14932 Federal Register / Vol. 87, No. 51 / Wednesday, March 16, 2022 / Notices 

requirements under [the Exchange Act] as the 

Commission determines appropriate.’’ 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 92395 

(July 13, 2021), 86 FR 38129 (July 19, 2021) 

(‘‘Notice’’). Comments on the proposed rule change 

can be found at: https://www.sec.gov/comments/srnysearca-2021-57/srnysearca202157.htm. 

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

5See Securities Exchange Act Release No. 92722 

(Aug. 23, 2021), 86 FR 48268 (Aug. 27, 2021). 

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

7See Securities Exchange Act Release No. 93191, 

86 FR 55090 (Oct. 5, 2021). 

8See Securities Exchange Act Release No. 93893, 

87 FR 1238 (Jan. 10, 2022). 

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 38130. 

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 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) (‘‘Valkyrie 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) (‘‘Kryptoin Order’’); 

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 

(Commodity-Based Trust Shares), Securities 

Exchange Act Release No. 94006 (Jan. 20, 2022), 87 

FR 3869 (Jan. 25, 2022) (SR–NYSEArca–2021–37) 

(‘‘SkyBridge Order’’); and 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, 

Securities Exchange Act Release No. 94080 (Jan. 27 

2022), 87 FR 5527 (Feb. 1, 2022) (SR–CboeBZX– 

2021–039) (‘‘Wise Origin Order’’). See also Order 

Disapproving a Proposed Rule Change, as Modified 

by Amendment No. 1, Relating to the Listing and 

Rule 403(a) requires a funding portal 

to implement written policies and 

procedures reasonably designed to 

achieve compliance with the federal 

securities laws and the rules and 

regulations thereunder relating to its 

business as a funding portal. Rule 403(b) 

provides that a funding portal must 

comply with privacy rules. Rule 404 

requires all registered funding portals to 

maintain certain books and records 

relating to their funding portal 

activities, for not less than five years, 

the first two in an easily accessible 

place. Rule 404(e) requires funding 

portals to furnish promptly to the 

Commission, its representatives, and the 

registered national securities association 

of which the funding portal is a member 

true, correct, complete and current 

copies of such records of the funding 

portal that are requested by the 

representatives of the Commission and 

the registered national securities 

association. 

The Commission staff estimates that 

annualized industry burden would be 

36,775 hours to comply with Rules 400– 

404. The Commission staff estimates 

that the costs associated with complying 

with Rules 400–404 are estimated to be 

approximately a total amount of 

$671,793. 

Written comments are invited on: (a) 

Whether the proposed collection of 

information is necessary for the proper 

performance of the functions of the 

Commission, including whether the 

information shall have practical utility; 

(b) the accuracy of the Commission’s 

estimates of the burden of the proposed 

collection of information; (c) ways to 

enhance the quality, utility, and clarity 

of the information to be collected; and 

(d) ways to minimize the burden of the 

collection of information on 

respondents, including through the use 

of automated collection techniques or 

other forms of information technology. 

Consideration will be given to 

comments and suggestions submitted in 

writing by May 16, 2022. 

An agency may not conduct or 

sponsor, and a person is not required to 

respond to, a collection of information 

under the PRA unless it displays a 

currently valid OMB control number. 

Please direct your written comments 

to: David Bottom, Director/Chief 

Information Officer, Securities and 

Exchange Commission, c/o John 

Pezzullo, 100 F Street NE, Washington, 

DC 20549, or send an email to: PRA_

Mailbox@sec.gov. 

Dated: March 11, 2022. 

Eduardo A. Aleman, 

Deputy Secretary. 

[FR Doc. 2022–05541 Filed 3–15–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–94395; File No. SR– 

NYSEArca–2021–57] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Order Disapproving a 

Proposed Rule Change To List and 

Trade Shares of the NYDIG Bitcoin ETF 

Under NYSE Arca Rule 8.201–E 

(Commodity-Based Trust Shares) 

March 10, 2022. 

I. Introduction 

On June 30, 2021, NYSE Arca, Inc. 

(‘‘NYSE Arca’’ or ‘‘Exchange’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

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

Exchange Act of 1934 (‘‘Exchange 

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

proposed rule change to list and trade 

shares (‘‘Shares’’) of the NYDIG Bitcoin 

ETF (‘‘Trust’’) under NYSE Arca Rule 

8.201–E (Commodity-Based Trust 

Shares). The proposed rule change was 

published for comment in the Federal 

Register on July 19, 2021.3

On August 23, 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 September 29, 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 January 4, 2022, 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 NYSE Arca 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 NYSE 

Arca’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 

commodity trusts and bitcoin-based 

trust issued receipts.11 As the 


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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) (‘‘VanEck Order’’). 

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’’). 

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. 

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’’ 

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, NYSE Arca 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 


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24See Notice, 86 FR at 38134. 

25See id. at 38134–35. 

26See id. 

27See id. at 38134, 38136. 

28See Notice, supra note 3. See also draft 

Registration Statement on Form S–1, dated 

February 16, 2021, filed by the Trust with the 

Commission (‘‘Registration Statement’’). The 

Registration Statement is not yet effective. 

29Although the name of the Trust is the NYDIG 

Bitcoin ETF, the Trust is a commodity-based ETP. 

The Trust is not an exchange-traded fund, i.e., an 

‘‘ETF,’’ registered under the Investment Company 

Act of 1940, as amended (‘‘1940 Act’’), and is not 

subject to regulation under the 1940 Act. 

30See Notice, 86 FR at 38129. NYDIG Asset 

Management LLC (‘‘Sponsor’’) is the sponsor of the 

Trust. Delaware Trust Company is the trustee of the 

Trust, U.S. Bancorp Fund Services, LLC 

(‘‘Administrator’’) is the transfer agent and the 

administrator of the Trust, and NYDIG Trust 

Company LLC (‘‘Bitcoin Custodian’’) is the bitcoin 

custodian for the Trust. The Bitcoin Custodian is 

chartered as a limited purpose trust company by the 

New York State Department of Financial Services 

(‘‘NYDFS’’) and is authorized by NYDFS to provide 

digital asset custody services. Both the Sponsor and 

the Bitcoin Custodian are indirect wholly-owned 

subsidiaries of New York Digital Investment Group 

LLC. See id. 

31See id. 

32See id. 

33See id. at 38130. The Trust will enter into a 

cash custody agreement with U.S. Bank N.A. under 

which U.S. Bank N.A. will act as custodian of the 

Trust’s cash and cash equivalents. See id. 

34See id. at 38131. 

35See id. at 38132. 

36See id. at 38131–32. 

37See id. at 38132. 

38See id. at 38129–30. 

39See id. at 38129–30, 38132. 

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, NYSE 

Arca 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 because the 

manipulation concerns previously 

articulated by the Commission have 

been significantly mitigated.26 In 

addition, NYSE Arca asserts that the 

proposal is consistent with Section 

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

designed to protect investors and the 

public interest.27

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 NYSE Arca has entered 

into a comprehensive surveillancesharing 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 the analysis, the 

Commission concludes that NYSE Arca 

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 

NYSE Arca has not established that it 

has a comprehensive surveillancesharing agreement with a regulated 

market of significant size related to 

bitcoin. As discussed further below, 

NYSE Arca repeats various assertions 

made in prior bitcoin-based ETP 

proposals that the Commission has 

previously addressed and rejected—and 

more importantly, NYSE Arca 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, 

NYSE Arca 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,28 the Exchange proposes to list 

and trade the Shares of the Trust under 

NYSE Arca Rule 8.201–E, which 

governs the listing and trading of 

Commodity-Based Trust Shares on the 

Exchange.29

The investment objective of the Trust 

is to reflect the performance of the price 

of bitcoin less the expenses of the 

Trust’s operations.30 The Trust will not 

seek to reflect the performance of any 

benchmark or index. In seeking to 

achieve its investment objective, the 

Trust will only hold bitcoin.31 The Trust 

will value its assets daily in accordance 

with Generally Accepted Accounting 

Principles (‘‘GAAP’’), which generally 

value bitcoin by reference to orderly 

transactions in the principal active 

market for bitcoin.32 The Trust generally 

does not intend to hold cash or cash 

equivalents. However, the Trust may 

hold cash and cash equivalents on a 

temporary basis to pay extraordinary 

expenses.33

The net asset value (‘‘NAV’’) of the 

Trust will be determined in accordance 

with GAAP as the total value of bitcoin 

held by the Trust, plus any cash or other 

assets, less any liabilities including 

accrued but unpaid expenses.34

According to the Exchange, generally, 

GAAP requires the fair value of an asset 

that is traded on a market to be 

measured by reference to orderly 

transactions on an active market. 

Among all active markets with orderly 

transactions, the market that is used to 

determine the fair value of an asset is 

the principal market. The Sponsor 

expects that the principal market will 

initially generally be the NYDFSregulated trading venue with the highest 

trading volume and level of activity.35

The NAV of the Trust will typically be 

determined as of 4:00 p.m. E.T. on each 

day that the Exchange is open for 

regular trading (‘‘Business Day’’). The 

Trust’s daily activities will generally not 

be reflected in the NAV determined for 

the Business Day on which the 

transactions are effected (the trade date), 

but rather on the following Business 

Day. The NAV for the Trust’s Shares 

will be disseminated daily to all market 

participants at the same time.36

The Trust will disseminate an 

intraday indicative value (‘‘IIV’’) per 

Share updated every 15 seconds during 

the Exchange’s Core Trading Session 

(between 9:30 a.m. and 4:00 p.m. E.T.). 

The IIV will be calculated by using the 

same methodology that the Trust uses to 

determine NAV, which is to follow 

GAAP.37

The Trust will create and redeem 

Shares from time to time in ‘‘in-kind’’ 

transactions in blocks of 10,000 Shares 

(‘‘Creation Baskets’’).38 Creation Baskets 

will only be made in exchange for 

delivery to the Trust or the distribution 

by the Trust of the amount of bitcoin 

represented by the Shares being created 

or redeemed, the amount of which will 

be based on the quantity of bitcoin 

attributable to each Share of the Trust 

(net of accrued but unpaid Sponsor fees, 

extraordinary expenses, or liabilities) 

being created or redeemed determined 

as of 4:00 p.m. E.T. on the day the order 

is properly received.39

III. Discussion 

A. The Applicable Standard for Review 

The Commission must consider 

whether NYSE Arca’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 


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40 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). 

41Rule 700(b)(3), Commission Rules of Practice, 

17 CFR 201.700(b)(3). 

42See id. 

43See id. 

44Susquehanna Int’l Group, LLP v. Securities and 

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

2017) (‘‘Susquehanna’’). 

45See 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. 

46See id. at 12597. 

47See Notice, 86 FR at 38134. 

48See id. 

49See id. at 38131. 

50See id. 

51See id. The bitcoin data is for trading volumes 

of bitcoin against U.S. dollars and excludes trading 

transactions of bitcoin against other digital assets 

(e.g., Tether) or other fiat currencies (e.g., euros). 

See id. 

52See id. 

53See id. at 38135. NYSE Arca also states that, 

‘‘[b]eginning in 2016, more institutional investors 

entered the bitcoin market.’’ As a result, according 

to the Exchange, ‘‘an increasing number of 

transactions have occurred in over-the-counter 

(‘‘OTC’’) markets instead of exchanges. This type of 

trading allows for bespoke trading arrangements 

that may ease the burden of trade operations or 

reduce direct types of risks (e.g., counterparty 

risk).’’ See id. at 38131. 

designed ‘‘to prevent fraudulent and 

manipulative acts and practices’’ and 

‘‘to protect investors and the public 

interest.’’ 40 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.’’ 41

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,42 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.43

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.44

B. Whether NYSE Arca 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.45 Such 

resistance to fraud and manipulation 

must be novel and beyond those 

protections that exist in traditional 

commodities or securities markets.46

NYSE Arca asserts that ‘‘on the whole, 

the manipulation concerns previously 

articulated by the Commission have 

since been significantly mitigated, and 

do not exceed those that exist in the 

markets for other commodities that 

underly [sic] securities listed on U.S. 

national securities exchanges.’’ 47

Specifically, the Exchange asserts that 

the ‘‘significant increase in trading 

volume and open interest in the bitcoin 

futures market, growth of liquidity in 

the spot market for bitcoin, and certain 

features of the Shares mitigate the 

manipulation concerns expressed by the 

Commission when it last reviewed 

exchange proposals to list a bitcoin 

exchange-traded product.’’ 48

NYSE Arca asserts that both the 

market for NYDFS-licensed bitcoin 

trading and the market for the trading of 

bitcoin futures and options on platforms 

regulated by the Commodity Futures 

Trading Commission (‘‘CFTC’’) have 

developed substantially.49 According to 

NYSE Arca, in the three months ending 

on April 30, 2021: 

• With respect to the bitcoin spot 

market, six NYDFS-licensed entities 

operated trading platforms with order 

books for spot trading of bitcoin, with a 

total average daily trading volume of 

approximately $2.5 billion; across these 

platforms, the average daily deviation of 

prices was less than 0.08%; and the 

largest NYDFS-licensed trading platform 

by volume had an average bid-ask 

spread during the period of less than 

0.05% for trades of $250,000; and 

• with respect to the bitcoin 

derivatives markets, two CFTCregulated exchanges facilitated trading 

of bitcoin futures, with a total average 

daily trading volume of approximately 

$2.9 billion; and one CFTC-regulated 

exchange facilitated trading of options 

on bitcoin futures, with average 

monthly trading volume of 

approximately $380 million.50

According to NYSE Arca, the average 

daily trading volume for bitcoin across 

the three largest NYDFS-licensed 

platforms was approximately $7.95 

million in 2016, $215.44 million in 

2017, $267.19 million in 2018, $216.97 

million in 2019, $708.39 million in 

2020, and $2.56 billion in 2021 through 

April 30, 2021.51 In addition, the 

Exchange states that the average daily 

trading volume and average daily open 

interest (i.e., the average total bitcoin 

exposure of futures contracts held by 

market participants at the end of each 

trading day) for bitcoin futures contracts 

on the Chicago Mercantile Exchange 

(‘‘CME’’) and the Intercontinental 

Exchange (‘‘ICE’’) was approximately 

$41.10 million and $81.87 million, 

respectively, in 2016; $86.68 million 

and $126.90 million, respectively, in 

2017; $172.60 million and $246.62 

million, respectively, in 2018; $561.78 

million and $535.13 million, 

respectively, in 2020, and $2.51 billion 

and $2.94 billion, respectively in 2021 

through April 30, 2021.52

In addition, the Exchange asserts that 

‘‘increases in investor participation in 

and institutional adoption of bitcoin 

have facilitated the maturation of the 

bitcoin trading ecosystem’’ such that 

manipulation concerns have been 

largely mitigated.53


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54See id. at 38135. 

55See id. 

56See supra notes 47, 48, and 53 and 

accompanying text. The Exchange does not directly 

tie the asserted maturation of the bitcoin market to 

an argument that such market evolution provides 

sufficient means to justify dispensing with the 

requisite surveillance sharing agreement. 

57See supra note 44. The Commission has 

previously considered and rejected similar 

arguments about the maturation of the bitcoin 

market. See, e.g., Valkyrie Order, 86 FR at 74159. 

58See supra note 53 and accompanying text. 

59See supra note 49 and accompanying text. 

60See 15 U.S.C. 78f(b)(5) 

61 17 CFR 240.19b–4(a)(6)(i). 

62Section 6 of the Exchange Act, 15 U.S.C. 78f, 

requires national securities exchanges to register 

with the Commission and requires an exchange’s 

registration to be approved by the Commission, and 

Section 19(b) of the Exchange Act, 15 U.S.C. 78s(b), 

requires national securities exchanges to file 

proposed rules changes with the Commission and 

provides the Commission with the authority to 

disapprove proposed rule changes that are not 

consistent with the Exchange Act. Designated 

contract markets (‘‘DCMs’’) (commonly called 

‘‘futures markets’’) registered with and regulated by 

the Commodity Futures Trading Commission 

(‘‘CFTC’’) must comply with, among other things, 

a similarly comprehensive range of regulatory 

principles and must file rule changes with the 

CFTC. See, e.g., Designated Contract Markets 

(DCMs), CFTC, available at http://www.cftc.gov/ 

IndustryOversight/TradingOrganizations/DCMs/ 

index.htm. 

63See Winklevoss Order, 83 FR at 37597. The 

Commission notes that the NYDFS has issued 

‘‘guidance’’ to supervised virtual currency business 

entities, stating that these entities must ‘‘implement 

measures designed to effectively detect, prevent, 

and respond to fraud, attempted fraud, and similar 

wrongdoing.’’ See Maria T. Vullo, Superintendent 

of Financial Services, NYDFS, Guidance on 

Prevention of Market Manipulation and Other 

Wrongful Activity (Feb. 7, 2018), available at 

https://www.dfs.ny.gov/docs/legal/industry/ 

il180207.pdf. The NYDFS recognizes that it’s 

‘‘guidance is not intended to limit the scope or 

applicability of any law or regulation’’ (id.), which 

would include the Exchange Act. Nothing in the 

record evidences whether the bitcoin spot markets 

the Exchange is referring to have complied with this 

NYDFS guidance. 

Further, there are substantial differences between 

the NYDFS and the Commission’s regulation. AntiMoney Laundering (‘‘AML’’) and Know-YourCustomer (‘‘KYC’’) policies and procedures, for 

example, have been referenced in other bitcoinbased ETP proposals as a purportedly alternative 

means by which such ETPs would be uniquely 

resistant to manipulation. The Commission has 

previously concluded that such AML and KYC 

policies and procedures do not serve as a substitute 

for, and are not otherwise dispositive in the 

analysis regarding the importance of, having a 

surveillance sharing agreement with a regulated 

market of significant size relating to bitcoin. For 

example, AML and KYC policies and procedures do 

not substitute for the sharing of information about 

market trading activity or clearing activity and do 

not substitute for regulation of a national securities 

exchange. See USBT Order, 85 FR at 12603 n.101. 

64See, e.g., USBT Order, 85 FR at 12603–05; 

VanEck Order, 86 FR at 64545; Kryptoin Order, 86 

FR at 74173. 

65See USBT Order, 85 FR at 12604; WisdomTree 

Order, 86 FR at 69328; Valkyrie Order, 86 FR at 

74162; SkyBridge Order, 87 FR at 3877. 

66See id. 

67See Winklevoss Order, 83 FR at 37599 n.288 

(quoting CFTC Backgrounder on Oversight of and 

Approach to Virtual Currency Futures Markets (Jan. 

4, 2018), at 1, available at https://www.cftc.gov/ 

sites/default/files/idc/groups/public/@newsroom/ 

documents/file/backgrounder_

virtualcurrency01.pdf). 

NYSE Arca also asserts that 

‘‘[b]ecause the Shares can only be 

created or redeemed in kind, and . . . 

because the Sponsor fee is accrued with 

respect to the quantity of bitcoin held by 

the Trust and paid in kind by the Trust, 

the Trust receives and holds only 

bitcoin.’’ 54 According to the Exchange, 

‘‘[t]his substantially reduces the 

potential for manipulation of the 

number of Shares created or redeemed, 

which therefore substantially reduces 

the potential for shareholders to be 

harmed by manipulation.’’ 55

Based on assertions made and the 

information provided, the Commission 

can find no basis to conclude that NYSE 

Arca has articulated other means to 

prevent fraud and manipulation that are 

sufficient to justify dispensing with the 

requisite surveillance-sharing 

agreement. 

The Exchange’s assertions about the 

maturation and growth of the bitcoin 

market do not constitute other means to 

prevent fraud and manipulation 

sufficient to justify dispensing with the 

requisite surveillance-sharing 

agreement. While the Exchange states 

that the maturation of the bitcoin market 

mitigates against the Commission’s 

concerns about fraud and 

manipulation,56 such assertion is 

general and conclusory, and NYSE Arca 

provides no analysis or evidence for 

how such maturation serves to detect 

and deter potential fraud and 

manipulation. 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.57

While NYSE Arca provides data 

regarding the size of the bitcoin spot 

and derivatives markets, such 

information is not sufficient to support 

the finding that other means besides 

surveillance-sharing agreements exist to 

prevent fraud or manipulation. NYSE 

Arca, for example, 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 concerns 

previously articulated by the 

Commission relating to fraud and 

manipulation of the bitcoin market have 

been mitigated. Further, although the 

Exchange states that an increase in OTC 

transactions in the bitcoin spot market 

due to an increase in institutional 

investor participation in that market 

reduces risks,58 apart from counterparty 

risk, the Exchange does not elaborate on 

what those risks are or how or why any 

such risks would be reduced or how or 

why such reduction of risks, including 

counterparty risk, would mitigate 

against fraud and manipulation. 

Moreover, while NYSE Arca asserts 

that the markets for NYDFS-licensed 

spot bitcoin trading have developed 

substantially,59 the level of regulation 

on the bitcoin spot platforms, including 

NYDFS-licensed platforms, is not 

commensurate to the obligations, 

authority, and oversight of national 

securities exchanges or futures 

exchanges. National securities 

exchanges are required to have rules 

that 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.’’ 60 Moreover, national 

securities exchanges must file proposed 

rules with the Commission regarding 

certain material aspects of their 

operations,61 and the Commission has 

the authority to disapprove any such 

rule that is not consistent with the 

requirements of the Exchange Act.62

Thus, national securities exchanges are 

subject to Commission oversight of, 

among other things, their governance, 

membership qualifications, trading 

rules, disciplinary procedures, 

recordkeeping, and fees.63 NYDFS 

regulation therefore is not a substitute 

for the Commission’s regulation of the 

national securities exchanges.64

In addition, while the Commission 

recognizes that the CFTC maintains 

some jurisdiction over the bitcoin spot 

market, under the Commodity Exchange 

Act, the CFTC does not have regulatory 

authority over bitcoin spot trading 

platforms.65 Except in certain limited 

circumstances, bitcoin spot trading 

platforms are not required to register 

with the CFTC, and the CFTC does not 

set standards for, approve the rules of, 

examine, or otherwise regulate bitcoin 

spot markets.66 As the CFTC itself 

stated, while the CFTC ‘‘has an 

important role to play,’’ U.S. law ‘‘does 

not provide for direct, comprehensive 

Federal oversight of underlying Bitcoin 

or virtual currency spot markets.’’ 67 In 

addition, while certain bitcoin 

derivatives exchanges that trade bitcoin 

futures and options on bitcoin futures 

are regulated by the CFTC, the CFTC’s 


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68See supra notes 49–50 and accompanying text. 

69As discussed herein, the information in the 

record does not establish that the CME bitcoin 

futures market is a ‘‘market of significant size’’ 

related to bitcoin. See infra Section III.B.2. 

70See 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; Valkyrie Order, 86 FR at 74160; 

SkyBridge Order, 87 FR at 3872. 

71See, e.g., SkyBridge Order, 87 FR at 3873. 

72See Registration Statement at 14–15, 21. 

73See Winklevoss Order, 83 FR at 37589–90; 

USBT Order, 85 FR at 12607–08; VanEck Order, 86 

FR at 64546; WisdomTree Order, 86 FR at 69329; 

Kryptoin Order, 86 FR at 74174; SkyBridge Order, 

87 FR at 3874; Wise Origin Order, 87 FR at 5533. 

74See, 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). 

75See 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. 

76See id. at 37580 n.19. 

77See Notice, 86 FR at 38135. 

78While 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. See also supra notes 

65–67 and accompanying text. 

79See supra notes 49–52 and accompanying text. 

regulations do not extend to the bitcoin 

spot platforms. And, with respect to 

NYSE Arca’s statements about the 

growth of the bitcoin derivatives 

markets,68 although the Exchange 

claims that the CFTC-regulated bitcoin 

derivative markets have developed 

substantially, the Exchange has not 

explained why such development 

mitigates against the Commission’s 

concerns about fraud and manipulation 

such that it would not be necessary for 

the Exchange to enter into a 

surveillance-sharing agreement with a 

regulated market of significant size.69

Moreover, NYSE Arca 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, (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 

(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), or trading based on 

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.70

In addition, NYSE Arca 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 concerns 

previously articulated by the 

Commission relating to fraud and 

manipulation of the bitcoin market have 

been mitigated.71 For example, the 

Registration Statement acknowledges 

that the ‘‘venues through which bitcoin 

trades are relatively new and may be 

more exposed to operational problems 

or failure than trading venues for other 

assets’’; that ‘‘[o]ver the past several 

years, a number of bitcoin exchanges 

have been closed due to fraud, failure or 

security breaches’’; that the bitcoin 

blockchain could be vulnerable to a 

‘‘51% attack,’’ in which a bad actor (or 

actors) or botnet that controls a majority 

of the processing power of the bitcoin 

network may be able to alter the bitcoin 

blockchain on which the bitcoin 

network and bitcoin transactions rely; 

and that ‘‘[r]ecently, some digital asset 

networks have been subject to malicious 

activity achieved through control over 

50% of the processing power on the 

network.’’ 72

Finally, the Commission finds that 

NYSE Arca 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.73 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.74 Accordingly, the Commission 

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

a unique resistance to manipulation. 

(2) Assertions That NYSE Arca Has 

Entered Into a Comprehensive 

Surveillance-Sharing Agreement With a 

Regulated Market of Significant Size 

As NYSE Arca 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 NYSE Arca has 

entered into a comprehensive 

surveillance-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.75

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.76

Accordingly, based on the common 

membership of NYSE Arca and the CME 

in the ISG,77 NYSE Arca has the 

equivalent of a comprehensive 

surveillance-sharing agreement with 

CME. However, while the Commission 

recognizes that the CFTC regulates the 

CME futures market,78 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. 

(a) 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 

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. 

As discussed above, NYSE Arca states 

that the market for trading of bitcoin 

futures has developed substantially 79

and argues that ‘‘[t]he significant growth 

in trading volumes, open interest, large 

open interest holders, and total market 

participants in the bitcoin futures 

market since the [USBT Order] was 

issued is reflective of that market’s 


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80See Notice, 86 FR at 38135. 

81See id. at 38135 & n.18 (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’’)). 

82See Notice, 86 FR at 38135. 

83See id. 

84 Id. 

85See id. 

86See id. 

87See id. 

88See also supra note 69 and accompanying text. 

89See USBT Order, 85 FR at 12611. 

90See id. at 12612. The Commission has 

previously considered and rejected similar 

arguments. See VanEck Order, 86 FR at 64547; 

Kryptoin Order, 86 FR 74175–76; SkyBridge Order, 

87 FR 3875–76; Wise Origin Order, 87 FR at 5534– 

35. Moreover, it is unclear how the data provided 

by the Exchange supports the assertion that the 

CME is a market of significant size, as it appears 

to be aggregate data for bitcoin futures contracts 

trading on both the CME and the ICE. See supra 

note 52 and accompanying text. 

91See USBT Order, 85 FR 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. See also VanEck Order, 86 FR at 64547; 

WisdomTree Order, 86 FR 69330–31; Kryptoin 

Order, 86 FR 74176; SkyBridge Order, 87 FR at 

3876; Wise Origin Order, 87 FR at 5535. 

92See Notice, 86 FR at 38135. 

93See supra note 81 and accompanying text. 

NYSE Arca 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 38135 n.18. 

94The 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 81. 

95See USBT Order, 85 FR at 12609. 

96See id. at 12613 n.244. 

97See id. 

98See VanEck Order, 86 FR at 64547; 

WisdomTree Order, 86 FR at 69331; Kryptoin 

Order, 86 FR 74176; Wise Origin Order, 87 FR 5535. 

growing influence on the spot price of 

bitcoin.’’ 80

NYSE Arca further states that some 

academic research ‘‘suggests that the 

bitcoin futures market has been leading 

bitcoin spot market price discovery 

since as early as 2018.’’ 81 NYSE Arca 

also states that the Sponsor has 

developed ‘‘more recent proprietary 

research, including lead-lag analyses, 

that demonstrates that prices in the 

CME bitcoin futures market do indeed 

lead prices in the bitcoin spot market, 

including non-U.S. bitcoin spot 

markets.’’ 82 NYSE Arca asserts that the 

Sponsor’s finding ‘‘supports the thesis 

that a market participant attempting to 

manipulate the Shares would have to 

trade on that market to manipulate the 

ETP.’’ 83

NYSE Arca also states that the 

Sponsor’s research ‘‘shows that the 

bitcoin futures market is one of the 

primary venues that market participants 

use to transact large exposures to 

bitcoin.’’ 84 According to the Exchange, 

this ‘‘can be attributed to multiple 

factors, such as institutional familiarity 

with futures margining and settlement 

processes, the simplicity of cash 

settlement instead of physical 

settlement in a novel asset, and the 

efficient leverage offered by exchange 

margining.’’ 85

The Exchange states that, ‘‘[i]n 

contrast to the efficient leverage offered 

through the futures market, many 

bitcoin spot trading venues require full 

pre-funding of trading, which means it 

would be highly capital intensive to 

‘spoof’ or ‘layer’ order books on spot 

trading venues.’’ 86 According to the 

Exchange, this ‘‘further supports [the 

Sponsor’s] conclusion that if a market 

participant intended to manipulate the 

price of bitcoin, and thereby the Shares, 

the bitcoin futures market is the one that 

would be manipulated first.87

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. NYSE Arca’s 

assertions about the general upward 

trends in trading volume and open 

interest of, and in the number of large 

open interest holders and number of 

unique accounts trading in, bitcoin 

futures do not establish that the CME 

bitcoin futures market is a market of 

significant size.88 While NYSE Arca 

provides data showing absolute growth 

in the size of the CME and ICE bitcoin 

futures markets, 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 

surveillance-sharing agreement and the 

proposed ETP.89 Accordingly, NYSE 

Arca’s recitation of data reflecting the 

size of two bitcoin futures market, either 

currently or in relation to previous 

years, is not sufficient to establish an 

interrelationship between the CME 

bitcoin futures market and the proposed 

ETP.90

Further, the econometric evidence in 

the record for this proposal also does 

not support the 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.91 While NYSE Arca states that 

CME bitcoin futures pricing has been 

leading bitcoin spot market price 

discovery since 2018,92 it relies on the 

findings of a price discovery analysis in 

one section of a single academic paper 

to support the overall thesis.93 However, 

the findings of that paper’s Granger 

causality analysis, which is widely used 

to formally test for lead-lag 

relationships, are concededly mixed.94

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.95 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.96 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.97 NYSE Arca 

has not addressed either issue here.98

Moreover, while NYSE Arca asserts 

that the Sponsor has conducted 

proprietary research, including lead-lag 

analyses, to demonstrate that the CME 

bitcoin futures market prices lead the 

bitcoin spot market, the Exchange does 

not provide any information relating to 

its proprietary research, including any 


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Federal Register / Vol. 87, No. 51 / Wednesday, March 16, 2022 / Notices 14939 

99See Susquehanna, 866 F.3d at 447. 100See, 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); 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). 

101See USBT Order, 85 FR at 12613 nn.239–244 

and accompanying text. 

102 In addition, the Exchange fails to address the 

relationship (if any) between prices on other bitcoin 

futures markets and the CME bitcoin futures market 

and/or the bitcoin spot market, or where price 

formation occurs when the entirety of bitcoin 

futures markets, not just CME, is considered. See 

VanEck Order, 86 FR at 64547–8; WisdomTree 

Order, 86 FR at 69331; Kryptoin Order, 86 FR 

74176; Wise Origin Order, 87 FR 5535. 

103See id. 

104See Notice, 86 FR at 38135. 

105For example, CME bitcoin futures currently 

have a 50% margin requirement. See https://

www.cmegroup.com/markets/cryptocurrencies/ 

bitcoin/bitcoin.margins.html (last visited December 

1, 2021). On the other hand, the contract 

specifications for bitcoin futures contracts on 

BitMex, Deribit, and Binance specify initial margin 

requirements of 1%, 1%, and 2%, respectively. See 

https://www.bitmex.com/app/contract/XBTUSD 

(last visited Dec. 1, 2021); https://

legacy.deribit.com/pages/docs/futures (last visited 

Dec. 1, 2021); and https://www.binance.com/en/ 

support/announcement/34801a0c405a4b058f9

ae18a1a34cad3 (last visited Dec. 1, 2021). Thus, it 

would appear to require less capital commitment to 

manipulate the bitcoin price using bitcoin futures 

traded on BitMex or other unregulated futures 

platforms rather than the CME, given the lower 

margin requirements on such unregulated 

platforms. The Exchange does not address this. See 

SkyBridge Order, 87 FR at 3876. 

106See Winklevoss Order, 83 FR at 37594; USBT 

Order, 85 FR at 12596–97. 

107See Notice, 86 FR at 38136. 

assumptions, parameters, or 

methodologies used, or furnish any data 

or analysis to support such a 

conclusion. Accordingly, the Exchange’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.99 In this 

context, NYSE Arca’s reliance on a 

single paper, whose own lead-lag results 

are inconclusive, and its own 

proprietary research that it has not 

provided is especially lacking because 

the academic literature on the lead-lag 

relationship and price discovery 

between bitcoin spot and futures 

markets is unsettled.100 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 would-be 

manipulator of the proposed ETP would 

transact on the CME bitcoin futures 

market.101 Likewise, here, given the 

body of academic literature to indicate 

to the contrary, the Commission 

concludes that the information that 

NYSE Arca 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.102

The Exchange also asserts that the 

Sponsor’s research shows that the 

bitcoin futures market is one of the 

primary venues that market participants 

use to transact large exposures to 

bitcoin.103 However, as previously 

mentioned, NYSE Arca does not provide 

information relating to the Sponsor’s 

research or furnish any data or analysis 

to support these conclusions. Nor does 

the Exchange explain the significance of 

its assertion in the overall analysis of 

whether 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, as opposed to other 

bitcoin futures markets. 

The Exchange further asserts that the 

efficient leverage offered through the 

futures market in contrast to the spot 

market, where it would be highly capital 

intensive to ‘‘spoof’’ or ‘‘layer’’ order 

books on spot trading venues, supports 

the conclusion that that would-be 

manipulators of bitcoin prices would 

attempt to do so in the bitcoin futures 

market.104 Again, the Exchange does not 

provide any additional data or analysis 

to support its conclusions or any 

examples that would demonstrate that 

such assertion is reasonable, especially 

as it relates to the CME. In other words, 

even assuming that the Commission 

concurred with the Exchange’s premise 

that it is reasonably likely that a wouldbe manipulator would attempt to 

manipulate the ETP by trading on the 

bitcoin futures market, the Exchange 

does not explain why such manipulator 

would do so specifically on the CME 

bitcoin futures market. Furthermore, the 

NYSE Arca does not provide any 

information on the actual leverage 

provided by trading CME futures 

contracts versus unregulated bitcoin 

futures markets or why would-be 

manipulators would be likely to trade 

on the CME rather than other bitcoin 

futures platforms that may have lower 

margin requirements.105

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. 

(b) 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.106

NYSE Arca asserts that trading in the 

Shares would not be the predominant 

force on prices in the bitcoin futures 

market (or spot market) because of the 

significant volume in the bitcoin futures 

market (in excess of $2.5 billion in 

average daily volume as of April 30, 

2021), the size of bitcoin’s market 

capitalization (in excess of $1 trillion as 

of April 30, 2021), and the significant 

liquidity available in the spot market (in 

excess of $2.5 billion in average daily 

volume as of April 30, 2021).107

In addition, NYSE Arca states that, 

based on the Sponsor’s analysis, 

considering a small subset of spot 

bitcoin trading platforms, the cost to 

buy or sell $5 million worth of bitcoin 

and $10 million worth of bitcoin 

averages roughly 20 basis points and 40 


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108See id. According to NYSE Arca, these 

statistics are based on three random daily samples 

of bitcoin liquidity in U.S. dollars (excluding 

stablecoins or Euro liquidity) based on executable 

quotes on Coinbase Pro, Bitstamp, and itBit from 

January 1, 2021, to April 30, 2021. See id. at n.20. 

109See id. at 38136. 

110See id. 

111See VanEck Order, 86 FR at 64548–59; 

WisdomTree Order, 86 FR at 69332–33; Kryptoin 

Order, 86 FR at 74177; SkyBridge Order, 87 FR at 

3879; Wise Origin Order, 87 FR at 5537. 

112See supra notes 108–110 and accompanying 

text. 113See VanEck Order, 86 FR at 64549; 

WisdomTree Order, 86 FR at 69333; Kryptoin 

Order, 86 FR at 74177; SkyBridge Order, 87 FR at 

3879; Wise Origin Order, 87 FR at 5537. 

114See 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. 

115See Notice, 86 FR at 38134. 

116See id. 

117See id. 

118See id. 

119See id. 

basis points, respectively.108 NYSE Arca 

explains that this is comparable to the 

liquidity of existing commodity-based 

ETPs and that using more sophisticated 

execution strategies and additional 

liquidity sources would likely result in 

a lower cost to trade.109 Thus, NYSE 

Arca concludes that the overall size of 

the bitcoin market and the ability for 

market participants (including 

authorized participants creating and 

redeeming in-kind with the Trust) to 

buy or sell large amounts of bitcoin 

without significant market impact 

supports the reasoning that the Shares 

are unlikely to become a predominant 

force on pricing in either the bitcoin 

spot or the bitcoin futures market.110

The record, however, 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. NYSE 

Arca’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 bitcoin futures market 

and the size and liquidity of the bitcoin 

spot market, as well as the market 

impact of a large transaction, without 

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 NYSE Arca 

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 NYSE Arca’s 

statements alone and absent any 

evidence or analysis in support of NYSE 

Arca’s assertions, that it is unlikely that 

trading in the ETP would be the 

predominant influence on prices in the 

CME bitcoin futures market.111

The Commission also is not 

persuaded by NYSE Arca’s assertions 

about the minimal effect a large market 

order to buy or sell bitcoin would have 

on the bitcoin market.112 While NYSE 

Arca surmises 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, the market that the 

Exchange, in the proposal, argues is the 

significant market under consideration. 

Even assuming, however, that NYSE 

Arca 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 

NYSE Arca. 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, 

NYSE Arca 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.113

Thus, because NYSE Arca has 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 NYSE Arca 

would be able to rely on a surveillancesharing 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 NYSE Arca has 

satisfied this obligation, the 

Commission cannot approve the 

proposed ETP for listing and trading on 

NYSE Arca. 

C. Whether NYSE Arca Has Met Its 

Burden To Demonstrate That the 

Proposal Is Designed To Protect 

Investors and the Public Interest 

NYSE Arca 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.114

Because NYSE Arca has not 

demonstrated that its proposed rule 

change is designed to prevent 

fraudulent and manipulative acts and 

practices, the Commission must 

disapprove the proposal. 

NYSE Arca asserts that the proposed 

rule change is designed to protect 

investors and the public interest 

because an investment in the Trust 

would provide investors with exposure 

to bitcoin in a manner that may be more 

efficient, more convenient, and more 

regulated than the purchase of bitcoin or 

other investment products that provide 

exposure to bitcoin.115 For example, the 

Sponsor notes that OTC bitcoin funds, 

which have attracted significant 

investor interest, offer exposure to 

bitcoin in a similar manner as the 

Trust.116 However, according to the 

Exchange, the OTC bitcoin funds do not 

offer a creation or redemption 

mechanism that would keep their shares 

trading in line with their NAVs and, as 

a result, OTC bitcoin funds have 

historically traded at significant 

premiums or discounts compared to 

their NAVs.117 NYSE Arca asserts that, 

in contrast, if the Trust’s Shares were to 

trade at a premium or discount 

compared to their NAV, creation or 

redemption could be facilitated by 

authorized participants to drive the 

value of the Shares towards their 

NAV.118 The Exchange states that 

investors in OTC bitcoin funds also 

have historically borne significantly 

higher fees and expenses than those that 

would be borne by investors in the 

Trust.119


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120See id. at 38136. 

121See id. For example, NYSE Arca states that the 

largest U.S. OTC bitcoin fund returned 46.41% 

year-to-date through April 30, 2021, while spot 

bitcoin returned 95.61% over the same period. 

NYSE Arca asserts that the deviation in price 

performance can be attributed to the fluctuation in 

NAV of this fund. See id. 

122See id. 

123See id. at 38134. 

124See id. See also supra note 30. 

125See Exchange Act Section 19(b)(2)(C), 15 

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

126See SolidX Order, 82 FR at 16259; VanEck 

Order, 86 FR at 54550–51; WisdomTree Order, 86 

FR at 69334; Kryptoin Order, 86 FR at 74179; 

Valkyrie Order, 86 FR at 74163; SkyBridge Order, 

87 FR at 3881; Wise Origin Order, 87 FR at 5538. 

127See supra note 114. 

128See 15 U.S.C. 78s(b)(2)(C). 

129 15 U.S.C. 78f(b)(5). 

130 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). 

131See Letter from Sam Ahn (July 21, 2021). 

NYSE Arca further asserts that, with 

the growth of OTC bitcoin funds, so too 

has grown the potential risk to U.S. 

investors.120 Specifically, NYSE Arca 

argues that significant and prolonged 

premiums and discounts, significant 

premium/discount volatility, high fees, 

insufficient disclosures, limited 

liquidity to trade or borrow shares, and 

the lack of surveillance and oversight 

through a listed exchange place U.S. 

investor money at risk in ways that 

could potentially be eliminated through 

access to the Shares.121 As such, the 

Exchange believes that the proposal 

would act to limit risk to U.S. investors 

that are increasingly seeking exposure to 

bitcoin, while providing benefits such 

as the elimination of significant and 

prolonged premiums and discounts, the 

reduction of significant premium/ 

discount volatility, the reduction of 

management fees through meaningful 

competition, the avoidance of risks 

associated with investing in operating 

companies that are imperfect proxies for 

bitcoin exposure, and substantially 

greater surveillance and regulatory 

oversight.122

Additionally, the Exchange states that 

investors holding bitcoin through a 

cryptocurrency trading platform often 

face credit risk to the platform for cash 

balances, and often face risk of loss or 

theft of their bitcoin as a result of the 

platform using internet-connected 

storage (i.e., ‘‘hot’’ wallets) and/or 

having poor private key management 

(e.g., insufficient password protection, 

lost key, etc.).123 The Exchange states 

that, on the other hand, through use of 

the Bitcoin Custodian, the Trust would 

hold bitcoin in 100% ‘‘cold’’ storage, 

meaning the entire storage process 

would be done completely offline, with 

a regulated and licensed entity (i.e., the 

Bitcoin Custodian) applying industry 

best practices.124

In essence, NYSE Arca argues 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.125 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.126

Here, even if it were true that, 

compared to trading in unregulated 

bitcoin spot markets or trading in OTC 

bitcoin funds, trading in a bitcoin-based 

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.127 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 

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.128

For the reasons discussed above, 

NYSE Arca has not met its burden of 

demonstrating that the proposal is 

consistent with Exchange Act Section 

6(b)(5),129 and, accordingly, the 

Commission must disapprove the 

proposal.130

D. Other Comments 

The Commission received a comment 

letter that addressed the general nature 

and intrinsic value of bitcoin.131

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. 

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– 

NYSEArca–2021–57 be, and hereby is, 

disapproved. 

By the Commission. 

Eduardo A. Aleman, 

Deputy Secretary. 

[FR Doc. 2022–05499 Filed 3–15–22; 8:45 am] 

BILLING CODE 8011–01–P 

SURFACE TRANSPORTATION BOARD 

[Docket No. FD 36593] 

OPSEU Pension Plan Trust Fund, 

Jaguar Transport Holdings, LLC, and 

Jaguar Rail Holdings, LLC— 

Continuance in Control Exemption— 

Charlotte Western Railroad, LLC 

OPSEU Pension Plan Trust Fund 

(OPTrust), Jaguar Transport Holdings, 

LLC (JTH), and Jaguar Rail Holdings, 

LLC (JRH, and collectively with OPTrust 

and JTH, Jaguar), all noncarriers, have 

filed a verified notice of exemption 

under 49 CFR 1180.2(d)(2) to continue 

in control of Charlotte Western Railroad, 

LLC (CWRR), a noncarrier, upon 

CWRR’s becoming a Class III rail carrier. 

This transaction is related to a 

concurrently filed verified notice of 

exemption in Charlotte Western 

Railroad, LLC—Change in Operator 

Exemption—Line in Gaston County, 


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