Federal Register / Vol. 87, No. 21 / Tuesday, February 1, 2022 / Notices 5527 

22 15 U.S.C. 78s(b)(3)(A). 

23 17 CFR 240.19b–4(f)(2). 

24 15 U.S.C. 78s(b)(2)(B). 

25 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 91994 

(May 25, 2021), 86 FR 29321 (‘‘Notice’’). Comments 

on the proposed rule change can be found at: 

https://www.sec.gov/comments/sr-cboebzx-2021- 

039/srcboebzx2021039.htm. 

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

5See Securities Exchange Act Release No. 92388, 

86 FR 38163 (July 19, 2021). 

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

7See Securities Exchange Act Release No. 92721, 

86 FR 48272 (Aug. 27, 2021). 

8See Securities Exchange Act Release No. 93571, 

86 FR 64979 (Nov. 19, 2021). On December 27, 

2021, the Exchange filed Amendment No. 1 to the 

proposal. As discussed below, however, see Section 

III.E, infra, the Commission views this amendment 

as untimely. Furthermore, even if this amendment 

had been timely filed, it would not alter the 

Commission’s conclusion that the Exchange’s 

proposal is not consistent with the Exchange Act. 

See Section III.E. 

9 15 U.S.C. 78f(b)(5). 

10Bitcoins are digital assets that are issued and 

transferred via a decentralized, open-source 

protocol used by a peer-to-peer computer network 

through which transactions are recorded on a 

public transaction ledger known as the ‘‘bitcoin 

blockchain.’’ The bitcoin protocol governs the 

creation of new bitcoins and the cryptographic 

system that secures and verifies bitcoin 

transactions. See, e.g., Notice, 86 FR at 29321. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were either 

solicited or received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change is effective 

upon filing pursuant to Section 

19(b)(3)(A) 22 of the Act and 

subparagraph (f)(2) of Rule 19b–4 23

thereunder, because it establishes a due, 

fee, or other charge imposed by the 

Exchange. 

At any time within 60 days of the 

filing of such proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. If the 

Commission takes such action, the 

Commission shall institute proceedings 

under Section 19(b)(2)(B) 24 of the Act to 

determine whether the proposed rule 

change should be approved or 

disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File No. SR–ISE– 

2022–02 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 No. 

SR–ISE–2022–02. 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 (http://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 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File No. 

SR–ISE–2022–02, and should be 

submitted on or before February 22, 

2022. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.25

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–01968 Filed 1–31–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–94080; File No. SR– 

CboeBZX–2021–039] 

Self-Regulatory Organizations; Cboe 

BZX Exchange, Inc.; Order 

Disapproving a Proposed Rule Change 

To List and Trade Shares of the Wise 

Origin Bitcoin Trust Under BZX Rule 

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

Shares 

January 27, 2022. 

I. Introduction 

On May 10, 2021, Cboe BZX 

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

filed with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

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

Exchange Act of 1934 (‘‘Exchange 

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

proposed rule change to list and trade 

shares (‘‘Shares’’) of the Wise Origin 

Bitcoin Trust (‘‘Trust’’) under BZX Rule 

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

Shares. The proposed rule change was 

published for comment in the Federal 

Register on June 1, 2021.3

On July 13, 2021, 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 August 23, 

2021, the Commission instituted 

proceedings under Section 19(b)(2)(B) of 

the Exchange Act 6 to determine 

whether to approve or disapprove the 

proposed rule change.7 On November 

15, 2021, the Commission designated a 

longer period for Commission action on 

the proposed rule change.8

This order disapproves the proposed 

rule change. The Commission concludes 

that BZX has not met its burden under 

the Exchange Act and the Commission’s 

Rules of Practice to demonstrate that its 

proposal is consistent with the 

requirements of Exchange Act Section 

6(b)(5), and in particular, the 

requirement 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.’’ 9

When considering whether BZX’s 

proposal to list and trade the Shares is 

designed to prevent fraudulent and 

manipulative acts and practices, the 

Commission applies the same standard 

used in its orders considering previous 

proposals to list bitcoin 10-based 


tkelley on DSK125TN23PROD with NOTICE 
5528 Federal Register / Vol. 87, No. 21 / Tuesday, February 1, 2022 / Notices 

11See Order Setting Aside Action by Delegated 

Authority and Disapproving a Proposed Rule 

Change, as Modified by Amendments No. 1 and 2, 

To List and Trade Shares of the Winklevoss Bitcoin 

Trust, Securities Exchange Act Release No. 83723 

(July 26, 2018), 83 FR 37579 (Aug. 1, 2018) (SR– 

BatsBZX–2016–30) (‘‘Winklevoss Order’’); Order 

Disapproving a Proposed Rule Change, as Modified 

by Amendment No. 1, To Amend NYSE Arca Rule 

8.201–E (Commodity-Based Trust Shares) and To 

List and Trade Shares of the United States Bitcoin 

and Treasury Investment Trust Under NYSE Arca 

Rule 8.201–E, Securities Exchange Act Release No. 

88284 (Feb. 26, 2020), 85 FR 12595 (Mar. 3, 2020) 

(SR–NYSEArca–2019–39) (‘‘USBT Order’’); Order 

Disapproving a Proposed Rule Change To List and 

Trade Shares of the WisdomTree Bitcoin Trust 

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

Trust Shares, Securities Exchange Act Release No. 

93700 (Dec. 1, 2021), 86 FR 69322 (Dec. 7, 2021) 

(SR–CboeBZX–2021–024) (‘‘WisdomTree Order’’); 

Order Disapproving a Proposed Rule Change To List 

and Trade Shares of the Kryptoin Bitcoin ETF Trust 

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

Trust Shares, Securities Exchange Act Release No. 

93860 (Dec. 22, 2021), 86 FR 74166 (Dec. 29, 2021) 

(SR–CboeBZX–2021–029); Order Disapproving a 

Proposed Rule Change To List and Trade Shares of 

the Valkyrie Bitcoin Fund Under NYSE Arca Rule 

8.201–E (Commodity-Based Trust Shares), 

Securities Exchange Act Release No. 93859 (Dec. 

22, 2021), 86 FR 74156 (Dec. 29, 2021) (SR– 

NYSEArca–2021–31); Order Disapproving a 

Proposed Rule Change to List and Trade Shares of 

the First Trust SkyBridge Bitcoin ETF Trust Under 

NYSE Arca Rule 8.201–E, Securities Exchange Act 

Release No. 94006 (Jan. 20, 2022), 87 FR 3869 (Jan. 

25, 2022) (SR–NYSEArca–2021–37). See also Order 

Disapproving a Proposed Rule Change, as Modified 

by Amendment No. 1, Relating to the Listing and 

Trading of Shares of the SolidX Bitcoin Trust Under 

NYSE Arca Equities Rule 8.201, Securities 

Exchange Act Release No. 80319 (Mar. 28, 2017), 82 

FR 16247 (Apr. 3, 2017) (SR–NYSEArca–2016–101) 

(‘‘SolidX Order’’). The Commission also notes that 

orders were issued by delegated authority on the 

following matters: Order Disapproving a Proposed 

Rule Change To List and Trade the Shares of the 

ProShares Bitcoin ETF and the ProShares Short 

Bitcoin ETF, Securities Exchange Act Release No. 

83904 (Aug. 22, 2018), 83 FR 43934 (Aug. 28, 2018) 

(SR–NYSEArca–2017–139) (‘‘ProShares Order’’); 

Order Disapproving a Proposed Rule Change To List 

and Trade the Shares of the GraniteShares Bitcoin 

ETF and the GraniteShares Short Bitcoin ETF, 

Securities Exchange Act Release No. 83913 (Aug. 

22, 2018), 83 FR 43923 (Aug. 28, 2018) (SR– 

CboeBZX–2018–001) (‘‘GraniteShares Order’’); 

Order Disapproving a Proposed Rule Change To List 

and Trade Shares of the VanEck Bitcoin Trust 

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

Trust Shares, Securities Exchange Act Release No. 

93559 (Nov. 12, 2021), 86 FR 64539 (Nov. 18, 2021) 

(SR–CboeBZX–2021–019). 

12See USBT Order, 85 FR at 12596. See also 

Winklevoss Order, 83 FR at 37592 n.202 and 

accompanying text (discussing previous 

Commission approvals of commodity-trust ETPs); 

GraniteShares Order, 83 FR at 43925–27 nn.35–39 

and accompanying text (discussing previous 

Commission approvals of commodity-futures ETPs). 

13See Amendment to Rule Filing Requirements 

for Self-Regulatory Organizations Regarding New 

Derivative Securities Products, Securities Exchange 

Act Release No. 40761 (Dec. 8, 1998), 63 FR 70952, 

70959 (Dec. 22, 1998) (‘‘NDSP Adopting Release’’). 

See also Winklevoss Order, 83 FR at 37594; 

ProShares Order, 83 FR at 43936; GraniteShares 

Order, 83 FR at 43924; USBT Order, 85 FR at 12596. 

14See NDSP Adopting Release, 63 FR at 70959. 

15See Winklevoss Order, 83 FR at 37592–93; 

Letter from Brandon Becker, Director, Division of 

Market Regulation, Commission, to Gerard D. 

O’Connell, Chairman, Intermarket Surveillance 

Group (June 3, 1994), available at https://

www.sec.gov/divisions/marketreg/mr-noaction/ 

isg060394.htm. 

16See Winklevoss Order, 83 FR at 37594. This 

definition is illustrative and not exclusive. There 

could be other types of ‘‘significant markets’’ and 

‘‘markets of significant size,’’ but this definition is 

an example that will provide guidance to market 

participants. See id. 

17See USBT Order, 85 FR at 12597. 18See Winklevoss Order, 83 FR at 37594. 19See USBT Order, 85 FR at 12597; Securities 

Exchange Act Release No. 33555 (Jan. 31, 1994), 59 

FR 5619, 5621 (Feb. 7, 1994) (SR–Amex–93–28) 

(order approving listing of options on American 

Depository Receipts (‘‘ADRs’’)). The Commission 

has also required a surveillance-sharing agreement 

in the context of index options even when (i) all 

of the underlying index component stocks were 

either registered with the Commission or exempt 

from registration under the Exchange Act; (ii) all of 

the underlying index component stocks traded in 

the U.S. either directly or as ADRs on a national 

securities exchange; and (iii) effective international 

ADR arbitrage alleviated concerns over the 

relatively smaller ADR trading volume, helped to 

ensure that ADR prices reflected the pricing on the 

home market, and helped to ensure more reliable 

price determinations for settlement purposes, due 

to the unique composition of the index and reliance 

on ADR prices. See Securities Exchange Act Release 

No. 26653 (Mar. 21, 1989), 54 FR 12705, 12708 

(Mar. 28, 1989) (SR–Amex–87–25) (stating that 

‘‘surveillance-sharing agreements between the 

exchange on which the index option trades and the 

markets that trade the underlying securities are 

necessary’’ and that ‘‘[t]he exchange of surveillance 

data by the exchange trading a stock index option 

and the markets for the securities comprising the 

index is important to the detection and deterrence 

of intermarket manipulation.’’). And the 

Commission has required a surveillance-sharing 

agreement even when approving options based on 

an index of stocks traded on a national securities 

exchange. See Securities Exchange Act Release No. 

30830 (June 18, 1992), 57 FR 28221, 28224 (June 24, 

1992) (SR–Amex–91–22) (stating that surveillancesharing agreements ‘‘ensure the availability of 

information necessary to detect and deter potential 

manipulations and other trading abuses’’). 

commodity trusts and bitcoin-based 

trust issued receipts.11 As the 

Commission has explained, an exchange 

that lists bitcoin-based exchange-traded 

products (‘‘ETPs’’) can meet its 

obligations under Exchange Act Section 

6(b)(5) by demonstrating that the 

exchange has a comprehensive 

surveillance-sharing agreement with a 

regulated market of significant size 

related to the underlying or reference 

bitcoin assets.12

The standard requires such 

surveillance-sharing agreements since 

they ‘‘provide a necessary deterrent to 

manipulation because they facilitate the 

availability of information needed to 

fully investigate a manipulation if it 

were to occur.’’ 13 The Commission has 

emphasized that it is essential for an 

exchange listing a derivative securities 

product to enter into a surveillancesharing agreement with markets trading 

the underlying assets for the listing 

exchange to have the ability to obtain 

information necessary to detect, 

investigate, and deter fraud and market 

manipulation, as well as violations of 

exchange rules and applicable federal 

securities laws and rules.14 The 

hallmarks of a surveillance-sharing 

agreement are that the agreement 

provides for the sharing of information 

about market trading activity, clearing 

activity, and customer identity; that the 

parties to the agreement have reasonable 

ability to obtain access to and produce 

requested information; and that no 

existing rules, laws, or practices would 

impede one party to the agreement from 

obtaining this information from, or 

producing it to, the other party.15

In the context of this standard, the 

terms ‘‘significant market’’ and ‘‘market 

of significant size’’ include a market (or 

group of markets) as to which (a) there 

is a reasonable likelihood that a person 

attempting to manipulate the ETP 

would also have to trade on that market 

to successfully manipulate the ETP, so 

that a surveillance-sharing agreement 

would assist in detecting and deterring 

misconduct, and (b) it is unlikely that 

trading in the ETP would be the 

predominant influence on prices in that 

market.16 A surveillance-sharing 

agreement must be entered into with a 

‘‘significant market’’ to assist in 

detecting and deterring manipulation of 

the ETP, because a person attempting to 

manipulate the ETP is reasonably likely 

to also engage in trading activity on that 

‘‘significant market.’’ 17

Consistent with this standard, for the 

commodity-trust ETPs approved to date 

for listing and trading, there has been in 

every case at least one significant, 

regulated market for trading futures on 

the underlying commodity—whether 

gold, silver, platinum, palladium, or 

copper—and the ETP listing exchange 

has entered into surveillance-sharing 

agreements with, or held Intermarket 

Surveillance Group (‘‘ISG’’) membership 

in common with, that market.18

Moreover, the surveillance-sharing 

agreements have been consistently 

present whenever the Commission has 

approved the listing and trading of 

derivative securities, even where the 

underlying securities were also listed on 

national securities exchanges—such as 

options based on an index of stocks 

traded on a national securities 

exchange—and were thus subject to the 

Commission’s direct regulatory 

authority.19

Listing exchanges have also attempted 

to demonstrate that other means besides 

surveillance-sharing agreements will be 

sufficient to prevent fraudulent and 

manipulative acts and practices, 

including that the bitcoin market as a 

whole or the relevant underlying bitcoin 

market is ‘‘uniquely’’ and ‘‘inherently’’ 


tkelley on DSK125TN23PROD with NOTICE 
Federal Register / Vol. 87, No. 21 / Tuesday, February 1, 2022 / Notices 5529 

20See USBT Order, 85 FR at 12597. 

21See Winklevoss Order, 83 FR at 37580, 37582– 

91 (addressing assertions that ‘‘bitcoin and bitcoin 

[spot] markets’’ generally, as well as one bitcoin 

trading platform specifically, have unique 

resistance to fraud and manipulation); see also 

USBT Order, 85 FR at 12597. 

22See USBT Order, 85 FR at 12597. 

23See supra note 11. 

24See Notice, 86 FR at 29331. 

25See id. at 29332. 

26See id. at 29332–33. 

27See id. at 29324, 29327. 

28See id. at 29327. 

29See id. at 29324. 

30See Notice, supra note 3. See also draft 

Registration Statement on Form S–1, dated March 

24, 2021, submitted to the Commission by the 

Sponsor on behalf of the Trust (‘‘Registration 

Statement’’). 

31FD Funds Management LLC (‘‘Sponsor’’) is the 

sponsor of the Trust, Delaware Trust Company is 

the trustee, and Fidelity Service Company, Inc. will 

be the administrator (‘‘Administrator’’). A thirdparty transfer agent will facilitate the issuance and 

redemption of Shares of the Trust, respond to 

correspondence by Trust shareholders and others 

relating to its duties, maintain shareholder 

accounts, and make periodic reports to the Trust. 

An affiliate of the Sponsor, Fidelity Distributors 

Corporation, will be the marketing agent in 

connection with the creation and redemption of 

‘‘baskets’’ of Shares, and the Sponsor will provide 

assistance in the marketing of the Shares. Fidelity 

Digital Asset Services, LLC will serve as the Trust’s 

custodian (‘‘Custodian’’). The Index methodology 

was developed by Fidelity Product Services, LLC 

(‘‘Index Provider’’) and is administered by the 

Fidelity Index Committee. Coin Metrics, Inc. is the 

third-party calculation agent for the Index. The 

Sponsor’s affiliates have an ownership interest in 

Coin Metrics, Inc. See Notice, 86 FR at 29321, 

29327 n.57, 29328–29, 29329 n.63. 

32See id. at 29328. 

resistant to fraud and manipulation.20 In 

response, the Commission has agreed 

that, if a listing exchange could 

establish that the underlying market 

inherently possesses a unique resistance 

to manipulation beyond the protections 

that are utilized by traditional 

commodity or securities markets, it 

would not necessarily need to enter into 

a surveillance-sharing agreement with a 

regulated significant market.21 Such 

resistance to fraud and manipulation, 

however, must be novel and beyond 

those protections that exist in 

traditional commodity markets or equity 

markets for which the Commission has 

long required surveillance-sharing 

agreements in the context of listing 

derivative securities products.22 No 

listing exchange has satisfied its burden 

to make such demonstration.23

Here, BZX contends that approval of 

the proposal is consistent with Section 

6(b)(5) of the Exchange Act, in 

particular Section 6(b)(5)’s requirement 

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.24 As discussed in 

more detail below, BZX asserts that the 

proposal is consistent with Section 

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

Exchange has a comprehensive 

surveillance-sharing agreement with a 

regulated market of significant size,25

and there exist other means to prevent 

fraudulent and manipulative acts and 

practices that are sufficient to justify 

dispensing with the requisite 

surveillance-sharing agreement.26

Although BZX recognizes the 

Commission’s focus on potential 

manipulation of bitcoin ETPs in prior 

disapproval orders, BZX argues that 

such manipulation concerns have been 

sufficiently mitigated.27 Specifically, as 

discussed in more detail below, the 

Exchange asserts that the significant 

increase in trading volume in bitcoin 

futures on the Chicago Mercantile 

Exchange (‘‘CME’’), the growth of 

liquidity in the spot market for bitcoin, 

and certain features of the Shares and 

the Index (as defined herein) mitigate 

potential manipulation concerns and 

should be the central consideration as 

the Commission determines whether to 

approve this proposal.28

Further, BZX believes that the 

proposal would give U.S. investors 

access to bitcoin in a regulated and 

transparent exchange-traded vehicle 

that would act to limit risk to U.S. 

investors. According to BZX, the 

proposed listing and trading of the 

Shares would mitigate risk by: (i) 

Reducing premium and discount 

volatility; (ii) reducing management fees 

through meaningful competition; (iii) 

reducing certain risks associated with 

investing in operating companies that 

are proxies for bitcoin exposure; and (iv) 

providing an alternative to custodying 

spot bitcoin.29

In the analysis that follows, the 

Commission examines whether the 

proposed rule change is consistent with 

Section 6(b)(5) of the Exchange Act by 

addressing: In Section III.B.1 assertions 

that other means besides surveillancesharing agreements will be sufficient to 

prevent fraudulent and manipulative 

acts and practices; in Section III.B.2 

assertions that BZX has entered into a 

comprehensive surveillance-sharing 

agreement with a regulated market of 

significant size related to bitcoin; and in 

Section III.C assertions that the proposal 

is consistent with the protection of 

investors and the public interest. 

Based on its analysis, the Commission 

concludes that BZX has not established 

that other means to prevent fraudulent 

and manipulative acts and practices are 

sufficient to justify dispensing with the 

requisite surveillance-sharing 

agreement. The Commission further 

concludes that BZX has not established 

that it has a comprehensive 

surveillance-sharing agreement with a 

regulated market of significant size 

related to bitcoin. As discussed further 

below, BZX repeats various assertions 

made in prior bitcoin-based ETP 

proposals that the Commission has 

previously addressed and rejected—and 

more importantly, BZX does not 

respond to the Commission’s reasons for 

rejecting those assertions but merely 

repeats them. As a result, the 

Commission is unable to find that the 

proposed rule change is consistent with 

the statutory requirements of Exchange 

Act Section 6(b)(5). 

The Commission again emphasizes 

that its disapproval of this proposed 

rule change does not rest on an 

evaluation of whether bitcoin, or 

blockchain technology more generally, 

has utility or value as an innovation or 

an investment. Rather, the Commission 

is disapproving this proposed rule 

change because, as discussed below, 

BZX has not met its burden to 

demonstrate that its proposal is 

consistent with the requirements of 

Exchange Act Section 6(b)(5). 

II. Description of the Proposed Rule 

Change 

As described in more detail in the 

Notice,30 the Exchange proposes to list 

and trade the Shares of the Trust under 

BZX Rule 14.11(e)(4), which governs the 

listing and trading of Commodity-Based 

Trust Shares on the Exchange. 

The investment objective of the Trust 

is to seek to track the performance of 

bitcoin, as measured by the Fidelity 

Bitcoin Index PR (‘‘Index’’), adjusted for 

the Trust’s expenses and other 

liabilities.31 Each Share will represent a 

fractional undivided beneficial interest 

in and ownership of the Trust. The 

Trust’s assets will consist of bitcoin 

held by the Custodian on behalf of the 

Trust. The Trust generally does not 

intend to hold cash or cash equivalents. 

However, there may be situations where 

the Trust will unexpectedly hold cash 

on a temporary basis.32

In seeking to achieve its investment 

objective, the Trust would hold bitcoin 

and value its Shares daily as of 4:00 

p.m. E.T. using the same methodology 

used to calculate the Index. The Index 

is designed to reflect the performance of 

bitcoin in U.S. dollars and is calculated 

using bitcoin price feeds from eligible 

bitcoin spot platforms. The current 

platform composition of the Index is 

Bitstamp, Coinbase, Gemini, itBit, and 

Kraken. The Index market value would 

be the volume-weighted median price of 

bitcoin in U.S. dollars over the previous 


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5530 Federal Register / Vol. 87, No. 21 / Tuesday, February 1, 2022 / Notices 

33See id. at 29329. 

34See id. at 29329–30. 

35See id. at 29329. 

36See id. at 29328–29. 

37 15 U.S.C. 78f(b)(5). Pursuant to Section 19(b)(2) 

of the Exchange Act, 15 U.S.C. 78s(b)(2), the 

Commission must disapprove a proposed rule 

change filed by a national securities exchange if it 

does not find that the proposed rule change is 

consistent with the applicable requirements of the 

Exchange Act. Exchange Act Section 6(b)(5) states 

that an exchange shall not be registered as a 

national securities exchange unless the Commission 

determines that ‘‘[t]he rules of the exchange are 

designed to prevent fraudulent and manipulative 

acts and practices, to promote just and equitable 

principles of trade, to foster cooperation and 

coordination with persons engaged in regulating, 

clearing, settling, processing information with 

respect to, and facilitating transactions in securities, 

to remove impediments to and perfect the 

mechanism of a free and open market and a 

national market system, and, in general, to protect 

investors and the public interest; and are not 

designed to permit unfair discrimination between 

customers, issuers, brokers, or dealers, or to regulate 

by virtue of any authority conferred by this title 

matters not related to the purposes of this title or 

the administration of the exchange.’’ 15 U.S.C. 

78f(b)(5). 

38Rule 700(b)(3), Commission Rules of Practice, 

17 CFR 201.700(b)(3). 

39See id. 

40See id. 

41Susquehanna Int’l Group, LLP v. Securities and 

Exchange Commission, 866 F.3d 442, 447 (D.C. Cir. 

2017) (‘‘Susquehanna’’). 

42See USBT Order, 85 FR at 12597 n.23. The 

Commission is not applying a ‘‘cannot be 

manipulated’’ standard. Instead, the Commission is 

examining whether the proposal meets the 

requirements of the Exchange Act and, pursuant to 

its Rules of Practice, places the burden on the 

listing exchange to demonstrate the validity of its 

contentions and to establish that the requirements 

of the Exchange Act have been met. See id. 

43See id. at 12597. 

44See Notice, 86 FR at 29327 n.51. 

45See id. 

46See id. 

47See id. 

48See id. 

five minutes, which would be 

calculated by (1) ordering all individual 

transactions on eligible spot platforms 

over the previous five minutes by price, 

and then (2) selecting the price 

associated with the 50th percentile of 

total volume.33

The net asset value (‘‘NAV’’) of the 

Trust is the total assets of the Trust 

including, but not limited to, all bitcoin 

and cash, if any, less total liabilities of 

the Trust, each determined on the basis 

of generally accepted accounting 

principles. The NAV per Share of the 

Trust would be calculated by taking the 

fair market value of its total assets based 

on the volume-weighted median price of 

bitcoin used for the calculation of the 

Index, subtracting any liabilities (which 

include accrued expenses), and dividing 

that total by the total number of 

outstanding Shares. The Administrator 

would calculate the NAV of the Trust 

once each Exchange trading day. The 

NAV for a normal trading day will be 

released after 4:00 p.m. E.T.34

The Trust will provide information 

regarding the Trust’s bitcoin holdings, 

as well as an Intraday Indicative Value 

(‘‘IIV’’) per Share updated every 15 

seconds, as calculated by the Exchange 

or a third-party financial data provider 

during the Exchange’s Regular Trading 

Hours (9:30 a.m. to 4:00 p.m. E.T.). The 

IIV will be calculated by using the prior 

day’s closing NAV per Share as a base 

and updating that value during Regular 

Trading Hours to reflect changes in the 

value of the Trust’s bitcoin holdings 

during the trading day.35

When the Trust sells or redeems its 

Shares, it will do so in ‘‘in-kind’’ 

transactions in blocks of Shares. When 

creating the Shares, authorized 

participants will deliver, or facilitate the 

delivery of, bitcoin to the Trust’s 

account with the Custodian in exchange 

for the Shares, and when redeeming the 

Shares, the Trust, through the 

Custodian, will deliver bitcoin to such 

authorized participants.36

III. Discussion 

A. The Applicable Standard for Review 

The Commission must consider 

whether BZX’s proposal is consistent 

with the Exchange Act. Section 6(b)(5) 

of the Exchange Act requires, in relevant 

part, 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.’’ 37

Under the Commission’s Rules of 

Practice, the ‘‘burden to demonstrate 

that a proposed rule change is 

consistent with the Exchange Act and 

the rules and regulations issued 

thereunder . . . is on the self-regulatory 

organization [‘SRO’] that proposed the 

rule change.’’ 38

The description of a proposed rule 

change, its purpose and operation, its 

effect, and a legal analysis of its 

consistency with applicable 

requirements must all be sufficiently 

detailed and specific to support an 

affirmative Commission finding,39 and 

any failure of an SRO to provide this 

information may result in the 

Commission not having a sufficient 

basis to make an affirmative finding that 

a proposed rule change is consistent 

with the Exchange Act and the 

applicable rules and regulations.40

Moreover, ‘‘unquestioning reliance’’ on 

an SRO’s representations in a proposed 

rule change is not sufficient to justify 

Commission approval of a proposed rule 

change.41

B. Whether BZX Has Met Its Burden To 

Demonstrate That the Proposal Is 

Designed To Prevent Fraudulent and 

Manipulative Acts and Practices 

(1) Assertions That Other Means Besides 

Surveillance-Sharing Agreements Will 

Be Sufficient To Prevent Fraudulent and 

Manipulative Acts and Practices 

As stated above, the Commission has 

recognized that a listing exchange could 

demonstrate that other means to prevent 

fraudulent and manipulative acts and 

practices are sufficient to justify 

dispensing with a comprehensive 

surveillance-sharing agreement with a 

regulated market of significant size, 

including by demonstrating that the 

bitcoin market as a whole or the 

relevant underlying bitcoin market is 

uniquely and inherently resistant to 

fraud and manipulation.42 Such 

resistance to fraud and manipulation 

must be novel and beyond those 

protections that exist in traditional 

commodities or securities markets.43

BZX asserts that bitcoin is resistant to 

price manipulation. According to BZX, 

the geographically diverse and 

continuous nature of bitcoin trading 

render it difficult and prohibitively 

costly to manipulate the price of 

bitcoin.44 Fragmentation across bitcoin 

platforms, the relatively slow speed of 

transactions, and the capital necessary 

to maintain a significant presence on 

each trading platform make 

manipulation of bitcoin prices through 

continuous trading activity 

challenging.45 To the extent that there 

are bitcoin platforms engaged in, or 

allowing, wash trading or other activity 

intended to manipulate the price of 

bitcoin on other markets, such pricing 

does not normally impact prices on 

other platforms because participants 

will generally ignore markets with 

quotes that they deem non-executable.46

BZX further argues that the linkage 

between the bitcoin markets and the 

presence of arbitrageurs in those 

markets means that the manipulation of 

the price of bitcoin on any single venue 

would require manipulation of the 

global bitcoin price in order to be 

effective.47 Arbitrageurs must have 

funds distributed across multiple 

trading platforms in order to take 

advantage of temporary price 

dislocations, thereby making it unlikely 

that there will be strong concentration 

of funds on any particular bitcoin 

trading venue.48 As a result, BZX 

concludes that ‘‘the potential for 

manipulation on a [bitcoin] trading 

platform would require overcoming the 

liquidity supply of such arbitrageurs 


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49See id. 

50For example, the Registration Statement states 

that ‘‘[a]s the use of digital asset networks increases 

without a corresponding increase in throughput of 

the networks, average fees and settlement times can 

increase significantly,’’ and that such ‘‘[i]ncreased 

fees and decreased settlement speeds . . . could 

adversely impact the value of the Shares.’’ See 

Registration Statement at 15. BZX does not provide 

data or analysis to address, among other things, 

whether such risks of increased fees and bitcoin 

transaction settlement times may affect the arbitrage 

effectiveness that BZX asserts. See also infra note 

64 and accompanying text (referencing statements 

made in the Registration Statement that contradict 

assertions made by BZX). 

51See supra note 41. 

52See Winklevoss Order, 83 FR at 37586; SolidX 

Order, 82 FR at 16256–57; USBT Order, 85 FR at 

12601. 

53See, e.g., USBT Order, 85 FR at 12601. 

54See, e.g., Winklevoss Order, 83 FR at 37584; 

USBT Order, 85 FR at 12600–01. 

55See USBT Order, 85 FR at 12601. 

56See Winklevoss Order, 83 FR at 37585 n.92 and 

accompanying text. 

57See id. at 37585. 

58See Notice, 86 FR at 29328. 

59See id. 

60Aside from stating that the ‘‘statistics are based 

on samples of bitcoin liquidity in USD (excluding 

stablecoins or Euro liquidity) based on executable 

quotes on Coinbase Pro, Gemini, Bitstamp, Kraken, 

LMAX Exchange, BinanceUS, and OKCoin during 

February 2021,’’ the Exchange provides no other 

information pertaining to the methodology used to 

enable the Commission to evaluate these findings 

or their significance. See id. at 29328 nn.58–59. 

61See USBT Order, 85 FR at 12601. 

62See supra note 55 and accompanying text. 

63See USBT Order, 85 FR at 12600–01 & nn.66– 

67 (discussing J. Griffin & A. Shams, Is Bitcoin 

Really Untethered? (October 28, 2019), available at 

https://ssrn.com/abstract=3195066 and published 

in 75 J. Finance 1913 (2020)); Winklevoss Order, 83 

FR at 37585–86. 

who are effectively eliminating any 

cross-market pricing differences.’’ 49

As with the previous proposals, the 

Commission here concludes that the 

record does not support a finding that 

the bitcoin market is inherently and 

uniquely resistant to fraud and 

manipulation. BZX asserts that, because 

of how bitcoin trades occur, including 

through continuous means and through 

fragmented platforms, arbitrage across 

the bitcoin platforms essentially helps 

to keep global bitcoin prices aligned 

with one another, thus hindering 

manipulation. The Exchange, however, 

does not provide any data or analysis to 

support its assertions, either in terms of 

how closely bitcoin prices are aligned 

across different bitcoin trading venues 

or how quickly price disparities may be 

arbitraged away.50 As stated above, 

‘‘unquestioning reliance’’ on an SRO’s 

representations in a proposed rule 

change is not sufficient to justify 

Commission approval of a proposed rule 

change.51

Efficient price arbitrage, moreover, is 

not sufficient to support the finding that 

a market is uniquely and inherently 

resistant to manipulation such that the 

Commission can dispense with 

surveillance-sharing agreements.52 The 

Commission has stated, for example, 

that even for equity options based on 

securities listed on national securities 

exchanges, the Commission relies on 

surveillance-sharing agreements to 

detect and deter fraud and 

manipulation.53 Here, the Exchange 

provides no evidence to support its 

assertion of efficient price arbitrage 

across bitcoin platforms, let alone any 

evidence that price arbitrage in the 

bitcoin market is novel or unique so as 

to warrant the Commission dispensing 

with the requirement of a surveillancesharing agreement. Moreover, BZX does 

not take into account that a market 

participant with a dominant ownership 

position would not find it prohibitively 

expensive to overcome the liquidity 

supplied by arbitrageurs and could use 

dominant market share to engage in 

manipulation.54

In addition, the Exchange makes the 

unsupported claim that bitcoin prices 

on platforms with wash trades or other 

activity intended to manipulate the 

price of bitcoin do not influence the 

‘‘real’’ price of bitcoin. The Exchange 

also asserts that, to the extent that there 

are bitcoin platforms engaged in or 

allowing wash trading or other 

manipulative activities, market 

participants will generally ignore those 

platforms. However, without the 

necessary data or other evidence, the 

Commission has no basis on which to 

conclude that bitcoin platforms are 

insulated from prices of others that 

engage in or permit fraud or 

manipulation.55

Additionally, the continuous nature 

of bitcoin trading does not eliminate 

manipulation risk, and neither do 

linkages among markets, as BZX 

asserts.56 Even in the presence of 

continuous trading or linkages among 

markets, formal (such as those with 

consolidated quotations or routing 

requirements) or otherwise (such as in 

the context of the fragmented, global 

bitcoin markets), manipulation of asset 

prices, as a general matter, can occur 

simply through trading activity that 

creates a false impression of supply or 

demand.57

BZX also argues that the significant 

liquidity in the bitcoin spot market and 

the impact of market orders on the 

overall price of bitcoin mean that 

attempting to move the price of bitcoin 

is costly and has grown more expensive 

over the past year.58 According to BZX, 

in January 2020, for example, the cost to 

buy or sell $5 million worth of bitcoin 

averaged roughly 30 basis points 

(compared to 10 basis points in 

February 2021) with a market impact of 

50 basis points (compared to 30 basis 

points in February 2021). For a $10 

million market order, the cost to buy or 

sell was roughly 50 basis points 

(compared to 20 basis points in 

February 2021) with a market impact of 

80 basis points (compared to 50 basis 

points in February 2021). BZX contends 

that as the liquidity in the bitcoin spot 

market increases, it follows that the 

impact of $5 million and $10 million 

orders will continue to decrease.59

However, the data furnished by BZX 

regarding the cost to move the price of 

bitcoin, and the market impact of such 

attempts, are incomplete. BZX does not 

provide meaningful analysis pertaining 

to how these figures compare to other 

markets or why one must conclude, 

based on the numbers provided, that the 

bitcoin market is costly to manipulate. 

Further, BZX’s analysis of the market 

impact of a mere two sample 

transactions is not sufficient evidence to 

conclude that the bitcoin market is 

resistant to manipulation.60 Even 

assuming that the Commission agreed 

with BZX’s premise, that it is costly to 

manipulate the bitcoin market and it is 

becoming increasingly so, any such 

evidence speaks only to establish that 

there is some resistance to 

manipulation, not that it establishes 

unique resistance to manipulation to 

warrant dispensing with the standard 

surveillance-sharing agreement.61 The 

Commission thus concludes that the 

record does not demonstrate that the 

nature of bitcoin trading renders the 

bitcoin market inherently and uniquely 

resistant to fraud and manipulation. 

Moreover, BZX does not sufficiently 

contest the presence of possible sources 

of fraud and manipulation in the bitcoin 

spot market generally that the 

Commission has raised in previous 

orders, which have included (1) ‘‘wash’’ 

trading,62 (2) persons with a dominant 

position in bitcoin manipulating bitcoin 

pricing, (3) hacking of the bitcoin 

network and trading platforms, (4) 

malicious control of the bitcoin 

network, (5) trading based on material, 

non-public information, including the 

dissemination of false and misleading 

information, (6) manipulative activity 

involving the purported ‘‘stablecoin’’ 

Tether (‘‘USDT’’), and (7) fraud and 

manipulation at bitcoin trading 

platforms.63

In addition, BZX does not address risk 

factors specific to the bitcoin blockchain 

and bitcoin platforms, described in the 

Trust’s Registration Statement, that 

undermine the argument that the bitcoin 

market is inherently resistant to fraud 


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64See Registration Statement at 3, 8–9, 13. See 

also Winklevoss Order, 83 FR at 37585. 

65See Notice, 86 FR at 29328. 

66See id. at 29329. According to the Exchange, 

this extended period also supports authorized 

participant activity by capturing volume over a 

longer time period, rather than forcing authorized 

participants to mark an individual close or auction. 

See id. 

67See id. 

68See id. 

69See id. at 29328. 

70See id. 

71See id. 

72See id. 73See id. 74The Commission has previously considered 

and rejected similar arguments about the valuation 

of bitcoin according to a benchmark or reference 

price. See, e.g., SolidX Order, 82 FR at 16258; 

Winklevoss Order, 83 FR at 37587–90; USBT Order, 

85 FR at 12599–601. 

75As discussed above, the Commission has no 

basis on which to conclude that bitcoin platforms 

are insulated from prices of others that engage in 

or permit fraud or manipulation. See supra note 55 

and accompanying text. 

76See supra note 64 and accompanying text 

(describing, among other things, the risks associated 

with spot bitcoin markets that are new and largely 

unregulated). 

and manipulation. For example, the 

Registration Statement acknowledges 

that ‘‘[platforms] on which bitcoin 

trades are relatively new and largely 

unregulated, and, therefore, may be 

more exposed to fraud and security 

breaches than established, regulated 

exchanges for other financial assets or 

instruments’’; that ‘‘[o]ver the past 

several years, a number of bitcoin spot 

markets have been closed or faced 

issues due to fraud, failure, security 

breaches or governmental regulations’’; 

that ‘‘[t]he nature of the assets held at 

bitcoin spot markets makes them 

appealing targets for hackers and a 

number of bitcoin spot markets have 

been victims of cybercrimes’’ and that 

‘‘[n]o bitcoin [platform] is immune from 

these risks’’; that ‘‘many [bitcoin] spot 

markets lack certain safeguards put in 

place by more traditional exchanges to 

enhance the stability of trading on the 

[platform]’’; that ‘‘[a] lack of stability in 

the bitcoin spot markets, manipulation 

of bitcoin spot markets by customers 

and/or the closure or temporary 

shutdown of such [platforms] due to 

fraud, business failure, hackers or 

malware, or government-mandated 

regulation may reduce confidence in 

bitcoin generally and result in greater 

volatility in the market price of bitcoin 

and the Shares of the Trust’’ and that 

such ‘‘closure or temporary shutdown of 

a bitcoin spot market may impact the 

Trust’s ability to determine the value of 

its bitcoin holdings or for the Trust’s 

[a]uthorized [p]articipants to effectively 

arbitrage the Trust’s Shares’’; that ‘‘[t]he 

potential consequences of a spot 

market’s failure or failure to prevent 

market manipulation could adversely 

affect the value of the Shares’’; that 

many spot markets and over-the-counter 

(‘‘OTC’’) market venues ‘‘do not provide 

the public with significant information 

regarding their ownership structure, 

management teams, corporate practices 

or oversight of customer trading’’; and 

that the bitcoin blockchain could be 

vulnerable to a ‘‘51% attack,’’ in which 

a bad actor or actors that control a 

majority of the processing power 

dedicated to mining on the bitcoin 

network may be able to alter the bitcoin 

blockchain on which the bitcoin 

network and bitcoin transactions 

rely.’’ 64

BZX also asserts that other means to 

prevent fraud and manipulation are 

sufficient to justify dispensing with the 

requisite surveillance-sharing 

agreement. The Exchange mentions that 

the Index, which is used to value the 

Trust’s bitcoin, is itself resistant to 

manipulation based on the Index’s 

methodology, as described above.65

According to the Exchange, ‘‘using 

rolling five-minute segments [to 

calculate the Index] means malicious 

actors would need to sustain efforts to 

manipulate the market over an extended 

period of time, or would need to 

replicate efforts multiple times across 

exchanges, potentially triggering 

review.’’ 66 The use of a median price 

reduces the ability of outlier prices to 

impact the NAV, as it systematically 

excludes those prices from the NAV 

calculation. The Exchange asserts that 

the use of a volume-weighted median 

(as opposed to a traditional median) 

serves as an additional protection 

against attempts to manipulate the NAV 

by executing a large number of lowdollar trades, because any manipulation 

attempt would have to involve a 

majority of global spot bitcoin volume 

in a three-minute window to have any 

influence on the NAV.67 Further, 

removing the highest and lowest prices 

further protects against attempts to 

manipulate the NAV, requiring bad 

actors to act on multiple exchanges at 

once to have any ability to influence the 

price.68

Simultaneously with the Exchange’s 

assertions regarding the Index, the 

Exchange also states that, because the 

Trust will engage in in-kind creations 

and redemptions, the ‘‘manipulability of 

the Index [is] significantly less 

important.’’ 69 The Exchange elaborates 

further that, ‘‘because the Trust will not 

accept cash to buy bitcoin in order to 

create new shares or . . . be forced to 

sell bitcoin to pay cash for redeemed 

shares, the price that the Sponsor uses 

to value the Trust’s bitcoin is not 

particularly important.’’ 70 According to 

BZX, when authorized participants 

create Shares with the Trust, they would 

need to deliver a certain number of 

bitcoin per share (regardless of the 

valuation used), and when they redeem 

with the Trust, they would similarly 

expect to receive a certain number of 

bitcoin per share.71 As such, BZX argues 

that even if the price used to value the 

Trust’s bitcoin is manipulated, the ratio 

of bitcoin per Share does not change, 

and the Trust will either accept (for 

creations) or distribute (for 

redemptions) the same number of 

bitcoin regardless of the value.72 This, 

according to BZX, not only mitigates the 

risk associated with potential 

manipulation, but also discourages and 

disincentivizes manipulation of the 

Index because there is little financial 

incentive to do so.73

Based on assertions made and the 

information provided, the Commission 

can find no basis to conclude that BZX 

has articulated other means to prevent 

fraud and manipulation that are 

sufficient to justify dispensing with the 

requisite surveillance-sharing 

agreement. 

First, the record does not demonstrate 

that the proposed methodology for 

calculating the Index would make the 

proposed ETP resistant to fraud or 

manipulation such that a surveillancesharing agreement with a regulated 

market of significant size is 

unnecessary.74 Specifically, the 

Exchange has not assessed the possible 

influence that spot platforms not 

included among the Index’s constituent 

bitcoin platforms would have on bitcoin 

prices used to calculate the Index.75 As 

discussed above, the record does not 

establish that the broader bitcoin market 

is inherently and uniquely resistant to 

fraud and manipulation. Accordingly, to 

the extent that trading on other spot 

bitcoin platforms not directly used to 

calculate the Index affects prices on the 

Index’s constituent bitcoin platforms, 

the characteristics of those other spot 

bitcoin platforms—where various kinds 

of fraud and manipulation from a 

variety of sources may be present and 

persist 76—may affect whether the Index 

is resistant to manipulation. 

Moreover, the Exchange’s assertions 

that the Index’s methodology helps 

make the Index resistant to 

manipulation are contradicted by the 

Registration Statement’s own 

statements. Specifically, the Registration 

Statement states that ‘‘[s]pot markets on 

which bitcoin trades are relatively new 

and largely unregulated, and, therefore, 

may be more exposed to fraud and 


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77See Registration Statement at 8. 

78See id. at 25. 

79See id. 

80See id. 

81See Notice, 86 FR at 29329. 

82See USBT Order, 85 FR at 12601 n.66; see also 

id. at 12607. 

83See WisdomTree Order, 86 FR at 69327. 

84See supra notes 69–73 and accompanying text. 

85See Notice, 86 FR at 29328 (‘‘While the Sponsor 

believes that the Index which it uses to value the 

Trust’s bitcoin is itself resistant to manipulation 

based on the methodology further described below, 

the fact that creations and redemptions are available 

in-kind makes the manipulability of the Index 

significantly less important.’’). 

86See id. (concluding that ‘‘because the Trust will 

not accept cash to buy bitcoin in order to create 

new shares or, barring a forced redemption of the 

Trust or under other extraordinary circumstances, 

be forced to sell bitcoin to pay cash for redeemed 

shares, the price that the Sponsor uses to value the 

Trust’s bitcoin is not particularly important.’’). 

87See Winklevoss Order, 83 FR at 37589–90; 

USBT Order, 85 FR at 12607–08. 

88See, e.g., iShares COMEX Gold Trust, Securities 

Exchange Act Release No. 51058 (Jan. 19, 2005), 70 

FR 3749, 3751–55 (Jan. 26, 2005) (SR–Amex–2004– 

38); iShares Silver Trust, Securities Exchange Act 

Release No. 53521 (Mar. 20, 2006), 71 FR 14969, 

14974 (Mar. 24, 2006) (SR–Amex–2005–072). 

89Putting aside the Exchange’s various assertions 

about the nature of bitcoin and the bitcoin market, 

the Index, and the Shares, the Exchange also does 

not address concerns the Commission has 

previously identified, including the susceptibility 

of bitcoin markets to potential trading on material, 

non-public information (such as plans of market 

participants to significantly increase or decrease 

their holdings in bitcoin; new sources of demand 

for bitcoin; the decision of a bitcoin-based 

investment vehicle on how to respond to a ‘‘fork’’ 

in the bitcoin blockchain, which would create two 

different, non-interchangeable types of bitcoin), or 

to the dissemination of false or misleading 

information. See Winklevoss Order, 83 FR at 37585. 

See also USBT Order, 85 FR at 12600–01. 

security breaches than established, 

regulated exchanges for other financial 

assets or instruments’’; that ‘‘[o]ver the 

past several years, a number of bitcoin 

spot markets have been closed or faced 

issues due to fraud, failure, security 

breaches or governmental regulations’’; 

and that ‘‘[n]o bitcoin [platform] is 

immune from these risks’’ 77 Moreover, 

the Registration Statement specifically 

acknowledges that ‘‘[p]ricing sources 

used by the Index are digital asset spot 

markets that facilitate the buying and 

selling of bitcoin and other digital 

assets’’ and that ‘‘[a]lthough many 

pricing sources refer to themselves as 

‘exchanges,’ they are not registered 

with, or supervised by, the SEC or CFTC 

and do not meet the regulatory 

standards of a national securities 

exchange or designated contract 

market.’’ 78 The Registration Statement 

further admits that ‘‘[t]he Index is based 

on various inputs which include price 

data from various third-party bitcoin 

spot markets’’ and [t]he Index Provider 

does not guarantee the validity of any of 

these inputs, which may be subject to 

technological error, manipulative 

activity, or fraudulent reporting from 

their initial source.’’ 79 The Registration 

Statement concludes that ‘‘[f]or these 

reasons, among others, purchases and 

sales of bitcoin may be subject to 

temporary distortions or other 

disruptions due to various factors . . . 

[which] could affect the price of bitcoin 

used in Index calculations and, 

therefore, could adversely affect the 

level of the Index.’’ 80

The Index constituent bitcoin 

platforms are a subset of the spot bitcoin 

trading venues currently in existence. 

Although the Sponsor raises concerns 

regarding fraud and security of bitcoin 

platforms in the Registration Statement, 

the Exchange does not explain how or 

why such concerns are consistent with 

its assertion that the Index is resistant 

to fraud and manipulation. In addition, 

as described above, for purposes of 

calculating the Trust’s NAV per Share, 

the Trust’s holdings of bitcoin would be 

valued using the Index.81 Even though 

the Sponsor also raises concerns in the 

Registration Statement regarding 

manipulative activity and fraudulent 

reporting with respect to the inputs 

from the Index’s constituent bitcoin 

platforms, the Exchange does not 

sufficiently explain how or why such 

concerns are consistent with its 

assertion that the Index methodology, 

and therefore the Trust’s NAV 

calculation, is resistant to fraud and 

manipulation. 

Second, BZX has not shown that its 

proposed use of a volume-weighted 

median price of bitcoin over time 

intervals of five minutes to calculate the 

Index market value would effectively be 

able to eliminate fraudulent or 

manipulative activity that is not 

transient. Fraud and manipulation in 

the bitcoin spot market could persist for 

a ‘‘significant duration.’’ 82 The 

Exchange does not connect the use of 

such partitions to the duration of the 

effects of fraudulently reported prices or 

other manipulative activity that may 

exist in the bitcoin spot market.83

Third, the Exchange does not explain 

the significance of the Index’s purported 

resistance to manipulation to the overall 

analysis of whether the proposal to list 

and trade the Shares is designed to 

prevent fraud and manipulation. Even 

assuming that the Exchange’s argument 

is that, if the Index is resistant to 

manipulation, the Trust’s NAV, and 

thereby the Shares as well, would be 

resistant to manipulation, the Exchange 

has not established in the record a basis 

for such conclusion. That assumption 

aside, the Commission notes that the 

Shares would trade at market-based 

prices in the secondary market, not at 

NAV, which then raises the question of 

the significance of the NAV calculation 

to the manipulation of the Shares. 

Fourth, the Exchange’s arguments are 

contradictory. While arguing that the 

Index is resistant to manipulation, the 

Exchange simultaneously downplays 

the importance of the Index in light of 

the Trust’s in-kind creation and 

redemption mechanism.84 The 

Exchange points out that the Trust will 

create and redeem Shares in-kind, not in 

cash, which renders the NAV 

calculation, and thereby the ability to 

manipulate NAV, ‘‘significantly less 

important.’’ 85 In BZX’s own words, the 

Trust will not accept cash to buy bitcoin 

in order to create shares or sell bitcoin 

to pay cash for redeemed shares, so the 

price that the Sponsor uses to value the 

Trust’s bitcoin ‘‘is not particularly 

important.’’ 86 If the Index that the Trust 

uses to value the Trust’s bitcoin ‘‘is not 

particularly important,’’ it follows that 

the Index’s resistance to manipulation is 

not material to the Shares’ susceptibility 

to fraud and manipulation. As the 

Exchange does not address or provide 

any analysis with respect to these 

issues, the Commission cannot conclude 

that the Index aids in the determination 

that the proposal to list and trade the 

Shares is designed to prevent fraudulent 

and manipulative acts and practices. 

Finally, the Commission finds that 

BZX has not demonstrated that in-kind 

creations and redemptions provide the 

Shares with a unique resistance to 

manipulation. The Commission has 

previously addressed similar 

assertions.87 As the Commission stated 

before, in-kind creations and 

redemptions are a common feature of 

ETPs, and the Commission has not 

previously relied on the in-kind creation 

and redemption mechanism as a basis 

for excusing exchanges that list ETPs 

from entering into surveillance-sharing 

agreements with significant, regulated 

markets related to the portfolio’s 

assets.88 Accordingly, the Commission 

is not persuaded here that the Trust’s inkind creations and redemptions afford it 

a unique resistance to manipulation.89

(2) Assertions That BZX Has Entered 

Into a Comprehensive SurveillanceSharing Agreement With a Regulated 

Market of Significant Size 

As BZX has not demonstrated that 

other means besides surveillancesharing agreements will be sufficient to 

prevent fraudulent and manipulative 

acts and practices, the Commission next 

examines whether the record supports 

the conclusion that BZX has entered 

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90See Winklevoss Order, 83 FR at 37594. This 

definition is illustrative and not exclusive. There 

could be other types of ‘‘significant markets’’ and 

‘‘markets of significant size,’’ but this definition is 

an example that provides guidance to market 

participants. See id. 

91See id. at 37580 n.19. 

92See Notice, 86 FR at 29327 n.54 and 

accompanying text. 

93While the Commission recognizes that the 

CFTC regulates the CME, the CFTC is not 

responsible for direct, comprehensive regulation of 

the underlying bitcoin spot market. See Winklevoss 

Order, 83 FR at 37587, 37599. 

94 In the context of the proposed ETP, the Index’s 

constituent bitcoin platforms are not ‘‘regulated.’’ 

They are not registered as ‘‘exchanges’’ and lack the 

obligations, authority, and oversight of national 

securities exchanges. Thus, the Commission limits 

the scope of its analysis to the CME. See 

WisdomTree Order, 86 FR at 69330 n.119. 

95According to BZX, each contract represents five 

bitcoin and is based on the CME CF Bitcoin 

Reference Rate. See Notice, 86 FR at 29325. 

96See id. 

97See id. 

98See id. 

99BZX represents that a large open interest holder 

in CME bitcoin futures is an entity that holds at 

least 25 contracts, which is the equivalent of 125 

bitcoin. According to BZX, at a price of 

approximately $30,000 per bitcoin on December 31, 

2020, more than 80 firms had outstanding positions 

of greater than $3.8 million in CME bitcoin futures. 

See id. at 29325 n.47. 

100See id. at 29325. 

101See Submission by the Sponsor to the 

Commission in connection with a meeting between 

representatives of the Sponsor, BZX, and 

Commission staff on September 8, 2021, (‘‘Sponsor 

Submission’’) at 4, available at: https://

www.sec.gov/comments/sr-cboebzx-2021-039/ 

srcboebzx2021039-250110.pdf. 

102See Notice, 86 FR at 29327. 

103See id. at 29327 & n.48 (citing Y. Hu, Y. Hou 

& L. Oxley, What role do futures markets play in 

Bitcoin pricing? Causality, cointegration and price 

discovery from a time-varying perspective, 72 Int’l 

Rev. of Fin. Analysis 101569 (2020) (available at: 

https://www.ncbi.nlm.nih.gov/pmc/articles/ 

PMC7481826/) (‘‘Hu, Hou & Oxley’’)). 

104See id. at 29327. 

105See USBT Order, 85 FR at 12611. 

sharing agreement with a regulated 

market of significant size relating to the 

underlying assets. In this context, the 

term ‘‘market of significant size’’ 

includes a market (or group of markets) 

as to which (i) there is a reasonable 

likelihood that a person attempting to 

manipulate the ETP would also have to 

trade on that market to successfully 

manipulate the ETP, so that a 

surveillance-sharing agreement would 

assist in detecting and deterring 

misconduct, and (ii) it is unlikely that 

trading in the ETP would be the 

predominant influence on prices in that 

market.90

As the Commission has stated in the 

past, it considers two markets that are 

members of the ISG to have a 

comprehensive surveillance-sharing 

agreement with one another, even if 

they do not have a separate bilateral 

surveillance-sharing agreement.91

Accordingly, based on the common 

membership of BZX and the CME in the 

ISG,92 BZX has the equivalent of a 

comprehensive surveillance-sharing 

agreement with the CME. However, 

while the Commission recognizes that 

the CFTC regulates the CME futures 

market,93 including the CME bitcoin 

futures market, and thus such market is 

‘‘regulated,’’ in the context of the 

proposed ETP, the record does not, as 

explained further below, establish that 

the CME bitcoin futures market is a 

‘‘market of significant size’’ as that term 

is used in the context of the applicable 

standard here.94

(i) Whether There is a Reasonable 

Likelihood That a Person Attempting To 

Manipulate the ETP Would Also Have 

To Trade on the CME Bitcoin Futures 

Market To Successfully Manipulate the 

ETP 

(a) Assertions by BZX 

The first prong in establishing 

whether the CME bitcoin futures market 

constitutes a ‘‘market of significant size’’ 

is the determination that there is a 

reasonable likelihood that a person 

attempting to manipulate the ETP 

would have to trade on the CME bitcoin 

futures market to successfully 

manipulate the ETP. 

BZX notes that the CME began to offer 

trading in bitcoin futures in 2017.95

According to BZX, nearly every 

measurable metric related to CME 

bitcoin futures contracts, which trade 

and settle like other cash-settled 

commodity futures contracts, has 

‘‘trended consistently up since launch 

and/or accelerated upward in the past 

year.’’ 96 For example, according to BZX, 

there was approximately $28 billion in 

trading in CME bitcoin futures in 

December 2020 compared to $737 

million, $1.4 billion, and $3.9 billion in 

total trading in December 2017, 

December 2018, and December 2019, 

respectively.97 Additionally, CME 

bitcoin futures traded over $1.2 billion 

per day in December 2020 and 

represented $1.6 billion in open interest 

compared to $115 million in December 

2019.98 Similarly, BZX contends that 

the number of large open interest 

holders 99 has continued to increase, 

even as the price of bitcoin has risen, as 

have the number of unique accounts 

trading CME bitcoin futures.100 In 

addition, the Sponsor, in a separate 

submission to the Commission, 

represents that ‘‘[b]etween Q1 2019 & 

Q2 2021, quarterly CME bitcoin futures 

volume grew more than 20x.’’ 101

BZX argues that the significant growth 

in CME bitcoin futures across each of 

trading volumes, open interest, large 

open interest holders, and total market 

participants since the USBT Order was 

issued is reflective of that market’s 

growing influence on the spot price. 

BZX asserts that where CME bitcoin 

futures lead the price in the spot market 

such that a potential manipulator of the 

bitcoin spot market (beyond just the 

Index’s constituent bitcoin platforms) 

would have to participate in the CME 

bitcoin futures market, it follows that a 

potential manipulator of the Shares 

would similarly have to transact in the 

CME bitcoin futures market.102

BZX further states that academic 

research corroborates the overall trend 

outlined above and supports the thesis 

that CME bitcoin futures pricing leads 

the spot market. BZX asserts that 

academic research demonstrates that the 

CME bitcoin futures market was already 

leading the spot price in 2018 and 

2019.103 BZX concludes that a person 

attempting to manipulate the Shares 

would also have to trade on that market 

to manipulate the ETP.104

The Commission disagrees. The 

record does not demonstrate that there 

is a reasonable likelihood that a person 

attempting to manipulate the proposed 

ETP would have to trade on the CME 

bitcoin futures market to successfully 

manipulate it. Specifically, BZX’s 

assertions about the general upward 

trends from 2018 to February 2021 in 

trading volume and open interest of, 

and in the number of large open interest 

holders and number of unique accounts 

trading in, CME bitcoin futures, as well 

as the Sponsor’s assertions about the 

growth in quarterly CME bitcoin futures 

volume from 2019 to 2021, do not 

establish that the CME bitcoin futures 

market is of significant size. While BZX 

provides data showing absolute growth 

in the size of the CME bitcoin futures 

market, it provides no data relative to 

the concomitant growth in either the 

bitcoin spot markets or other bitcoin 

futures markets (including unregulated 

futures markets). Moreover, even if the 

CME has grown in relative size, as the 

Commission has previously articulated, 

the interpretation of the term ‘‘market of 

significant size’’ or ‘‘significant market’’ 

depends on the interrelationship 

between the market with which the 

listing exchange has a surveillancesharing agreement and the proposed 

ETP.105 BZX’s recitation of data 

reflecting the size of the CME bitcoin 

futures market, alone, either currently or 

in relation to previous years, is not 

sufficient to establish an 

interrelationship between the CME 


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106See id. at 12612. 

107See id. at 12611. Listing exchanges have 

attempted to demonstrate such an 

‘‘interrelationship’’ by presenting the results of 

various econometric ‘‘lead-lag’’ analyses. The 

Commission considers such analyses to be central 

to understanding whether it is reasonably likely 

that a would-be manipulator of the ETP would need 

to trade on the CME bitcoin futures market. See id. 

at 12612. 

108See Notice, 86 FR at 29327. 

109See supra note 103 and accompanying text. 

BZX references the following conclusion from the 

‘‘time-varying price discovery’’ section of Hu, Hou 

& Oxley: ‘‘There exist no episodes where the 

Bitcoin spot markets dominates the price discovery 

processes with regard to Bitcoin futures. This points 

to a conclusion that the price formation originates 

solely in the Bitcoin futures market. We can, 

therefore, conclude that the Bitcoin futures markets 

dominate the dynamic price discovery process 

based upon time-varying information share 

measures. Overall, price discovery seems to occur 

in the Bitcoin futures markets rather than the 

underlying spot market based upon a time-varying 

perspective . . .’’ See Notice, 86 FR at 29327 n.48. 

110The paper finds that the CME bitcoin futures 

market dominates the spot markets in terms of 

Granger causality, but that the causal relationship 

is bi-directional, and a Granger causality episode 

from March 2019 to June/July 2019 runs from 

bitcoin spot prices to CME bitcoin futures prices. 

The paper concludes: ‘‘[T]he Granger causality 

episodes are not constant throughout the whole 

sample period. Via our causality detection methods, 

market participants can identify when markets are 

being led by futures prices and when they might not 

be.’’ See Hu, Hou & Oxley, supra note 103. 

111See USBT Order, 85 FR at 12609. 

112See id. at 12613 n.244. 

113See id. 

114See Susquehanna, 866 F.3d at 447. 

115See, e.g., D. Baur & T. Dimpfl, Price discovery 

in bitcoin spot or futures?, 39 J. Futures Mkts. 803 

(2019) (finding that the bitcoin spot market leads 

price discovery); O. Entrop, B. Frijns & M. Seruset, 

The determinants of price discovery on bitcoin 

markets, 40 J. Futures Mkts. 816 (2020) (finding that 

price discovery measures vary significantly over 

time without one market being clearly dominant 

over the other); J. Hung, H. Liu & J. Yang, Trading 

activity and price discovery in Bitcoin futures 

markets, 62 J. Empirical Finance 107 (2021) (finding 

that the bitcoin spot market dominates price 

discovery); B. Kapar & J. Olmo, An analysis of price 

discovery between Bitcoin futures and spot markets, 

174 Econ. Letters 62 (2019) (finding that bitcoin 

futures dominate price discovery) (‘‘Kapar & 

Olmo’’); E. Akyildirim, S. Corbet, P. Katsiampa, N. 

Kellard & A. Sensoy, The development of Bitcoin 

futures: Exploring the interactions between 

cryptocurrency derivatives, 34 Fin. Res. Letters 

101234 (2020) (finding that bitcoin futures 

dominate price discovery); A. Fassas, S. 

Papadamou, & A. Koulis, Price discovery in bitcoin 

futures, 52 Res. Int’l Bus. Fin. 101116 (2020) 

(finding that bitcoin futures play a more important 

role in price discovery) (‘‘Fassas et al’’); S. Aleti & 

B. Mizrach, Bitcoin spot and futures market 

microstructure, 41 J. Futures Mkts. 194 (2021) 

(finding that relatively more price discovery occurs 

on the CME as compared to four spot exchanges); 

J. Wu, K. Xu, X. Zheng & J. Chen, Fractional 

cointegration in bitcoin spot and futures markets, 

41 J. Futures Mkts. 1478 (2021) (finding that CME 

bitcoin futures dominate price discovery). See also 

C. Alexander & D. Heck, Price discovery in Bitcoin: 

The impact of unregulated markets, 50 J. Financial 

Stability 100776 (2020) (finding that, in a multidimensional setting, including the main price 

leaders within futures, perpetuals, and spot 

markets, CME bitcoin futures have a very minor 

effect on price discovery; and that faster speed of 

adjustment and information absorption occurs on 

the unregulated spot and derivatives platforms than 

on CME bitcoin futures) (‘‘Alexander & Heck’’). 

116See USBT Order, 85 FR at 12613 nn.239–244 

and accompanying text. 

117 In addition, the Exchange fails to address the 

relationship (if any) between prices on other bitcoin 

futures markets and the CME bitcoin futures 

market, the bitcoin spot market, and/or the 

particular Index constituent bitcoin platforms, or 

where price formation occurs when the entirety of 

bitcoin futures markets, not just the CME, is 

considered. 

bitcoin futures market and the proposed 

ETP.106

Further, the econometric evidence in 

the record for this proposal also does 

not support a conclusion that an 

interrelationship exists between the 

CME bitcoin futures market and the 

bitcoin spot market such that it is 

reasonably likely that a person 

attempting to manipulate the proposed 

ETP would also have to trade on the 

CME bitcoin futures market to 

successfully manipulate the proposed 

ETP.107 While BZX states that CME 

bitcoin futures pricing leads the spot 

market,108 it relies on the findings of a 

price discovery analysis in one section 

of a single academic paper to support 

the overall thesis.109 However, the 

findings of that paper’s Granger 

causality analysis, which is widely used 

to formally test for lead-lag 

relationships, are concededly mixed.110

In addition, the Commission considered 

an unpublished version of the paper in 

the USBT Order, as well as a comment 

letter submitted by the authors on that 

record.111 In the USBT Order, as part of 

the Commission’s conclusion that 

‘‘mixed results’’ in academic studies 

failed to demonstrate that the CME 

bitcoin futures market constitutes a 

market of significant size, the 

Commission noted the paper’s 

inconclusive evidence that CME bitcoin 

futures prices lead spot prices—in 

particular that the months at the end of 

the paper’s sample period showed that 

the spot market was the leading 

market—and stated that the record did 

not include evidence to explain why 

this would not indicate a shift towards 

prices in the spot market leading the 

futures market that would be expected 

to persist into the future.112 The 

Commission also stated that the paper’s 

use of daily price data, as opposed to 

intraday prices, may not be able to 

distinguish which market incorporates 

new information faster.113 BZX has not 

addressed either issue. 

Moreover, BZX does not provide 

results of its own analysis and does not 

present any other data supporting its 

conclusion. BZX’s unsupported 

representations constitute an 

insufficient basis for approving a 

proposed rule change in circumstances 

where, as here, the Exchange’s assertion 

would form such an integral role in the 

Commission’s analysis and the assertion 

is subject to several challenges.114 In 

this context, BZX’s reliance on a single 

paper, whose own lead-lag results are 

inconclusive, is especially lacking 

because the academic literature on the 

lead-lag relationship and price 

discovery between bitcoin spot and 

futures markets is unsettled.115 In the 

USBT Order, the Commission 

responded to multiple academic papers 

that were cited and concluded that, in 

light of the mixed results found, the 

exchange there had not demonstrated 

that it is reasonably likely that a wouldbe manipulator of the proposed ETP 

would transact on the CME bitcoin 

futures market.116 Likewise, here, given 

the body of academic literature to 

indicate to the contrary, the 

Commission concludes that the 

information that BZX provides is not a 

sufficient basis to support a 

determination that it is reasonably likely 

that a would-be manipulator of the 

proposed ETP would have to trade on 

the CME bitcoin futures market.117

(b) Sponsor Submission 

While BZX does not provide in its 

filing results of its own analysis nor 

presents any other data to support its 

conclusion that CME bitcoin futures 

pricing leads the spot market, the 

Sponsor in the Sponsor Submission 

provides information to show that the 

CME bitcoin futures market leads price 

discovery across global USD and USDT 

bitcoin futures and spot markets. The 

Sponsor states that its findings are based 

on tick level trade data aggregated in 

one-second intervals for USD and USDT 

bitcoin spot and futures prices from 

Coin Metrics spanning January 1, 2019, 

to March 31, 2021. According to the 

Sponsor, the data for futures includes 

both ordinary and perpetual futures. 

The Sponsor explains that its dataset is 

limited to BTC–USD and BTC–USDT 

trades to exclude any impact caused by 

exchange rate movements. 

With respect to whether the CME 

bitcoin futures market leads the spot 

markets or vice versa, the Sponsor 

concedes that ‘‘conclusions are mixed.’’ 

The Sponsor attributes the lack of 

agreement to the use of classic metrics 

derived from the Vector Error Correction 

Model (‘‘VECM’’), which it states likely 

involves ‘‘substantial imputation’’ when 

used with data sets such as CME bitcoin 

futures trading data. This imputation, 


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118See Sponsor Submission at 8. The Sponsor 

states that prior lead-lag studies employ methods 

that assume that the prices/returns under 

consideration are synchronous and so adjustments 

need to be made for non-synchronous and/or 

infrequent data. According to the Sponsor, 

adjustments such as imputation or synchronous 

sampling can lead to ‘‘spurious results’’ for these 

methods. See id. at 19. 

119See id. at 8. The Sponsor further explains that, 

due to the ‘‘high sparsity’’ of CME futures data, the 

framework of correlation-based lead-lag analysis 

using the HY estimator is more suitable because this 

approach is free from any imputation or sampling 

and has proven useful in price discovery research. 

See id. at 19. 

120See id. at 9. 

121See id. at 7. 

122The Sponsor points to Kapar & Olmo and 

Fassas et al. as results that suggest that CME futures 

lead the spot markets, and to Alexander & Heck as 

results that suggest that CME futures lag. See id. at 

8. See also supra note 115. 

123See, e.g., Sponsor Submission (citing B. Schei, 

High Frequency Lead-Lag Relationships in the 

Bitcoin Market, Copenhagen Business School 

Master’s Thesis (2019) (unpublished)). 

124See Alexander & Heck, supra note 115, at 2. 125See Winklevoss Order, 83 FR at 37594; USBT 

Order, 85 FR at 12596–97. 126See Notice, 86 FR at 29328. 127See id. According to BZX, these statistics are 

based on samples of bitcoin liquidity in U.S. dollars 

(excluding stablecoins or Euro liquidity) based on 

executable quotes on Coinbase Pro, Gemini, 

Bitstamp, Kraken, LMAX Exchange, BinanceUS, 

and OKCoin during February 2021. See id. nn.58– 

59. 

the Sponsor argues, ‘‘can produce 

biased results.’’ 118

In contrast, the Sponsor argues that its 

analysis accounts for the characteristics 

of CME bitcoin futures trading data by 

applying the Hayashi-Yoshida (‘‘HY’’) 

estimator. According to the Sponsor, the 

use of the HY estimator is more suitable 

for ‘‘disparate and infrequent data,’’ as 

it is free from imputation, and it has 

also previously proven useful in price 

discovery research, including bitcoin 

spot markets.119 Based on its analysis, 

the Sponsor argues that the results 

demonstrate that the CME bitcoin 

futures market has consistently led 

bitcoin price discovery across global 

USD bitcoin markets.120 As a result of 

its study, the Sponsor concludes that 

there is a reasonable likelihood that a 

person attempting to manipulate the 

ETP would have to trade in the CME 

bitcoin futures market because: (1) The 

CME bitcoin futures market leads in 

bitcoin price discovery across USDbased trading in bitcoin futures and spot 

markets globally; and (2) arbitrage 

between the CME bitcoin futures market 

and spot markets would tend to counter 

an attempt to manipulate the spot 

market alone.121

The Sponsor Submission does not 

provide sufficient evidence for the 

Commission to conclude that it is 

reasonably likely that a would-be 

manipulator of the proposed ETP would 

have to trade on the CME bitcoin futures 

market to successfully manipulate the 

proposed ETP. By applying its selected 

analytical method, the Sponsor presents 

conclusory results that suggest that CME 

bitcoin futures lead price discovery. 

Even if the Commission were to accept 

these results at face value, the Sponsor 

has not demonstrated that other 

analyses that reached different and 

opposite conclusions were, in fact, 

‘‘spurious’’ results, or otherwise were 

results on which the Commission 

cannot reasonably rely. In fact, the 

Sponsor highlights that in the academic 

literature, ‘‘conclusions are mixed’’ on 

the lead-lag relationship between 

bitcoin spot and futures markets. 

Namely, there are analytical 

methodologies that lead to the 

conclusion that the spot market price 

leads the CME futures price, those that 

conclude that the CME futures price 

leads the spot market price, as well as 

those that conclude that unregulated 

futures markets lead the CME futures 

market in price discovery.122 While the 

Sponsor dismisses the validity of these 

other results due to the theoretical 

possibility that imputation or 

synchronous sampling can lead to 

spurious or unreliable results, it does 

not provide any detail to support that 

any of the other results are actually 

inaccurate. 

Moreover, the Commission cannot 

accept the Sponsor’s results at face 

value based on the extent of the 

information it provides. While the 

Sponsor provides in graphs aggregate 

average ‘‘lead’’ times (in seconds) that 

suggest that the CME futures market has 

the largest ‘‘lead’’ in each quarter of the 

sample period, the Sponsor does not 

provide the specific results of each of its 

pairwise assessments (e.g., CME 

compared to Coinbase; CME compared 

to Gemini; etc.) or—crucially—the 

Sponsor’s confidence intervals around 

each such pairwise result. Provision of 

pairwise results and confidence 

intervals is common in the academic 

literature that the Sponsor itself cites in 

the Sponsor Submission.123 The 

Commission is thus unable to assess the 

Sponsor’s specific results or statistical 

significance of those results. Confidence 

intervals are particularly important, 

given that the Sponsor’s results show 

that the ‘‘lead’’ of the CME bitcoin 

futures market has steadily decreased 

over the sample period to within about 

one second of ‘‘lead’’ time, which is the 

tick data aggregation interval for the 

study, and to below one second 

compared to the leading non-regulated 

USD bitcoin futures market. The 

Sponsor also has not discussed whether 

its findings are sensitive to its choice to 

aggregate tick level trade data into onesecond intervals, particularly as the 

estimated ‘‘lead’’ times decrease over 

the sample period; or whether the 

Sponsor’s critique of other studies—that 

imputation or synchronous sampling 

can lead to ‘‘spurious’’ or otherwise 

unreliable results—applies to its 

findings as well because of the 

aggregation that the Sponsor used. 

Further, the Sponsor has not discussed 

the robustness of its two-dimensional 

methodology—which examines 

pairwise lead-lag relationships within 

and across the bitcoin spot and futures 

markets—to the critique in the multidimensional Alexander & Heck study 

that: ‘‘omitting substantial information 

flows from other markets can produce 

misleading results . . . . [I]n a twodimensional model one or other of the 

instruments must necessarily be 

identified as price leader.’’ 124

The Commission accordingly 

concludes that the information provided 

in the record for this proposal does not 

establish a reasonable likelihood that a 

would-be manipulator of the proposed 

ETP would have to trade on the CME 

bitcoin futures market to successfully 

manipulate the proposed ETP. 

Therefore, the information in the record 

also does not establish that the CME 

bitcoin futures market is a ‘‘market of 

significant size’’ with respect to the 

proposed ETP. 

(ii) Whether It Is Unlikely That Trading 

in the Proposed ETP Would Be the 

Predominant Influence on Prices in the 

CME Bitcoin Futures Market 

The second prong in establishing 

whether the CME bitcoin futures market 

constitutes a ‘‘market of significant size’’ 

is the determination that it is unlikely 

that trading in the proposed ETP would 

be the predominant influence on prices 

in the CME bitcoin futures market.125

BZX asserts that trading in the Shares 

would not be the predominant force on 

prices in the CME bitcoin futures market 

(or spot market) because of the 

significant volume in the CME bitcoin 

futures market, the size of bitcoin’s 

market capitalization, which is 

approximately $1 trillion, and the 

significant liquidity available in the spot 

market.126 BZX provides that, according 

to February 2021 data, the cost to buy 

or sell $5 million worth of bitcoin 

averages roughly 10 basis points with a 

market impact of 30 basis points.127 For 

a $10 million market order, the cost to 

buy or sell is roughly 20 basis points 

with a market impact of 50 basis points. 

Stated another way, BZX states that a 

market participant could enter a market 


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128See id. at 29328. 

129See id. 

130See id. 

131See Sponsor Submission at 7. 

132See id. The Sponsor states that bitcoin trading 

volume and market capitalization has continued to 

grow (2019 Q1–2021 Q2), see Sponsor Submission 

at 10, and that spot trading costs and market impact 

have decreased over the last year (January 2020– 

February 2021), see id. 

133See supra notes 107–124 and accompanying 

text. 

134See Notice, 86 FR at 29328 (‘‘For a $10 million 

market order, the cost to buy or sell is roughly 20 

basis points with a market impact of 50 basis 

points. Stated another way, a market participant 

could enter a market buy or sell order for $10 

million of bitcoin and only move the market 

0.5%.’’). 

135See Winklevoss Order, 83 FR at 37602. See 

also GraniteShares Order, 83 FR at 43931; 

ProShares Order, 83 FR at 43941; USBT Order, 85 

FR at 12615. 

136See Notice, 86 FR at 29331. 

buy or sell order for $10 million of 

bitcoin and only move the market 0.5 

percent.128 BZX further asserts that 

more strategic purchases or sales (such 

as using limit orders and executing 

through OTC bitcoin trade desks) would 

likely have less obvious impact on the 

market, which is consistent with 

MicroStrategy, Tesla, and Square being 

able to collectively purchase billions of 

dollars in bitcoin.129 Thus, BZX 

concludes that the combination of CME 

bitcoin futures leading price discovery, 

the overall size of the bitcoin market, 

and the ability for market participants 

(including authorized participants 

creating and redeeming with the Trust) 

to buy or sell large amounts of bitcoin 

without significant market impact, will 

help prevent the Shares from becoming 

the predominant force on pricing in 

either the bitcoin spot or the CME 

bitcoin futures market.130

In its submission, the Sponsor 

similarly argues that the CME futures 

market-leading price discovery across 

USD-based bitcoin trading markets, as 

well as its aggregate significant trading 

volume and liquidity, make it unlikely 

that trading in a bitcoin ETP would be 

the predominant influence on prices in 

CME bitcoin futures.131 Specifically, the 

Sponsor concludes that it is unlikely 

that trading in a bitcoin ETP would be 

the predominant influence on CME 

bitcoin futures market or bitcoin spot 

prices because of: (1) The CME bitcoin 

futures market leading in bitcoin price 

discovery across USD-based trading in 

bitcoin futures and spot markets 

globally; (2) significant trading volume 

in USD-based bitcoin futures; and (3) 

the highly liquid bitcoin spot market.132

The Commission does not agree. The 

record does not demonstrate that it is 

unlikely that trading in the proposed 

ETP would be the predominant 

influence on prices in the CME bitcoin 

futures market. As the Commission has 

already addressed and rejected one of 

the bases of BZX’s and the Sponsor’s 

assertions—that CME bitcoin futures 

leads price discovery 133—the 

Commission will only address below 

the other bases—the overall size, 

volume, and liquidity of, and the impact 

of buys and sells on, the CME bitcoin 

futures market and spot bitcoin market. 

BZX’s and the Sponsor’s assertions 

about the potential effect of trading in 

the Shares on the CME bitcoin futures 

market and bitcoin spot market are 

general and conclusory, repeating the 

aforementioned trade volume of the 

CME bitcoin futures market and the size 

and liquidity of the bitcoin spot market, 

as well as the market impact of a large 

transaction, without any analysis or 

evidence to support these assertions. 

For example, there is no limit on the 

amount of mined bitcoin that the Trust 

may hold. Yet BZX does not provide 

any information on the expected growth 

in the size of the Trust and the resultant 

increase in the amount of bitcoin held 

by the Trust over time, or on the overall 

expected number, size, and frequency of 

creations and redemptions—or how any 

of the foregoing could (if at all) 

influence prices in the CME bitcoin 

futures market. Thus, the Commission 

cannot conclude, based on BZX’s and 

the Sponsor’s statements alone and 

absent any evidence or analysis in 

support of BZX’s and the Sponsor’s 

assertions, that it is unlikely that trading 

in the ETP would be the predominant 

influence on prices in the CME bitcoin 

futures market. 

The Commission also is not 

persuaded by BZX’s assertions about the 

minimal effect a large market order to 

buy or sell bitcoin would have on the 

bitcoin market.134 While BZX concludes 

by way of a $10 million market order 

example that buying or selling large 

amounts of bitcoin would have 

insignificant market impact, the 

conclusion does not analyze the extent 

of any impact on the CME bitcoin 

futures market. Even assuming that BZX 

is suggesting that a single $10 million 

order in bitcoin would have immaterial 

impact on the prices in the CME bitcoin 

futures market, this prong of the 

‘‘market of significant size’’ 

determination concerns the influence on 

prices from trading in the proposed 

ETP, which is broader than just trading 

by the proposed ETP. While authorized 

participants of the Trust might only 

transact in the bitcoin spot market as 

part of their creation or redemption of 

Shares, the Shares themselves would be 

traded in the secondary market on BZX. 

The record does not discuss the 

expected number or trading volume of 

the Shares, or establish the potential 

effect of the Shares’ trade prices on CME 

bitcoin futures prices. For example, BZX 

does not provide any data or analysis 

about the potential effect the quotations 

or trade prices of the Shares might have 

on market-maker quotations in CME 

bitcoin futures contracts and whether 

those effects would constitute a 

predominant influence on the prices of 

those futures contracts. 

Thus, because BZX and the Sponsor 

have not provided sufficient 

information to establish both prongs of 

the ‘‘market of significant size’’ 

determination, the Commission cannot 

conclude that the CME bitcoin futures 

market is a ‘‘market of significant size’’ 

such that BZX would be able to rely on 

a surveillance-sharing agreement with 

the CME to provide sufficient protection 

against fraudulent and manipulative 

acts and practices. 

The requirements of Section 6(b)(5) of 

the Exchange Act apply to the rules of 

national securities exchanges. 

Accordingly, the relevant obligation for 

a comprehensive surveillance-sharing 

agreement with a regulated market of 

significant size, or other means to 

prevent fraudulent and manipulative 

acts and practices that are sufficient to 

justify dispensing with the requisite 

surveillance-sharing agreement, resides 

with the listing exchange. Because there 

is insufficient evidence in the record 

demonstrating that BZX has satisfied 

this obligation, the Commission cannot 

approve the proposed ETP for listing 

and trading on BZX. 

C. Whether BZX Has Met Its Burden To 

Demonstrate That the Proposal Is 

Designed To Protect Investors and the 

Public Interest 

BZX contends that, if approved, the 

proposed ETP would protect investors 

and the public interest. However, the 

Commission must consider these 

potential benefits in the broader context 

of whether the proposal meets each of 

the applicable requirements of the 

Exchange Act.135 Because BZX has not 

demonstrated that its proposed rule 

change is designed to prevent 

fraudulent and manipulative acts and 

practices, the Commission must 

disapprove the proposal. 

BZX asserts that, with the growth of 

U.S. investor exposure to bitcoin 

through OTC bitcoin funds, so too has 

grown the potential risk to U.S. 

investors.136 Specifically, BZX argues 

that premium and discount volatility, 

high fees, insufficient disclosures, and 


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137See id. 

138See id. at 29324. 

139See id. BZX also states that, unlike the Shares, 

because OTC bitcoin funds are not listed on an 

exchange, they are not subject to the same 

transparency and regulatory oversight by a listing 

exchange. BZX further asserts that the existence of 

a surveillance-sharing agreement between BZX and 

the CME bitcoin futures market would result in 

increased investor protections for the Shares 

compared to OTC bitcoin funds. See id. at 29324 

n.39. 

140See id. at 29324. 

141See id. 

142See letter from Anonymous, dated June 17, 

2021 (‘‘Anonymous Letter’’). 

143See Notice, 86 FR at 29324. 

144See id. 

145See id. 

146See id. 

147See id. 

148See id. 

149See id. 

150See id. 

151See id. 

152See id. at 29323. BZX represents that the 

Purpose Bitcoin ETF, a bitcoin-based ETP launched 

in Canada, reportedly reached $421.8 million in 

assets under management in two days, 

demonstrating the demand for a North American 

market listed bitcoin ETP. BZX contends that the 

Purpose Bitcoin ETF also offers a class of units that 

is U.S. dollar denominated, which could appeal to 

U.S. investors. BZX also argues that without an 

approved bitcoin ETP in the U.S. as a viable 

alternative, U.S. investors could seek to purchase 

these shares in order to get access to bitcoin 

exposure. BZX believes that, given the separate 

regulatory regime and the potential difficulties 

associated with any international litigation, such an 

arrangement would create more risk exposure for 

U.S. investors than they would otherwise have with 

a U.S. exchange-listed ETP. See id. at 29323 n.36. 

BZX also notes that regulators in other countries 

have either approved or otherwise allowed the 

listing and trading of bitcoin-based ETPs. See id. at 

29323 n.37. See also Anonymous Letter (stating that 

‘‘institutions can simply buy the Canadian ETFs, 

leaving US retail investors holding the bag’’ and 

that ‘‘[a]pproving an [ETP] in the US will correct 

this imbalance quickly and give relief to US-based 

investors who are stuck with an asset that is trading 

at a discount to NAV.’’). 

153See Exchange Act Section 19(b)(2)(C), 15 

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

154See SolidX Order, 82 FR at 16259; 

WisdomTree Order, 86 FR at 69334. 

155See supra note 135. 

technical hurdles are putting U.S. 

investor money at risk on a daily basis 

and that such risk could potentially be 

eliminated through access to a bitcoin 

ETP.137 As such, the Exchange believes 

that approving this proposal (and 

comparable proposals submitted 

hereafter) would give U.S. investors 

access to bitcoin in a regulated and 

transparent exchange-traded vehicle 

that would act to limit risk to U.S. 

investors by: (i) Reducing premium and 

discount volatility; (ii) reducing 

management fees through meaningful 

competition; (iii) providing an 

alternative to custodying spot bitcoin; 

and (iv) reducing certain risks 

associated with investing in operating 

companies that are proxies for bitcoin 

exposure.138

According to BZX, OTC bitcoin funds 

are generally designed to provide 

exposure to bitcoin in a manner similar 

to the Shares. However, unlike the 

Shares, BZX states that ‘‘OTC bitcoin 

funds are unable to freely offer creation 

and redemption in a way that 

incentivizes market participants to keep 

their shares trading in line with their 

NAV and, as such, frequently trade at a 

price that is out of line with the value 

of their assets held.’’ 139 BZX represents 

that, historically, OTC bitcoin funds 

have traded at significant premiums or 

discounts compared to their NAV.140

BZX argues that, in contrast, a bitcoin 

ETP would provide an alternative to 

OTC bitcoin funds offering investors 

access to direct bitcoin exposure with 

real time trading and transparency on 

pricing/valuation, liquidity, and active 

arbitrage—advantages of the ETP 

structure.141 One commenter expresses 

support for the approval of bitcoin ETPs 

because they believe such ETPs would 

have lower premium/discount volatility 

and lower management fees than an 

OTC bitcoin fund.142

BZX also asserts that exposure to 

bitcoin through an ETP also presents 

advantages for investors compared to 

buying spot bitcoin directly.143 BZX 

asserts that, without the advantages of 

an ETP, an investor holding bitcoin 

through a cryptocurrency trading 

platform lacks protections.144 BZX 

explains that, typically, OTC trading 

platforms hold most, if not all, 

investors’ bitcoin in ‘‘hot’’ (internetconnected) storage and do not make any 

commitments to indemnify investors or 

to observe any particular cybersecurity 

standard.145 Meanwhile, an investor 

holding spot bitcoin directly in a selfhosted wallet may suffer from 

inexperience in private key management 

(e.g., insufficient password protection, 

lost key, etc.), which could cause them 

to lose some or all of their bitcoin 

holdings.146 BZX represents that the 

Custodian would, by contrast, use 

‘‘cold’’ (offline) storage to hold private 

keys, employ a certain degree of 

cybersecurity measures and operational 

best practices, be highly experienced in 

bitcoin custody, and be accountable for 

failures.147 Thus, with respect to 

custody of the Trust’s bitcoin assets, 

BZX concludes that, compared to 

owning spot bitcoin directly, the Trust 

presents advantages for investors.148

BZX further asserts that a number of 

operating companies engaged in 

unrelated businesses have announced 

investments as large as $1.5 billion in 

bitcoin.149 Without access to bitcoin 

ETPs, BZX argues that investors seeking 

investment exposure to bitcoin may 

purchase shares in these companies in 

order to gain the exposure to bitcoin 

that they seek.150 BZX contends that 

such operating companies, however, are 

imperfect bitcoin proxies and provide 

investors with partial or indirect bitcoin 

exposure paired with additional risks 

associated with whichever operating 

company they decide to purchase.151

BZX also states that investors in many 

other countries, including Canada, are 

able to use more traditional exchangelisted and traded products to gain 

exposure to bitcoin, disadvantaging U.S. 

investors and leaving them with more 

risky means of getting bitcoin 

exposure.152

In essence, BZX asserts that the risky 

nature of direct investment in the 

underlying bitcoin and the unregulated 

markets on which bitcoin and OTC 

bitcoin funds trade compel approval of 

the proposed rule change. The 

Commission disagrees. Pursuant to 

Section 19(b)(2) of the Exchange Act, 

the Commission must approve a 

proposed rule change filed by a national 

securities exchange if it finds that the 

proposed rule change is consistent with 

the applicable requirements of the 

Exchange Act—including the 

requirement under Section 6(b)(5) that 

the rules of a national securities 

exchange be designed to prevent 

fraudulent and manipulative acts and 

practices—and it must disapprove the 

filing if it does not make such a 

finding.153 Thus, even if a proposed rule 

change purports to protect investors 

from a particular type of investment 

risk—such as the susceptibility of an 

asset to loss or theft—the proposed rule 

change may still fail to meet the 

requirements under the Exchange 

Act.154

Here, even if it were true that, 

compared to trading in unregulated 

bitcoin spot markets, trading a bitcoinbased ETP on a national securities 

exchange provides some additional 

protection to investors, the Commission 

must consider this potential benefit in 

the broader context of whether the 

proposal meets each of the applicable 

requirements of the Exchange Act.155 As 

explained above, for bitcoin-based ETPs, 

the Commission has consistently 

required that the listing exchange have 

a comprehensive surveillance-sharing 

agreement with a regulated market of 

significant size related to bitcoin, or 

demonstrate that other means to prevent 

fraudulent and manipulative acts and 

practices are sufficient to justify 

dispensing with the requisite 

surveillance-sharing agreement. The 


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156See 15 U.S.C. 78s(b)(2)(C). 

157 15 U.S.C. 78f(b)(5). 

158 In disapproving the proposed rule change, the 

Commission has considered its impact on 

efficiency, competition, and capital formation. See 

15 U.S.C. 78c(f). 

159See letter from Sam Ahn, dated June 8, 2021 

(‘‘Ahn Letter’’). 

160See Ahn Letter. 

161See Anonymous Letter; Sponsor Submission at 

4–5. 

162See supra note 7. 

163The untimely filing of Amendment No. 1 also 

does not allow the Commission sufficient time to 

solicit public comment. 

164 In addition, in Amendment No. 1, among 

other things, the Exchange amends its description 

of the Trust, the Index, the Custodian, and the CME 

bitcoin futures market. 

165See supra notes 11 and 12 and accompanying 

text. 

166See supra Section III.B.2.i.b. 

167See supra note 119 and accompanying text. 

168See supra Section III.B.2.i.b. 

169 G. Buccheri, G. Bormetti, F. Corsi & F. Lillo, 

Comment on: Price discovery in high resolution, 19 

J. Financial Econometrics 439 (2021). 

170See supra note 123 and accompanying text. 

listing exchange has not met that 

requirement here. Therefore, the 

Commission is unable to find that the 

proposed rule change is consistent with 

the statutory standard. 

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

Exchange Act, the Commission must 

disapprove a proposed rule change filed 

by a national securities exchange if it 

does not find that the proposed rule 

change is consistent with the applicable 

requirements of the Exchange Act— 

including the requirement under 

Section 6(b)(5) that the rules of a 

national securities exchange be 

designed to prevent fraudulent and 

manipulative acts and practices.156

For the reasons discussed above, BZX 

has not met its burden of demonstrating 

that the proposal is consistent with 

Exchange Act Section 6(b)(5),157 and, 

accordingly, the Commission must 

disapprove the proposal.158

D. Other Comments 

Comment letters also address the 

general nature and uses of bitcoin; 159

the inherent value of bitcoin; 160 and the 

desire of investors to gain access to 

bitcoin through an ETP.161 Ultimately, 

however, additional discussion of these 

topics is unnecessary, as they do not 

bear on the basis for the Commission’s 

decision to disapprove the proposal. 

E. The Exchange’s Untimely 

Amendment to the Proposal 

The deadline for rebuttal comments in 

response to the Order Instituting 

Proceedings was October 1, 2021.162 On 

December 27, 2021, the Exchange filed 

Amendment No. 1 to the proposed rule 

change to amend and replace in its 

entirety the proposal as submitted on 

May 10, 2021. Because this amendment 

was filed months after the deadline for 

comments on the proposed rule change, 

the Commission deems Amendment No. 

1 to have been untimely filed.163

Even if the amendment had been 

timely filed, the Commission would still 

conclude that the Exchange has not met 

its burden to demonstrate that its 

proposal is consistent with Exchange 

Act Section 6(b)(5). The Exchange 

makes four primary changes in the 

amendment.164 First, the Exchange 

argues that, based on a review of the 

Commission’s past approvals and 

disapprovals of ETPs, the applicable 

standard does not require the 

underlying commodity market to be 

regulated, but rather requires that the 

listing exchange has in place a 

comprehensive surveillance-sharing 

agreement with a regulated market of 

significant size related to the underlying 

commodity. The Exchange states that, 

therefore, the CME bitcoin futures 

market is the proper market for the 

Commission to consider in determining 

whether the proposal is consistent with 

the Exchange Act. 

The Commission does not disagree. 

As the Commission has clearly and 

consistently stated, an exchange that 

lists bitcoin-based ETPs can meet its 

obligation under Exchange Act Section 

6(b)(5) that its rules be designed to 

prevent fraudulent and manipulative 

acts and practices by demonstrating that 

the exchange has a comprehensive 

surveillance-sharing agreement with a 

regulated market of significant size 

related to the underlying or reference 

bitcoin assets.165 As discussed in detail 

in Section III.B.2, the Commission has 

considered the Exchange’s arguments 

with respect to the CME bitcoin futures 

market, and the Commission concludes 

that the Exchange has failed to 

demonstrate that the CME bitcoin 

futures market is such a ‘‘market of 

significant size.’’ 

Second, the Exchange incorporates a 

version of the Sponsor Submission’s 

lead-lag analysis into the 

amendment.166 The Exchange states that 

the Sponsor attributes the ‘‘mixed 

results’’ in previous academic studies 

that have failed to demonstrate that the 

CME bitcoin futures market constitutes 

a market of significant size to the 

problems associated with high sparsity 

of some of the data used, the VECM 

econometric approach, and imputation 

of price data. The Sponsor believes that 

its framework of correlation-based leadlag analysis using the HY estimator is 

more suitable.167 The amendment 

includes a new table, not in the original 

Sponsor Submission, that asserts that— 

although the ‘‘lead’’ in seconds of the 

CME bitcoin futures market has steadily 

decreased over the sample period—the 

‘‘strength’’ of CME bitcoin futures price 

leadership has not deteriorated based on 

the ‘‘ratio’’ of the CME bitcoin futures 

market’s ‘‘average lead among all 

markets over the absolute average of 

every market’s overall lead-lag.’’ 

However, the incorporation of the 

Sponsor’s lead-lag analysis still contains 

the same shortcomings as the Sponsor’s 

original submission.168 The amendment 

elaborates on the potential bias that 

imputation or sampling for nonsynchronous and/or infrequent data can 

introduce into results by citing an 

academic study by Buccheri et al.169

that investigates the difficulties to 

identifying price discovery with VECM 

models due to the high sparsity of data 

in markets that record trades at the submillisecond level. The Exchange asserts 

that there is such ‘‘high sparsity’’ in 

CME bitcoin futures data, but provides 

no information that verifies this 

assertion. Further, even assuming CME 

bitcoin futures data has such ‘‘high 

sparsity’’ and that VECM-derived 

metrics using CME bitcoin futures data 

‘‘are potentially biased,’’ neither the 

Exchange nor the Sponsor demonstrates 

that the Buccheri et al. critique of VECM 

methods applications to submillisecond frequencies actually applies 

to the bitcoin price data analyses and 

that the mixed conclusions in previous 

academic studies on whether the CME 

bitcoin futures market leads or lags 

bitcoin price discovery were inaccurate 

or misleading. 

With respect to the Sponsor’s own 

results using the HY estimator, the 

amendment still does not provide the 

specific results for each pairwise leadlag analysis, or confidence intervals 

around such results; it merely provides 

aggregated results that show the average 

lead-lag that a market has with all other 

markets in a quarter.170 Even accepting 

the results at face value and assuming 

their statistical significance, the 

Exchange has not explained why the 

‘‘ratio’’ of the CME bitcoin futures 

market’s lead over other markets is a 

better indicator of the ‘‘strength’’ of 

price leadership than the absolute 

average lead time in seconds. In 

particular, the Exchange has not 

explained how such ‘‘ratio’’ provides 

evidence that it is reasonably likely that 

a would-be manipulator of the proposed 

ETP would have to trade on the CME 

bitcoin futures market to manipulate the 

proposed ETP, notwithstanding that— 

accepting the Sponsor’s results—the 

CME’s absolute average lead in seconds 


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171The Exchange states that the Sponsor selected 

BITO for its analysis as BITO is a Commissionregistered ETF that seeks to invest primarily in CME 

bitcoin futures contracts, is listed and traded on a 

US regulated national securities exchange, and was 

launched on October 18, 2021. 

172Nor does the Exchange explain why the results 

should be considered evidence that trading in the 

proposed ETP likely would not have a predominant 

influence on CME bitcoin futures prices, as the 

applicable standard requires. 

173See USBT Order, 85 FR at 12613. 

174See supra note 11. Moreover, the Exchange 

has not established that the Trust and the Bitcoin 

Futures ETFs have the ‘‘same pricing sources.’’ 

While the five constituent bitcoin platforms that 

currently underlie the Index are the same platforms 

that currently underlie the CME CF Bitcoin 

Reference Rate, even assuming the Index would 

generally track the CME CF Bitcoin Reference Rate, 

as discussed above in Section III.B.1, the Index is 

only used to value the Trust’s bitcoin for purposes 

of calculating NAV. The Shares, by contrast, would 

trade at market-based prices in the secondary 

market, not at NAV. See supra note 81 and 

subsequent text. 

has steadily decreased over time as, in 

the Exchange’s words, ‘‘the window of 

arbitrage opportunity has closed with 

increasing speed.’’ The Sponsor’s 

analysis is thus flawed for these reasons. 

In any event, the Sponsor’s analysis 

would constitute a result that is merely 

part of the ‘‘mixed conclusions’’ of 

studies on this topic without 

establishing a more definitive result 

from which the Commission could 

conclude that there is a reasonable 

likelihood that a would-be manipulator 

of the proposed ETP would have to 

trade on the CME bitcoin futures market 

to successfully manipulate the proposed 

ETP, and thus the Sponsor has not 

established that that the CME bitcoin 

futures market is a ‘‘market of 

significant size’’ with respect to the 

proposed ETP. 

Third, the amendment sets forth new 

arguments to establish that it is unlikely 

that trading in the proposed ETP would 

be the predominant influence on prices 

in the CME bitcoin futures market. 

According to the Exchange, a lead-lag 

analysis performed by the Sponsor 

concludes that the CME bitcoin futures 

market continues to ‘‘lead’’ price 

discovery after the launch of the 

ProShares Bitcoin Strategy ETF 

(‘‘BITO’’),171 even though the trading 

volume on CME increased significantly 

after the launch. The Exchange states 

that it would be unreasonable to assume 

that such price leadership would 

deteriorate with increased trade activity 

in the spot market. The Exchange also 

presents a lead-lag analysis of BITO 

performed by the Sponsor to show that 

there is no significant lead-lag 

relationship between BITO and other 

bitcoin markets, and that BITO, as a 

general bitcoin ETP example, only has 

a minor impact on price discovery in 

the bitcoin markets. The Exchange states 

that it believes there would similarly be 

no material relationship between the 

Shares and the CME bitcoin futures 

market. The Exchange further states 

that, in the gold market, which it 

believes is an analogous market to 

bitcoin in terms of price discovery, 

futures lead price discovery despite the 

spot market having 10 times more 

volume. Finally, the Exchange states 

that trading of the Shares on the 

secondary market could have a 

‘‘positive impact’’ on the CME bitcoin 

futures market’s leading position 

because CME bitcoin futures are used in 

hedging activities by market 

participants. The Exchange states that 

‘‘[g]iven there is a lag between the 

secondary market transaction, the 

striking of NAV per Share in the 

primary market and the settlement of 

the primary market transaction,’’ 

authorized participants will seek to 

hedge their exposure through the use of 

bitcoin futures. 

The Commission does not have the 

opportunity to consider these new 

‘‘predominant influence’’ contentions 

and the statistical analyses that underlie 

them given the untimeliness of 

Amendment No. 1. In any event, no 

contention has sufficient detail to 

demonstrate that it is unlikely that 

trading in the proposed ETP would be 

the predominant influence on prices in 

the CME bitcoin futures market. Among 

other things, the description of the leadlag analysis regarding the launch of 

BITO lacks confidence intervals, and 

thus the Commission is unable to assess 

the specific results or statistical 

significance of those results. Moreover, 

even accepting the results at face value 

and assuming their statistical 

significance, the Exchange does not 

explain why results that show that 

increased trading volume in CME 

bitcoin futures did not reduce CME 

bitcoin futures’ price leadership should 

also be considered to support the 

proposition that increased trading 

volume in spot bitcoin as a result of the 

proposed ETP also would not reduce 

CME bitcoin futures’ price leadership. 

Moreover, the relevant question is not 

the impact of the proposed ETP on CME 

bitcoin futures’ price leadership, but on 

CME bitcoin futures prices themselves. 

The Sponsor’s lead-lag analysis does not 

address this. Further, with respect to the 

BITO lead-lag analysis, neither the 

Exchange nor the Sponsor provides any 

rationale for why it is reasonable to 

consider BITO—a CME bitcoin futuresbased fund—to be relevant in the 

analysis regarding a spot bitcoin-based 

product such as the proposed ETP. Nor 

does the Exchange or the Sponsor 

explain why results that purport to 

indicate that BITO does not have 

significant price leadership over other 

bitcoin markets in general should also 

be considered evidence that the 

proposed ETP likely would not have 

significant price leadership over CME 

bitcoin futures in particular.172 Further, 

even assuming the Exchange’s summary 

of the academic literature regarding 

price discovery in the gold market is 

accurate, it does not help the Exchange 

to meet its burden with respect to the 

proposed ETP.173 For example, except 

to conclude summarily that gold and 

bitcoin markets are ‘‘analogous,’’ the 

Exchange provides no explanation as to 

why price discovery results from the 

gold market would shed light on price 

discovery in the bitcoin market. In any 

event, as noted above, the Exchange has 

not explained the connection between 

price discovery results and whether 

trading in the proposed ETP would 

likely be the predominant influence on 

prices in the CME bitcoin futures 

market. Finally, even if, as the Exchange 

claims, authorized participants would 

use bitcoin futures to hedge any gap 

between their primary market and 

secondary market transactions, the 

Exchange has not explained why such 

participants would use the CME bitcoin 

futures market, as opposed to other 

bitcoin futures markets. 

Fourth, citing the recent launch of 

exchange-traded funds that provide 

exposure to bitcoin through CME 

bitcoin futures (‘‘Bitcoin Futures 

ETFs’’), the Exchange claims that ‘‘there 

is no basis for determining that the 

Bitcoin Futures ETFs satisfy Section 

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

Trust does not.’’ The Exchange asserts 

that Bitcoin Futures ETFs and the Trust 

are ‘‘exposed to the same underlying 

pricing data and the same risks of 

manipulation,’’ and thus are 

‘‘substantially similar products.’’ 

The Commission disagrees with the 

premise of these arguments. Among 

other things, the proposed rule change 

does not relate to the same underlying 

holdings as the Bitcoin Futures ETFs. 

The Commission considers the 

proposed rule change on its own merits 

and under the standards applicable to it. 

Namely, with respect to this proposed 

rule change, the Commission must 

apply the standards as provided by 

Section 6(b)(5) of the Exchange Act, 

which it has applied in connection with 

its orders considering previous 

proposals to list bitcoin-based 

commodity trusts and bitcoin-based 

trust issued receipts.174


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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 92600 

(August 6, 2021), 86 FR 44455 (August 12, 2021) 

(SR–NASDAQ–2021–057) (Notice of Filing and 

Immediate Effectiveness of Proposed Rule Change 

to Amend NOM’s Options Regulatory Fee) (‘‘Waiver 

Filing’’). 

4 Id at 44456. 

5Prior to the Waiver Filing, the Exchange 

similarly collected ORF as described herein. 

6Participants must record the appropriate 

account origin code on all orders at the time of 

entry of the order. The Exchange represents that it 

has surveillances in place to verify that Participants 

mark orders with the correct account origin code. 

7The Exchange uses reports from OCC when 

assessing and collecting the ORF. 

8CMTA or Clearing Member Trade Assignment is 

a form of ‘‘give-up’’ whereby the position will be 

assigned to a specific clearing firm at OCC. 

9By way of example, if Broker A, a NOM 

Participant, routes a customer order to CBOE and 

the transaction executes on CBOE and clears in 

Broker A’s OCC Clearing account, ORF will be 

collected by NOM from Broker A’s clearing account 

at OCC via direct debit. While this transaction was 

executed on a market other than NOM, it was 

cleared by a NOM Participant in the member’s OCC 

clearing account in the customer range, therefore 

there is a regulatory nexus between NOM and the 

transaction. If Broker A was not a NOM Participant, 

then no ORF should be assessed and collected 

because there is no nexus; the transaction did not 

execute on NOM nor was it cleared by a NOM 

Participant. 

Accordingly, even if the Exchange’s 

Amendment No. 1 had been timely 

filed, there is no additional information 

in such amendment that would enable 

the Commission to approve the 

proposed rule change as amended. 

IV. Conclusion 

For the reasons set forth above, the 

Commission does not find, pursuant to 

Section 19(b)(2) of the Exchange Act, 

that the proposed rule change is 

consistent with the requirements of the 

Exchange Act and the rules and 

regulations thereunder applicable to a 

national securities exchange, and in 

particular, with Section 6(b)(5) of the 

Exchange Act. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Exchange Act, 

that proposed rule change SR– 

CboeBZX–2021–039 be, and hereby is, 

disapproved. 

By the Commission. 

Vanessa A. Countryman, 

Secretary. 

[FR Doc. 2022–02001 Filed 1–31–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–94064; File No. SR– 

NASDAQ–2022–007] 

Self-Regulatory Organizations; The 

Nasdaq Stock Market LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change To Reduce 

NOM’s Options Regulatory Fee 

January 26, 2022. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

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

notice is hereby given that on January 

20, 2022, The Nasdaq Stock Market LLC 

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

Securities and Exchange Commission 

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

rule change as described in Items I and 

II, below, which Items have been 

prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend The 

Nasdaq Options Market LLC’s (‘‘NOM’’) 

Pricing Schedule at Options 7, Section 

5 to reduce the NOM Options 

Regulatory Fee or ‘‘ORF’’. 

While the changes proposed herein 

are effective upon filing, the Exchange 

has designated the amendments become 

operative on February 1, 2022. 

The text of the proposed rule change 

is available on the Exchange’s website at 

https://listingcenter.nasdaq.com/ 

rulebook/nasdaq/rules, at the principal 

office of the Exchange, and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

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

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

NOM previously filed to waive its 

ORF from October 1, 2021 through 

January 31, 2022.3 The Waiver Filing 

provided that NOM would continue 

monitoring the amount of revenue 

collected from the ORF to determine if 

regulatory revenues would exceed 

regulatory costs when it recommenced 

assessing ORF on February 1, 2022. If 

so, the Exchange committed to adjust its 

ORF.4 At this time, after a review of its 

regulatory revenues and regulatory 

costs, the Exchange proposes to reduce 

the ORF from $0.0020 (the amount of 

the ORF prior to the waiver) to $0.0016 

per contract side as of February 1, 2022, 

to ensure that revenue collected from 

the ORF, in combination with other 

regulatory fees and fines, does not 

exceed the Exchange’s total regulatory 

costs. 

The options industry continues to 

experience high options trading 

volumes and volatility. At this time, 

NOM believes that the options volume 

it experienced in the second half of 

2021 is likely to persist into 2022. The 

anticipated options volume would 

impact NOM’s ORF collection which, in 

turn, has caused NOM to propose 

reducing the ORF to ensure that revenue 

collected from the ORF, in combination 

with other regulatory fees and fines, 

would not exceed the Exchange’s total 

regulatory costs. 

Collection of ORF 

Upon recommencement of the ORF on 

February 1, 2022,5 NOM will assess its 

ORF for each customer option 

transaction that is either: (1) Executed 

by a Participant on NOM; or (2) cleared 

by a NOM Participant at The Options 

Clearing Corporation (‘‘OCC’’) in the 

customer range,6 even if the transaction 

was executed by a non-Participant of 

NOM, regardless of the exchange on 

which the transaction occurs.7 If the 

OCC clearing member is a NOM 

Participant, ORF will be assessed and 

collected on all cleared customer 

contracts (after adjustment for CMTA 8); 

and (2) if the OCC clearing member is 

not a NOM Participant, ORF will be 

collected only on the cleared customer 

contracts executed at NOM, taking into 

account any CMTA instructions which 

may result in collecting the ORF from a 

non-member.9

In the case where a Participant both 

executes a transaction and clears the 

transaction, the ORF will be assessed to 

and collected from that Participant. In 

the case where a Participant executes a 

transaction and a different member 

clears the transaction, the ORF will be 

assessed to and collected from the 

Participant who clears the transaction 

and not the Participant who executes 

the transaction. In the case where a nonmember executes a transaction at an 

away market and a Participant clears the 

transaction, the ORF will be assessed to 

and collected from the Participant who 

clears the transaction. In the case where 


tkelley on DSK125TN23PROD with NOTICE