[Federal Register Volume 89, Number 193 (Friday, October 4, 2024)]
[Notices]
[Pages 80970-80980]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-22903]



[[Page 80970]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101218; File No. SR-NASDAQ-2024-028]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Amendment No. 1 and Order Instituting Proceedings 
To Determine Whether To Approve or Disapprove a Proposed Rule Change, 
as Modified by Amendment No. 1, To List and Trade Shares of the Hashdex 
Nasdaq Crypto Index US ETF Under Nasdaq Rule 5711(d)

September 30, 2024.

I. Introduction

    On June 17, 2024, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to list and trade shares 
(``Shares'') of the Hashdex Nasdaq Crypto Index US ETF (``Trust'') 
under Nasdaq Rule 5711(d), Commodity-Based Trust Shares. The proposed 
rule change was published for comment in the Federal Register on July 
2, 2024.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 100434 (June 26, 
2024), 89 FR 54868. The proposed rule change was subject to notice 
and comment. The Commission has not received any comments.
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    On August 9, 2024, pursuant to Section 19(b)(2) of the Exchange 
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 September 5, 2024, the Exchange filed 
Amendment No. 1 to the proposed rule change, described in Item II 
below, which Item has been prepared by the Exchange. \6\ Amendment No. 
1 amended and superseded the original proposed rule change in its 
entirety. The Commission is publishing this notice and order to solicit 
comments on the proposed rule change, as modified by Amendment No. 1, 
from interested persons and to institute proceedings under Section 
19(b)(2)(B) of the Act \7\ to determine whether to approve or 
disapprove the proposed rule change, as modified by Amendment No. 1.
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    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 100681, 89 FR 66470 
(Aug. 15, 2024) (designating September 30, 2024, as the date by 
which the Commission shall either approve, disapprove, or institute 
proceedings to determine whether to disapprove the proposed rule 
change).
    \6\ The full text of Amendment No. 1 is available on the 
Commission's website at: https://www.sec.gov/comments/sr-nasdaq-2024-028/srnasdaq2024028-516575-1489102.pdf.
    \7\ 15 U.S.C. 78s(b)(2)(B).
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade Shares of the Trust under 
Nasdaq Rule 5711(d), which governs the listing and trading of 
``Commodity-Based Trust Shares.'' The Trust is managed and controlled 
by the Hashdex Asset Management Ltd. (``Sponsor'') and administered by 
Tidal ETF Services LLC (the ``Administrator''). The Shares will be 
registered with the SEC by means of the Trust's registration statement 
on Form S-1 (the ``Registration Statement'').\8\
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    \8\ On July 24, 2024, the Trust filed with the Commission an 
initial registration statement (the ``Registration Statement'') on 
Form S-1 under the Securities Act of 1933 (15 U.S.C. 77a). The 
description of the operation of the Trust herein is based, in part, 
on the most recent 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.
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Description of the Trust
    The Shares will be issued by the Trust, a Delaware statutory trust 
to be established by the Sponsor. The Trust will operate pursuant to 
the rules and guidelines set forth in the Trust agreement (``Trust 
Agreement''). The Trust will issue Shares representing fractional 
undivided beneficial interests in its net assets. The assets of the 
Trust will consist only of bitcoin and ether. Under limited 
circumstances, the Trust will hold cash and/or cash equivalents to pay 
its expenses. The Trust will not be an investment company registered 
under the Investment Company Act of 1940, as amended (the ``1940 
Act''), and will not be a commodity pool under the Commodity Exchange 
Act.
    U.S. Bancorp Fund Services, LLC will be the sub-administrator, and 
transfer agent for the Trust (``Sub-Administrator'' or ``Transfer 
Agent''). U.S. Bank, N.A. will hold the Trust's cash and/or cash 
equivalents \9\ (``Cash Custodian''). The Sponsor intends to enter into 
an agreement with Coinbase Custody Trust Company, LLC and BitGo Trust 
Company, Inc. (``Crypto Custodians'', and together with the Cash 
Custodian, the ``Custodians''). The Crypto Custodians will keep custody 
of all the Trust's bitcoin and ether.\10\
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    \9\ ``Cash equivalents'' are limited to short-term treasury 
bills (90 days or less to maturity), money market funds, and demand 
deposit accounts.
    \10\ The Trust may engage additional custodians for its bitcoin 
and ether, each of whom may be referred to as a Crypto Custodian. 
The Trust may also remove or change current Crypto Custodians, 
provided that there is at least one Crypto Custodian at all times. 
Any such changes to the Trust's Crypto Custodians would require a 
rule filing under Rule 19b-4 of the Act.
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The Trust's Investment Objective
    The investment objective of the Trust is to have the daily changes 
in the net asset value (``NAV'') of the Shares correspond to the daily 
changes in the price of the Nasdaq Crypto US Settlement Price 
Index,\11\ NCIUSS (the ``NCIUSS'' or ``Index''), less expenses and 
liabilities from the Trust's operations, by investing in bitcoin and 
ether.
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    \11\ See https://indexes.nasdaqomx.com/docs/Methodology_NCIUS.pdf.
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    The Shares are designed to provide a straightforward means of 
obtaining investment exposure to bitcoin and ether through the public 
securities market, as opposed to direct acquisition, holding, and 
trading of spot bitcoin and spot ether on a peer-to-peer or other basis 
or via a crypto asset platform. The Shares have been designed to remove 
the obstacles represented by the complexities and operational burdens 
involved in a direct investment in bitcoin and ether, while at the same 
time having an intrinsic value that reflects, at any given time, the 
investment exposure to the bitcoin and ether owned by the Trust at such 
time, less the Trust's expenses and liabilities. The Shares provide 
investors with an alternative method of achieving exposure to bitcoin 
and ether through the public securities market, which may be more 
familiar to them.
    The Trust will gain exposure to bitcoin and ether by buying spot 
bitcoin and spot ether. The Trust will maintain cash and/or cash 
equivalent balances to the extent it is necessary for currently due 
Trust-payable expenses.

[[Page 80971]]

    If there are no Share redemption orders or currently due Trust-
payable expenses, the Trust's portfolio is expected to consist of 
bitcoin and ether. The Trust will not invest in any other spot crypto 
asset besides bitcoin and ether. The Trust will not invest in crypto 
securities, tokenized assets or stablecoins. As of May 27, 2024, the 
crypto asset constituents of the Index (``Index Constituents'') and 
their weightings \12\ were as follows:
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    \12\ The Index Constituents will be weighted according to their 
relative free float market capitalizations, as described in the next 
section ``The Trust's Benchmark''.

------------------------------------------------------------------------
                                                                 Weight
                         Constituents                             (%)
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Bitcoin (BTC)................................................      70.54
Ether (ETH)..................................................      29.46
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    The Sponsor will employ a passive investment strategy that is 
intended to track the changes in the Index regardless of whether the 
Index goes up or goes down, meaning that the Sponsor will not try to 
``beat'' the Index. The Trust's passive investment strategy is designed 
to allow investors to purchase and sell the Shares for the purpose of 
investing in the Index, whether to hedge the risk of losses in their 
Index-related transactions or gain price exposure to the Index. The 
Trust's investments will be consistent with the Trust's investment 
objective and will not be used to enhance leverage. That is, given its 
passive investment strategy, the Trust's investments will not be used 
to seek performance that is the multiple or inverse multiple (e.g., 
2Xs, 3Xs, -2Xs, and -3Xs) of the Trust's Index.
    None of the Trust, the Sponsor, any Crypto Custodian, or any other 
person associated with the Trust will, directly or indirectly, engage 
in action where any portion of the Trust's ether becomes subject to the 
Ethereum proof-of-stake validation or is used to earn additional ether 
or generate income or other earnings.
    From time to time, the Trust may be entitled to or come into 
possession of ``Incidental Rights'' and/or ``IR Virtual Currency'' by 
virtue of its ownership of bitcoin or ether, generally through a fork 
in the Bitcoin or Ethereum blockchain, an airdrop offered to holders of 
bitcoin or ether or other similar event. ``Incidental Rights'' are 
rights to acquire, or otherwise establish dominion and control over, 
any crypto asset (for the avoidance of doubt, other than bitcoin and 
ether) or other asset or right, which rights are incident to the 
Trust's ownership of bitcoin or ether and arise without any action of 
the Trust or of the Sponsor. ``IR Virtual Currency'' is any crypto 
asset (other than bitcoin or ether), or other assets or rights, 
acquired through the exercise of any Incidental Right.
    With respect to a fork, airdrop or similar event, the Sponsor will 
cause the Trust to permanently and irrevocably abandon any such 
Incidental Rights and IR Virtual Currency and no such Incidental Right 
or IR Virtual Currency shall be taken into account for purposes of 
determining the NAV of the Trust.
The Trust's Benchmark
    The Trust will use the Index as a reference to track and measure 
its performance compared to the price performance of the markets for 
the Index Constituents and to value the bitcoin and ether held by the 
Trust for purposes of calculating the Trust's NAV.
    The Index is designed to measure the performance of a portion of 
the overall crypto asset market. The Index does not track the overall 
performance of all crypto assets generally, nor the performance of any 
specific crypto assets. The Index is owned and administered by Nasdaq, 
Inc. (``Index Provider'') and is calculated by CF Benchmarks Limited 
(``Calculation Agent''), which is experienced in calculating and 
administering crypto assets indices. The Calculation Agent publishes 
daily the Index Constituents, the Index Constituents' weightings, the 
intraday value of the Index (under the ticker NCIUS), and the daily 
settlement value of the Index (under the ticker NCIUSS), which is 
effectively the Index's closing value.\13\
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    \13\ The closing level of the Index is calculated once a day on 
business days at 4:05 p.m. New York Time. See https://indexes.nasdaqomx.com/docs/Methodology_NCIUS.pdf (under ``Index 
Calculation and Dissemination'').
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    The Index is derived from a rules-based methodology (``Index 
Rules''), which is overseen by the Nasdaq Cryptocurrency Index 
Oversight Committee (``NCIOC''). The NCIOC governs the Index and is 
responsible for its implementation, administration, and general 
oversight, including assessing crypto assets for eligibility, 
adjustments to account for regulatory changes and periodic methodology 
reviews. Neither the Trust, nor the Sponsor have control over the Index 
Rules or the Index administration.
    According to the Index Rules, crypto assets are eligible for 
inclusion in the Index if they satisfy the criteria set forth under the 
Nasdaq Crypto U.S. Index methodology, which includes being listed on a 
U.S.-regulated digital asset trading platform at the time of inclusion 
\14\ or serving as the underlying asset for a derivative instrument 
listed on a U.S.-regulated derivatives platform.\15\ The Index adjusts 
its constituents and weightings on a quarterly basis to reflect changes 
in the crypto asset markets.
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    \14\ Currently, there are no U.S.-regulated digital asset 
trading platforms and therefore, no crypto assets are eligible for 
inclusion in the Index based on this criteria today; however, the 
Nasdaq Crypto U.S. Index methodology has been written and designed 
to be forward-looking to account for any potential future regulatory 
changes, including potential changes where digital asset trading 
platforms would be regulated by U.S. regulators such as the SEC and 
the CFTC .
    \15\ Currently, U.S.-regulated derivatives platforms would be 
regulated by the CFTC, and therefore crypto assets eligible for 
inclusion in the Index based on this criteria includes crypto assets 
(i.e., spot bitcoin and spot ether) that are used as a reference 
price for futures contracts traded on a CFTC-regulated exchange.
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    Pursuant to the Index Rules, to be eligible for inclusion in the 
Index, crypto assets must meet the following criteria on a quarterly 
basis:
    (1) Have active tradable markets listed on at least two Core Crypto 
Platforms \16\ for the entire period since the previous Index 
reconstitution;
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    \16\ As discussed above, to be eligible for Index inclusion, a 
crypto asset must trade on at least two ``Core Crypto Platforms.'' 
As set forth in the Index methodology, a ``Core Crypto Platform'' is 
a crypto asset platform that, in the opinion of the NCIOC, exhibits 
at a minimum the characteristics specified in the Index methodology, 
such as having strong forking controls, effective anti-money 
laundering controls, including surveillance for manipulative trading 
practices and erroneous transactions, demonstrating robust IT 
infrastructure and active capacity management, evidencing 
cooperation with regulators and law enforcement, and be licensed by 
a public independent governing body. Such license could be obtained 
today through the New York State Department of Financial Services' 
(NYDFS) BitLicense, and Core Crypto Platforms could also be 
registered with FinCEN as Money Services Businesses. The list of 
existing Core Crypto Platforms will be recertified by the NCIOC at a 
minimum on an annual basis. The Core Crypto Platforms as of May 27, 
2024 are BitStamp, Coinbase, Gemini, itBit, and Kraken.
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    (2) Be supported by at least one Core Custodian \17\ for the entire 
period since the previous Index reconstitution.
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    \17\ As discussed above, only crypto assets that are supported 
by at least one ``Core Custodian'' for the entire period since the 
previous Index reconstitution will be considered for inclusion in 
the Index. A ``Core Custodian'' is a crypto assets custodian that, 
in the opinion of the NCIOC, exhibits the characteristics specified 
in the Index methodology. See https://indexes.nasdaqomx.com/docs/Methodology_NCIUS.pdf (under ``Core Custodians''). A Core Custodian 
might lose eligibility if it does not comply with the specified 
requirements in the Index methodology or with any other NCIOC 
requirements. The NCIOC will review new Core Custodian candidates 
throughout the year and announce any new additions when approved. 
The list of existing Core Custodians will be recertified by the 
NCIOC at a minimum on an annual basis. Changes to the list of Core 
Custodians may be made by the approval of the NCIOC and announced 
accordingly in the case of exceptional events or in order to 
maintain the integrity of the Index. The Core Custodians as of May 
27, 2024 are BitGo, Coinbase, Fidelity and Gemini.

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[[Page 80972]]

    (3) To be considered for entry to the Index at any Index 
reconstitution, an asset must have a median daily trading volume in the 
USD pair conducted across all Core Crypto Platforms that is no less 
than 0.5% of the cryptocurrency asset that has the highest median daily 
trading volume.
    (4) Be listed (at the time of inclusion) on a U.S.-regulated 
digital asset trading platform or serve as the underlying asset for a 
derivative instrument listed on a U.S.-regulated derivatives 
platform.\18\
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    \18\ See supra notes 14-15.
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    (5) Have free-floating pricing (i.e., not be pegged to the value of 
any asset).
    If a crypto asset meets requirements (1) through (5), it will be 
considered eligible for Index inclusion.
    Notwithstanding inclusion in the eligible list, the NCIOC reserves 
the right to further exclude any additional assets based on one or more 
factors, including but not limited to its risk of being deemed a 
security by United States securities laws along with its review of 
general reputational, fraud, manipulation, or security concerns 
connected to the asset. Assets that, in the sole discretion of the 
Nasdaq Crypto Index Oversight Committee, do not offer utility, do not 
facilitate novel use cases, or that do not exhibit technical, 
structural or cryptoeconomic innovation (e.g., assets inspired by memes 
or internet jokes) may also be excluded.
    The Index will assess any crypto assets resulting from a hard fork 
or an airdrop under the same criteria as established digital assets and 
will only include a new digital asset if it meets the eligibility 
criteria set forth above.
    The Sponsor will not invest the Trust's assets in any other crypto 
assets (i.e., other than bitcoin and ether), even if such other crypto 
assets are included in the Index pursuant to the Index Rules and the 
eligibility criteria above.\19\
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    \19\ The Exchange would file an amendment to this rule filing if 
any Index change would require a change to the Trust's investment 
objective.
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    The Index Constituents will be weighted according to their relative 
free float market capitalizations. The free float market capitalization 
of an Index Constituent on any given day is defined as the product of 
an Index Constituent Settlement Price (as defined below) and its 
``Circulating Supply'' \20\ as set in the most recent reconstitution. 
Weights are calculated by dividing the free float market capitalization 
of a digital asset by the total free float market capitalization of all 
Index Constituents at the time of rebalancing.
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    \20\ The Index will utilize ``Circulating Supply'' of an Index 
Constituent for all calculations of free float market capitalization 
and the determination of constituent weights. ``Circulating Supply'' 
is defined as the total supply of all units of a digital asset 
issued outside of the codebase since the initial block on a digital 
asset's blockchain or since the point of inception of the digital 
asset on a cryptographic distributed ledger that can be ``spent'' or 
moved from one deposit address to another that is deemed to be 
likely to be available for trading as defined by the Calculation 
Agent and described by the methods in the CF Cryptocurrency Index 
Family Multi Asset Ground Rules (section 4.2.1 to 4.3.1.2.1). 
Circulating Supply data will be determined at the block height or 
ledger number which is the last confirmed block or ledger number at 
16:00:00 UTC on the day that is eight (8) business days immediately 
preceding the relevant Reconstitution Date. Where the Calculation 
Agent cannot reliably determine any of the respective inputs for the 
calculation of the Circulating Supply for a given crypto asset that 
is an Index Constituent then its Circulating Supply shall be 
approximated. This will be done by applying the Median Free Float 
Factor (Circulating Supply/Total Supply) that has been determined 
for that reconstitution of all Index Constituents to the Total 
Supply (Circulating Supply = Total Supply x Median Free Float 
Factor). During reconstitution, updated Circulating Supply of crypto 
assets will be set and will remain fixed until the next 
reconstitution. The Index fixes Circulating Supply of Index 
Constituents between reconstitutions in order to preserve the 
investability property of the Index.
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    The Index will be reconstituted and rebalanced quarterly, on the 
first Business Day in March, June, September, and December (each a 
``Reconstitution Date'').
    The settlement price of each Index Constituent (``Index Constituent 
Settlement Price'') is calculated once every trading day \21\ by 
applying a publicly available rules-based pricing methodology (the 
``Pricing Methodology'') to a diverse collection of pricing sources to 
provide an institutional-grade reference price for each constituent. 
The Pricing Methodology is designed to account for variances in price 
across a wide range of sources, each of which has been vetted according 
to criteria identified in the methodology. Specifically, the Index 
Constituent Settlement Price is the Time Weighted Average Price 
(``TWAP'') calculated across the volume weighted average prices 
(``VWAPs'') for each minute in the settlement price window, which is 
between 3:50:00 and 4:00:00 p.m. New York time, on all Core Crypto 
Platforms. Where there are no transactions observed in any given minute 
of the settlement price window, that minute is excluded from the 
calculation of the TWAP.
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    \21\ All Index Constituent calculations are performed 
concurrently with the Index calculation, which takes place at 4:05 
p.m. New York time. See supra note 13.
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    The Pricing Methodology also utilizes penalty factors to mitigate 
the impact of anomalous trading activity such as manipulation, 
illiquidity, large block trading, or operational issues that could 
compromise price representation. Three types of penalties are applied 
when three or more contributing Core Crypto Platforms contribute 
pricing for a constituent asset: abnormal price penalties, abnormal 
volatility penalties, and abnormal volume penalties. These penalties 
are defined as adjustment factors to the weight of information from 
each platform that contributes pricing information based on the 
deviation of a platform's price, volatility, or volume from the median 
across all Core Crypto Platforms. For example, if a Core Crypto 
Platform's price is 2.5 standard deviations away from the median price, 
its price penalty factor will be a 1/2.5 multiplier.
    The Sponsor believes that the NCIUSS is a suitable Index for the 
Trust for pricing the Trust's assets and as an Index that the Trust 
tracks. Specifically, it would provide reliable pricing for purposes of 
tracking the actual performance of the crypto asset markets for bitcoin 
and ether. Second, it is administered by a reputable index 
administrator that is not affiliated with the Sponsor or Trust,\22\ 
which provides assurances of accountability and independence. Finally, 
its Pricing Methodology is designed to resist potential price 
manipulation from unregulated crypto markets by applying the following 
safeguards:
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    \22\ Nasdaq, Inc. (``Nasdaq''), the Index Provider, adheres to 
the International Organization of Securities Commissions principles 
for benchmarks (the ``IOSCO Principles'') for many of its indexes 
via an internal control and governance framework that is audited by 
an external, independent auditor on an annual basis. Although NCIUSS 
is not currently one of the indexes that is required to comply with 
IOSCO Principles, as a reference rate index, it is administered in a 
manner that is generally consistent with both the IOSCO Principles 
and the elements of Nasdaq's internal control and governance 
framework pursuant to IOSCO Principles. NCIUSS is administered and 
governed by the NCIOC in accordance with the publicly available 
NCIUS methodology. The NCIOC oversees all aspects of the 
administration of the NCIUSS, including the defined processes and 
controls for the selection and recertification of third parties such 
as the Core Crypto Platforms and Core Custodians, as well as the 
validation and reconciliation of Index calculations and pricing 
data. As discussed above, the list of existing Core Crypto Platforms 
and Core Custodians will be recertified by the NCIOC at a minimum on 
an annual basis. The NCIOC also oversees the identification and 
mitigation of any potential conflicts of interest, formal 
complaints, and updates or changes to the Index methodology 
consistent with the IOSCO Principles.
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    (1) Requiring that constituents be listed (at the time of 
inclusion) on a U.S.-regulated crypto asset trading platform or serve 
as the underlying asset for a derivative instrument listed on a U.S.-
regulated derivatives platform \23\
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    \23\ See supra notes 14-15.
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    (2) Strict eligibility criteria for the Core Crypto Platforms from 
which the Index data is drawn;

[[Page 80973]]

    (3) A diverse collection of trustworthy pricing sources to provide 
an institutional-grade reference price for the Index Constituents; and
    (4) The use of adjustment factors to mitigate against the impact of 
any anomalous trading activity on the Index Constituent Settlement 
Prices.
Custody of the Trust's Bitcoin and Ether
    An investment in the Shares is backed by assets held by the Trust, 
including the bitcoin and ether held by the Crypto Custodians on behalf 
of the Trust. The Crypto Custodians must qualify as Core Custodians by 
the NCIOC and, thus satisfy at least the requirements set forth by the 
NCIOC in the NCIUSS methodology.\24\ The Trust may engage additional 
custodians for its bitcoin and ether and may also remove or change 
current Crypto Custodians, provided that there is at least one Crypto 
Custodian who is also a Core Custodian at all times.\25\
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    \24\ See https://indexes.nasdaqomx.com/docs/Methodology_NCIUS.pdf. As noted above, the Core Custodians as of May 
27, 2024 are BitGo, Coinbase, Fidelity and Gemini, and the Trust's 
Crypto Custodians are on this list.
    \25\ If the Trust determines to do so, the Exchange will submit 
a rule filing with the Commission under Rule 19b-4 of the Act.
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    The Trust's Crypto Custodians will hold and be responsible for 
maintaining custody of the Trust's bitcoin and ether. The Sponsor will 
cause the Trust to maintain ownership and control of the Trust's 
bitcoin in a manner consistent with good delivery requirements for spot 
commodity transactions.
    All of the Trust's bitcoin and ether will be held in one or more 
accounts in the name of the Trust (each a ``Custody Account'' and 
together the ``Custody Accounts''), other than the Trust's assets which 
are temporarily maintained in a trading account under limited 
circumstances (``Trading Account''), i.e., in connection with creation 
and redemption basket activity or sales of bitcoin and ether deducted 
from the Trust's holdings in payment of Trust expenses or the Sponsor's 
fee (or, in extraordinary circumstances, upon liquidation of the 
Trust).
    The Trust's bitcoin, ether and cash holdings from time to time may 
temporarily be maintained in the Trading Account. The Sponsor intends 
to execute an agreement so Coinbase Inc. can serve as the Trust's 
``Prime Execution Agent'' (``Prime Execution Agent Agreement''). In 
this capacity, the Prime Execution Agent will facilitate the buying and 
selling of bitcoin and ether by the Trust in response to cash creations 
and redemptions between the Trust and registered broker-dealers that 
are Depositary Trust Company (``DTC'') participants that enter into an 
authorized participant agreement with the Sponsor (``Authorized 
Participants''), and the sale of bitcoin and ether to pay the Sponsor's 
fee, any other Trust expenses not assumed by the Sponsor, to the extent 
applicable, and in extraordinary circumstances, in connection with the 
liquidation of the Trust's assets.
Creation and Redemption of Shares
    The Trust issues and redeems ``Baskets'' \26\ on a continuous 
basis. Baskets are issued or redeemed only in exchange for an amount of 
cash determined by the Sponsor or the Administrator on each Business 
Day. No Shares are issued unless the Cash Custodian has allocated to 
the Trust's account the corresponding amount of cash. Baskets may be 
created or redeemed only by Authorized Participants. Each Authorized 
Participant must be registered as a broker-dealer under the Exchange 
Act and regulated by the FINRA, and must be qualified to act as a 
broker or dealer in the states or other jurisdictions where the nature 
of its business so requires.
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    \26\ Baskets will be offered continuously at NAV per Share for 
5,000 Shares. Therefore, a Basket of Shares would be valued at NAV 
per Share multiplied by the Basket size and the value of the bitcoin 
and ether to be acquired by the Trust as part of the creation of a 
Basket would be based on the dollar value of the NAV per Share 
multiplied by the Basket size for such creations. Only Authorized 
Participants may purchase or redeem Baskets.
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    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 and ether 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 and ether as part 
of the creation or redemption process.
    The Trust will create Shares by receiving bitcoin and ether 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 assets. Further, the third party will not be 
acting as an agent of the Authorized Participant with respect to the 
delivery of the bitcoin and ether to the Trust or acting at the 
direction of the Authorized Participant with respect to the delivery of 
the bitcoin and ether to the Trust. The Trust will redeem Shares by 
delivering bitcoin and ether 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 and 
ether. Further, the third party will not be acting as an agent of the 
Authorized Participant with respect to the receipt of the bitcoin and 
ether from the Trust or acting at the direction of the Authorized 
Participant with respect to the receipt of the bitcoin and ether from 
the Trust. The third-party will be unaffiliated with the Trust and the 
Sponsor.
    In connection with cash creations and cash redemptions, the 
Authorized Participants will submit orders to create or redeem Baskets 
\27\ of Shares exclusively in exchange for cash. The Trust will engage 
in transactions to convert cash into bitcoin and ether (in association 
with creation orders) and bitcoin and ether into cash (in association 
with redemption orders). The Trust will conduct its bitcoin and ether 
purchase and sale transactions by choosing, in its sole discretion, 
either to trade directly with designated third parties (each, a 
``Crypto Trading Counterparty''), who are not registered broker-dealers 
pursuant to written agreements between each such Crypto Trading 
Counterparty and the Trust, or to trade through the Prime Execution 
Agent acting in an agency capacity with third parties pursuant to the 
Prime Execution Agent Agreement. Crypto Trading Counterparties settle 
trades with the Trust using their own accounts at the Prime Execution 
Agent when trading with the Trust.
---------------------------------------------------------------------------

    \27\ The Trust issues and redeems Shares only in blocks or 
``Baskets'' of 5,000 or integral multiples thereof.
---------------------------------------------------------------------------

    For a creation of a Basket of Shares, the Authorized Participant 
will be required to submit the creation order by 2:00 p.m. ET, or the 
close of regular trading on the Exchange, whichever is earlier (the 
``Order Cutoff Time''). The Order Cutoff Time may be modified by the 
Sponsor in its sole discretion.
    On the date of the Order Cutoff Time for a creation order, the 
Trust will enter into a transaction by choosing, in its sole 
discretion, to trade directly with a Crypto Trading Counterparty or the 
Prime Execution Agent, to buy bitcoin and ether in exchange for the 
cash proceeds from such creation order. The Authorized Participant is 
responsible for the dollar cost of the difference between the bitcoin 
and ether price utilized in calculating the NAV per Share on the 
Creation Order Date (as described below) and the price at which the 
Trust acquires the bitcoin and ether to the extent the price amount for 
buying the bitcoin and ether is higher than the price utilized in 
calculating the

[[Page 80974]]

NAV. In the case the price amount for buying the bitcoin and ether is 
lower than the price utilized in calculating the NAV, the Authorized 
Participant shall keep the dollar impact of any such difference.
    Creation orders will take place as follows, where ``T'' is the date 
of the creation order and each day in the sequence must be a business 
day in the U.S.

------------------------------------------------------------------------
          Creation order date (T)               Settlement date (T+1)
------------------------------------------------------------------------
<bullet> Authorized Participant places a    <bullet> The Authorized
 creation order.                             Participant delivers the
<bullet> The Transfer Agent accepts (or      Basket cash component to
 rejects) the creation order.                the Trust's cash account
<bullet> The Trust will enter into a         that is maintained with the
 transaction with the Crypto Trading         Cash Custodian.
 Counterparty or the Prime Execution Agent  <bullet> The Crypto Trading
 to purchase the corresponding bitcoin and   Counterparty or the Prime
 ether.                                      Execution Agent deposits
<bullet> As soon as practicable after 4:00   the bitcoin and ether into
 p.m. ET, the Sponsor determines the         the Trust's Trading Account
 Basket cash component, including any        related to the purchase
 dollar cost difference between the          transaction.
 bitcoin and ether price utilized in        <bullet> Once the Trust is
 calculating NAV per Share and the price     in simultaneous possession
 at which the Trust acquires the bitcoin     of the Basket cash
 and ether.                                  component and the bitcoin
                                             and ether, the Trust
                                             delivers the corresponding
                                             Shares to the Authorized
                                             Participant.
                                            <bullet> The Trust transfers
                                             the cash related to the
                                             purchase transaction from
                                             the Trust cash account
                                             maintained with the Cash
                                             Custodian to the Crypto
                                             Trading Counterparty or the
                                             Prime Execution Agent.
------------------------------------------------------------------------

    When the Trust chooses to enter into a transaction with the Prime 
Execution Agent, because the Trust's Trading Account may not be funded 
with cash on the Creation Order Date for the purchase of bitcoin and 
ether associated with a cash creation order, the Trust may borrow trade 
credits (``Trade Credits'') in the form of cash from the ``Trade Credit 
Lender'', under a trade financing agreement (``Trade Financing 
Agreement'') or may require the Authorized Participant to deliver the 
required cash for the creation order on the Creation Order Date. The 
extension of Trade Credits on the Creation Order Date allows the Trust 
to purchase bitcoin and ether through the Prime Execution Agent on the 
Creation Order Date, with such bitcoin and ether being deposited in the 
Trust's Trading Account. On Settlement Date for a creation order, the 
Trust delivers Shares to the Authorized Participant in exchange for 
cash received from the Authorized Participant. To the extent Trade 
Credits were utilized, the Trust uses the cash to repay the Trade 
Credits borrowed from the Trade Credit Lender. On the Settlement Date 
for a creation order, the bitcoin and ether purchased are swept from 
the Trust's Trading Account to the Custody Account pursuant to a 
regular end-of-day sweep process.
    For a redemption of a Basket of Shares, the Authorized Participant 
will be required to submit a redemption order by the Order Cutoff Time. 
On the date of the Order Cutoff Time for a redemption order, the Trust 
will enter into a transaction by choosing, in its sole discretion, to 
trade directly with a Crypto Trading Counterparty or the Prime 
Execution Agent, to sell bitcoin and ether in exchange for cash. The 
Authorized Participant will bear the difference between the bitcoin and 
ether price utilized in calculating the NAV per Share on the Redemption 
Order Date and the price realized in selling the bitcoin and ether to 
raise the cash needed for the cash redemption order to the extent the 
price realized in selling the bitcoin and ether is lower than the price 
utilized in the NAV. To the extent the price realized in selling the 
bitcoin and ether is higher than the price utilized in the NAV, the 
Trust will deliver the dollar impact of any such difference to the 
Authorized Participant.
    Redemption orders will take place as follows, where ``T'' is the 
date of the redemption order and each day in the sequence must be a 
business day.

------------------------------------------------------------------------
         Redemption order date (T)              Settlement date (T+1)
------------------------------------------------------------------------
<bullet> Authorized Participant places a    <bullet> The Authorized
 redemption order.                           Participant delivers the
<bullet> The Transfer Agent accepts (or      Baskets of Shares to be
 rejects) the redemption order.              redeemed to the Trust.
<bullet> The Trust instructs the Crypto     <bullet> The Crypto Trading
 Custodian to prepare to move the            Counterparty or the Prime
 corresponding bitcoin and ether from the    Execution Agent delivers
 Trust's Custody Account to the Trading      cash to the Trust's cash
 Account.                                    account that is maintained
<bullet> The Trust enters into a             with the Cash Custodian
 transaction with the Crypto Trading         related to the sell
 Counterparty or the Prime Execution Agent   transaction.
 to sell the corresponding bitcoin and      <bullet> Once the Trust is
 ether.                                      in simultaneous possession
<bullet> As soon as practicable after 4:00   of the Basket of Shares and
 p.m. ET, the Sponsor determines the         the respective Basket cash
 Basket cash component, including any        component, the Trust
 dollar cost difference between the          cancels the Shares
 bitcoin and ether price utilized in         comprising the number of
 calculating NAV per Share and the price     Baskets redeemed by the
 at which the Trust sells the bitcoin and    Authorized Participant.
 ether.                                     <bullet> The Trust instructs
                                             the Crypto Custodian to
                                             transfer the corresponding
                                             bitcoin and ether agreed on
                                             the sell transaction from
                                             the Trust's Trading Account
                                             to the Crypto Trading
                                             Counterparty or Prime
                                             Execution Agent.
                                            <bullet> The Trust transfers
                                             the Basket cash component
                                             from the cash account
                                             maintained with the Cash
                                             Custodian to the Authorized
                                             Participant.
------------------------------------------------------------------------

    The Trust may use financing in connection with a redemption order 
when bitcoin and ether remain in the Custody Account at the point of 
intended execution of a sale of bitcoin and ether. In those 
circumstances, the Trust may borrow Trade Credits in the form of 
bitcoin and ether from the Trade Credit Lender, which allows the Trust 
to sell bitcoin and ether through the Prime Execution Agent on the 
Redemption Order Date, and the cash proceeds are deposited in the 
Trading Account. On the Settlement Date for a redemption order, the 
Trust delivers cash to the Authorized Participant in exchange for 
Shares received from the Authorized Participant. In the event financing 
was

[[Page 80975]]

used, the Trust will use the bitcoin and ether moved from the Custody 
Account to the Trading Account to repay the Trade Credits borrowed from 
the Trade Credit Lender.
Net Asset Value
    The Trust's NAV per Share will be calculated by taking the current 
value of its total assets, subtracting any liabilities, and dividing 
that total by the number of Shares. The assets of the Trust will 
consist of bitcoin, ether, cash and cash equivalents. The Sponsor has 
the exclusive authority to determine the Trust's NAV, which it has 
delegated to the Administrator.
    The Administrator of the Trust will calculate the NAV once each 
Business Day, as of the earlier of the close of the Nasdaq or 4:00 p.m. 
New York time. For purposes of making these calculations, a Business 
Day means any day other than a day when Nasdaq is closed for regular 
trading (``Business Day'').
    The Administrator will value the bitcoin and ether held by the 
Trust based on the Index Constituent Settlement Price, unless the 
prices are not available or the Administrator, in its sole discretion, 
determines that the Index Constituent Settlement Price is unreliable 
(``Fair Value Event''). In the instance of a Fair Value Event, the 
Trust's holdings may be fair valued on a temporary basis in accordance 
with the fair value policies approved by the Administrator.
    In the instance of a Fair Value Event and pursuant to the 
Administrator's fair valuation policies and procedures, VWAP or Volume 
Weighted Median Prices (``VWMP'') from another index administrator 
(``Secondary Index'') will be utilized.
    If a Secondary Index is also not available or the Administrator in 
its sole discretion determines the Secondary Index is unreliable, the 
price set by the Trust's principal market as of 4:00 p.m. ET, on the 
valuation date will be utilized. In the event the principal market 
price is not available or the Administrator in its sole discretion 
determines the principal market valuation is unreliable, the 
Administrator will use its best judgment to determine a good faith 
estimate of fair value. The Administrator identifies and determines the 
Trust's principal market (or in the absence of a principal market, the 
most advantageous market) for bitcoin and ether consistent with the 
application of fair value measurement framework in FASB ASC 820-10.\28\ 
The principal market is the market where the reporting entity would 
normally enter into a transaction to sell the asset or transfer the 
liability. The principal market must be available to and be accessible 
by the reporting entity. The reporting entity is the Trust.
---------------------------------------------------------------------------

    \28\ See FASB (Financial Accounting Standards Board) Accounting 
standards codification (ASC) 820-10. For financial reporting 
purposes only, the Trustee has adopted a valuation policy that 
outlines the methodology for valuing the Trust's assets. The policy 
also outlines the methodology for determining the principal market 
(or in the absence of a principal market, the most advantageous 
market) in accordance with FASB ASC 820-10.
---------------------------------------------------------------------------

    If the Index Constituent Settlement Price is not used to determine 
the Trust's bitcoin and ether holdings, owners of the beneficial 
interests of Shares (the ``Shareholders'') will be notified in a 
prospectus supplement or on the Trust's website and, if this index 
change is on a permanent basis, a filing with the Commission under Rule 
19b-4 of the Act will be required.
    A Fair Value Event value determination will be based upon all 
available factors that the Sponsor or the Administrator deems relevant 
at the time of the determination and may be based on analytical values 
determined by the Sponsor or Administrator using third-party valuation 
models. Fair value policies approved by the Administrator will seek to 
determine the fair value price that the Trust might reasonably expect 
to receive from the current sale of that asset or liability in an 
arm's-length transaction on the date on which the asset or liability is 
being valued consistent with ``Relevant Transactions''.\29\
---------------------------------------------------------------------------

    \29\ A ``Relevant Transaction'' is any crypto asset versus U.S. 
dollar spot trade that occurs during the observation window between 
3:00 p.m. and 4:00 p.m. ET on a ``Core Crypto Platform'' in the BTC/
USD and ETH/USD pair that is reported and disseminated by a Core 
Crypto Platform through its publicly available application 
programming interface and observed by the index administrator.
---------------------------------------------------------------------------

Indicative Trust Value
    In order to provide updated information relating to the Trust for 
use by Shareholders and market professionals, the Sponsor will engage 
an independent calculator to calculate an updated Indicative Trust 
Value (``ITV''). The ITV will be calculated by using the prior day's 
closing NAV per Share of the Trust as a base and will be updated 
throughout the regular market session of 9:30 a.m. E.T. to 4:00 p.m. 
E.T. (the ``Regular Market Session'') to reflect changes in the value 
of the Trust's holdings during the trading day. For purposes of 
calculating the ITV, the Trust's spot bitcoin and ether holdings will 
be priced using a real time version of the Index, the Nasdaq Crypto US 
Index (``NCIUS'').\30\
---------------------------------------------------------------------------

    \30\ The Nasdaq Crypto US Index (Index symbol NCIUS) is 
calculated every second throughout a 24-hour trading day, seven days 
per week, using published, real-time bid and ask quotes for Index 
constituents observed on Core Crypto Platforms through the publicly 
available API. See https://indexes.nasdaqomx.com/Index/Overview/NCIUS.
---------------------------------------------------------------------------

    The ITV will be disseminated on a per Share basis every 15 seconds 
during the Exchange's Regular Market Session and be widely disseminated 
by one or more major market data vendors during the Regular Market 
Session.\31\
---------------------------------------------------------------------------

    \31\ Several major market data vendors display and/or make 
widely available ITVs taken from the Consolidated Tape Association 
(``CTA'') or other data feeds.
---------------------------------------------------------------------------

Background--Spot Bitcoin and Ether ETPs
    The Commission has recently permitted exchange-traded products 
(``ETPs'') to directly hold bitcoin and ether. The Exchange and the 
Sponsor applaud the Commission as these approvals mark a significant 
step forward in offering U.S. investors and traders transparent, 
exchange-listed products for expressing views on crypto assets.
    The Exchange and the Sponsor believe that the proposed rule change 
does not introduce any elements that the Commission has not previously 
approved, and therefore, it will not impose any inappropriate 
consequences on the market. Although building on previously approved 
ETP proposals, the Trust employs a new strategy of investing in bitcoin 
and ether, as it will hold both spot bitcoin and spot ether in 
accordance with the Index methodology, and its approval will add value 
to the U.S. market.
    The Trust will hold spot bitcoin and spot ether, commodities for 
which proposals to list and trade ETPs have recently been approved by 
the Commission. As the Trust will invest in bitcoin and ether for which 
proposals to list and trade ETPs have been recently approved by the 
Commission, and because the Exchange will utilize the same surveillance 
mechanisms that were deployed pursuant to the proposals to list and 
trade those approved ETPs, the Sponsor and the Exchange understand that 
the proposed rule change does not introduce any novel regulatory issues 
and believe that the Commission should approve this proposal.
Spot Bitcoin ETP
    On January 10, 2024, the Commission issued an order granting 
approval for proposals to list certain bitcoin-based commodity trust 
and bitcoin-based trust units (``Spot Bitcoin ETPs'').\32\ In

[[Page 80976]]

considering the Spot Bitcoin ETPs, the Commission determined in the 
Spot Bitcoin ETP Approval Order that the exchanges' comprehensive 
surveillance-sharing agreement with the Chicago Mercantile Exchange 
(``CME'')--a U.S. regulated market whose bitcoin futures market is 
consistently highly correlated to spot bitcoin--could be reasonably 
expected to assist in surveilling for fraudulent and manipulative acts 
and practices in the specific context of the proposals. The exchanges 
have comprehensive surveillance-sharing agreements with the CME via 
their common membership in the Intermarket Surveillance Group 
(``ISG''), which facilitates the sharing of information that is 
available to the CME through its surveillance of its markets.
---------------------------------------------------------------------------

    \32\ See Exchange Act Release No. 99306 (January 10, 2024), 89 
FR 3008 (January 17, 2024) (Self-Regulatory Organizations; NYSE 
Arca, Inc.; The Nasdaq Stock Market LLC; Cboe BZX Exchange, Inc.; 
Order Granting Accelerated Approval of Proposed Rule Changes, as 
Modified by Amendments Thereto, To List and Trade Bitcoin-Based 
Commodity-Based Trust Shares and Trust Units) (the ``Spot Bitcoin 
ETP Approval Order'').
---------------------------------------------------------------------------

    After reviewing the proposals for the Spot Bitcoin ETPs, the 
Commission found that they were consistent with the Act, including with 
Section 6(b)(5), and rules and regulations thereunder applicable to a 
national securities exchange, including the Exchange. The 
abovementioned Section 6(b)(5) requires, among other things, that the 
investment product is designed to ``prevent fraudulent and manipulative 
acts and practices'' and, ``in general, to protect investors and the 
public interest.''
    The Commission's analysis \33\ in the Spot Bitcoin ETP Approval 
Order also demonstrated that prices typically move in close, though not 
perfect, correlation \34\ between the spot bitcoin market and the CME 
bitcoin futures market. Therefore, the Commission concluded that fraud 
or manipulation affecting spot bitcoin market prices would likely 
similarly impact CME bitcoin futures prices. Since the CME's 
surveillance can help detect these impacts on CME bitcoin futures 
prices, such surveillance can be reasonably expected to assist in 
surveilling for fraudulent and manipulative acts and practices in the 
specific context of the Spot Bitcoin ETPs proposals.
---------------------------------------------------------------------------

    \33\ The robustness of the Commission's correlation analysis 
rests on the pre-requisites of (1) the correlations being calculated 
with respect to bitcoin futures that trade on the CME, a U.S. market 
regulated by the CFTC, (2) the lengthy sample period of price 
returns for both the CME bitcoin futures market and the spot bitcoin 
market, (3) the frequent intra-day trading data in both the CME 
bitcoin futures market and the spot bitcoin market over that lengthy 
sample period, and (4) the consistency of the correlation results 
throughout the lengthy sample period.
    \34\ Correlation should not be interpreted as an indicator of a 
causal relationship or whether one variable leads or lags the other.
---------------------------------------------------------------------------

    In the Spot Bitcoin ETP Approval Order, the Commission also stated 
that the Spot Bitcoin ETP proposals, similar to other spot commodity 
ETPs it has approved, are reasonably designed to ensure fair disclosure 
of information necessary for accurate share pricing, to prevent trading 
in the absence of sufficient transparency, to protect material 
nonpublic information related to the products' portfolios, and to 
maintain fair and orderly markets for the shares of the Spot Bitcoin 
ETPs.
Spot Ether ETP
    A few months after the issuance of its Spot Bitcoin ETP Approval 
Order, the Commission issued on May 23, 2024 an approval order for 
proposals to list certain ether-based trusts (``Spot Ether ETPs'').\35\ 
The Commission also concluded in the Spot Ether ETP Approval Order that 
the exchanges' comprehensive surveillance-sharing agreement with the 
CME, a U.S.-regulated market whose ether futures market is consistently 
highly correlated with spot ether, can be reasonably expected to assist 
in surveilling for fraudulent and manipulative acts and practices 
within the context of the mentioned proposals.
---------------------------------------------------------------------------

    \35\ See Exchange Act Release No. 100224 (May 23, 2024), 89 FR 
46937 (May 30, 2024) (Self-Regulatory Organizations; NYSE Arca, 
Inc.; The Nasdaq Stock Market LLC; Cboe BZX Exchange, Inc.; Order 
Granting Accelerated Approval of Proposed Rule Changes, as Modified 
by Amendments Thereto, to List and Trade Shares of Ether-Based 
Exchange-Traded Products) (the ``Spot Ether ETP Approval Order'').
---------------------------------------------------------------------------

    As in the case of the Spot Bitcoin ETP Approval Order, in the Spot 
Ether ETP Approval Order, the Commission determined that the exchanges' 
comprehensive surveillance-sharing agreement with the CME ether futures 
market, which exhibits a consistent high correlation with spot ether, 
can reasonably be expected to assist in surveilling for fraudulent and 
manipulative practices in the specific context of the Spot Ether ETP 
proposals. Therefore, based on similar reasons to the Spot Bitcoin ETP 
Approval Order, the Commission approved the Spot Ether ETPs, stating 
that the proposals to list and trade those Spot Ether ETPs were also 
consistent with the requirements of the Act and the regulations 
applicable to a national securities exchange, in particular with 
Section 6(b)(5) and Section 11A(a)(1)(C)(iii) of the Act.
Availability of Information
    The website for the Trust, which will be publicly accessible at no 
charge, will contain the following information: (a) the prior Business 
Day's NAV per Share; (b) the prior Business Day's Nasdaq official 
closing price; (c) calculation of the premium or discount of such 
Nasdaq official closing price against such NAV per Share; (d) data in 
chart form displaying the frequency distribution of discounts and 
premiums of the Nasdaq official closing price against the NAV per 
Share, within appropriate ranges for each of the four previous calendar 
quarters (or for the life of the Trust, if shorter); (e) the 
prospectus; and (f) other applicable quantitative information. The 
Administrator will also disseminate the Trust's holdings on a daily 
basis on the Trust's website. The NAV per Share for the Trust will be 
calculated by the Administrator once a day and will be disseminated 
daily to all market participants at the same time. Quotation and last 
sale information regarding the Shares will be disseminated through the 
facilities of the relevant securities information processor.
    Also, an estimated value that reflects an estimated ITV will be 
disseminated. For more information on the ITV, including the 
calculation methodology, see ``Indicative Trust Value'' above. The ITV 
disseminated during the Regular Market Session should not be viewed as 
an actual real time update of the NAV per Share, which will be 
calculated only once at the end of each trading day. The ITV will be 
widely disseminated on a per Share basis every 15 seconds during the 
Regular Market Session by one or more major market data vendors. In 
addition, the ITV will be available through online information 
services.
    Quotation and last sale information for bitcoin and ether is widely 
disseminated through a variety of major market data vendors, including 
Bloomberg and Reuters. Information relating to trading, including price 
and volume information for bitcoin and ether, is available from major 
market data vendors and from the platforms on which such bitcoin and 
ether are traded. Depth of book information is also available from such 
crypto platforms. The normal trading hours for the ether and bitcoin 
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.

[[Page 80977]]

Initial and Continued Listing
    The Shares will be subject to Nasdaq Rule 5711(d)(vi), which sets 
forth the initial and continued listing criteria applicable to 
Commodity-Based Trust Shares. A minimum of 40,000 Shares, or the 
equivalent of eight Baskets, will be required to be outstanding at the 
time of commencement of trading on the Exchange. Upon termination of 
the Trust, the Shares will be removed from listing.
    As required in Nasdaq Rule 5711(d)(viii), the Exchange notes that 
any registered market maker (``Market Maker'') in the Shares must file 
with the Exchange, in a manner prescribed by the Exchange, and keep 
current a list identifying all accounts for trading the underlying 
commodity, related futures or options on futures, or any other related 
derivatives, which the registered Market Maker may have or over which 
it may exercise investment discretion. No registered Market Maker in 
the Shares shall trade in the underlying commodity, related futures or 
options on futures, or any other related derivatives, in an account in 
which a registered Market Maker, directly or indirectly, controls 
trading activities, or has a direct interest in the profits or losses 
thereof, which has not been reported to the Exchange as required by 
Nasdaq Rule 5711(d). In addition to the existing obligations under 
Exchange rules regarding the production of books and records, the 
registered Market Maker in the Shares shall make available to the 
Exchange such books, records or other information pertaining to 
transactions by such entity or any limited partner, officer or approved 
person thereof, registered or non-registered employee affiliated with 
such entity for its or their own accounts in the underlying commodity, 
related futures or options on futures, or any other related 
derivatives, as may be requested by the Exchange.
    The Exchange is able to obtain information regarding trading in the 
Shares and the underlying bitcoin and ether, or any other bitcoin or 
ether 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 or self-regulatory organizations of which 
such subsidiary or affiliate is a member.
Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. The Exchange will 
allow trading in the Shares from 4:00 a.m. to 8:00 p.m. ET. The 
Exchange has appropriate rules to facilitate transactions in the Shares 
during all trading sessions. The Shares of the Trust will conform to 
the initial and continued listing criteria set forth in Nasdaq Rule 
5711(d) and will comply with the requirements of Rule 10A-3 of the Act.
Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares. The Exchange will halt trading in the Shares 
under the conditions specified in Nasdaq Rules 4120 and 4121, including 
without limitation the conditions specified in Nasdaq Rule 4120(a)(9) 
and (10) and the trading pauses under Nasdaq Rules 4120(a)(11) and 
(12).
    Trading may be halted because of market conditions or for reasons 
that, in the view of the Exchange, make trading in the Shares 
inadvisable. These may include: (1) the extent to which trading is not 
occurring in the bitcoin and ether underlying the Shares; or (2) 
whether other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present.
    If the ITV 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 ITV or the value of the Index 
occurs. If the interruption to the dissemination of the ITV 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 per Share 
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 per Share is available to all market participants.
Surveillance
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Shares on the Exchange during 
all trading sessions and to deter and detect violations of Exchange 
rules and the applicable federal securities laws. The surveillance 
program includes real-time patterns for price and volume movements and 
post-trade surveillance patterns (e.g., spoofing, marking the close, 
pinging, phishing). In addition to the Exchange's existing 
surveillance, a new pattern will be added to surveil for significant 
deviation in the Shares' price from the underlying asset's price. The 
Exchange will use the trade data from an external vendor that 
consolidates the real-time data from multiple crypto assets platforms.
    Trading of Shares on the Exchange will be subject to the Exchange's 
surveillance program for derivative products, as well as cross-market 
surveillances administered by FINRA, on behalf of the Exchange pursuant 
to a regulatory services agreement, which are also designed to detect 
violations of Exchange rules and applicable federal securities laws. 
The Exchange is responsible for FINRA's performance under this 
regulatory services agreement.
    The Exchange will require the Trust to represent to the Exchange 
that it will advise the Exchange of any failure by the Trust to comply 
with the continued listing requirements, and, pursuant to its 
obligations under Section 19(g)(1) of the Exchange Act, the Exchange 
will surveil for compliance with the continued listing requirements. If 
the Trust is not in compliance with the applicable listing 
requirements, the Exchange will commence delisting procedures under the 
Nasdaq 5800 Series. In addition, the Exchange also has a general policy 
prohibiting the distribution of material, non-public information by its 
employees.
    The Exchange or FINRA, on behalf of the Exchange, or both, will 
communicate as needed regarding trading in the Shares and bitcoin and 
ether derivatives with other markets and other entities that are 
members of the ISG,\36\ and the Exchange or FINRA, on behalf of the 
Exchange, or both, may obtain trading information regarding trading in 
the Shares and bitcoin and ether derivatives from such markets and 
other entities. The Exchange also may obtain information regarding 
trading in the Shares and listed bitcoin and ether derivatives via the 
ISG, from other

[[Page 80978]]

exchanges who are members or affiliates of the ISG, or with which the 
Exchange has entered into a comprehensive surveillance sharing 
agreement.
---------------------------------------------------------------------------

    \36\ For a list of the current members and affiliate members of 
ISG, see https://www.isgportal.com/.
---------------------------------------------------------------------------

    The Exchange's current trading surveillance focuses on detecting 
securities trading outside their normal patterns. When such situations 
are detected, surveillance analysis follows and investigations are 
opened, where appropriate, to review the behavior of all relevant 
parties for all relevant trading violations. The Exchange is able to 
obtain information regarding trading in the Shares, the physical 
commodities included in, or options, futures or options on futures on, 
Shares through Members, in connection with such Members' proprietary or 
customer trades which they effect on any relevant market. The Exchange 
can obtain market surveillance information, including customer identity 
information, with respect to transactions occurring on the exchanges 
that are members of the ISG.
    The Exchange represents that these procedures are adequate to 
properly monitor Exchange trading of the Shares in all trading sessions 
and to deter and detect violations of Exchange rules and applicable 
federal securities laws.
Information Circular
    Prior to the commencement of trading, the Exchange will inform its 
members in an information circular (``Information Circular'') of the 
special characteristics and risks associated with trading the Shares. 
Specifically, the Information Circular will discuss the following: (1) 
the procedures for creations and redemptions of Shares in Baskets (and 
that Shares are not individually redeemable); (2) Section 10 of Nasdaq 
General Rule 9, which imposes suitability obligations on Nasdaq members 
with respect to recommending transactions in the Shares to customers; 
(3) how information regarding the ITV and NAV is disseminated; (4) the 
risks involved in trading the Shares during the pre-market and 
postmarket sessions when an updated ITV will not be calculated or 
publicly disseminated; (5) the requirement that members deliver a 
prospectus to investors purchasing newly issued Shares prior to or 
concurrently with the confirmation of a transaction; and (6) trading 
information. The Information Circular will also discuss any exemptive, 
no action and interpretive relief granted by the Commission from any 
rules under the Act.
    The Information Circular will also reference the fact that there is 
no regulated source of last sale information regarding bitcoin and 
ether, that the Commission has no jurisdiction over the trading of 
bitcoin and ether as a commodity.
    Additionally, the Information Circular will reference that the 
Trust is subject to various fees and expenses described in the 
Registration Statement. The Information Circular will also disclose the 
trading hours of the Shares. The Information Circular will disclose 
that information about the Shares will be publicly available on the 
Trust's website.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \37\ that an exchange has rules that 
are designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to remove 
impediments to, and perfect the mechanism of a free and open market 
and, in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \37\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices and to protect 
investors and the public interest in that the Shares will be listed and 
traded on the Exchange pursuant to the initial and continued listing 
criteria set forth in Nasdaq Rule 5711(d). The Exchange has in place 
surveillance procedures that are adequate to properly monitor trading 
in the Shares in all trading sessions and to deter and detect 
violations of Exchange rules and applicable federal securities laws. 
The Exchange or FINRA, on behalf of the Exchange, or both, will 
communicate as needed regarding trading in the Shares and bitcoin and 
ether derivatives 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 and ether derivatives from such markets and 
other entities. In addition, the Exchange may obtain information 
regarding trading in the Shares and listed bitcoin and ether 
derivatives via the ISG, from other exchanges that are members or 
affiliates of ISG, or with which the Exchange has in place a 
comprehensive surveillance sharing agreement. The Exchange is also able 
to obtain information regarding trading in the Shares and bitcoin and 
ether derivatives through Members, in connection with such Members' 
proprietary or customer trades which they effect on any relevant 
market. The Exchange will require the Trust to represent to the 
Exchange that it will advise the Exchange of any failure by the Trust 
to comply with the continued listing requirements, and, pursuant to its 
obligations under Section 19(g)(1) of the Exchange Act, the Exchange 
will surveil for compliance with the continued listing requirements. If 
the Trust is not in compliance with the applicable listing 
requirements, the Exchange will commence delisting procedures under the 
Nasdaq 5800 Series.
    Trading in Shares of the Trust will be halted if the circuit 
breaker parameters have been reached or because of market conditions or 
for reasons that, in the view of the Exchange, make trading in the 
Shares inadvisable. These may include unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
Shares that will enhance competition among market participants, to the 
benefit of investors and the marketplace. As noted above, the Exchange 
has in place surveillance procedures that are adequate to properly 
monitor trading in the Shares in all trading sessions and to deter and 
detect violations of Exchange rules and applicable federal securities 
laws.
    The Commission has approved numerous spot-based bitcoin and ether 
products to be listed on U.S. national securities exchanges.\38\ In 
order for any proposed rule change from an exchange to be approved, the 
Commission must determine that, among other things, the proposal is 
consistent with the requirements of Section 6(b)(5) of the Act, 
specifically including: (i) the requirement that a national securities 
exchange's rules are designed to prevent fraudulent and manipulative 
acts and practices; and (ii) the requirement that an exchange proposal 
be designed, in general, to protect investors and the public interest. 
The Exchange believes that this proposal is consistent with the 
requirements of Section 6(b)(5) of the Act because this filing 
sufficiently demonstrates that the applicable standard that has 
previously been articulated by the Commission with respect to proposals 
to list and trade units of commodity-based trusts has been met as 
outlined below.
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    \38\ See ``Background--Spot Bitcoin and Ether ETPs'' above.
---------------------------------------------------------------------------

    To list and trade the commodity-trust ETPs, one way that an 
exchange can meet the obligation under Exchange Act

[[Page 80979]]

Section 6(b)(5) that its rules be designed to prevent fraudulent and 
manipulative acts and practices is by demonstrating that the exchange 
has a comprehensive surveillance-sharing agreement with a regulated 
market of significant size related to the underlying or reference 
assets. The Exchange and CME are members of the ISG, satisfying the 
comprehensive surveillance sharing agreement portion.
    In the Spot Bitcoin ETP Approval Order and the Spot Ether ETP 
Approval Order, the Commission concluded that the proposing exchanges' 
comprehensive surveillance-sharing agreement with the CME--a U.S. 
regulated market--whose bitcoin and ether futures market is 
consistently highly correlated to spot bitcoin and spot ether, 
respectively--could be reasonably expected to assist in surveilling for 
fraudulent and manipulative acts and practices in the specific context 
of the proposals.
    Consequently, this Trust, which invests solely in bitcoin and 
ether, is similar to these approved products, since its only holdings 
are bitcoin, ether, cash and/or cash equivalents. CME's bitcoin futures 
market and ether futures market are highly, though not perfectly 
correlated with the spot bitcoin market and the spot ether market 
respectively, so that surveillance of CME's bitcoin futures market and 
CME's ether futures market can be reasonably expected to assist in 
surveilling for fraudulent and manipulative acts and practices in the 
specific context of this proposal.
    For all 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 will facilitate the listing and trading of the 
Shares, which are Commodity-Based Trust Shares and that will enhance 
competition among market participants, 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. Proceedings To Determine Whether To Approve or Disapprove SR-
NASDAQ-2024-028, as Modified by Amendment No. 1, and Grounds for 
Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \39\ to determine whether the proposed rule 
change, as modified by Amendment No. 1, 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 modified by Amendment No. 1, 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, as modified by 
Amendment No. 1.
---------------------------------------------------------------------------

    \39\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act,\40\ 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.'' \41\
---------------------------------------------------------------------------

    \40\ Id.
    \41\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission asks that commenters address the sufficiency of the 
Exchange's statements in support of the proposal, which are set forth 
in Item II above, in addition to any other comments they may wish to 
submit about the proposed rule change, as modified by Amendment No. 1. 
In particular, the Commission seeks comment on whether the proposed 
Trust, which would hold both spot bitcoin and spot ether, and Shares 
would be susceptible to manipulation and whether the Exchange's 
proposal, as modified by Amendment No. 1, is designed to prevent 
fraudulent and manipulative acts and practices. Namely, as the Trust 
would hold both spot bitcoin and spot ether, the Commission seeks 
comment on whether the Trust raises any new or novel concerns not 
previously contemplated by the Commission.

IV. 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.\42\
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    \42\ Section 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).
---------------------------------------------------------------------------

    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change, as modified by 
Amendment No. 1, should be approved or disapproved by October 25, 2024. 
Any person who wishes to file a rebuttal to any other person's 
submission must file that rebuttal by November 8, 2024.
    Comments may be submitted by any of the following methods:

Electronic Comments

    <bullet> Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#b6c4c3dad39bd5d9dbdbd3d8c2c5f6c5d3d598d1d9c0"><span class="__cf_email__" data-cfemail="b5c7c0d9d098d6dad8d8d0dbc1c6f5c6d0d69bd2dac3">[email protected]</span></a>. Please include 
file number SR-NASDAQ-2024-028 on the subject line.

Paper Comments

    <bullet> 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-2024-028. 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

[[Page 80980]]

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-2024-028 and should be submitted 
on or before October 25, 2024. Rebuttal comments should be submitted by 
November 8, 2024.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\43\
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    \43\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(57).
---------------------------------------------------------------------------

Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-22903 Filed 10-3-24; 8:45 am]
BILLING CODE 8011-01-P


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