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[Federal Register Volume 89, Number 249 (Monday, December 30, 2024)]
[Notices]
[Pages 106707-106709]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-30911]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-101998; File Nos. SR-NASDAQ-2024-028; SR-CboeBZX-2024-
091]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Cboe 
BZX Exchange, Inc.; Order Granting Approval of a Proposed Rule Change, 
as Modified by Amendment No. 1, To List and Trade Shares of the Hashdex 
Nasdaq Crypto Index US ETF and Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1, To List and Trade 
Shares of the Franklin Crypto Index ETF, a Series of the Franklin 
Crypto Trust

December 19, 2024.

I. Introduction

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ each of The Nasdaq 
Stock Market LLC (``Nasdaq'') and Cboe BZX Exchange, Inc. (``BZX'', and 
together with Nasdaq, the ``Exchanges'') filed with the Securities and 
Exchange Commission (``Commission'') proposed rule changes to list and 
trade shares of the following. Nasdaq proposes to list and trade shares 
of the Hashdex Nasdaq Crypto Index US ETF \3\ under Nasdaq Rule 5711(d) 
(Commodity-Based Trust Shares); and BZX proposes to list and trade 
shares of the Franklin Crypto Index ETF, a series of the Franklin 
Crypto Trust,\4\ under BZX Rule 14.11(e)(4) (Commodity-Based Trust 
Shares). Each filing was subject to notice and comment.\5\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 101218 (Sept. 30, 
2024), 89 FR 80970 (Oct. 4, 2024) (SR-NASDAQ-2024-028) (``Hashdex 
Filing'').
    \4\ See Amendment No. 1 to Proposed Rule Change to List and 
Trade Shares of the Franklin Crypto Index ETF, a Series of the 
Franklin Crypto Trust, under BZX Rule 14.11(e)(4), Commodity-Based 
Trust Shares (SR-CboeBZX-2024-091), filed Dec. 17, 2024, available 
at: https://www.sec.gov/comments/sr-cboebzx-2024-091/srcboebzx2024091.htm (``Franklin Filing'').
    \5\ The Commission did not receive any comments on the Franklin 
Filing. Comments received on the Hashdex Filing are available at: 
https://www.sec.gov/comments/sr-nasdaq-2024-028/srnasdaq2024028.htm.
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    Each of the foregoing proposed rule changes, as modified by their 
respective amendments, is referred to herein as a ``Proposal'' and 
together as the ``Proposals.'' Each trust (or series of a trust) 
described in a Proposal is referred to herein as a ``Trust'' and 
together as the ``Trusts.'' As described in more detail in the 
Proposals' respective amended filings,\6\ each Proposal seeks to list 
and trade shares of a Trust that would hold both spot bitcoin \7\ and 
spot ether,\8\ in whole or in part.\9\ This order approves the 
Proposals.\10\
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    \6\ See supra notes 3-4.
    \7\ Bitcoins are digital assets that are issued and transferred 
via a distributed, 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.
    \8\ Ether is a digital asset that is native to, and minted and 
transferred via, a distributed, open-source protocol used by a peer-
to-peer computer network through which transactions are recorded on 
a public transaction ledger known as ``Ethereum.'' The Ethereum 
protocol governs the creation of new ether and the cryptographic 
system that secures and verifies transactions on Ethereum.
    \9\ Each Trust could also hold cash and cash equivalents. See 
Hashdex Filing at 80970; Franklin Filing at 8.
    \10\ The Franklin Filing is being approved on an accelerated 
basis. See infra Section III.
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II. Discussion and Commission Findings

    After careful review, the Commission finds that the Proposals are 
consistent with the Exchange Act and rules and regulations thereunder 
applicable to a national securities exchange.\11\ In particular, the 
Commission finds that the Proposals are consistent with Section 6(b)(5) 
of the Exchange Act,\12\ which requires, among other things, that the 
Exchanges' rules be designed to ``prevent fraudulent and manipulative 
acts and practices'' and, ``in general, to protect investors and the 
public interest;'' and with Section 11A(a)(1)(C)(iii) of the Exchange 
Act,\13\ which sets forth Congress' finding that it is in the public 
interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers, and investors of information with respect to 
quotations for and transactions in securities.
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    \11\ In approving the Proposals, the Commission has considered 
the Proposals' impacts on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \12\ 15 U.S.C. 78f(b)(5).
    \13\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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A. Exchange Act Section 6(b)(5)

    The Commission has explained that one way an exchange that lists 
bitcoin-based or ether-based exchange-traded products (``ETPs'') can 
meet the obligation under Exchange Act Section 6(b)(5) that its rules 
be designed to prevent fraudulent and manipulative acts and practices 
is by demonstrating that the exchange has a comprehensive surveillance-
sharing agreement with a

[[Page 106708]]

regulated market of significant size related to the underlying or 
reference assets.\14\ Such an agreement would assist in detecting and 
deterring fraud and manipulation related to that underlying asset.
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    \14\ See, e.g., Order Granting Accelerated Approval of Proposed 
Rule Changes, as Modified by Amendments Thereto, To List and Trade 
Bitcoin-Based Commodity-Based Trust Shares and Trust Units, 
Securities Exchange Act Release No. 99306 (Jan. 10, 2024), 89 FR 
3008 (Jan. 17, 2024) (SR-NYSEARCA-2021-90; SR-NYSEARCA-2023-44; SR-
NYSEARCA-2023-58; SR-NASDAQ-2023-016; SR-NASDAQ-2023-019; SR-
CboeBZX-2023-028; SR-CboeBZX-2023-038; SR-CboeBZX-2023-040; SR-
CboeBZX-2023-042; SR-CboeBZX-2023-044; SR-CboeBZX-2023-072) (``Spot 
Bitcoin ETP Approval Order''); Order Granting Accelerated Approval 
of Proposed Rule Changes, as Modified by Amendments Thereto, To List 
and Trade Shares of Ether-Based Exchange-Traded Products, Securities 
Exchange Act Release No. 100224 (May 23, 2024), 89 FR 46937 (May 30, 
2024) (SR-NYSEARCA-2023-70; SR-NYSEARCA-2024-31; SR-NASDAQ-2023-045; 
SR-CboeBZX-2023-069; SR-CboeBZX-2023-070; SR-CboeBZX-2023-087; SR-
CboeBZX-2023-095; SR-CboeBZX-2024-018) (``Spot Ether ETP Approval 
Order''); Order Granting Approval of Proposed Rule Changes To List 
and Trade Shares of the Grayscale Ethereum Mini Trust and ProShares 
Ethereum ETF, Securities Exchange Act Release No. 100541 (July 17, 
2024), 89 FR 59786 (July 23, 2024) (SR-NYSEARCA-2024-44; SR-
NYSEARCA-2024-53) (``Second Spot Ether ETP Approval Order''); Order 
Granting Approval of a Proposed Rule Change, as Modified by 
Amendment No. 1, To List and Trade Shares of the Grayscale Bitcoin 
Mini Trust and Granting Accelerated Approval of a Proposed Rule 
Change, as Modified by Amendment No. 1, To List and Trade Shares of 
the Pando Asset Spot Bitcoin Trust, Securities Exchange Act Release 
No. 100610 (July 26, 2024), 89 FR 62821 (Aug. 1, 2024) (SR-NYSEARCA-
2024-45; SR-CboeBZX-2023-101) (``Second Spot Bitcoin ETP Approval 
Order'').
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    The Commission has also consistently recognized, however, that this 
is not the exclusive means by which an ETP listing exchange can meet 
this statutory obligation.\15\ A listing exchange could, alternatively, 
demonstrate that ``other means to prevent fraudulent and manipulative 
acts and practices will be sufficient'' to justify dispensing with a 
surveillance-sharing agreement with a regulated market of significant 
size.\16\
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    \15\ See, e.g., 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, 37580 (Aug. 1, 2018) (SR-BatsBZX-2016-30) 
(``Winklevoss Order''); Spot Bitcoin ETP Approval Order at 3009; 
Spot Ether ETP Approval Order at 46938; Second Spot Bitcoin ETP 
Approval Order at 62822; Second Spot Ether ETP Approval Order at 
59786.
    \16\ See, e.g., Spot Bitcoin ETP Approval Order at 3009 (quoting 
Winklevoss Order at 37580).
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    In the Spot Bitcoin ETP Approval Order, the Commission determined 
that having a comprehensive surveillance-sharing agreement with a U.S.-
regulated market that, based on evidence from robust correlation 
analysis, is consistently highly correlated with the ETPs' underlying 
assets (spot bitcoin) constituted ``other means'' sufficient to satisfy 
the Exchange Act Section 6(b)(5) standard.\17\ Specifically, given the 
consistently high correlation between the bitcoin futures market of the 
Chicago Mercantile Exchange (``CME'') and a sample of spot bitcoin 
markets--confirmed by the Commission through robust \18\ correlation 
analysis using data at hourly, five-minute, and one-minute intervals--
the Commission was able to conclude that fraud or manipulation that 
impacts prices in spot bitcoin markets would likely similarly impact 
CME bitcoin futures prices. And because the CME's surveillance can 
assist in detecting those impacts on CME bitcoin futures prices, the 
Commission was able to conclude that the comprehensive surveillance-
sharing agreement among the listing exchanges and the CME can be 
reasonably expected to assist in surveilling for fraudulent and 
manipulative acts and practices in the specific context of the spot 
bitcoin ETPs considered in the Spot Bitcoin ETP Approval Order.
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    \17\ See id. at 3009-11. See also Second Spot Bitcoin ETP 
Approval Order at 62822.
    \18\ The Commission stated that the ``robustness'' of its 
correlation analysis rested on the pre-requisites of (1) the 
correlations being calculated with respect to bitcoin futures that 
trade on the CME, a U.S. market regulated by the Commodity Futures 
Trading Commission, (2) the lengthy sample period of price returns 
for both the CME bitcoin futures market and the spot bitcoin market, 
(3) the frequent intra-day trading data in both the CME bitcoin 
futures market and the spot bitcoin market over that lengthy sample 
period, and (4) the consistency of the correlation results 
throughout the lengthy sample period. See Spot Bitcoin ETP Approval 
Order at 3010 n.38.
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    The Commission reached similar conclusions in the Spot Ether ETP 
Approval Order with respect to the spot ether ETPs considered in that 
order, having confirmed the consistently high correlation between the 
CME ether futures market and a sample of spot ether markets.\19\
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    \19\ See Spot Ether ETP Approval Order at 46938-41. See also 
Second Spot Ether ETP Approval Order at 59786-87.
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    The Trusts in the present Proposals will hold both spot bitcoin and 
spot ether, and the proportion of bitcoin and ether to be held by each 
Trust will be based on free-float market capitalizations, as described 
by the Exchanges in their respective amended filings.\20\ Other than 
that the Trusts will hold both spot bitcoin and spot ether,\21\ the 
structure of the Trusts, the terms of their operation and the trading 
of their shares, and the representations in their respective amended 
filings are substantially similar to those of the spot bitcoin ETP and 
spot ether ETP proposals approved in prior Commission orders.\22\ In 
addition, the Commission finds that the spot bitcoin market continues 
to be consistently highly correlated with the CME bitcoin futures 
market,\23\ and that the spot ether market continues to be consistently 
highly correlated with the CME ether futures market.\24\ As such, based 
on the record before the Commission, including the Commission's 
correlation analyses, the Commission is able to conclude that the 
Exchanges' comprehensive surveillance-sharing agreements with the CME 
\25\ can be reasonably expected to assist in surveilling for fraudulent 
and

[[Page 106709]]

manipulative acts and practices in the specific context of the 
Proposals.
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    \20\ See Hashdex Filing at 80972; Franklin Filing at 10.
    \21\ The Commission has previously approved the listing and 
trading of commodity-based trust shares where the underlying trust 
held more than one commodity. See, e.g., Securities Exchange Act 
Release Nos. 82448 (Jan. 5, 2018) 83 FR 1428 (Jan. 11, 2018) (SR-
NYSEArca-2017-131) (Notice of Filing of Amendment No. 2 and Order 
Approving on an Accelerated Basis a Proposed Rule Change, as 
Modified by Amendment No. 2, To List and Trade Shares of the Sprott 
Physical Gold and Silver Trust Under NYSE Arca Rule 8.201-E); 62692 
(Aug. 11, 2010), 75 FR 50789 (Aug. 17, 2010) (SR-NYSEArca-2010-56) 
(Order Granting Approval of Proposed Rule Change To List and Trade 
Shares of the ETFS Precious Metals Basket Trust). See also Franklin 
Filing at 7 n.16; Letter from Hashdex Asset Management, Ltd., dated 
Oct. 25, 2024, regarding SR-NASDAQ-2024-028, at 2-3.
    \22\ See Spot Bitcoin ETP Approval Order; Spot Ether ETP 
Approval Order; Second Spot Bitcoin ETP Approval Order; Second Spot 
Ether ETP Approval Order. See also infra Section II.B.
    \23\ The Commission examined correlation between the CME bitcoin 
futures market and the Coinbase and Kraken spot bitcoin trading 
platforms at hourly, five-minute, and one-minute intervals, using 
the same data sources and methodology as in the Spot Bitcoin ETP 
Approval Order (see Spot Bitcoin ETP Approval Order at 3010 n.35), 
for the period from October 1, 2021, to August 22, 2024. The 
correlation between the CME bitcoin futures market and this subset 
of spot bitcoin platforms for the full sample period is no less than 
98.9 percent using data at an hourly interval, 93.9 percent using 
data at a five-minute interval, and 83.1 percent using data at a 
one-minute interval. The rolling three-month correlation results 
range between 94.9 and 99.5 percent using data at an hourly 
interval, 83.8 and 96.1 percent using data at a five-minute 
interval, and 79.0 and 87.3 percent using data at a one-minute 
interval.
    \24\ The Commission examined correlation between the CME ether 
futures market and the Coinbase and Kraken spot ether trading 
platforms at hourly, five-minute, and one-minute intervals, using 
the same data sources and methodology as in the Spot Ether ETP 
Approval Order (see Spot Ether ETP Approval Order at 46939-40 n.45), 
for the period from October 1, 2021, to August 22, 2024. The 
correlation between the CME ether futures market and this subset of 
spot ether platforms for the full sample period is no less than 98.9 
percent using data at an hourly interval, 92.8 percent using data at 
a five-minute interval, and 81.6 percent using data at a one-minute 
interval. The rolling three-month correlation results range between 
96.0 and 99.5 percent using data at an hourly interval, 87.9 and 
95.8 percent using data at a five-minute interval, and 78.4 and 85.1 
percent using data at a one-minute interval.
    \25\ Both Exchanges and the CME are members of the Intermarket 
Surveillance Group. See Hashdex Filing at 80979; Franklin Filing at 
6.
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B. Exchange Act Section 11A(a)(1)(C)(iii)

    Each Proposal sets forth aspects of its proposed ETP, including the 
availability of pricing information, transparency of portfolio 
holdings, and types of surveillance procedures, that are consistent 
with other ETPs that the Commission has approved.\26\ This includes 
commitments regarding: the availability of quotation and last-sale 
information for the shares of each Trust; the availability on the 
websites of each Trust of certain information related to the Trusts, 
including net asset values; the dissemination of intra-day indicative 
values by one or more major market data vendors, updated every 15 
seconds throughout the Exchanges' regular trading hours; the Exchanges' 
surveillance procedures and ability to obtain information regarding 
trading in the shares of the Trusts; the conditions under which the 
Exchanges would implement trading halts and suspensions; and the 
requirements of registered market makers in the shares of each 
Trust.\27\ In addition, in each Proposal, the applicable Exchange deems 
the shares of the applicable Trust to be equity securities, thus 
rendering trading in such shares subject to that Exchange's existing 
rules governing the trading of equity securities.\28\ Further, the 
applicable listing rules of each Exchange require that all statements 
and representations made in its filing regarding, among others, the 
description of the applicable Trust's holdings, limitations on such 
holdings, and the applicability of that Exchange's listing rules 
specified in the filing, will constitute continued listing 
requirements.\29\ Moreover, each Proposal states that: the applicable 
Trust will represent to the applicable Exchange that it will advise 
that Exchange of any failure to comply with the applicable continued 
listing requirements; pursuant to obligations under Section 19(g)(1) of 
the Exchange Act, that Exchange will monitor for compliance with the 
continued listing requirements; and if the applicable Trust is not in 
compliance with the applicable listing requirements, that Exchange will 
commence delisting procedures.\30\
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    \26\ See, e.g., Spot Bitcoin ETP Approval Order at 3011; Spot 
Ether ETP Approval Order at 46941; Second Spot Bitcoin ETP Approval 
Order at 62822; Second Spot Ether ETP Approval Order at 59787.
    \27\ See Hashdex Filing at 80976-78; Franklin Filing at 15-17, 
19-26.
    \28\ See Hashdex Filing at 80977; Franklin Filing at 23.
    \29\ See Nasdaq Rule 5711(d)(iii); BZX Rule 14.11(a).
    \30\ See Hashdex Filing at 80977; Franklin Filing at 25.
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    The Commission therefore finds that the Proposals, as with other 
ETPs that the Commission has approved,\31\ are reasonably designed to 
promote fair disclosure of information that may be necessary to price 
the shares of the Trusts appropriately, to prevent trading when a 
reasonable degree of transparency cannot be assured, to safeguard 
material non-public information relating to the Trusts' portfolios, and 
to ensure fair and orderly markets for the shares of the Trusts.
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    \31\ See supra note 26.
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III. Accelerated Approval of the Franklin Filing

    The Commission finds good cause to approve the Franklin Filing 
prior to the 30th day after the date of publication of notice of its 
Amendment No. 1 \32\ in the Federal Register. The amendment clarified 
the description of its Trust; further described the terms of the Trust; 
and conformed various representations in the amended filing to BZX's 
listing standards and to representations that exchanges have made for 
other ETPs that the Commission has approved.\33\ The amended filing is 
now substantially similar to filings for other spot bitcoin ETPs and 
spot ether ETPs that the Commission has approved,\34\ and as discussed 
above in Section II.A, both (i) the spot bitcoin market and the CME 
bitcoin futures market and (ii) the spot ether market and the CME ether 
futures market remain consistently highly correlated. Accordingly, the 
Commission finds good cause, pursuant to Section 19(b)(2) of the 
Exchange Act,\35\ to approve the Franklin Filing on an accelerated 
basis.
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    \32\ See supra note 4.
    \33\ See also supra Section II.B.
    \34\ See Spot Bitcoin ETP Approval Order; Spot Ether ETP 
Approval Order; Second Spot Bitcoin ETP Approval Order; Second Spot 
Ether ETP Approval Order.
    \35\ 15 U.S.C. 78s(b)(2).
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IV. Conclusion

    This approval order is based on all of the Exchanges' 
representations and descriptions in their respective amended filings, 
which the Commission has carefully evaluated as discussed above.\36\ 
For the reasons set forth above, including the Commission's correlation 
analyses, the Commission finds, pursuant to Section 19(b)(2) of the 
Exchange Act,\37\ that the Proposals are 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) and Section 11A(a)(1)(C)(iii) of the 
Exchange Act.\38\
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    \36\ In addition, the shares of the Trust in the Hashdex Filing 
must comply with the requirements of Nasdaq Rule 5711(d) (Commodity-
Based Trust Shares) to be listed and traded on Nasdaq on an initial 
and continuing basis; and the shares of the Trust in the Franklin 
Filing must comply with the requirements of BZX Rule 14.11(e)(4) 
(Commodity-Based Trust Shares) to be listed and traded on BZX on an 
initial and continuing basis.
    \37\ 15 U.S.C. 78s(b)(2).
    \38\ 15 U.S.C. 78f(b)(5); 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\39\ that the Hashdex Filing (SR-NASDAQ-2024-028) be, and 
hereby is, approved; and that the Franklin Filing (SR-CboeBZX-2024-091) 
be, and hereby is, approved on an accelerated basis.
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    \39\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\40\
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    \40\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-30911 Filed 12-27-24; 8:45 am]
BILLING CODE 8011-01-P
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