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[Federal Register Volume 90, Number 24 (Thursday, February 6, 2025)]
[Notices]
[Pages 9092-9094]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-02284]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-102313; File No. SR-NYSEARCA-2024-87]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting 
Proceedings To Determine Whether To Approve or Disapprove a Proposed 
Rule Change To Adopt New NYSE Arca Rule 8.800-E To Provide for the 
Listing and Trading of Commodity- and/or Digital Asset-Based Investment 
Interests and To List and Trade Shares of the Grayscale Digital Large 
Cap Fund LLC

January 31, 2025.

I. Introduction

    On October 15, 2024, NYSE Arca, Inc. (``NYSE Arca'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to adopt new NYSE Arca Rule 
8.800-E to provide for the listing and trading of Commodity- and/or 
Digital Asset-Based Investment Interests and to list and trade shares 
of the Grayscale Digital Large Cap Fund LLC under proposed NYSE Arca 
Rule 8.800-E. The proposed rule change was published for comment in the 
Federal Register on November 4, 2024.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 101470 (Oct. 29, 
2024), 89 FR 87681 (``Notice''). The Commission has received no 
comment letters on the proposed rule change.
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    On December 17, 2024, pursuant to Section 19(b)(2) of the Exchange 
Act,\4\ the Commission designated a longer period within which to 
approve the proposed rule change, disapprove the proposed rule change, 
or institute proceedings to determine whether to disapprove the 
proposed rule change.\5\ This order institutes proceedings under 
Section 19(b)(2)(B) of the Act \6\ to determine whether to approve or 
disapprove the proposed rule change.
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    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 101939, 89 FR 104581 
(Dec. 23, 2024) (designating February 2, 2025, as the date by which 
the Commission shall either approve, disapprove, or institute 
proceedings to determine whether to disapprove the proposed rule 
change).
    \6\ 15 U.S.C. 78s(b)(2)(B).

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[[Page 9093]]

II. Summary of the Proposal

A. Proposed Listing Standards for Commodity- and/or Digital Asset-Based 
Investment Interests

    As described in more detail in the Notice,\7\ the Exchange proposes 
to adopt new NYSE Arca Rule 8.800-E to provide for the listing and 
trading of Commodity- and/or Digital Asset-Based Investment Interests. 
Proposed NYSE Arca Rule 8.800-E(c)(1) defines ``Commodity- and/or 
Digital Asset-Based Investment Interests'' to mean ``a security (a) 
that is issued by a trust, limited liability company, or other similar 
entity (the `Fund') that holds (1) specified commodities and/or digital 
assets deposited with the Fund, or (2) specified commodities and/or 
digital assets and, in addition to such specified commodities and/or 
digital assets, Derivative Securities Products (as defined in NYSE Arca 
Rule 1.1) and/or cash; (b) that is issued by such Fund in a specified 
aggregate minimum number in return for a deposit of a quantity of the 
underlying commodity(ies), digital asset(s), Derivative Securities 
Products, and/or cash; and (c) that, when aggregated in the same 
specified minimum number, may be redeemed at a holder's request by such 
Fund which will deliver to the redeeming holder the quantity of the 
underlying commodity(ies), digital asset(s), Derivative Securities 
Products, and/or cash.'' \8\
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    \7\ See supra note 3.
    \8\ See Notice at 87682.
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    Proposed NYSE Arca Rule 8.800-E(c)(2) states that ``commodity,'' 
for purposes of this rule, ``includes commodities as defined in Section 
1a(9) of the Commodity Exchange Act.'' \9\ Proposed NYSE Arca Rule 
8.800-E(c)(3) defines the term ``digital asset,'' for purposes of this 
rule, to mean ``any digital representation of value recorded on a 
cryptographically secured, distributed ledger (i.e., blockchain) or 
similar technology.'' \10\
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    \9\ See id.
    \10\ See id.
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    Proposed NYSE Arca Rule 8.800-E sets forth certain listing 
requirements specific to Commodity- and/or Digital Asset-Based 
Investment Interests, as described in more detail in the Notice and 
Exhibit 5 thereto.\11\ Among other things, proposed NYSE Arca Rule 
8.800-E(e)(1)(ii) would provide that there shall be no limitation on 
the percentage of a Fund's portfolio that may be invested in commodity 
and/or digital asset holdings, ``except that, in the aggregate, at 
least 90% of the weight of such holdings shall, on both an initial and 
continuing basis, consist of commodities and/or digital assets 
concerning which the Exchange is able to obtain information via the 
Intermarket Surveillance Group (`ISG') from other members of the ISG or 
via a comprehensive surveillance sharing agreement.'' \12\
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    \11\ See Notice, supra note 3. See also Exhibit 5 to the 
proposed rule change, which is available at https://www.sec.gov/files/rules/sro/nysearca/2024/34-101470-ex5.pdf.
    \12\ See Notice at 87682.
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    The Exchange also proposes to amend NYSE Arca Rules 5.3-E 
(Corporate Governance and Disclosure Policies) and 5.3-E(e) 
(Shareholder Annual Meetings) to include Commodity- and/or Digital 
Asset-Based Investment Interests listed pursuant to proposed NYSE Arca 
Rule 8.800-E among the derivative or special purpose securities to 
which a limited set of corporate governance and disclosure policies 
would apply and to which the requirements concerning shareholder/annual 
meetings would not apply.
    The Exchange states that Commodity- and/or Digital Asset-Based 
Investment Interests listed and traded pursuant to proposed Rule 8.800-
E would be ``substantially similar to Commodity-Based Trust Shares 
listed and traded pursuant to NYSE Arca Rule 8.201-E, with two main 
differences.'' \13\ The Exchange states that ``whereas Commodity-Based 
Trust Shares are issued by a trust, Commodity- and/or Digital Asset-
Based Investment Interests could be issued, as [ ] proposed, by a 
trust, limited liability company, or other similar entity;'' and that 
``whereas Commodity-Based Trust Shares are based on an underlying 
commodity only, the Exchange proposes that Commodity- and/or Digital 
Asset-Based Investment Interests could be based on an underlying 
commodity or commodities, as well as digital assets and Derivative 
Securities Products.'' \14\
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    \13\ See id. at 87683.
    \14\ See id. at 87683-4.
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B. Grayscale Digital Large Cap Fund LLC

    As described in more detail in the Notice, the Exchange also 
proposes to list and trade shares (``Shares'') of the Grayscale Digital 
Large Cap Fund LLC (``Grayscale Fund'') under proposed NYSE Arca Rule 
8.800-E.
    According to the Exchange, the investment objective of the 
Grayscale Fund is for the value of the Shares (based on net asset value 
(``NAV'') per Share) to reflect the value of the Fund Components (as 
described below) held by the Grayscale Fund, as determined by reference 
to their Digital Asset Reference Rates \15\ and weightings within the 
Grayscale Fund, less the Grayscale Fund's expenses and other 
liabilities.\16\ The Grayscale Fund's assets consist solely of the Fund 
Components.\17\ The Fund Components consist of the components of the 
CoinDesk Large Cap Select Index (``Index''), except that the Manager 
may determine to exclude a particular Index component in its discretion 
under certain rules-based circumstances (including to comply with the 
requirements of proposed NYSE Arca Rule 8.800-E).\18\ The weightings of 
the Fund Components are generally expected to be the same as for the 
weightings of the Index components within the Index, except when the 
Manager determines to exclude one or more of the Index components from 
the Fund Components, in which case the weightings are generally 
expected to be calculated proportionally to the respective Index 
weightings for the remaining components of the Index.\19\ As of the 
date of the filing, the Fund Components and their weightings were 
bitcoin (75.46%), ether (17.90%), Solana (4.13%), XRP (1.86%), and 
Avalanche (0.65%).\20\ The Manager will calculate and publish the NAV 
of the Grayscale Fund at 4:00 p.m., New York time, on each business day 
or as soon thereafter as practicable.\21\ The Grayscale Fund uses the 
Digital Asset Reference Rate for each Fund Component to calculate its 
NAV.\22\ The Grayscale Fund will issue Shares to and redeem Shares from 
authorized participants on an ongoing basis, but only in one or more 
``Baskets'' of 10,000 Shares.\23\
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    \15\ See infra note 22 and accompanying text.
    \16\ See Notice at 87685. The Grayscale Fund is a Cayman Islands 
limited liability company. The manager of the Grayscale Fund is 
Grayscale Investments, LLC (``Manager''). The custodian is Coinbase 
Custody Trust Company, LLC. The administrator and transfer agent 
will be BNY Mellon Asset Servicing, a division of The Bank of New 
York Mellon. The distribution and marketing agent will be Foreside 
Fund Services, LLC. See id. at 87684.
    \17\ See id. at 87684.
    \18\ See id. at 87691.
    \19\ See id.
    \20\ See id. at 87684. The Exchange states that, as of the date 
of the filing, the Fund Components that meet the proposed initial 
and continued listing standard in proposed NYSE Arca Rule 8.800-
E(e)(1)(ii) are bitcoin and ether. See id. at 87691 n.27. See also 
supra note 12 and accompanying text.
    \21\ See Notice at 87685.
    \22\ See id. The rules that the Manager will employ to calculate 
the Digital Asset Reference Rate for each Fund Component are 
described in the Notice. See id. at 87694-95.
    \23\ See id. at 87699. Authorized participants will deliver only 
cash to create Shares and will receive only cash when redeeming 
Shares. See id.

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[[Page 9094]]

III. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEARCA-2024-87 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \24\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of proceedings is 
appropriate at this time in view of the legal and policy issues raised 
by the proposed rule change. Institution of proceedings does not 
indicate that the Commission has reached any conclusions with respect 
to any of the issues involved. Rather, the Commission seeks and 
encourages interested persons to provide comments on the proposed rule 
change.
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    \24\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\25\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposed rule change's consistency with Section 6(b)(5) 
of the Act, which requires, among other things, that the rules of a 
national securities exchange be ``designed to prevent fraudulent and 
manipulative acts and practices'' and ``to protect investors and the 
public interest.'' \26\
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    \25\ Id.
    \26\ 15 U.S.C. 78f(b)(5).
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    The Commission asks that commenters address the sufficiency of the 
Exchange's statements in support of the proposal, which are set forth 
in the Notice, in addition to any other comments they may wish to 
submit about the proposed rule change. In particular, with respect to 
the proposal to allow the listing and trading of Commodity- and/or 
Digital Asset-Based Investment Interests on the Exchange, the 
Commission seeks comment on whether the requirements and associated 
definitions set forth in proposed NYSE Arca Rule 8.800-E are 
sufficiently clear and are designed to prevent fraudulent and 
manipulative acts and practices. The Commission also seeks comment on 
whether the proposal to list and trade Shares of the Grayscale Fund, 
which would hold bitcoin, ether, Solana, XRP, Avalanche, and 
potentially other commodities, digital assets, and/or Derivative 
Securities Products, is designed to prevent fraudulent and manipulative 
acts and practices. In particular, as the proposal would allow the 
listing and trading of securities issued by entities, including the 
Grayscale Fund, that hold ``digital assets,'' \27\ the Commission seeks 
comment on any new or novel concerns not previously contemplated by the 
Commission.
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    \27\ See supra note 10 and accompanying text.
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IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposal is 
consistent with Section 6(b)(5) or any other provision of the Act, and 
the rules and regulations thereunder. Although there do not appear to 
be any issues relevant to approval or disapproval that would be 
facilitated by an oral presentation of views, data, and arguments, the 
Commission will consider, pursuant to Rule 19b-4, any request for an 
opportunity to make an oral presentation.\28\
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    \28\ Section 19(b)(2) of the Act, as amended by the Securities 
Acts Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Acts Amendments of 1975, Senate Comm. 
on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change should be approved 
or disapproved by February 27, 2025. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
March 13, 2025.
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NYSEARCA-2024-87 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to file number SR-NYSEARCA-2024-87. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-NYSEARCA-2024-87 and should 
be submitted on or before February 27, 2025. Rebuttal comments should 
be submitted by March 13, 2025.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-02284 Filed 2-5-25; 8:45 am]
BILLING CODE 8011-01-P
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