33548 Federal Register / Vol. 87, No. 106 / Thursday, June 2, 2022 / Notices 

40 In approving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

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

41 15 U.S.C. 78f(b)(5). 

42 15 U.S.C. 78f(b)(1) and 78f(b)(6). 

43 17 CFR 240.19d–1(c)(2). 

44 15 U.S.C. 78s(b)(2). 

45As stated above, the Commission notes that the 

proposed rule change was submitted in connection 

with an immediately effective companion filing, 

SR–NYSECHX–2022–10, adopting investigation, 

disciplinary, sanction and other procedural rules 

modeled on the rules of the Exchange’s affiliates. 

See supra note 4 and accompanying text. In SR– 

NYSECHX–2022–10, the Exchange states that it 

intends to announce by Information Memorandum 

with at least 30 days advance notice the operative 

date of the rules proposed in SR–NYSECHX–2022– 

10, which also includes proposed Rules 10.9216(b) 

and 10.9217. Thus, proposed Rules 10.9216(b) and 

10.9217 will be operative at the same time as all the 

rules proposed in SR–NYSECHX–2022–10. 

46 15 U.S.C. 78s(b)(2). 

47 17 CFR 240.19d–1(c)(2). 

48 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 93171 

(Sept. 29, 2021), 86 FR 55073 (Oct. 5, 2021) 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549 on official 

business days between the hours of 

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

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–NYSECHX–2022–08 and 

should be submitted on or before June 

23, 2022. 

IV. Commission’s Findings and Order 

Granting Accelerated Approval of 

Proposed Rule Change 

The Commission finds that the 

proposed rule change is consistent with 

the requirements of the Act and the 

rules and regulations thereunder 

applicable to a national securities 

exchange.40 In particular, the 

Commission finds that the proposed 

rule change is consistent with Section 

6(b)(5) of the Act,41 which requires that 

the rules of an exchange be designed to 

promote just and equitable principles of 

trade, to remove impediments and to 

perfect the mechanism of a free and 

open market and a national market 

system, and, in general, to protect 

investors and the public interest. The 

Commission also believes that the 

proposal is consistent with Sections 

6(b)(1) and 6(b)(6) of the Act 42 which 

require that the rules of an exchange 

enforce compliance with, and provide 

appropriate discipline for, violations of 

Commission and Exchange rules. 

Finally, the Commission finds that the 

proposal is consistent with the public 

interest, the protection of investors, or 

otherwise in furtherance of the purposes 

of the Act, as required by Rule 19d– 

1(c)(2) under the Act,43 which governs 

minor rule violation plans. 

The Commission believes that Rules 

10.9216(b) and 10.9217, which are 

based on the rules of an affiliate 

exchange, are an effective way to 

discipline a member for a minor 

violation of a rule. The Commission also 

believes that the proposed addition of 

certain rules to the Exchange’s list of 

current minor rule violations provides a 

reasonable means of addressing 

violations that do not rise to the level of 

requiring formal disciplinary 

proceedings, while providing greater 

flexibility in handling certain violations. 

In addition, the Commission believes 

that the Exchange’s proposal to move 

the Recommended Fine Schedule for 

minor rule violations from the Fee 

Schedule to proposed Rule 10.9217 and 

make certain amendments and 

corrections are consistent with the Act 

because these changes will add clarity 

to the Exchange’s rules. 

In approving the propose rule change, 

the Commission in no way minimizes 

the importance of compliance with the 

Exchange’s rules and all other rules 

subject to fines under Rules 10.9216(b) 

and 10.9217. The Commission believes 

that a violation of any self-regulatory 

organization’s rules, as well as 

Commission rules, is a serious matter. 

However, Rules 10.9216(b) and 10.9217 

provide a reasonable means of 

addressing rule violations that may not 

rise to the level of requiring formal 

disciplinary proceedings, while 

providing greater flexibility in handling 

certain violations. The Commission 

expects that the Exchange will continue 

to conduct surveillance with due 

diligence and make a determination 

based on its findings, on a case-by-case 

basis, whether a fine of more or less 

than the recommended amount is 

appropriate for a violation under Rules 

10.9216(b) and 10.9217 or whether a 

violation requires formal disciplinary 

action. 

For the same reasons as discussed 

above, the Commission finds good 

cause, pursuant to Section 19(b)(2) of 

the Act,44 for approving the proposed 

rule change prior to the thirtieth day 

after the date of publication of the 

notice of the filing thereof in the 

Federal Register.45 The proposal will 

assist the Exchange in preventing 

fraudulent and manipulative practices 

by allowing the Exchange to adequately 

enforce compliance with, and provide 

appropriate discipline for, violations of 

Exchange rules. Moreover, the proposed 

changes raises no new or novel issues. 

Accordingly, the Commission believes 

that a full notice-and-comment period is 

not necessary before approving the 

proposal. 

V. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act 46 and Rule 

19d–1(c)(2) thereunder,47 that the 

proposed rule change (SR–NYSECHX– 

2022–08) be, and hereby is, approved on 

an accelerated basis. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.48

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–11789 Filed 6–1–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–94999; File No. SR– 

NYSEArca–2021–67] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Order Disapproving a 

Proposed Rule Change To List and 

Trade Shares of the One River Carbon 

Neutral Bitcoin Trust Under NYSE Arca 

Rule 8.201–E (Commodity-Based Trust 

Shares) 

May 27, 2022. 

I. Introduction 

On September 20, 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 One River 

Carbon Neutral Bitcoin Trust (‘‘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 

October 5, 2021.3


jspears on DSK121TN23PROD with NOTICES1
Federal Register / Vol. 87, No. 106 / Thursday, June 2, 2022 / Notices 33549 

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

can be found at: https://www.sec.gov/comments/srnysearca-2021-67/srnysearca202167.htm. 

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

5See Securities Exchange Act Release No. 93553 

(Nov. 10, 2021), 86 FR 64276 (Nov. 17, 2021). 

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

7See Securities Exchange Act Release No. 93840 

(Dec. 21, 2021), 86 FR 73826 (Dec. 28, 2021). 

8See Securities Exchange Act Release No. 94475 

(Mar. 18, 2022), 87 FR 16808 (Mar. 24, 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 55075. 

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’’); 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’’); 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), Securities Exchange Act Release No. 94395 

(Mar. 10, 2022), 87 FR 14932 (Mar. 16, 2022) (SR– 

NYSEArca–2021–57) (‘‘NYDIG Order’’); Order 

Disapproving a Proposed Rule Change To List and 

Trade Shares of the Global X Bitcoin Trust Under 

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

Shares, Securities Exchange Act Release No. 94396 

(Mar. 10, 2022), 87 FR 14912 (Mar. 16, 2022) (SR– 

CboeBZX–2021–052) (‘‘Global X Order’’); and Order 

Disapproving a Proposed Rule Change, as Modified 

by Amendment No. 1, To List and Trade Shares of 

the ARK 21Shares Bitcoin ETF under BZX Rule 

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

Securities Exchange Act Release No. 94571 (Mar. 

31, 2022), 87 FR 20014 (Apr. 6, 2022) (SR– 

CboeBZX–2021–052) (‘‘ARK 21Shares Order’’). See 

also Order Disapproving a Proposed Rule Change, 

as Modified by Amendment No. 1, Relating to the 

Listing and Trading of Shares of the SolidX Bitcoin 

Trust Under NYSE Arca Equities Rule 8.201, 

Securities Exchange Act Release No. 80319 (Mar. 

28, 2017), 82 FR 16247 (Apr. 3, 2017) (SR– 

NYSEArca–2016–101) (‘‘SolidX Order’’). The 

Commission also notes that orders were issued by 

delegated authority on the following matters: Order 

Disapproving a Proposed Rule Change To List and 

Trade the Shares of the ProShares Bitcoin ETF and 

the ProShares Short Bitcoin ETF, Securities 

Exchange Act Release No. 83904 (Aug. 22, 2018), 

83 FR 43934 (Aug. 28, 2018) (SR–NYSEArca–2017– 

139) (‘‘ProShares Order’’); Order Disapproving a 

Proposed Rule Change To List and Trade the Shares 

of the GraniteShares Bitcoin ETF and the 

GraniteShares Short Bitcoin ETF, Securities 

Exchange Act Release No. 83913 (Aug. 22, 2018), 

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

001) (‘‘GraniteShares Order’’); Order Disapproving a 

Proposed Rule Change To List and Trade Shares of 

the VanEck Bitcoin Trust Under BZX Rule 

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

Securities Exchange Act Release No. 93559 (Nov. 

12, 2021), 86 FR 64539 (Nov. 18, 2021) (SR– 

CboeBZX–2021–019) (‘‘VanEck Order’’); Order 

Granting Approval of a Proposed Rule Change, as 

Modified by Amendment No. 2, To List and Trade 

Shares of the Teucrium Bitcoin Futures Fund Under 

NYSE Arca Rule 8.200–E, Commentary .02 (Trust 

Issued Receipts), Securities Exchange Act Release 

No. 94620 (Apr. 6, 2022), 87 FR 21676 (Apr. 12, 

2022) (SR–NYSEArca–2021–53) (‘‘Teucrium 

Order’’); and Order Granting Approval of a 

Proposed Rule Change, as Modified by Amendment 

No. 2, To List and Trade Shares of the Valkyrie 

XBTO Bitcoin Futures Fund Under Nasdaq Rule 

5711(g) (Commodity Futures Trust Shares), 

Securities Exchange Act Release No. 94853 (May 5, 

2022), 87 FR 28848 (May 11, 2022) (SR–NASDAQ– 

2021–066) (‘‘Valkyrie XBTO 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:// 

Continued 

On November 10, 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 December 21, 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 March 18, 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 

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


jspears on DSK121TN23PROD with NOTICES1
33550 Federal Register / Vol. 87, No. 106 / Thursday, June 2, 2022 / Notices 

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 infra Section III.B.2. 

24See Notice, 86 FR at 55080. 

25 Id. at 55082. 

26See Notice, supra note 3. See also Amendment 

No. 1 to the Registration Statement on Form S–1, 

dated October 6, 2021, filed by the Trust with the 

Commission under the Securities Act of 1933 (File 

No. 333–256407) (‘‘Registration Statement’’). 

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

As discussed in more detail below, 

NYSE Arca does not assert that the 

Exchange has a comprehensive 

surveillance-sharing agreement with a 

regulated market of significant size.23

Rather, NYSE Arca contends that the 

proposal is consistent with Section 

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

design of the methodology and 

framework of the Index (as defined 

herein) is sufficiently resistant to market 

manipulation.24 In addition, NYSE Arca 

states that the ‘‘significant liquidity in 

the spot market and resultant minimal 

impact of market orders on the overall 

price of bitcoin, in conjunction with the 

Trust’s offering only in-kind creation 

and redemption of Shares with respect 

to [a]uthorized [p]articipants, further 

mitigates the risk associated with 

potential manipulation and financially 

disincentivizes manipulation of the 

Index.’’ 25

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; and in Section III.B.2 

assertions relating to NYSE Arca’s 

surveillance-sharing agreements related 

to bitcoin. 

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. And as 

mentioned above, NYSE Arca does not 

assert that it has a comprehensive 

surveillance-sharing agreement with a 

regulated market of significant size 

related to bitcoin. Moreover, 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 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,26 the Exchange proposes to list 


jspears on DSK121TN23PROD with NOTICES1
Federal Register / Vol. 87, No. 106 / Thursday, June 2, 2022 / Notices 33551 

27See Notice, 86 FR at 55073. The sponsor of the 

Trust is One River Digital Asset Management, LLC 

(‘‘Sponsor’’), a Delaware limited liability company 

and a wholly-owned subsidiary of One River Asset 

Management, LLC. The trustee for the Trust is 

Delaware Trust Company. The marketing agent for 

the Trust is Foreside Global Services, LLC. The 

Bank of New York Mellon (‘‘BNY Mellon’’) would 

act as the Trust’s administrator and transfer agent. 

The custodian for the Trust, Coinbase Custody 

Trust Company, LLC (‘‘Custodian’’), would hold all 

of the Trust’s bitcoin on the Trust’s behalf and 

retain custody of the Trust’s bitcoin in an account 

for the Trust (‘‘Bitcoin Account’’). See id. 

28See id. at 55074. According to the Sponsor, 

‘‘[t]he Trust intends to offset the carbon footprint 

associated with the bitcoin it holds by paying for 

the retirement of voluntary carbon credits equal to 

the daily estimated carbon emissions associated 

with the bitcoins held by the Trust.’’ See 

Registration Statement at 47. See also infra notes 

39–41 and accompanying text (further describing 

‘‘carbon credits’’). 

29See Notice, 86 FR at 55074. 

30See id. The Trust has entered into a cash 

custody agreement with BNY Mellon under which 

BNY Mellon would act as custodian of the Trust’s 

cash and cash equivalents. See id. 

31See id. 

32See infra note 44 and accompanying text 

(generally describing the connection between 

electricity usage and consumption with, and the 

carbon emission intensity of such electricity 

consumption relating to, the bitcoin mining 

network). See also Registration Statement at 3. 

33See Notice, 86 FR at 55075. The Index 

methodology was developed by MV Index Solutions 

GmbH (‘‘MVIS’’) and is monitored by the One River 

Index Committee (‘‘Committee’’), an independent, 

third-party calculation agent for the Index. MVIS, 

with the assistance of its affiliates, is also the 

calculation agent for the Index and for the MVIS®

CryptoCompare Bitcoin Benchmark Rate (‘‘BBR’’), 

which measures the value of the underlying bitcoin 

represented by, and is the bitcoin benchmark 

component for, the Index. The current constituent 

bitcoin platforms of the BBR are Coinbase, Gemini, 

Bitstamp, Kraken, and itBit. See id. at 55074–75. 

34See id. at 55075. See also Sponsor Letter at 6– 

7 (describing how the Index is transparent and 

rules-based). 

35See Notice, 86 FR at 55075. 

36See id. 

37The Committee selects the Index’s eligible spot 

markets and evaluates them semi-annually, with the 

final selections to be made on the third Friday of 

January and July or during market disruptions 

where a market review is warranted, as determined 

by the Committee. See id. 

38See id. at 55074. 

39See id. According to the Exchange, voluntary 

carbon credits are certified and standardized under 

the Verra Verified Carbon Standard (‘‘Verra’’), an 

organization that establishes and manages standards 

and programs in connection with voluntary carbon 

credits, and the Trust would only utilize carbon 

credits that meet the Verra standards. See id. at 

55074–75. 

40See id. at 55075. Upon expiration of its 

agreement with Moss in April 2031, the Trust 

would either enter into a replacement agreement or 

pay for the retirement of MCO2 Tokens or similar 

carbon credits at then-current spot prices for such 

instruments. See id. 

41See id. According to the Exchange, the MCO2 

Token is a digital representation of a carbon credit 

that is stored on a registry by Verra and can be 

acquired in over-the-counter (‘‘OTC’’) or publiclytraded markets. Moss purchases carbon credits from 

projects that are certified under Verra’s Verified 

Carbon Standard. Each circulating MCO2 Token is 

intended to represent a claim on a certified carbon 

credit held in an aggregated pool of carbon credits 

within the Moss account on the Verra registry. 

Tokenized carbon credits are fungible and do not 

represent a claim on a specific underlying carbon 

credit issued to a specific carbon reduction project. 

See id. 

42See id. at 55075 & n.10. 

43See id. at 55075. 

44See id. at 55075 & n.10. According to the 

Exchange, the cost of the carbon offset used in the 

Index is calculated in the following steps. First, 

electricity consumption for the bitcoin mining 

network is recorded daily. Second, geolocation of 

bitcoin miners identifies the location of electricity 

usage. Third, for each location, the average 

production of electricity by its source of production 

(e.g., solar, coal) is recorded. This estimates the 

carbon emission intensity of electricity 

consumption in the bitcoin network. Fourth, total 

electricity consumption is multiplied by the carbon 

intensity of the bitcoin network to estimate total 

carbon emissions. These steps allow MVIS to obtain 

a daily estimate of the carbon emissions necessary 

to run the bitcoin network. The total carbon 

emissions of the bitcoin network are divided by the 

total number of bitcoins in circulation to estimate 

the carbon emissions attributable to each bitcoin on 

each day. Finally, the carbon emission attributable 

to each bitcoin is multiplied by the MCO2 Token 

market price of a carbon offset. See id. at 55074. The 

daily accumulation of the carbon offset component 

of the Index measures the totality of the cost of the 

carbon offset required for holding a single bitcoin 

over the accumulation period. See id. at 55075. 

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. 

The investment objective of the Trust 

is to track the performance of bitcoin, as 

measured by the performance of the 

MVIS One River Carbon Neutral Bitcoin 

Index (‘‘Index’’), adjusted for the Trust’s 

expenses and other liabilities.27 As 

discussed below, the Index is designed 

to reflect the performance of bitcoin in 

U.S. dollars on a carbon neutral basis. 

In seeking to achieve its investment 

objective, the Trust would hold bitcoin 

and would value its Shares based on the 

same methodology used to calculate the 

Index, as adjusted to reflect the 

expenses associated with offsetting 

carbon credits.28 The Trust would not 

purchase or sell bitcoin directly, 

although the Trust may direct the 

Custodian to sell or transfer bitcoin to 

pay certain expenses.29 The Trust would 

not hold cash or cash equivalents; 

however, there may be situations where 

the Trust would hold cash on a 

temporary basis.30 The Trust would not 

hold futures, options, or options on 

futures.31

The Index value would be the 

benchmark value of the bitcoin, less the 

estimated daily cost of offsetting the 

carbon emissions 32 of a single bitcoin.33

The Index is the aggregation of executed 

trade data for ‘‘major’’ bitcoin spot 

platforms.34 According to NYSE Arca, to 

be eligible for inclusion in the Index, a 

constituent bitcoin platform must 

enforce policies to ensure fair and 

transparent market conditions and have 

processes in place to impede illegal or 

manipulative trading practices. 

Additionally, each constituent bitcoin 

platform must comply with applicable 

law and regulation, including proper 

anti-money laundering (‘‘AML’’) and 

know-your-customer (‘‘KYC’’) 

procedures.35 More than 160 global spot 

platforms are evaluated monthly based 

on data transparency, KYC stringency, 

and transaction monitoring.36 The Index 

is constructed using bitcoin price feeds 

from eligible bitcoin spot markets 37 and 

volume weighted median price 

averages, calculated over 20 intervals in 

rolling three-minute increments, less the 

estimated cost of offsetting the daily 

carbon emissions attributable to each 

bitcoin in the network.38

The Trust intends to offset the carbon 

footprint associated with bitcoin once a 

quarter by paying for the instantaneous 

retirement of voluntary carbon credits 

equal to the daily estimated carbon 

emissions associated with the bitcoins 

held by the Trust.39 The Trust has 

entered into an agreement with LIRDES 

S.A., d/b/a Moss Earth (‘‘Moss’’), a 

company located in Uruguay, to pay for 

carbon credit tokens created by Moss 

(‘‘MCO2 Tokens’’) representing certified 

reductions in greenhouse gas 

emissions.40 The MCO2 Tokens issued 

by Moss are carbon offsets encrypted 

and tokenized, utilizing blockchain 

technology, and are stored on a registry 

managed by Verra.41 The Trust would 

purchase MCO2 Tokens from Moss at 

the end of March, June, September, and 

December at pre-negotiated prices, and 

Moss would instantaneously retire the 

tokens to the Ethereum blockchain.42

The number of MCO2 Tokens paid for 

by the Trust would equal the aggregated 

sum of offsets implied by the daily 

carbon emissions for a single bitcoin 

over the preceding quarter, multiplied 

by the average number of bitcoins held 

in the Trust’s portfolio during the 

quarter, with a view towards tracking 

the carbon footprint offset estimate 

calculated by the Index.43 The Trust 

would not hold the carbon offset MCO2 

Tokens as an asset. Instead, the Trust 

would pay for the MCO2 Tokens and 

retire the tokens to the Ethereum 

blockchain to reduce global carbon 

emissions by the carbon dioxide 

tonnage (or tonnage of other similar 

greenhouse gases) corresponding to 

such tokens.44

BNY Mellon would calculate the net 

asset value (‘‘NAV’’) of the Trust once 

each Exchange trading day. The NAV 

for a normal trading day would be 

released after 4:00 p.m. E.T. (often by 

5:30 p.m. E.T. and almost always by 


jspears on DSK121TN23PROD with NOTICES1
33552 Federal Register / Vol. 87, No. 106 / Thursday, June 2, 2022 / Notices 

45See id. at 55076–77. 

46See id. at 55076. 

47See id. at 55082. 

48See id. at 55077. 

49See id. at 55074, 55077. 

50See id. at 55074. 

51 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). 

52Rule 700(b)(3), Commission Rules of Practice, 

17 CFR 201.700(b)(3). 

53See id. 

54See id. 

55Susquehanna Int’l Group, LLP v. Securities and 

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

2017) (‘‘Susquehanna’’). 

56See 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. 

57See id. at 12597. 

58See Notice, 86 FR at 55082. 

59See Notice, 86 FR at 55078. See also letter from 

Sponsor (Jan. 16, 2022) (‘‘Sponsor Letter’’) at 1 

8:00 p.m. E.T.).45 The NAV per Share of 

the Trust would be equal to the median 

price of the bitcoin used in the 

calculation of the Index, less the Trust’s 

liabilities, including the cost of carbon 

measured in the Index, divided by the 

total number of outstanding Shares. The 

accumulation of the daily carbon offset 

costs calculated in the Index would act 

as an expense to the Trust. The payment 

for the retirement of carbon offsets by 

the Trust would occur once per quarter 

of the calendar year, and the number of 

MCO2 Tokens retired would equal the 

aggregated sum of offsets implied by the 

daily carbon footprint for each bitcoin 

held by the Trust during the quarter. 

The NAV would accrue the estimated 

carbon cost daily.46

The Trust would provide website 

disclosure of its bitcoin holdings 

daily.47 The Intraday Indicative Value 

(‘‘IIV’’) per Share would be widely 

disseminated every 15 seconds during 

the NYSE Arca Core Trading Session 

(normally 9:30 a.m. E.T. to 4:00 p.m. 

E.T.) by the Trust and by one or more 

major market data vendors and would 

be available through on-line information 

services. The IIV would be calculated by 

using the prior day’s closing NAV per 

Share of the Trust as a base and 

updating that value throughout the 

trading day to reflect changes in the 

most recently reported price level of the 

Index as reported by Bloomberg, L.P. or 

another reporting service.48

The Trust would process all creations 

and redemptions in-kind and only in 

one or more blocks of 50,000 Shares 

(‘‘Baskets’’).49 When creating Shares, 

authorized participants would deliver, 

or facilitate the delivery of, bitcoin to 

the Bitcoin Account in exchange for 

Shares, and when redeeming Shares, the 

Trust, through the Custodian, would 

deliver bitcoin to authorized 

participants. 

Although the Trust would create 

Baskets only upon the receipt of 

bitcoins, and redeem Baskets only by 

distributing bitcoins, a separate cash 

exchange process would be made 

available to authorized participants. 

Under the cash exchange process, an 

authorized participant would be able to 

deposit cash with BNY Mellon, which 

would facilitate the purchase or sale of 

bitcoins through a liquidity provider 

(‘‘Liquidity Provider’’) on behalf of an 

authorized participant. The bitcoin 

purchased (or sold) by the Liquidity 

Provider in connection with the cash 

exchange process would, in turn, be 

delivered to (or from, as appropriate) the 

Custodian, on behalf of the Trust, in 

exchange for Baskets.50

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 

designed ‘‘to prevent fraudulent and 

manipulative acts and practices’’ and 

‘‘to protect investors and the public 

interest.’’ 51 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.’’ 52

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,53 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.54

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.55

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.56 Such 

resistance to fraud and manipulation 

must be novel and beyond those 

protections that exist in traditional 

commodities or securities markets.57

(a) Assertions Regarding Bitcoin and 

Bitcoin Markets 

NYSE Arca does not assert that the 

bitcoin market as a whole or the 

relevant underlying bitcoin market is 

uniquely and inherently resistant to 

fraud and manipulation. The Exchange, 

however, does assert that the 

‘‘significant liquidity in the spot market 

and resultant minimal impact of market 

orders on the overall price of bitcoin, in 

conjunction with the Trust’s offering 

only in-kind creation and redemption of 

Shares . . . mitigates the risk associated 

with potential manipulation and 

financially disincentivizes manipulation 

of the Index.’’ 58

In support of the proposal, the 

Exchange states that ‘‘bitcoin is 

dominant, accounting for more than 

49% of the total market capitalization of 

cryptoassets’’ and that, ‘‘[a]s of June 

2021, the market cap for [b]itcoin is over 

$600 billion.’’ 59 In addition, NYSE Arca 


jspears on DSK121TN23PROD with NOTICES1
Federal Register / Vol. 87, No. 106 / Thursday, June 2, 2022 / Notices 33553 

(stating that the expansion of bitcoin market 

capitalization to nearly one trillion dollars and 

average daily turnover of $18.7 billion is above 

many well-known single name equity trading 

volumes such as Apple Inc.). 

60See Notice, 86 FR at 55078. 

61See id. 

62See id. Specifically, NYSE Arca states that 

‘‘[e]stablished companies like Tesla, Inc., 

MicroStrategy Incorporated, and Square, Inc., 

among others, have recently announced substantial 

investments in bitcoin in amounts as large as $1.5 

billion (Tesla) and $425 million (MicroStrategy)’’ 

and that ‘‘MassMutual Insurance Company, one of 

the nation’s oldest private companies and a 

historically conservative investor, has purchased 

over $100 million in bitcoin.’’ Id. 

63 Id. See also letter from Paul Grewal, Chief Legal 

Officer, Coinbase (Jan. 11, 2022) (‘‘Coinbase Letter’’) 

at 3–4 (restating NYSE Arca’s assertions and 

generally observing ‘‘growth in the use of crypto 

assets to participate in decentralized finance, or 

DeFi, applications such as peer-to-peer borrowing 

and lending, with the total value allocated towards 

decentralized finance globally growing from under 

$1 billion to over $15 billion from December 31, 

2019 to December 31, 2020,’’ and ‘‘a positive trend 

in the total market capitalization of crypto assets 

which indicates increased adoption’’); Sponsor 

Letter at 1–2 (generally asserting that the rising 

value of bitcoin has accompanied advancement in 

information around its operational quality and the 

development of novel techniques designed to 

increase transparency and negate the risk of 

manipulation). 

64See Notice, 86 FR at 55078. 

65See id. at 55079. 

66See id. at 55079–80. The Exchange specifically 

cites to two cases, CFTC v. Gelfman Blueprint (No. 

17–7181) (S.D.N.Y. Sept. 21, 2017) and CFTC v. 

Patrick K. McDonnell & Cabbagetech Corp., d/b/a 

Coin Drop Markets, (No. 18–CV–0361) (E.D.N.Y. 

Aug. 24, 2018), where, according to the Exchange, 

the CFTC asserted jurisdiction over the spot market 

when ‘‘there was little to no derivatives trading in 

the United States’’ or the ‘‘case did not indicate that 

there was any derivatives trading conducted,’’ 

respectively. See id. NYSE Arca surmises that the 

‘‘[c]ourts have taken an expansive interpretation of 

the CFTC’s jurisdiction over trading in particular 

virtual currency products on the basis that futures 

trading in such products as a class already occurs.’’ 

See id. See also Coinbase Letter at 5 (asserting that 

the Commission should rely on the CFTC to 

exercise its traditional fraud authority to ensure the 

underlying bitcoin market is free of manipulation, 

and that these safeguards should satisfy the 

Commission). 

67See Notice, 86 FR at 55078–79. NYSE Arca 

states that FinCEN has proposed rulemaking 

initiatives aimed at enhancing transparency, which 

would require certain financial institutions to 

collect, retain, share, and report to FinCEN 

information related to certain transactions involving 

convertible virtual currency or certain digital assets, 

including identification information of persons 

engaged in such transactions. See id. According to 

NYSE Arca, such proposed rules ‘‘are intended to 

reduce anonymity and promote transparency within 

the cryptoasset markets generally and of cryptoasset 

exchanges specifically, including the exchanges 

that compose the bitcoin component of the Index.’’ 

Id. NYSE Arca also provides that, in March 2021, 

the Financial Action Task Force (‘‘FATF’’) issued 

updated draft guidance that, ‘‘when issued in final 

form, would significantly broaden the reach of 

certain anti-money laundering, including knowyour-customer, compliance requirements applicable 

to transactions in virtual assets or involving virtual 

asset service providers.’’ Id. While NYSE Arca 

acknowledges that ‘‘FinCEN has not finalized its 

proposed rules yet, and the FATF guidance does 

not have the force of law,’’ NYSE Arca argues that 

‘‘these actions signal a concerted effort among 

regulatory bodies to introduce requirements that 

would reduce anonymity of cryptoasset transactions 

and implement stronger anti-money laundering 

compliance measures among industry participants.’’ 

Id. 

68See Notice, 86 FR at 55080. According to the 

Exchange, ‘‘the [OCC] has made clear that federallychartered banks are able to provide custody services 

for cryptoassets and other digital assets.’’ Id. 

69See id. According to the Exchange, ‘‘the 

[Federal Reserve] proposed guidelines to evaluate 

the requests for account services at Federal Reserve 

Banks in light of recent changes to the financial 

payments landscape.’’ Id. 

70The Exchange also mentions technological 

advancements in the bitcoin protocol, as well as 

advancements in regulatory frameworks, both on a 

global and national scale, such as the Bank of 

International Settlements’ provision of consultation 

on prudential treatment of cryptoassets. See Notice, 

86 FR at 55079. 

71See supra note 58 and accompanying text. The 

Exchange does not directly tie the asserted liquidity 

or development of the bitcoin market to an 

argument that such market evolution provides 

sufficient means to justify dispensing with the 

requisite surveillance sharing agreement. In 

addition, the Exchange makes no assertions that 

bitcoin is resistant to price manipulation. 

72See supra note 55. The Commission has 

previously considered and rejected similar 

arguments about the liquidity and growth of the 

bitcoin spot market and general statements about 

the maturation of the bitcoin market. See, e.g., 

Valkyrie Order, 86 FR at 74159. 

73See supra note 59 and accompanying text. 

states that bitcoin has the ‘‘longest 

history of any cryptoasset’’ and ranks as 

one of the most widely used, if not the 

most widely used, cryptoassets in the 

global token market, with ‘‘more than 38 

million unique bitcoin wallet addresses 

holding a positive balance, which shows 

a steady increase in the number of 

bitcoin owners and depth of ownership 

over the last four years.’’ 60 Moreover, 

the Exchange provides that bitcoin 

investors hold bitcoin for a relatively 

long time, as ‘‘58% of owners maintain 

ownership for longer than a one-year 

period, and 70% of all holders are in 

profitable positions.’’ 61

NYSE Arca also states that the bitcoin 

marketplace is maturing. The Exchange 

cites to increased institutional 

participation, noting that public and 

established companies now hold 

bitcoin, and that other financial market 

participants (e.g., insurance companies 

and pension funds) appear to be 

‘‘embracing cryptoassets.’’ 62 The 

Exchange also provides that ‘‘the rise in 

the digital economy has led to an 

increase in activity within the regulated 

banking system, reflecting increased 

institutional demand.’’ 63 Moreover, 

according to the Exchange, ‘‘licensed 

and regulated service providers have 

emerged to provide fund custodial 

services for digital assets, among other 

services.’’ 64

Additionally, NYSE Arca states that 

the Commodity Futures Trading 

Commission (‘‘CFTC’’) has ‘‘exercised 

its regulatory jurisdiction in bringing a 

number of enforcement actions related 

to bitcoin and against trading platforms 

that offer cryptoasset trading, including, 

in certain cases, against defendants for 

direct trading of cryptoassets.’’ 65

Specifically, NYSE Arca contends that 

the CFTC ‘‘has historically asserted 

jurisdiction over spot market 

commodities trading, where 

manipulative trading in the spot market 

can affect its derivatives market.’’ 66

Finally, according to NYSE Arca, 

certain other regulatory bodies, such as 

the U.S. Department of the Treasury’s 

Financial Crimes Enforcement Network 

(‘‘FinCEN’’), the U.S. Office of the 

Comptroller of the Currency (‘‘OCC’’), 

and the Board of Governors of the 

Federal Reserve System (‘‘Federal 

Reserve’’) have recently proposed or 

clarified rules to enhance 

transparency,67 custody,68 and account 

services 69 relating to ‘‘cryptoassets’’ or 

‘‘digital assets,’’ respectively.70

As with the previous proposals, the 

Commission here concludes that the 

Exchange’s assertions about the general 

liquidity, growth, and acceptance 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 significant 

liquidity in the spot market and 

resultant minimal impact of market 

orders on the overall price of bitcoin 

mitigates the risk associated with 

potential manipulation, such assertion 

is general and conclusory. Indeed, apart 

from the market capitalization of bitcoin 

and the number of unique bitcoin wallet 

addresses, NYSE Arca provides no 

analysis or evidence of liquidity in the 

bitcoin spot market or its assertion that 

there is ‘‘minimal impact of market 

orders’’ on the price of bitcoin. 

Likewise, NYSE Arca provides no 

analysis or evidence to demonstrate 

how liquidity or minimal impact of 

market orders serves to detect and deter 

potential fraud and manipulation.71 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.72

While the Sponsor and NYSE Arca 

provide figures describing the size of the 

bitcoin spot market,73 such information 

is not sufficient to support the finding 

that other means besides surveillancesharing agreements exist to prevent 

fraud or manipulation. NYSE Arca does 


jspears on DSK121TN23PROD with NOTICES1
33554 Federal Register / Vol. 87, No. 106 / Thursday, June 2, 2022 / Notices 

74See infra note 107 and accompanying text. 

75See infra note 78 and accompanying text. 

76See 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. 

77See supra note 60 and accompanying text. 

78See, e.g., Winklevoss Order, 83 FR at 37584; 

USBT Order, 85 FR at 12600–01; WisdomTree 

Order, 86 FR at 69325; Valkyrie Order, 86 FR at 

74160; Kryptoin Order, 86 FR at 74170; Skybridge 

Order, 87 FR at 3783–84; Wise Origin Order, 87 FR 

at 5531; ARK 21Shares Order, 87 FR at 20019. See 

also Registration Statement at 21 (disclosing that: 

(a) Some entities hold large amounts of bitcoin 

relative to other market participants, (b) as of the 

date of the [Registration Statement], the ‘‘largest 

[100] bitcoin wallets held a substantial amount of 

the outstanding supply of bitcoin and it is possible 

that some of these wallets are controlled by the 

same person or entity,’’ and (c) ‘‘it is possible that 

other persons or entities control multiple wallets 

that collectively hold a significant number of 

bitcoin, even if each wallet individually only holds 

a small amount,’’ and ‘‘[a]s a result of this 

concentration of ownership, large sales by such 

holders could have an adverse effect on the market 

price of bitcoin’’). 

79See supra notes 62–64 and accompanying text. 

80See Notice, 86 FR at 55079. 

81See USBT Order, 85 FR at 12604; WisdomTree 

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

74162; SkyBridge Order, 87 FR at 3877; ARK 

21Shares Order, 87 FR at 20023. 

82See id. 

83See 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). 

84See supra note 66 and accompanying text. 

85See supra note 19 and accompanying text. 86According to the Exchange, the OCC clarified 

that ‘‘federally-chartered banks are able to provide 

custody services for cryptoassets and other digital 

assets’’; the Federal Reserve proposed guidelines to 

evaluate the requests for account services; and 

FinCEN has proposed rulemaking initiatives to 

‘‘require certain cryptoasset transactions to be 

subject to [AML] compliance’’; FATF has issued 

updated draft guidance that ‘‘would significantly 

broaden the reach of certain anti-money laundering, 

including [KYC], compliance requirements 

applicable to transactions in virtual assets or 

involving virtual asset service providers’’; and the 

Treasury’s Office of Foreign Assets Control 

(‘‘OFAC’’) has ‘‘brought enforcement actions over 

apparent violations of the sanctions laws in 

connection with the provision of wallet 

management services for digital assets.’’ See supra 

notes 67–70 and accompanying text. 

87See NDSP Adopting Release, 63 FR at 70959. 

not provide meaningful analysis, based 

on data points provided, that the 

concerns previously articulated by the 

Commission relating to fraud and 

manipulation of the bitcoin market have 

been mitigated. For example, NYSE 

Arca does not sufficiently refute the 

presence of possible sources of fraud 

and manipulation in the bitcoin spot 

market generally that the Commission 

has raised in previous orders. Such 

possible sources have included (1) 

‘‘wash’’ trading,74 (2) persons with a 

dominant position in bitcoin 

manipulating bitcoin pricing,75 (3) 

hacking of the bitcoin network and 

trading platforms, (4) malicious control 

of the bitcoin network, (5) trading based 

on material, non-public information, 

including the dissemination of false and 

misleading information, (6) 

manipulative activity involving 

purported ‘‘stablecoins,’’ including 

Tether (USDT), and (7) fraud and 

manipulation at bitcoin trading 

platforms.76 Additionally, although 

NYSE Arca represents that ‘‘there are 

more than 38 million unique bitcoin 

wallet addresses holding a positive 

balance, which shows a steady increase 

in the number of bitcoin owners and 

depth of ownership over the last four 

years,’’ 77 such figure, on its own, 

regarding the number of wallet 

addresses holding bitcoin do not 

provide any information on the 

concentration of bitcoin within or 

among such wallets, or take into 

account that a market participant with 

a dominant ownership position could 

use dominant market share to engage in 

manipulation.78

Further, although the Exchange 

describes the bitcoin marketplace as 

maturing with increased institutional 

participation and acceptance,79 the 

Exchange does not elaborate on how 

such participation and acceptance 

would mitigate against fraud and 

manipulation. 

In support of its proposal, NYSE Arca 

also states that the ‘‘CFTC has exercised 

its regulatory jurisdiction in bringing a 

number of enforcement actions related 

to bitcoin and against trading platforms 

that offer cryptoasset trading.’’ 80 The 

Commission has long recognized that 

the CFTC maintains some jurisdiction 

over the bitcoin spot market. However, 

under the Commodity Exchange Act, the 

CFTC does not have regulatory authority 

over bitcoin spot trading platforms.81

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.82 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.’’ 83 In addition, 

while certain bitcoin derivatives 

exchanges that trade bitcoin futures and 

options on bitcoin futures are regulated 

by the CFTC, the CFTC’s regulations do 

not extend to the bitcoin spot platforms, 

including the bitcoin spot platforms 

comprising the Index. 

Moreover, even if, as the Exchange 

maintains, the CFTC ‘‘has historically 

asserted jurisdiction over spot market 

commodities trading, where 

manipulative trading in the spot market 

can affect its derivatives market’’ 84

(emphasis added), the Exchange fails to 

explain why the CFTC’s ability to bring 

enforcement action is a sufficient basis 

for the Exchange to dispense with the 

requirement to enter into a surveillancesharing agreement with a regulated 

market of significant size. Specifically, 

where here the Shares of the proposed 

ETP would trade on a securities market, 

the Exchange fails to explain why it is 

relevant to the proposal that the CFTC 

can bring enforcement actions when 

spot trading affects the derivatives 

market. Moreover, the Commission also 

has the ability to bring enforcement 

actions for a wide array of causes, 

including fraud and manipulation, in 

the securities market. Despite this, as 

stated above, 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.85

Further, while the Exchange describes 

how other U.S. regulatory bodies have 

clarified or considered rulemaking 

initiatives to enhance transparency, 

custody, and account services relating to 

cryptoassets and other digital assets,86

NYSE Arca fails to explain how such 

initiatives serve as a suitable substitute 

or regulatory supplement to dispense 

with the need for the Exchange to enter 

into a surveillance-sharing agreement 

with a regulated market of significant 

size. As discussed above, it is essential 

for an exchange listing a derivative 

securities product to enter into a 

surveillance-sharing 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.87 Such 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 


jspears on DSK121TN23PROD with NOTICES1
Federal Register / Vol. 87, No. 106 / Thursday, June 2, 2022 / Notices 33555 

88See supra note 15 and accompanying text. 

89NYSE Arca provides no data, information, or 

analysis as to how clarifications by the OCC 

regarding custody or by the Federal Reserve 

regarding account services address the 

Commission’s concerns about fraud and 

manipulation. Likewise, initiatives by FinCEN, 

FATF, and OFAC related to AML, KYC, and 

sanctions do not serve as a substitute for, and are 

not otherwise the dispositive factor in the analysis 

regarding, the importance of having a surveillancesharing 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 national securities 

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

and accompanying text. See also Kryptoin Order, 86 

FR at 74172 n.79 (discussing how a commenter 

asserts that global bitcoin and cryptocurrency 

markets are subject to increasing levels of 

regulation, oversight, and enforcement actions by 

global governments and regulatory bodies, but 

provides no data, information, or analysis as to 

how, among other things, any such regulation 

makes the listing and trading of the ETP shares 

inherently resistant to fraud and manipulation). 

90See, e.g., SkyBridge Order, 87 FR at 3873; ARK 

21Shares Order, 87 FR at 20019–20. 

91See Registration Statement at 4, 10–11, 15. 92See Notice, 86 FR at 55080. 93 Id. 94 Id. 

95 Id. See also Sponsor Letter at 2 (further 

asserting that novel indices, such as the Index, 

‘‘provide not only a robust price for the spot bitcoin 

market but also negate the risk of market 

manipulation,’’ and that to manipulate the Index 

would require sustained intervention across 

multiple exchanges during a period of peak market 

liquidity). 

96While NYSE Arca asserts that the Index’s use 

of a median price limits the ability of outlier prices 

to affect the Index, the Commission has no basis on 

which to conclude that the Index’s constituent 

bitcoin platforms are insulated from prices of others 

that engage in or permit fraud or manipulation. See 

supra notes 37–38 and accompanying text. 

97See Registration Statement at 10, 25. 

98See id. at 29. 

party to the agreement from obtaining 

this information from, or producing it 

to, the other party.88 NYSE Arca fails to 

explain how the additional regulatory 

clarifications or rulemaking initiatives 

serve the function of a surveillancesharing agreement in preventing, and 

sharing information about, fraud and 

manipulation.89

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.90 For example, the 

Registration Statement acknowledges 

that the ‘‘spot markets through which 

bitcoin and other digital assets trade are 

new and largely unregulated, and 

therefore, may be more exposed to fraud 

and security breaches that established, 

regulated exchanges for other financial 

assets or instruments’’; that there is a 

risk of ‘‘manipulation of bitcoin spot 

markets by customers and/or the closure 

or temporary shutdown of such 

exchanges due to fraud’’; that ‘‘many 

spot markets and OTC market venues, 

do not provide the public with 

significant information regarding their 

ownership structure, management 

teams, corporate practices or oversight 

of customer trading’’; that ‘‘[o]ver the 

past several years, a number of bitcoin 

spot markets have been closed or faced 

issues due to fraud’’; that ‘‘[t]he nature 

of the assets held at bitcoin spot markets 

makes them appealing targets for 

hackers and a number of bitcoin spot 

markets have been victims of 

cybercrimes’’; 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 ‘‘digital asset networks have 

been subject to malicious activity 

achieved through control of over 50% of 

the processing power on the 

network.’’ 91

(b) Assertions Regarding the Index 

The Exchange states that the ‘‘use of 

the Index eliminates those bitcoin spot 

markets with indicia of suspicious, fake, 

or non-economic volume from the NAV 

calculation methodology pursuant to 

which the Trust prices its Shares.’’ 92 In 

addition, the Exchange asserts that the 

use of multiple eligible bitcoin spot 

markets is designed to mitigate the 

potential for idiosyncratic market risk.93

NYSE Arca also contends that the use of 

20 rolling three-minute increments in 

the construction of the Index means that 

a malicious actor would need sustained 

efforts to ‘‘manipulate the market over 

an extended period of time, or would 

need to replicate efforts multiple times, 

potentially triggering review from the 

spot market or regulators, or both.’’ 94

The Exchange also states that ‘‘[a]ny 

attempt to manipulate the NAV would 

require a substantial amount of capital 

distributed across a majority of the 

eligible spot markets, and potentially 

coordinated activity across those 

markets, making it more difficult to 

conduct, profit from, or avoid the 

detection of market manipulation.’’ 95

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 record does not 

demonstrate that the proposed 

methodology for calculating the Index 

would make the proposed ETP resistant 

to fraud or manipulation such that a 

surveillance-sharing agreement with a 

regulated market of significant size is 

unnecessary. Specifically, NYSE Arca 

has not assessed the possible influence 

that spot platforms not included among 

the Index’s underlying bitcoin platforms 

would have on the Index.96 The record 

does not establish that the broader 

bitcoin market is inherently and 

uniquely resistant to fraud and 

manipulation. Accordingly, to the 

extent that trading on platforms not 

directly used to calculate the Index 

affects prices on the Index’s underlying 

bitcoin platforms, the characteristics of 

those other platforms—where various 

kinds of fraud and manipulation from a 

variety of sources may be present and 

persist—may affect whether the Index is 

resistant to manipulation. 

Moreover, NYSE Arca’s assertions 

that the Index’s methodology helps 

make the Index resistant to 

manipulation are contradicted by the 

Registration Statement’s own 

statements. Specifically, the Registration 

Statement states, among other things, 

that ‘‘a number of bitcoin spot markets 

have been closed or faced issues due to 

fraud’’ and that ‘‘[t]he nature of the 

assets held at bitcoin spot markets 

makes them appealing targets for 

hackers and a number of bitcoin spot 

markets have been victims of 

cybercrimes.’’ 97 The Index’s constituent 

bitcoin platforms are a subset of the 

bitcoin trading venues currently in 

existence. 

With respect to the Index specifically, 

the Registration Statement also states 

that ‘‘[p]ricing sources used by the 

Index are digital asset spot markets that 

facilitate the buying and selling of 

bitcoin and other digital assets’’; 

‘‘[a]lthough many pricing sources refer 

to themselves as ‘‘exchanges,’’ they are 

not registered with, or supervised by, 

the [Commission] or CFTC and do not 

meet the regulatory standards of a 

national securities exchange or 

designated contract market.’’ 98 The 

Sponsor further states in the 

Registration Statement that ‘‘[t]he Index 

is based on various inputs which 

include price data from various thirdparty bitcoin spot markets’’ and ‘‘[t]he 

[MVIS] does not guarantee the validity 

of any of these inputs, which may be 

subject to technological error, 

manipulative activity, or fraudulent 


jspears on DSK121TN23PROD with NOTICES1
33556 Federal Register / Vol. 87, No. 106 / Thursday, June 2, 2022 / Notices 

99See id. 100See Notice, 86 FR at 55080. 101Further, the Commission has previously 

considered and rejected arguments about the 

valuation of bitcoin according to a benchmark or 

reference price mitigating concerns about fraud and 

manipulation. See, e.g., SolidX Order, 82 FR at 

16258; Winklevoss Order, 83 FR at 37587–90; USBT 

Order, 85 FR at 12599–601. 102See supra notes 33 & 37 and accompanying 

text. 103See 15 U.S.C. 78f(b). 

104See supra notes 94–95 and accompanying text. 

105See USBT Order, 85 FR at 12601 n.66; see also 

id. at 12607; Kryptoin Order, 86 FR at 74172. 

106See supra notes 37–38 and accompanying text. 

107See WisdomTree Order, 86 FR at 69327; 

Kryptoin Order, 86 FR at 74172. 

108Putting aside NYSE Arca’s various assertions 

about bitcoin and developments of the bitcoin 

market, the Index, and the Shares, NYSE Arca also 

does not address concerns the Commission has 

previously identified, including the susceptibility 

of bitcoin markets to potential trading on material, 

non-public information (such as plans of market 

participants to significantly increase or decrease 

their holdings in bitcoin; new sources of demand 

for bitcoin; the decision of a bitcoin-based 

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

in the bitcoin blockchain, which would create two 

different, non-interchangeable types of bitcoin), or 

to the dissemination of false or misleading 

information. See Winklevoss Order, 83 FR at 37585. 

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

WisdomTree Order, 86 FR at 69329 n.114; Kryptoin 

Order, 86 FR at 74174 n.107; Skybridge Order, 87 

FR at 3872; Wise Origin Order, 87 FR at 5533 n.89; 

ARK 21Shares Order, 87 FR at 20022 n.117. 

109See Registration Statement at 5 (stating that 

the NAV of the Trust may deviate from the market 

price of its Shares for a number of reasons, 

including price volatility, trading activity, normal 

trading hours for the Trust, the calculation 

methodology of the NAV, and/or the closing of 

bitcoin trading platforms due to fraud, failure, 

security breaches or otherwise); Registration 

Statement at 30 (disclosing that shareholders 

should be aware that the public trading price per 

Share may be different from the NAV for a number 

of reasons, including price volatility, trading 

activity, the closing of bitcoin trading platforms due 

to fraud, failure, security breaches or otherwise, and 

the fact that supply and demand forces at work in 

the secondary trading market for Shares are related, 

but not identical, to the supply and demand forces 

influencing the market price of bitcoin). 

110See Notice, 86 FR at 55080. According to the 

Exchange, except to pay certain expenses or in the 

case of a forced redemption or other ordinary 

circumstances, the Trust will not purchase or sell 

bitcoin directly. See id. at 55080 n.43. See also 

Coinbase Letter at 2. 

111See Notice, 86 FR at 55080. 

reporting from their initial source.’’ 99

And, although the Sponsor raises 

concerns regarding fraud and security of 

bitcoin platforms, as well as concerns 

specific to the Index’s constituent 

bitcoin platforms, the Exchange does 

not explain how or why such concerns 

are consistent with its assertion that the 

Index is resistant to fraud and 

manipulation. Indeed, the Trust’s 

Registration Statement undermines 

NYSE Arca’s arguments and assertions 

about how the Index is resistant fraud 

and manipulation. 

Moreover, although the Exchange 

states that the Index’s ‘‘oversight [is] 

managed by an independent 

committee’’ 100 and that the Committee 

selects the Index’s constituent platforms 

from multiple eligible markets (and thus 

mitigate the potential for idiosyncratic 

market risk), the record does not 

provide any other details about the 

oversight of the Committee and how its 

selection processes mitigate fraud and 

manipulation of the constituent bitcoin 

platforms. Given the lack of 

information, the record does not suggest 

that the oversight or the selection 

process represents a unique measure to 

resist or prevent manipulation beyond 

mechanisms that exist in securities or 

commodities markets.101 Rather, the 

oversight performed by the Committee 

appears to be for the purpose of 

ensuring the accuracy and integrity of 

the Index.102 Such oversight serves a 

fundamentally different purpose as 

compared to the regulation of national 

securities exchanges and the 

requirements of the Exchange Act. 

While the Commission recognizes that 

this may be an important function in 

ensuring the integrity of the Index, such 

requirements do not imbue either the 

Committee or the Index’s underlying 

bitcoin platforms with regulatory 

authority similar to that the Exchange 

Act confers upon self-regulatory 

organizations such as national securities 

exchanges.103

NYSE Arca also argues that the use of 

20 rolling three-minute increments 

means that a malicious actor would 

need to sustain efforts to manipulate the 

market over an extended period of time, 

or would need to replicate efforts 

multiple times, potentially triggering 

review from the spot market or 

regulators, or both.104 However, NYSE 

Arca does not show or explain how the 

proposed use of 20 rolling three-minute 

increments to calculate the Index value 

would effectively be able to eliminate 

fraudulent or manipulative activity that 

is not transient. Fraud and manipulation 

in the bitcoin spot market could persist 

for a ‘‘significant duration.’’ 105 The 

Exchange also does not connect the use 

of the partitions 106 to the duration of 

the effects of the wash and fictitious 

trading that may exist in the bitcoin spot 

market.107

NYSE Arca also does not explain the 

significance of the Index’s 

unsubstantiated resistance to 

manipulation to the overall analysis of 

whether the proposal to list and trade 

the Shares is designed to prevent fraud 

and manipulation. Even assuming that 

NYSE Arca’s argument is that, if the 

Index is resistant to manipulation, the 

Trust’s NAV, and thereby the Shares as 

well, would be resistant to 

manipulation, NYSE Arca has not 

established in the record a basis for such 

conclusion.108 That assumption aside, 

the Commission notes that the Shares 

would trade at market-based prices in 

the secondary market, not at NAV, 

which then raises the question of the 

significance of the NAV calculation to 

the manipulation of the Shares.109

Because NYSE Arca does not address 

or provide any analysis with respect to 

these issues, the Commission cannot 

conclude that the Index aids in the 

determination that the proposal to list 

and trade the Shares is designed to 

prevent fraudulent and manipulative 

acts and practices. The Exchange has 

not demonstrated that the Index 

methodology makes the proposed ETP 

resistant to manipulation. While the 

proposed procedures for calculating the 

Index using prices from the constituent 

bitcoin platforms may be intended to 

provide some degree of protection 

against attempts to manipulate the 

Index, these procedures are not 

sufficient for the Commission to 

dispense with the requisite surveillancesharing agreement with a regulated 

market of significant size. 

(c) Assertion Regarding the Create/ 

Redeem Process 

NYSE Arca also asserts that, because 

the Trust will, in ordinary 

circumstances, not purchase or sell 

bitcoin, but instead process all creations 

and redemptions in-kind in transactions 

with authorized participants, ‘‘the Trust 

is uniquely protected against potential 

attempts by bad actors to manipulate the 

price of bitcoin on spot markets 

contributing to the Index and thereby 

the Trust’s NAV calculation.’’ 110

According to NYSE Arca, this is true 

even with respect to transactions with 

authorized participants who rely on the 

cash exchange process described above 

because the Trust will create (or redeem, 

as appropriate) Baskets only upon the 

receipt (or distribution, as appropriate) 

of bitcoin, and will not create or redeem 

any Baskets based on the receipt or 

distribution of cash alone.111 Thus, as 

NYSE Arca argues, ‘‘even if a bad actor 

were able to temporarily manipulate the 

price of bitcoin on a spot market or 

manipulate enough of the volume of the 

markets to overwhelm the protections 

designed into the Index and thereby the 

NAV, the fact that the Trust will create 

or redeem Baskets only upon receipt or 

distribution of bitcoin (in all 

circumstances barring a forced 

redemption) means that the amount of 


jspears on DSK121TN23PROD with NOTICES1
Federal Register / Vol. 87, No. 106 / Thursday, June 2, 2022 / Notices 33557 

112See id. The Exchange asserts that, because the 

Trust will generally not accept cash in order to 

create new Shares or, barring a forced redemption 

of the Trust or under other extraordinary 

circumstances, be forced to sell bitcoin to pay cash 

for redeemed Shares, ‘‘the ratio of bitcoin per Share 

that [a]uthorized [p]articipants will tender (for 

creations) or receive (for distributions) will not 

change as a result of any changes in the price per 

Share, even if the [a]uthorized [p]articipant relies 

on the cash exchange process to facilitate such 

creation or redemption.’’ Id. 

113The Sponsor also asserts that the creation/ 

redemption process is at the core of bringing the 

‘‘[NAV] of the underlying holdings as close to the 

traded value of the product as possible’’ and notes 

that the ‘‘in-kind exchange for redemption and 

creation of Shares is more efficient than cash,’’ but 

the Sponsor provides no other explanation as to 

whether in-kind creations and redemptions mitigate 

against the Commission’s concerns regarding fraud 

and manipulation in the bitcoin market or justify 

dispensing with the requisite surveillance-sharing 

agreement. See Sponsor Letter at 6. 

114See 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; 

ARK 21Shares Order, 87 FR at 20022. 

115See, e.g., iShares COMEX Gold Trust, 

Securities Exchange Act Release No. 51058 (Jan. 19, 

2005), 70 FR 3749, 3751–55 (Jan. 26, 2005) (SRAmex-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). 

116See 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. 

117See Valkyrie Order, 86 FR at 74163. 

118See 15 U.S.C. 78s(b)(2)(C). 

119 15 U.S.C. 78f(b)(5). 

120 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). The Sponsor argues that the 

growth of digitalized U.S. dollars demonstrates that 

the technological advancements in bitcoin are 

symbiotic with fiat currencies, reinforcing the 

operational efficiencies to be gained from final and 

virtually instantaneous settlement. See Sponsor 

Letter at 4. The Sponsor also asserts that, just as an 

in-kind exchange for redemption and creation of 

Shares is more efficient than cash, establishing this 

precedent may also lead to the natural extension of 

investors seeking in-kind delivery as they consume 

custodial and other financial services directly, and 

that, in this case, ‘‘exchange traded products would 

be a transition to a more digitalized, personalized, 

and efficient form of automated financial services.’’ 

See Sponsor Letter at 6. For the reasons discussed 

throughout, however, see supra note 51, the 

Commission is disapproving the proposed rule 

change because it does not find that the proposed 

rule change is consistent with the Exchange Act. 

See also USBT Order, 85 FR at 12615. 

121See Coinbase Letter at 2. 

122See supra note 12. See also VanEck Order, 86 

FR at 64552; Skybridge Order, 87 FR at 3881 n.177. 

See generally Teucrium Order & Valkyrie XBTO 

Order, supra note 11. 

bitcoin per Share held by the Trust 

would not be impacted.’’ 112

NYSE Arca has not demonstrated that 

in-kind creations and redemptions 

provide the Shares with a unique 

resistance to manipulation.113 The 

Commission has previously addressed 

similar assertions.114 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.115

Accordingly, the Commission is not 

persuaded here that the Trust’s in-kind 

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.116

In its proposal, however, NYSE Arca 

does not identify any market as a 

‘‘market of significant size’’ and 

accordingly makes no assertions 

regarding, and provides no information 

to establish, either prong of the ‘‘market 

of significant size’’ determination.117

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. 

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.118

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),119 and, accordingly, the 

Commission must disapprove the 

proposal.120

C. Other Comments 

One commenter argues that the 

approval of a futures-based ETP should 

allow for the Commission to approve 

NYSE Arca’s proposal because a futuresbased ETP and the Trust are both reliant 

on bitcoin’s underlying price, and ETPs 

that invest in bitcoin futures contracts 

present substantially similar risk of 

manipulation as the Trust.121

The Commission disagrees with the 

premise of the argument. The proposed 

rule change does not relate to the same 

underlying holdings as either exchangetraded funds registered under the 

Investment Company Act of 1940 that 

provide exposure to bitcoin through 

CME bitcoin futures or bitcoin futures 

ETPs. The Commission considers the 

proposed rule change on its own merits 

and under the standards applicable to it. 

Namely, with respect to this proposed 

rule change, the Commission must 

apply the standards as provided by 

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

which it has applied in connection with 

its orders considering previous 

proposals to list bitcoin-based 

commodity trusts and bitcoin-based 

trust issued receipts.122

Moreover, when the Commission 

recently approved proposals by NYSE 

Arca and Nasdaq to list and trade shares 

of ETPs holding bitcoin futures 

contracts that trade on the Chicago 

Mercantile Exchange, Inc. (‘‘CME’’) as 

their only non-cash holdings, the 

Commission found that each listing 

exchange had met its obligations under 

Exchange Act Section 6(b)(5) by 

demonstrating that the exchange had a 

comprehensive surveillance-sharing 

agreement with a regulated market of 

significant size related to CME bitcoin 

futures contracts. In each such case, 

however, the proposed ‘‘significant’’ 

regulated market (i.e., the CME) with 


jspears on DSK121TN23PROD with NOTICES1
33558 Federal Register / Vol. 87, No. 106 / Thursday, June 2, 2022 / Notices 

123See Letter from Sam Ahn (Oct. 7, 2021). 

124See Coinbase Letter at 4. 

125As the Commission, for the reasons stated 

above, does not find the proposed rule change is 

consistent with the requirements of the Exchange 

Act and the rules and regulations thereunder, the 

Commission does not address here the Exchange’s 

proposal as it pertains the Trust’s investment 

objective to reflect the performance of bitcoin in 

U.S. dollars on a carbon neutral basis through 

MCO2 Tokens. 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 94592 

(April 4, 2022), 87 FR 20905 (April 8, 2022). 

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

5See Securities Exchange Act Release No. 94947 

(May 19, 2022), 87 FR 31915 (May 25, 2022). The 

Commission designated July 7, 2022, as the date by 

which it should approve, disapprove, or institute 

proceedings to determine whether to disapprove the 

proposed rule change. 

6Securities Exchange Act Release No. 94592 

(April 4, 2022), 84 FR 20905 (April 8, 2022) (the 

‘‘Initial Proposal’’). 

which the listing exchange had a 

surveillance-sharing agreement was the 

same market on which the underlying 

bitcoin assets (i.e., CME bitcoin futures 

contracts) traded; and thus in each such 

case, the CME’s surveillance can 

reasonably be relied upon to capture the 

effects on the CME bitcoin futures 

market caused by a person attempting to 

manipulate a futures ETP by 

manipulating the price of CME bitcoin 

futures contracts, whether that attempt 

is made by directly trading on the CME 

bitcoin futures market or indirectly by 

trading outside of the CME bitcoin 

futures market. However, as the 

Commission stated, this reasoning does 

not extend to spot bitcoin ETPs. Spot 

bitcoin markets are not currently 

‘‘regulated.’’ As explained in the 

Teucrium Order and the Valkyrie XBTO 

Order, if an exchange seeking to list a 

spot bitcoin ETP relies on the CME as 

the regulated market with which it has 

a comprehensive surveillance-sharing 

agreement, the assets held by the spot 

bitcoin ETP would not be traded on the 

CME; and because of this important 

difference, with respect to a spot bitcoin 

ETP, there would be reason to question 

whether a surveillance-sharing 

agreement with the CME would, in fact, 

assist in detecting and deterring 

fraudulent and manipulative 

misconduct affecting the price of the 

spot bitcoin held by that ETP. In any 

event, however, in the current proposal, 

NYSE Arca does not identify any market 

as a ‘‘market of significant size.’’ 

The Commission also received 

comment letters that addressed the 

general nature of bitcoin 123 and the 

maturation of custodial practices 

relating to the safekeeping of bitcoin.124

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.125

It is therefore ordered, pursuant to 

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

that proposed rule change SR– 

NYSEArca–2021–67 be, and hereby is, 

disapproved. 

By the Commission. 

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–11819 Filed 6–1–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–94989; File No. SR– 

NASDAQ–2022–027] 

Self-Regulatory Organizations; The 

Nasdaq Stock Market LLC; Notice of 

Filing of Proposed Rule Change, as 

Modified by Amendment No. 1, To 

Modify Certain Pricing Limitations for 

Companies Listing in Connection With 

a Direct Listing With a Capital Raise 

May 26, 2022. 

On March 21, 2022, The Nasdaq Stock 

Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

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

Exchange Act of 1934 (‘‘Act’’) 1 and Rule 

19b–4 thereunder,2 a proposed rule 

change to allow companies to modify 

certain pricing limitations for 

companies listing in connection with a 

Direct Listing with a Capital Raise in 

which the company will sell shares 

itself in the opening auction on the first 

day of trading on Nasdaq. The proposed 

rule change was published for comment 

in the Federal Register on April 8, 

2022.3 On May 19, 2022, pursuant to 

Section 19(b)(2) of the Act,4 the 

Commission designated a longer period 

within which to either approve or 

disapprove the proposed rule change, or 

institute proceedings to determine 

whether to disapprove the proposed 

rule change.5 The Commission has 

received no comments on the proposed 

rule change. 

On May 23, 2022, the Exchange filed 

Amendment No. 1 to the proposed rule 

change, which superseded the proposed 

rule change as originally filed. 

Amendment No. 1 to the proposed rule 

change is described in Items I and II 

below, which Items have been prepared 

by the Exchange. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change, 

as modified by Amendment No. 1, from 

interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to modify 

certain pricing limitations for 

companies listing in connection with a 

Direct Listing with a Capital Raise in 

which the company will sell shares 

itself in the opening auction on the first 

day of trading on Nasdaq. This 

Amendment No. 1 supersedes the 

original filing in its entirety. 

The text of the proposed rule change 

is available on the Exchange’s website at 

https://listingcenter.nasdaq.com/ 

rulebook/nasdaq/rules, at the principal 

office of the Exchange, and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

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

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

Nasdaq is filing this amendment to 

SR–NASDAQ–2022–027 6 in order to: (i) 

Clarify Nasdaq’s view of the 

applicability of Securities Act Rule 

430A and mechanics of complying with 

the disclosures required under federal 

securities laws by a company listing in 

connection with a Direct Listing with a 

Capital Raise in circumstances where 

the actual price calculated by the Cross 

is outside of the price range established 

by the issuer in its effective registration 

statement; (ii) specify that if the 

company’s certification to Nasdaq that 


jspears on DSK121TN23PROD with NOTICES1