIV. The calculation agent 

currently uses the Blockstream Crypto 

Data Feed Streaming Level 1 97 as the 

pricing source for the spot bitcoin, 

which will be used to update the IIV. 

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 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. 

The value of the Index will be made 

available by one or more major market 

data vendors, updated at least every 15 

seconds during Regular Trading Hours. 

As noted above, the Index is 

calculated every day and is constructed 

using bitcoin price feeds from eligible 

bitcoin spot markets and a VWMP 

methodology, calculated every 15 

seconds based on VWMP spot market 

data over rolling 1-hour increments. 

Information about the Index and Index 

value, including key elements of how 

the Index is calculated, will be publicly 

available at http://i.fidelity.com/indices/. 

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 Sponsor has selected FDAS to be 

the Trust’s Custodian. FDAS is a New 

York state limited liability trust 98 that 

serves as bitcoin custodian to 

institutional and individual investors. 

The Custodian maintains a substantial 

portion of the private keys associated 

with the Trust’s bitcoin in ‘‘cold 

storage’’ or similarly secure technology. 

Cold storage is a safeguarding method 

with multiple layers of protections and 

protocols, by which the private key(s) 

corresponding to the Trust’s bitcoin is 

(are) generated and stored in an offline 

manner. Private keys are generated in 

offline computers that are not connected 

to the internet so that they are resistant 

to being hacked. Cold storage of private 

keys may involve keeping such keys on 

a non-networked computer or electronic 

device or storing the public key and 

private keys on a storage device (for 

example, a USB thumb drive) or printed 

medium and deleting the keys from all 

computers. 

The Custodian may receive deposits 

of bitcoin but may not send bitcoin 

without use of the corresponding 

private keys. In order to send bitcoin 


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Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2367 

99For 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. 

when the private keys are kept in cold 

storage, either the private keys must be 

retrieved from cold storage and entered 

into a software program to sign the 

transaction, or the unsigned transaction 

must be sent to the ‘‘cold’’ server in 

which the private keys are held for 

signature by the private keys. At that 

point, the Custodian can transfer the 

bitcoin. The Trust’s Transfer Agent will 

facilitate the settlement of Shares in 

response to the placement of creation 

orders and redemption orders from 

authorized participants. The Trust will 

only hold bitcoin, cash and cash 

equivalents. The Trust will enter into a 

cash custody agreement with the Cash 

Custodian as custodian of the Trust’s 

cash and cash equivalents. 

Creation and Redemption of Shares 

When the Trust sells or redeems its 

Shares, it will do so in cash transactions 

in blocks of 25,000 Shares (a ‘‘Creation 

Basket’’) that are based on the amount 

of bitcoin held by the Trust on a per 

unit (i.e., 25,000 Share) basis. 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 

must be placed by close of Regular 

Trading Hours on the Exchange or an 

earlier time as determined and 

communicated by the Sponsor and its 

agent. The day on which an order is 

received is considered the purchase 

order date. The total deposit of cash 

required is an amount of cash sufficient 

to purchase such amount of bitcoin, the 

amount of which is equal to the 

combined NAV of the number of Shares 

included in the Creation Baskets being 

created determined as of 4:00 p.m. ET 

on the date the order to purchase is 

properly received. The Administrator 

determines the required deposit for a 

given day by dividing the number of 

bitcoin held by the Trust 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 Trust 

as of the opening of business on that 

business day, by the quotient of the 

number of Shares outstanding at the 

opening of business divided by the 

aggregation of Shares associated with a 

Creation Basket. The procedures by 

which an authorized participant can 

redeem one or more Creation Baskets 

mirror the procedures for the creation of 

Creation Baskets. 

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 Trust or a third 

party with respect to purchasing, 

holding, delivering, or receiving bitcoin 

as part of the creation or redemption 

process. 

The Trust will create shares by 

receiving bitcoin from a third party that 

is not the authorized participant and the 

Trust—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 Trust or acting at the direction of the 

authorized participant with respect to 

the delivery of the bitcoin to the Trust. 

The Trust will redeem shares by 

delivering bitcoin to a third party that 

is not the authorized participant and the 

Trust—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 Trust or acting at the direction of the 

authorized participant with respect to 

the receipt of the bitcoin from the Trust. 

The procedures by which an 

authorized participant can redeem one 

or more Creation Baskets mirror the 

procedures for the creation of Creation 

Baskets. A third party, that is 

unaffiliated with the Trust 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 Trust. 

The Sponsor will maintain ownership 

and control of 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 

Trust 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 that the NAV and 

information about the assets of the Trust 

will be made available to all market 

participants at the same time. The 

Exchange notes that, as defined in Rule 

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

issued by a trust that holds (1) a 

specified commodity 99 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 Trust, the 

Shares will be removed from listing. 

The Trustee, Delaware Trust Company, 

is a trust company having substantial 

capital and surplus and the experience 

and facilities for handling corporate 

trust business, as required under Rule 

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

will be made to the trustee without prior 

notice to and approval of the Exchange. 

The Exchange also notes that, pursuant 

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

Exchange nor any agent of the Exchange 

shall have any liability for damages, 

claims, losses or expenses caused by 

any errors, omissions or delays in 

calculating or disseminating any 

underlying commodity value, the 

current value of the underlying 

commodity required to be deposited to 

the Trust in connection with issuance of 

Commodity-Based Trust Shares; 

resulting from any negligent act or 

omission by the Exchange, or any agent 

of the Exchange, or any act, condition or 

cause beyond the reasonable control of 

the Exchange, its agent, including, but 

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

extraordinary weather conditions; war; 

insurrection; riot; strike; accident; 

action of government; communications 

or power failure; equipment or software 

malfunction; or any error, omission or 

delay in the reports of transactions in an 

underlying commodity. Finally, as 

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

Exchange notes that any registered 

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

Shares must file with the Exchange in 

a manner prescribed by the Exchange 

and keep current a list identifying all 

accounts for trading in an underlying 

commodity, related commodity futures 

or options on commodity futures, or any 

other related commodity derivatives, 

which the registered Market Maker may 

have or over which it may exercise 

investment discretion. No registered 

Market Maker shall trade in an 

underlying commodity, related 


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100For a list of the current members and affiliate 

members of ISG, see www.isgportal.com. 

101Regular Trading Hours is the time between 

9:30 a.m. and 4:00 p.m. Eastern Time. 

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 

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 Index 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 Index occurs. If the interruption to 

the dissemination of the IIV or the value 

of the Index 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 Trust 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.100 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 Trust or 

the Shares to comply with the 

continued listing requirements, and, 

pursuant to its obligations under section 

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

Exchange will surveil for compliance 

with the continued listing requirements. 

If the Trust or the Shares are not in 

compliance with the applicable listing 

requirements, the Exchange will 

commence delisting procedures under 

Exchange Rule 14.12. 

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 

Trust’s NAV are disseminated; (iv) the 

risks involved in trading the Shares 

outside of Regular Trading Hours 101

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 


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102 15 U.S.C. 78f. 

103 15 U.S.C. 78f(b)(5). 

104See Exchange Rule 14.11(f). 

105Commodity-Based Trust Shares, as described 

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

Issued Receipt. 

106As 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. 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 bitcoin 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. 

107As 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 ISG 

constitutes such a surveillance sharing agreement. 

See Wilshire Phoenix Disapproval. 

108For a list of the current members and affiliate 

members of ISG, see www.isgportal.com. 

109See Wilshire Phoenix Disapproval. 

110See 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. 

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 102 in general and section 

6(b)(5) of the Act 103 in particular in that 

it is designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, to foster cooperation and 

coordination with persons engaged in 

facilitating transactions in securities, to 

remove impediments to and perfect the 

mechanism of a free and open market 

and a national market system and, in 

general, to protect investors and the 

public interest. 

The Commission has approved 

numerous series of Trust Issued 

Receipts,104 including CommodityBased Trust Shares,105 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; 106 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 

and, as described and discussed above, 

the Sponsor’s analysis demonstrates that 

the Exchange has satisfied the 

requirements under the Act that the 

CME Bitcoin Futures Market (i) is a 

regulated market, (ii) has a 

comprehensive surveillance-sharing 

agreement with the Exchange; and (iii) 

satisfies the Commission’s ‘‘significant 

market’’ definition.’’ In addition, the 

Exchange believes that this proposal is 

consistent with the requirements of 

section 6(b)(5) of the Act because this 

filing sufficiently demonstrates that the 

standard that has previously been 

articulated by the Commission 

applicable to Commodity-Based Trust 

Shares has been met as outlined below. 

Designed To Prevent Fraudulent and 

Manipulative Acts and Practices 

In order for a proposal to list and 

trade a series of Commodity-Based Trust 

Shares to be deemed consistent with the 

Act, the Commission requires that an 

exchange demonstrate that there is a 

comprehensive surveillance-sharing 

agreement in place 107 with a regulated 

market of significant size. Both the 

Exchange and CME are members of 

ISG.108 As such, the only remaining 

issue to be addressed is whether the 

Bitcoin Futures market constitutes a 

market of significant size, which the 

Exchange believes that it does. The 

terms ‘‘significant market’’ and ‘‘market 

of significant size’’ include a market (or 

group of markets) as to which: (a) there 

is a reasonable likelihood that a person 

attempting to manipulate the ETP 

would also have to trade on that market 

to manipulate the ETP, so that a 

surveillance-sharing agreement would 

assist the listing exchange in detecting 

and deterring misconduct; and (b) it is 

unlikely that trading in the ETP would 

be the predominant influence on prices 

in that market.109

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.110

(a) Reasonable Likelihood That a Person 

Attempting To Manipulate the ETP 

Would Also Have To Trade on That 

Market To Manipulate the ETP 

Bitcoin Futures represent a growing 

influence on pricing in the spot bitcoin 

market as has been laid out above and 

in other proposals to list and trade Spot 

Bitcoin ETPs. Pricing in Bitcoin Futures 

is based on pricing from spot bitcoin 

markets. As noted above, 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 


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111These statistics are based on samples of 

bitcoin liquidity in USD (excluding stablecoins or 

Euro liquidity) based on executable quotes on 

Coinbase, FTX and Kraken during the one-year 

period ending May 2022. 

112See 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. 

113See Teucrium Approval at 21679. 

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 Bitcoin Futures. While the 

Commission makes clear in the 

Teucrium Approval that the analysis 

only applies to the Bitcoin Futures 

market as it relates to an ETP that 

invests in Bitcoin Futures as its only 

non-cash or cash equivalent holding, if 

CME’s surveillance is sufficient to 

mitigate concerns related to trading in 

Bitcoin Futures for which the pricing is 

based directly on pricing from spot 

bitcoin markets, it’s not clear how such 

a conclusion could apply only to ETPs 

based on Bitcoin Futures and not extend 

to Spot Bitcoin ETPs. 

(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 on prices 

in the Bitcoin Futures market or spot 

market for a number of reasons, the 

significant volume in the Bitcoin 

Futures market, the size of bitcoin’s 

market cap, 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. According to 

data from Skew, the cost to buy or sell 

$5 million worth of bitcoin averages 

roughly 48 basis points with a market 

impact of $139.08.111 Stated another 

way, a market participant could enter a 

market buy or sell order for $5 million 

of bitcoin and only move the market 

0.48%. More strategic purchases or sales 

(such as using limit orders and 

executing through OTC bitcoin trade 

desks) would likely have less obvious 

impact on the market—which is 

consistent with MicroStrategy, Tesla, 

and Square being able to collectively 

purchase billions of dollars in bitcoin. 

As such, the combination of the 

Bitcoin Futures leading price discovery, 

the overall size of the bitcoin market, 

and the ability for market participants, 

to buy or sell large amounts of bitcoin 

without significant market impact will 

help prevent the Shares from becoming 

the predominant force on pricing in 

either the bitcoin spot or Bitcoin 

Futures markets, satisfying part (b) of 

the test outlined above. 

(c) Other Means To Prevent Fraudulent 

and Manipulative Acts and Practices 

As noted above, the Commission also 

permits a listing exchange to 

demonstrate that ‘‘other means to 

prevent fraudulent and manipulative 

acts and practices’’ are sufficient to 

justify dispensing with the requisite 

surveillance-sharing agreement. The 

Exchange and Sponsor believe that such 

conditions are present. 

The Exchange also believes that 

reviewing this proposal through the lens 

of the Bitcoin Futures Approvals would 

also lead the Commission to approving 

this proposal. 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.112 The Exchange 

believes that the following excerpt from 

the Teucrium Approval is particular 

informative: 

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.113

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 Bitcoin Futures. If CME is 

able to detect such attempts at 

manipulation in the complex and 

interconnected spot bitcoin market, how 

would such an ability to detect 

attempted manipulation and the utility 

in sharing that information with the 

listing exchange apply only to Bitcoin 

Futures ETFs and not Spot Bitcoin 

ETPs? Stated a different way, given that 

there is significant trading volume on 

numerous bitcoin trading platforms that 

are not part of the CME CF Bitcoin 

Reference Rate and that arbitrage 

opportunities across bitcoin trading 

platforms means that such trading 

volume will influence spot bitcoin 

prices across the market and, despite 

this, the Commission still believes that 

CME can detect attempted manipulation 

of the Bitcoin Futures through ‘‘trading 

outside of the CME bitcoin futures 

market,’’ it is clear that such ability 

would apply equally to both Bitcoin 

Futures ETFs and Spot Bitcoin ETPs. To 

take it a step further, such an ability 

would also seem to be a strong 

indication that the CME Bitcoin Futures 

market represents a regulated market of 

significant size. To be clear, the 

Exchange agrees with the Commission 

on this point (and the implications of 

their conclusions) and further notes that 

the pricing mechanism applicable to the 

Shares is similar to the CME CF Bitcoin 

Reference Rate. 

(d) 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 

through 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 


khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 89, No. 9 / Friday, January 12, 2024 / Notices 2371 

114As 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. 

115Blockstream provides cryptocurrency data 

feeds delivering real-time and historical trade data 

from the world’s leading cryptocurrency venues. 

See https://blockstream.com/cryptofeed/. 

addressed 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 with access to bitcoin in a 

regulated and transparent exchangetraded vehicle that would act to limit 

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

premium and discount volatility; (ii) 

reducing management fees through 

meaningful competition; (iii) reducing 

risks and costs associated with investing 

in Bitcoin Futures ETFs and operating 

companies that are 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 Trust or 

the Shares to comply with the 

continued listing requirements, and, 

pursuant to its obligations under section 

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

Exchange will surveil for compliance 

with the continued listing requirements. 

If the Trust or the Shares are not in 

compliance with the applicable listing 

requirements, the Exchange will 

commence delisting procedures under 

Exchange Rule 14.12. The Exchange 

may obtain information regarding 

trading in the Shares and listed 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 Trust and 

the Shares. 

In addition to the price transparency 

of the Index, the Trust will provide 

information regarding the Trust’s 

bitcoin holdings as well as additional 

data regarding the Trust. The website for 

the Trust, which will be publicly 

accessible at no charge, will contain the 

following information: (a) the current 

NAV per Share daily and the prior 

business day’s NAV and the reported 

closing price; (b) the BZX Official 

Closing Price 114 in relation to the NAV 

as of the time the NAV is calculated and 

a calculation of the premium or 

discount of such price against such 

NAV; (c) data in chart form displaying 

the frequency distribution of discounts 

and premiums of the Official Closing 

Price against the NAV, within 

appropriate ranges for each of the four 

previous calendar quarters (or for the 

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

prospectus; and other applicable 

quantitative information. The Trust will 

also disseminate its holdings on a daily 

basis on its website. The 

aforementioned information will be 

published as of the close of business 

and available on the Sponsor’s website 

at www.fidelity.com, or any successor 

thereto. 

The Trust will provide an IIV per 

Share updated every 15 seconds, as 

calculated by the Exchange or a thirdparty financial data provider during the 

Exchange’s Regular Trading Hours (9:30 

a.m. to 4:00 p.m. Eastern time). The IIV 

will be 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 IIV calculation agent 

will use the Trust’s bitcoin holdings and 

cash and cash equivalents expected to 

comprise that day’s NAV calculation to 

calculate the IIV. The calculation agent 

will use the Blockstream Crypto Data 

Feed Streaming Level 1 115 as the 

pricing source for the spot bitcoin, 

which will be used to update the IIV. 

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 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. 

The value of the Index will be made 

available by one or more major market 

data vendors, updated at least every 15 

seconds during Regular Trading Hours. 

As noted above, the Index is 

calculated every day and is constructed 

using bitcoin price feeds from eligible 

bitcoin spot markets and a VWMP 

methodology, calculated every 15 

seconds based on VWMP spot market 

data over rolling 1-hour increments. 

Information about the Index and Index 

value, including key elements of how 

the Index is calculated, will be publicly 

available at http://i.fidelity.com/indices/. 

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 

protect investors and the public interest. 

Premium and discount volatility, high 

fees, rolling costs, insufficient 

disclosures, and technical hurdles are 

putting U.S. investor money at risk on 


khammond on DSKJM1Z7X2PROD with NOTICES
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 


khammond on DSKJM1Z7X2PROD with NOTICES