Federal Register / Vol. 89, No. 21 / Wednesday, January 31, 2024 / Notices 6155 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 98780 

(Oct. 23, 2023), 88 FR 73892 (‘‘Notice’’). Comments 

on the proposed rule change are available at: 

https://www.sec.gov/comments/sr-nysearca-2023- 

70/srnysearca202370.htm. 

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

5See Securities Exchange Act Release No. 99082, 

88 FR 85962 (Dec. 11, 2023). The Commission 

designated January 25, 2024, as the date by which 

the Commission shall approve or disapprove, or 

institute proceedings to determine whether to 

disapprove, the proposed rule change. 

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

7See Notice, supra note 3. 

8 In its filing, the Exchange defines ‘‘ETH’’ as 

‘‘Ethereum’’. See id. at 73893. It, however, also 

provides that ‘‘[t]he Ethereum Network allows 

people to exchange tokens of value, called Ether, 

which are recorded on a public transaction ledger 

known as a blockchain.’’ See id. at 73894. 

9See id. at 73894. Grayscale Investments, LLC 

(‘‘Sponsor’’) is the sponsor of the Trust and is a 

wholly-owned subsidiary of Digital Currency 

Group, Inc. See id. at 73893. 

10A ‘‘Digital Asset Exchange’’ is an electronic 

marketplace where participants may trade, buy and 

sell ETH based on bid-ask trading. See id. at 73894 

n.16. 

11See id. at 73894 n.14. The index provider for 

the Trust is CoinDesk Indices, Inc. See id. at 73893. 

While the Exchange does not name the ‘‘Index’’ that 

the Trust would use to value the ETH held by the 

Trust, the Exchange provides that the value of the 

Index, as well as additional information regarding 

the Index, will be available at https://

www.coindesk.com/indices. See id. at 73910. 

12 ‘‘Incidental Rights’’ are rights to acquire, or 

otherwise establish dominion and control over, any 

virtual currency or other asset or right, which rights 

are incident to the Trust’s ownership of ETH and 

arise without any action of the Trust, or of the 

Sponsor or trustee on behalf of the Trust. See id. 

at 73893 n.11. 

13 ‘‘IR Virtual Currency’’ is any virtual currency 

tokens, or other asset or right, acquired by the Trust 

through the exercise (subject to the applicable 

provisions of the trust agreement) of any Incidental 

Right. See id. at 73893 n.12. 

14 ‘‘Additional Trust Expenses’’ are any expenses 

incurred by the Trust in addition to the Sponsor’s 

fee that are not Sponsor-paid expenses. See id. at 

73893 n.13. 

15See id. at 73893–94. 

16See id. at 73894. 

17The Exchange does not define this term in the 

proposed rule change. Additional information about 

the calculation of the Digital Asset Holdings can be 

found in the Notice. See id. at 73898. 

18See id. 

19See id. at 73907. 

20 15 U.S.C. 78s(b)(2)(B). 

21 Id. 

22 15 U.S.C. 78f(b)(5). 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–99428; File No. SR– 

NYSEARCA–2023–70] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Order Instituting 

Proceedings To Determine Whether To 

Approve or Disapprove a Proposed 

Rule Change To List and Trade Shares 

of the Grayscale Ethereum Trust Under 

NYSE Arca Rule 8.201–E (CommodityBased Trust Shares) 

January 25, 2024. 

On October 10, 2023, NYSE Arca, Inc. 

(‘‘NYSE Arca’’ 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 Grayscale Ethereum 

Trust (‘‘Trust’’) under NYSE Arca Rule 

8.201–E (Commodity-Based Trust 

Shares). The proposed rule change was 

published for comment in the Federal 

Register on October 27, 2023.3

On December 5, 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 This order 

institutes proceedings under Section 

19(b)(2)(B) of the Act 6 to determine 

whether to approve or disapprove the 

proposed rule change. 

I. Summary of the Proposal 

As described in more detail in the 

Notice,7 the Exchange proposes to list 

and trade the Shares of the Trust under 

NYSE Arca Rule 8.201–E, which 

governs the listing and trading of 

Commodity-Based Trust Shares on the 

Exchange. 

According to the Exchange, the 

investment objective of the Trust is for 

the value of the Shares to reflect the 

value of the Ethereum (‘‘ETH’’) 8 held by 

the Trust, determined by reference to 

the ‘‘Index Price,’’ less the Trust’s 

expenses and other liabilities.9 The 

‘‘Index Price’’ is the U.S. dollar value of 

an ETH derived from the ‘‘Digital Asset 

Exchanges’’ 10 that are reflected in the 

‘‘Index,’’ calculated at 4:00 p.m., New 

York time, on each business day.11 The 

Trust’s assets will consist solely of ETH; 

Incidental Rights; 12 IR Virtual 

Currency; 13 proceeds from the sale of 

ETH, Incidental Rights, and IR Virtual 

Currency pending use of such cash for 

payment of Additional Trust 

Expenses 14 or distribution to 

shareholders, and any rights of the Trust 

pursuant to any agreements, other than 

the trust agreement, to which the Trust 

is a party.15 Each Share represents a 

proportional interest, based on the total 

number of Shares outstanding, in each 

of the Trust’s assets as determined by 

reference to the Index Price, less the 

Trust’s expenses and other liabilities 

(which include accrued but unpaid fees 

and expenses).16 On each business day 

at 4:00 p.m., New York time, or as soon 

thereafter as practicable, the Sponsor 

will evaluate the ETH held by the Trust 

and calculate and publish the ‘‘Digital 

Asset Holdings’’ 17 of the Trust.18 When 

the Trust sells or redeems its Shares, it 

will do so either in ‘‘in-kind’’ or ‘‘incash’’ transactions with authorized 

participants in blocks of 100 Shares.19

II. Proceedings To Determine Whether 

To Approve or Disapprove SR– 

NYSEARCA–2023–70 and Grounds for 

Disapproval Under Consideration 

The Commission is instituting 

proceedings pursuant to Section 

19(b)(2)(B) of the Act 20 to determine 

whether the proposed rule change 

should be approved or disapproved. 

Institution of proceedings is appropriate 

at this time in view of the legal and 

policy issues raised by the proposed 

rule change, as discussed below. 

Institution of proceedings does not 

indicate that the Commission has 

reached any conclusions with respect to 

any of the issues involved. Rather, as 

described below, the Commission seeks 

and encourages interested persons to 

provide comments on the proposed rule 

change. 

Pursuant to Section 19(b)(2)(B) of the 

Act,21 the Commission is providing 

notice of the grounds for disapproval 

under consideration. The Commission is 

instituting proceedings to allow for 

additional analysis of the proposed rule 

change’s consistency with Section 

6(b)(5) of the Act, which requires, 

among other things, that the rules of a 

national securities exchange be 

‘‘designed to prevent fraudulent and 

manipulative acts and practices’’ and 

‘‘to protect investors and the public 

interest.’’ 22

The Commission asks that 

commenters address the sufficiency of 

the Exchange’s statements in support of 

the proposal, which are set forth in the 

Notice, in addition to any other 

comments they may wish to submit 

about the proposed rule change. In 

particular, the Commission seeks 

comment on the following questions 

and asks commenters to submit data 

where appropriate to support their 

views: 

1. Given the nature of the underlying 

assets held by the Trust, has the 

Exchange properly filed its proposal to 

list and trade the Shares under NYSE 


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6156 Federal Register / Vol. 89, No. 21 / Wednesday, January 31, 2024 / Notices 

23NYSE Arca Rule 8.201–E(c)(1) defines the term 

‘‘Commodity-Based Trust Shares’’ as a security (a) 

that is issued by a trust that holds (1) a specified 

commodity deposited with the trust, or (2) a 

specified commodity and, in addition to such 

specified commodity, cash; (b) that is 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) that, 

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. 

24See Notice, 88 FR at 73906–07. 

25See id. at 73906. 

26See id. 

27See id. 

28See, e.g., Notice of Filing of a Proposed Rule 

Change to List and Trade Shares of the VanEck 

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

Commodity-Based Trust Shares, Securities 

Exchange Act Release No. 98457 (Sept. 20, 2023), 

88 FR 66076 (Sept. 26, 2023), 66081 (stating that 

‘‘The Sponsor’s research indicates daily correlation 

between the spot ETH and the CME ETH Futures 

is 0.998 from the period of 9/1/22 through 9/1/ 

23.’’). 

29Section 19(b)(2) of the Act, as amended by the 

Securities Acts Amendments of 1975, Public Law 

94–29 (June 4, 1975), grants the Commission 

flexibility to determine what type of proceeding— 

either oral or notice and opportunity for written 

comments—is appropriate for consideration of a 

particular proposal by a self-regulatory 

organization. See Securities Acts Amendments of 

1975, Senate Comm. on Banking, Housing & Urban 

Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30 

(1975). 30 17 CFR 200.30–3(a)(57). 

Arca Rule 8.201–E (Commodity-Based 

Trust Shares)? 23

2. The Exchange raises substantially 

similar arguments to support the listing 

and trading of the Shares as those made 

in proposals to list and trade spot 

bitcoin exchange-traded products 

(‘‘Bitcoin ETPs’’). Do commenters agree 

that arguments to support the listing of 

Bitcoin ETPs apply equally to the 

Shares? Are there particular features 

related to ETH and its ecosystem, 

including its proof of stake consensus 

mechanism and concentration of control 

or influence by a few individuals or 

entities, that raise unique concerns 

about ETH’s susceptibility to fraud and 

manipulation? 

3. What are commenters’ views on 

whether the proposed Trust and Shares 

would be susceptible to manipulation? 

What are commenters’ views generally 

on whether the Exchange’s proposal is 

designed to prevent fraudulent and 

manipulative acts and practices? What 

are commenters’ views generally with 

respect to the liquidity and transparency 

of the ETH markets and the ETH 

markets’ susceptibility to manipulation? 

4. Based on data and analysis 

provided by the Exchange,24 do 

commenters agree with the Exchange 

that the Chicago Mercantile Exchange 

(‘‘CME’’), on which CME ETH futures 

trade, represents a regulated market of 

significant size related to spot ETH? 25

What are commenters’ views on 

whether there is a reasonable likelihood 

that a person attempting to manipulate 

the Shares would also have to trade on 

the CME to manipulate the Shares? 26 Do 

commenters agree with the Exchange 

that it is unlikely that trading in the 

Shares would be the predominant 

influence on prices in the CME ETH 

futures market? 27

5. Some sponsors of proposed ETH 

exchange-traded products (‘‘ETPs’’) 

have made statements regarding the 

correlation between ETH spot markets 

and the CME ETH futures market.28

What are commenters’ views on the 

correlation between the ETH spot 

market and the CME ETH futures 

market? What are commenters’ views on 

the extent to which a surveillancesharing agreement with the CME would 

assist in detecting and deterring fraud 

and manipulation that impacts an ETP 

that holds spot ETH, and on whether 

correlation analysis provides any 

evidence to this effect? What are 

commenters’ views generally on 

whether an ETP that holds only CME 

ETH futures and an ETP that only holds 

spot ETH are similar products? 

III. Procedure: Request for Written 

Comments 

The Commission requests that 

interested persons provide written 

submissions of their views, data, and 

arguments with respect to the issues 

identified above, as well as any other 

concerns they may have with the 

proposal. In particular, the Commission 

invites the written views of interested 

persons concerning whether the 

proposal is consistent with Section 

6(b)(5) or any other provision of the Act, 

and the rules and regulations 

thereunder. Although there do not 

appear to be any issues relevant to 

approval or disapproval that would be 

facilitated by an oral presentation of 

views, data, and arguments, the 

Commission will consider, pursuant to 

Rule 19b-4, any request for an 

opportunity to make an oral 

presentation.29

Interested persons are invited to 

submit written data, views, and 

arguments regarding whether the 

proposed rule change should be 

approved or disapproved by February 

21, 2024. Any person who wishes to file 

a rebuttal to any other person’s 

submission must file that rebuttal by 

March 6, 2024. 

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–NYSEARCA–2023–70 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–NYSEARCA–2023–70. 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–NYSEARCA–2023–70 and should be 

submitted on or before February 21, 

2024. Rebuttal comments should be 

submitted by March 6, 2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.30

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–01860 Filed 1–30–24; 8:45 am] 

BILLING CODE 8011–01–P 


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