Document ID: SEC-2022-0350-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2022-03-16T04:00Z

[Federal Register Volume 87, Number 51 (Wednesday, March 16, 2022)]
[Notices]
[Pages 14932-14941]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-05499]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94395; File No. SR-NYSEArca-2021-57]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order 
Disapproving a Proposed Rule Change To List and Trade Shares of the 
NYDIG Bitcoin ETF Under NYSE Arca Rule 8.201-E (Commodity-Based Trust 
Shares)

March 10, 2022.

I. Introduction

    On June 30, 2021, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule 
change to list and trade shares (``Shares'') of the NYDIG Bitcoin ETF 
(``Trust'') under NYSE Arca Rule 8.201-E (Commodity-Based Trust 
Shares). The proposed rule change was published for comment in the 
Federal Register on July 19, 2021.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 92395 (July 13, 
2021), 86 FR 38129 (July 19, 2021) (``Notice''). Comments on the 
proposed rule change can be found at: https://www.sec.gov/comments/sr-nysearca-2021-57/srnysearca202157.htm.
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    On August 23, 2021, pursuant to Section 19(b)(2) of the Exchange 
Act,\4\ the Commission designated a longer period within which to 
approve the proposed rule change, disapprove the proposed rule change, 
or institute proceedings to determine whether to disapprove the 
proposed rule change.\5\ On September 29, 2021, the Commission 
instituted proceedings under Section 19(b)(2)(B) of the Exchange Act 
\6\ to determine whether to approve or disapprove the proposed rule 
change.\7\ On January 4, 2022, the Commission designated a longer 
period for Commission action on the proposed rule change.\8\
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    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 92722 (Aug. 23, 
2021), 86 FR 48268 (Aug. 27, 2021).
    \6\ 15 U.S.C. 78s(b)(2)(B).
    \7\ See Securities Exchange Act Release No. 93191, 86 FR 55090 
(Oct. 5, 2021).
    \8\ See Securities Exchange Act Release No. 93893, 87 FR 1238 
(Jan. 10, 2022).
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    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\
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    \9\ 15 U.S.C. 78f(b)(5).
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    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

[[Page 14933]]

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\
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    \10\ Bitcoins are digital assets that are issued and transferred 
via a decentralized, open-source protocol used by a peer-to-peer 
computer network through which transactions are recorded on a public 
transaction ledger known as the ``bitcoin blockchain.'' The bitcoin 
protocol governs the creation of new bitcoins and the cryptographic 
system that secures and verifies bitcoin transactions. See, e.g., 
Notice, 86 FR at 38130.
    \11\ See Order Setting Aside Action by Delegated Authority and 
Disapproving a Proposed Rule Change, as Modified by Amendments No. 1 
and 2, To List and Trade Shares of the Winklevoss Bitcoin Trust, 
Securities Exchange Act Release No. 83723 (July 26, 2018), 83 FR 
37579 (Aug. 1, 2018) (SR-BatsBZX-2016-30) (``Winklevoss Order''); 
Order Disapproving a Proposed Rule Change, as Modified by Amendment 
No. 1, To Amend NYSE Arca Rule 8.201-E (Commodity-Based Trust 
Shares) and To List and Trade Shares of the United States Bitcoin 
and Treasury Investment Trust Under NYSE Arca Rule 8.201-E, 
Securities Exchange Act Release No. 88284 (Feb. 26, 2020), 85 FR 
12595 (Mar. 3, 2020) (SR-NYSEArca-2019-39) (``USBT Order''); Order 
Disapproving a Proposed Rule Change To List and Trade Shares of the 
WisdomTree Bitcoin Trust Under BZX Rule 14.11(e)(4), Commodity-Based 
Trust Shares, Securities Exchange Act Release No. 93700 (Dec. 1, 
2021), 86 FR 69322 (Dec. 7, 2021) (SR-CboeBZX-2021-024) 
(``WisdomTree Order''); Order Disapproving a Proposed Rule Change to 
List and Trade Shares of the Valkyrie Bitcoin Fund under NYSE Arca 
Rule 8.201-E (Commodity-Based Trust Shares), Securities Exchange Act 
Release No. 93859 (Dec. 22, 2021), 86 FR 74156 (Dec. 29, 2021) (SR-
NYSEArca-2021-31) (``Valkyrie Order''); Order Disapproving a 
Proposed Rule Change to List and Trade Shares of the Kryptoin 
Bitcoin ETF Trust under BZX Rule 14.11(e)(4), Commodity-Based Trust 
Shares, Securities Exchange Act Release No. 93860 (Dec. 22, 2021), 
86 FR 74166 (Dec. 29, 2021) (SR-CboeBZX-2021-029) (``Kryptoin 
Order''); Order Disapproving a Proposed Rule Change to List and 
Trade Shares of the First Trust SkyBridge Bitcoin ETF Trust under 
NYSE Arca Rule 8.201-E (Commodity-Based Trust Shares), Securities 
Exchange Act Release No. 94006 (Jan. 20, 2022), 87 FR 3869 (Jan. 25, 
2022) (SR-NYSEArca-2021-37) (``SkyBridge Order''); and Order 
Disapproving a Proposed Rule Change to List and Trade Shares of the 
Wise Origin Bitcoin Trust under BZX Rule 14.11(e)(4), Commodity-
Based Trust Shares, Securities Exchange Act Release No. 94080 (Jan. 
27 2022), 87 FR 5527 (Feb. 1, 2022) (SR-CboeBZX-2021-039) (``Wise 
Origin Order''). See also Order Disapproving a Proposed Rule Change, 
as Modified by Amendment No. 1, Relating to the Listing and 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'').
    \12\ See 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).
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    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 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.\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\
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    \13\ See 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.
    \14\ See NDSP Adopting Release, 63 FR at 70959.
    \15\ See Winklevoss Order, 83 FR at 37592-93; Letter from 
Brandon Becker, Director, Division of Market Regulation, Commission, 
to Gerard D. O'Connell, Chairman, Intermarket Surveillance Group 
(June 3, 1994), available at https://www.sec.gov/divisions/marketreg/mr-noaction/isg060394.htm.
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    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\
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    \16\ See 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.
    \17\ See USBT Order, 85 FR at 12597.
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    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\
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    \18\ See Winklevoss Order, 83 FR at 37594.
    \19\ See 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 surveillance-sharing agreements ``ensure 
the availability of information necessary to detect and deter 
potential manipulations and other trading abuses'').
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    Listing exchanges have also attempted to demonstrate that other 
means besides surveillance-sharing agreements will be sufficient to 
prevent fraudulent and manipulative acts and practices, including that 
the bitcoin market as a whole or the relevant underlying bitcoin market 
is ``uniquely'' and ``inherently'' resistant to fraud and 
manipulation.\20\ In response, the Commission has agreed that, if a 
listing exchange could establish that the underlying market inherently 
possesses a unique resistance to manipulation beyond the protections 
that are utilized by traditional commodity or securities markets, it 
would not necessarily need to enter into a surveillance-sharing 
agreement with a regulated significant market.\21\ Such resistance to 
fraud and manipulation, however, must be novel and beyond those 
protections that exist in traditional commodity markets or equity 
markets for which the Commission has long required surveillance-sharing 
agreements in the context of listing derivative securities 
products.\22\ No listing exchange has satisfied its burden to make such 
demonstration.\23\
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    \20\ See USBT Order, 85 FR at 12597.
    \21\ See 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.
    \22\ See USBT Order, 85 FR at 12597.
    \23\ See supra note 11.
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    Here, NYSE Arca contends that approval of the proposal is 
consistent with Section 6(b)(5) of the Exchange Act, in particular 
Section 6(b)(5)'s requirement that the rules of a national

[[Page 14934]]

securities exchange be designed to prevent fraudulent and manipulative 
acts and practices and to protect investors and the public 
interest.\24\ As discussed in more detail below, NYSE Arca asserts that 
the proposal is consistent with Section 6(b)(5) of the Exchange Act 
because the Exchange has a comprehensive surveillance-sharing agreement 
with a regulated market of significant size,\25\ and because the 
manipulation concerns previously articulated by the Commission have 
been significantly mitigated.\26\ In addition, NYSE Arca asserts that 
the proposal is consistent with Section 6(b)(5) of the Exchange Act 
because it is designed to protect investors and the public 
interest.\27\
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    \24\ See Notice, 86 FR at 38134.
    \25\ See id. at 38134-35.
    \26\ See id.
    \27\ See id. at 38134, 38136.
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    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 surveillance-sharing agreements will be sufficient to prevent 
fraudulent and manipulative acts and practices; in Section III.B.2 
assertions that NYSE Arca has entered into a comprehensive 
surveillance-sharing agreement with a regulated market of significant 
size related to bitcoin; and in Section III.C assertions that the 
proposal is consistent with the protection of investors and the public 
interest.
    Based on the analysis, the Commission concludes that NYSE Arca has 
not established that other means to prevent fraudulent and manipulative 
acts and practices are sufficient to justify dispensing with the 
requisite surveillance-sharing agreement. The Commission further 
concludes that NYSE Arca has not established that it has a 
comprehensive surveillance-sharing agreement with a regulated market of 
significant size related to bitcoin. As discussed further below, NYSE 
Arca repeats various assertions made in prior bitcoin-based ETP 
proposals that the Commission has previously addressed and rejected--
and more importantly, NYSE Arca does not respond to the Commission's 
reasons for rejecting those assertions but merely repeats them. As a 
result, the Commission is unable to find that the proposed rule change 
is consistent with the statutory requirements of Exchange Act Section 
6(b)(5).
    The Commission again emphasizes that its disapproval of this 
proposed rule change does not rest on an evaluation of whether bitcoin, 
or blockchain technology more generally, has utility or value as an 
innovation or an investment. Rather, the Commission is disapproving 
this proposed rule change because, as discussed below, NYSE Arca has 
not met its burden to demonstrate that its proposal is consistent with 
the requirements of Exchange Act Section 6(b)(5).

II. Description of the Proposed Rule Change

    As described in more detail in the Notice,\28\ the Exchange 
proposes to list and trade the Shares of the Trust under NYSE Arca Rule 
8.201-E, which governs the listing and trading of Commodity-Based Trust 
Shares on the Exchange.\29\
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    \28\ See Notice, supra note 3. See also draft Registration 
Statement on Form S-1, dated February 16, 2021, filed by the Trust 
with the Commission (``Registration Statement''). The Registration 
Statement is not yet effective.
    \29\ Although the name of the Trust is the NYDIG Bitcoin ETF, 
the Trust is a commodity-based ETP. The Trust is not an exchange-
traded fund, i.e., an ``ETF,'' registered under the Investment 
Company Act of 1940, as amended (``1940 Act''), and is not subject 
to regulation under the 1940 Act.
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    The investment objective of the Trust is to reflect the performance 
of the price of bitcoin less the expenses of the Trust's 
operations.\30\ The Trust will not seek to reflect the performance of 
any benchmark or index. In seeking to achieve its investment objective, 
the Trust will only hold bitcoin.\31\ The Trust will value its assets 
daily in accordance with Generally Accepted Accounting Principles 
(``GAAP''), which generally value bitcoin by reference to orderly 
transactions in the principal active market for bitcoin.\32\ The Trust 
generally does not intend to hold cash or cash equivalents. However, 
the Trust may hold cash and cash equivalents on a temporary basis to 
pay extraordinary expenses.\33\
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    \30\ See Notice, 86 FR at 38129. NYDIG Asset Management LLC 
(``Sponsor'') is the sponsor of the Trust. Delaware Trust Company is 
the trustee of the Trust, U.S. Bancorp Fund Services, LLC 
(``Administrator'') is the transfer agent and the administrator of 
the Trust, and NYDIG Trust Company LLC (``Bitcoin Custodian'') is 
the bitcoin custodian for the Trust. The Bitcoin Custodian is 
chartered as a limited purpose trust company by the New York State 
Department of Financial Services (``NYDFS'') and is authorized by 
NYDFS to provide digital asset custody services. Both the Sponsor 
and the Bitcoin Custodian are indirect wholly-owned subsidiaries of 
New York Digital Investment Group LLC. See id.
    \31\ See id.
    \32\ See id.
    \33\ See id. at 38130. The Trust will enter into a cash custody 
agreement with U.S. Bank N.A. under which U.S. Bank N.A. will act as 
custodian of the Trust's cash and cash equivalents. See id.
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    The net asset value (``NAV'') of the Trust will be determined in 
accordance with GAAP as the total value of bitcoin held by the Trust, 
plus any cash or other assets, less any liabilities including accrued 
but unpaid expenses.\34\ According to the Exchange, generally, GAAP 
requires the fair value of an asset that is traded on a market to be 
measured by reference to orderly transactions on an active market. 
Among all active markets with orderly transactions, the market that is 
used to determine the fair value of an asset is the principal market. 
The Sponsor expects that the principal market will initially generally 
be the NYDFS-regulated trading venue with the highest trading volume 
and level of activity.\35\ The NAV of the Trust will typically be 
determined as of 4:00 p.m. E.T. on each day that the Exchange is open 
for regular trading (``Business Day''). The Trust's daily activities 
will generally not be reflected in the NAV determined for the Business 
Day on which the transactions are effected (the trade date), but rather 
on the following Business Day. The NAV for the Trust's Shares will be 
disseminated daily to all market participants at the same time.\36\
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    \34\ See id. at 38131.
    \35\ See id. at 38132.
    \36\ See id. at 38131-32.
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    The Trust will disseminate an intraday indicative value (``IIV'') 
per Share updated every 15 seconds during the Exchange's Core Trading 
Session (between 9:30 a.m. and 4:00 p.m. E.T.). The IIV will be 
calculated by using the same methodology that the Trust uses to 
determine NAV, which is to follow GAAP.\37\
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    \37\ See id. at 38132.
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    The Trust will create and redeem Shares from time to time in ``in-
kind'' transactions in blocks of 10,000 Shares (``Creation 
Baskets'').\38\ Creation Baskets will only be made in exchange for 
delivery to the Trust or the distribution by the Trust of the amount of 
bitcoin represented by the Shares being created or redeemed, the amount 
of which will be based on the quantity of bitcoin attributable to each 
Share of the Trust (net of accrued but unpaid Sponsor fees, 
extraordinary expenses, or liabilities) being created or redeemed 
determined as of 4:00 p.m. E.T. on the day the order is properly 
received.\39\
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    \38\ See id. at 38129-30.
    \39\ See id. at 38129-30, 38132.
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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

[[Page 14935]]

designed ``to prevent fraudulent and manipulative acts and practices'' 
and ``to protect investors and the public interest.'' \40\ Under the 
Commission's Rules of Practice, the ``burden to demonstrate that a 
proposed rule change is consistent with the Exchange Act and the rules 
and regulations issued thereunder . . . is on the self-regulatory 
organization [`SRO'] that proposed the rule change.'' \41\
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    \40\ 15 U.S.C. 78f(b)(5). Pursuant to Section 19(b)(2) of the 
Exchange Act, 15 U.S.C. 78s(b)(2), the Commission must disapprove a 
proposed rule change filed by a national securities exchange if it 
does not find that the proposed rule change is consistent with the 
applicable requirements of the Exchange Act. Exchange Act Section 
6(b)(5) states that an exchange shall not be registered as a 
national securities exchange unless the Commission determines that 
``[t]he rules of the exchange are designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, 
to protect investors and the public interest; and are not designed 
to permit unfair discrimination between customers, issuers, brokers, 
or dealers, or to regulate by virtue of any authority conferred by 
this title matters not related to the purposes of this title or the 
administration of the exchange.'' 15 U.S.C. 78f(b)(5).
    \41\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 
201.700(b)(3).
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    The description of a proposed rule change, its purpose and 
operation, its effect, and a legal analysis of its consistency with 
applicable requirements must all be sufficiently detailed and specific 
to support an affirmative Commission finding,\42\ and any failure of an 
SRO to provide this information may result in the Commission not having 
a sufficient basis to make an affirmative finding that a proposed rule 
change is consistent with the Exchange Act and the applicable rules and 
regulations.\43\ Moreover, ``unquestioning reliance'' on an SRO's 
representations in a proposed rule change is not sufficient to justify 
Commission approval of a proposed rule change.\44\
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    \42\ See id.
    \43\ See id.
    \44\ Susquehanna Int'l Group, LLP v. Securities and Exchange 
Commission, 866 F.3d 442, 447 (D.C. Cir. 2017) (``Susquehanna'').
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B. Whether NYSE Arca Has Met Its Burden To Demonstrate That the 
Proposal Is Designed To Prevent Fraudulent and Manipulative Acts and 
Practices

(1) Assertions That Other Means Besides Surveillance-Sharing Agreements 
Will Be Sufficient To Prevent Fraudulent and Manipulative Acts and 
Practices
    As stated above, the Commission has recognized that a listing 
exchange could demonstrate that other means to prevent fraudulent and 
manipulative acts and practices are sufficient to justify dispensing 
with a comprehensive surveillance-sharing agreement with a regulated 
market of significant size, including by demonstrating that the bitcoin 
market as a whole or the relevant underlying bitcoin market is uniquely 
and inherently resistant to fraud and manipulation.\45\ Such resistance 
to fraud and manipulation must be novel and beyond those protections 
that exist in traditional commodities or securities markets.\46\
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    \45\ See 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.
    \46\ See id. at 12597.
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    NYSE Arca asserts that ``on the whole, the manipulation concerns 
previously articulated by the Commission have since been significantly 
mitigated, and do not exceed those that exist in the markets for other 
commodities that underly [sic] securities listed on U.S. national 
securities exchanges.'' \47\ Specifically, the Exchange asserts that 
the ``significant increase in trading volume and open interest in the 
bitcoin futures market, growth of liquidity in the spot market for 
bitcoin, and certain features of the Shares mitigate the manipulation 
concerns expressed by the Commission when it last reviewed exchange 
proposals to list a bitcoin exchange-traded product.'' \48\
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    \47\ See Notice, 86 FR at 38134.
    \48\ See id.
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    NYSE Arca asserts that both the market for NYDFS-licensed bitcoin 
trading and the market for the trading of bitcoin futures and options 
on platforms regulated by the Commodity Futures Trading Commission 
(``CFTC'') have developed substantially.\49\ According to NYSE Arca, in 
the three months ending on April 30, 2021:
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    \49\ See id. at 38131.
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     With respect to the bitcoin spot market, six NYDFS-
licensed entities operated trading platforms with order books for spot 
trading of bitcoin, with a total average daily trading volume of 
approximately $2.5 billion; across these platforms, the average daily 
deviation of prices was less than 0.08%; and the largest NYDFS-licensed 
trading platform by volume had an average bid-ask spread during the 
period of less than 0.05% for trades of $250,000; and
     with respect to the bitcoin derivatives markets, two CFTC-
regulated exchanges facilitated trading of bitcoin futures, with a 
total average daily trading volume of approximately $2.9 billion; and 
one CFTC-regulated exchange facilitated trading of options on bitcoin 
futures, with average monthly trading volume of approximately $380 
million.\50\
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    \50\ See id.
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    According to NYSE Arca, the average daily trading volume for 
bitcoin across the three largest NYDFS-licensed platforms was 
approximately $7.95 million in 2016, $215.44 million in 2017, $267.19 
million in 2018, $216.97 million in 2019, $708.39 million in 2020, and 
$2.56 billion in 2021 through April 30, 2021.\51\ In addition, the 
Exchange states that the average daily trading volume and average daily 
open interest (i.e., the average total bitcoin exposure of futures 
contracts held by market participants at the end of each trading day) 
for bitcoin futures contracts on the Chicago Mercantile Exchange 
(``CME'') and the Intercontinental Exchange (``ICE'') was approximately 
$41.10 million and $81.87 million, respectively, in 2016; $86.68 
million and $126.90 million, respectively, in 2017; $172.60 million and 
$246.62 million, respectively, in 2018; $561.78 million and $535.13 
million, respectively, in 2020, and $2.51 billion and $2.94 billion, 
respectively in 2021 through April 30, 2021.\52\
---------------------------------------------------------------------------

    \51\ See id. The bitcoin data is for trading volumes of bitcoin 
against U.S. dollars and excludes trading transactions of bitcoin 
against other digital assets (e.g., Tether) or other fiat currencies 
(e.g., euros). See id.
    \52\ See id.
---------------------------------------------------------------------------

    In addition, the Exchange asserts that ``increases in investor 
participation in and institutional adoption of bitcoin have facilitated 
the maturation of the bitcoin trading ecosystem'' such that 
manipulation concerns have been largely mitigated.\53\
---------------------------------------------------------------------------

    \53\ See id. at 38135. NYSE Arca also states that, ``[b]eginning 
in 2016, more institutional investors entered the bitcoin market.'' 
As a result, according to the Exchange, ``an increasing number of 
transactions have occurred in over-the-counter (``OTC'') markets 
instead of exchanges. This type of trading allows for bespoke 
trading arrangements that may ease the burden of trade operations or 
reduce direct types of risks (e.g., counterparty risk).'' See id. at 
38131.

---------------------------------------------------------------------------

[[Page 14936]]

    NYSE Arca also asserts that ``[b]ecause the Shares can only be 
created or redeemed in kind, and . . . because the Sponsor fee is 
accrued with respect to the quantity of bitcoin held by the Trust and 
paid in kind by the Trust, the Trust receives and holds only bitcoin.'' 
\54\ According to the Exchange, ``[t]his substantially reduces the 
potential for manipulation of the number of Shares created or redeemed, 
which therefore substantially reduces the potential for shareholders to 
be harmed by manipulation.'' \55\
---------------------------------------------------------------------------

    \54\ See id. at 38135.
    \55\ See id.
---------------------------------------------------------------------------

    Based on assertions made and the information provided, the 
Commission can find no basis to conclude that NYSE Arca has articulated 
other means to prevent fraud and manipulation that are sufficient to 
justify dispensing with the requisite surveillance-sharing agreement.
    The Exchange's assertions about the maturation and growth of the 
bitcoin market do not constitute other means to prevent fraud and 
manipulation sufficient to justify dispensing with the requisite 
surveillance-sharing agreement. While the Exchange states that the 
maturation of the bitcoin market mitigates against the Commission's 
concerns about fraud and manipulation,\56\ such assertion is general 
and conclusory, and NYSE Arca provides no analysis or evidence for how 
such maturation serves to detect and deter potential fraud and 
manipulation. As stated above, ``unquestioning reliance'' on an SRO's 
representations in a proposed rule change is not sufficient to justify 
Commission approval of a proposed rule change.\57\
---------------------------------------------------------------------------

    \56\ See supra notes 47, 48, and 53 and accompanying text. The 
Exchange does not directly tie the asserted maturation of the 
bitcoin market to an argument that such market evolution provides 
sufficient means to justify dispensing with the requisite 
surveillance sharing agreement.
    \57\ See supra note 44. The Commission has previously considered 
and rejected similar arguments about the maturation of the bitcoin 
market. See, e.g., Valkyrie Order, 86 FR at 74159.
---------------------------------------------------------------------------

    While NYSE Arca provides data regarding the size of the bitcoin 
spot and derivatives markets, such information is not sufficient to 
support the finding that other means besides surveillance-sharing 
agreements exist to prevent fraud or manipulation. NYSE Arca, for 
example, does not provide meaningful analysis pertaining to how these 
figures compare to other markets or why one must conclude, based on the 
numbers provided, that the concerns previously articulated by the 
Commission relating to fraud and manipulation of the bitcoin market 
have been mitigated. Further, although the Exchange states that an 
increase in OTC transactions in the bitcoin spot market due to an 
increase in institutional investor participation in that market reduces 
risks,\58\ apart from counterparty risk, the Exchange does not 
elaborate on what those risks are or how or why any such risks would be 
reduced or how or why such reduction of risks, including counterparty 
risk, would mitigate against fraud and manipulation.
---------------------------------------------------------------------------

    \58\ See supra note 53 and accompanying text.
---------------------------------------------------------------------------

    Moreover, while NYSE Arca asserts that the markets for NYDFS-
licensed spot bitcoin trading have developed substantially,\59\ the 
level of regulation on the bitcoin spot platforms, including NYDFS-
licensed platforms, is not commensurate to the obligations, authority, 
and oversight of national securities exchanges or futures exchanges. 
National securities exchanges are required to have rules that are 
``designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public 
interest.'' \60\ Moreover, national securities exchanges must file 
proposed rules with the Commission regarding certain material aspects 
of their operations,\61\ and the Commission has the authority to 
disapprove any such rule that is not consistent with the requirements 
of the Exchange Act.\62\ Thus, national securities exchanges are 
subject to Commission oversight of, among other things, their 
governance, membership qualifications, trading rules, disciplinary 
procedures, recordkeeping, and fees.\63\ NYDFS regulation therefore is 
not a substitute for the Commission's regulation of the national 
securities exchanges.\64\
---------------------------------------------------------------------------

    \59\ See supra note 49 and accompanying text.
    \60\ See 15 U.S.C. 78f(b)(5)
    \61\ 17 CFR 240.19b-4(a)(6)(i).
    \62\ Section 6 of the Exchange Act, 15 U.S.C. 78f, requires 
national securities exchanges to register with the Commission and 
requires an exchange's registration to be approved by the 
Commission, and Section 19(b) of the Exchange Act, 15 U.S.C. 78s(b), 
requires national securities exchanges to file proposed rules 
changes with the Commission and provides the Commission with the 
authority to disapprove proposed rule changes that are not 
consistent with the Exchange Act. Designated contract markets 
(``DCMs'') (commonly called ``futures markets'') registered with and 
regulated by the Commodity Futures Trading Commission (``CFTC'') 
must comply with, among other things, a similarly comprehensive 
range of regulatory principles and must file rule changes with the 
CFTC. See, e.g., Designated Contract Markets (DCMs), CFTC, available 
at http://www.cftc.gov/IndustryOversight/TradingOrganizations/DCMs/index.htm.
    \63\ See Winklevoss Order, 83 FR at 37597. The Commission notes 
that the NYDFS has issued ``guidance'' to supervised virtual 
currency business entities, stating that these entities must 
``implement measures designed to effectively detect, prevent, and 
respond to fraud, attempted fraud, and similar wrongdoing.'' See 
Maria T. Vullo, Superintendent of Financial Services, NYDFS, 
Guidance on Prevention of Market Manipulation and Other Wrongful 
Activity (Feb. 7, 2018), available at https://www.dfs.ny.gov/docs/legal/industry/il180207.pdf. The NYDFS recognizes that it's 
``guidance is not intended to limit the scope or applicability of 
any law or regulation'' (id.), which would include the Exchange Act. 
Nothing in the record evidences whether the bitcoin spot markets the 
Exchange is referring to have complied with this NYDFS guidance.
    Further, there are substantial differences between the NYDFS and 
the Commission's regulation. Anti-Money Laundering (``AML'') and 
Know-Your-Customer (``KYC'') policies and procedures, for example, 
have been referenced in other bitcoin-based ETP proposals as a 
purportedly alternative means by which such ETPs would be uniquely 
resistant to manipulation. The Commission has previously concluded 
that such AML and KYC policies and procedures do not serve as a 
substitute for, and are not otherwise dispositive in the analysis 
regarding the importance of, having a surveillance sharing agreement 
with a regulated market of significant size relating to bitcoin. For 
example, AML and KYC policies and procedures do not substitute for 
the sharing of information about market trading activity or clearing 
activity and do not substitute for regulation of a national 
securities exchange. See USBT Order, 85 FR at 12603 n.101.
    \64\ See, e.g., USBT Order, 85 FR at 12603-05; VanEck Order, 86 
FR at 64545; Kryptoin Order, 86 FR at 74173.
---------------------------------------------------------------------------

    In addition, while the Commission recognizes that the CFTC 
maintains some jurisdiction over the bitcoin spot market, under the 
Commodity Exchange Act, the CFTC does not have regulatory authority 
over bitcoin spot trading platforms.\65\ Except in certain limited 
circumstances, bitcoin spot trading platforms are not required to 
register with the CFTC, and the CFTC does not set standards for, 
approve the rules of, examine, or otherwise regulate bitcoin spot 
markets.\66\ As the CFTC itself stated, while the CFTC ``has an 
important role to play,'' U.S. law ``does not provide for direct, 
comprehensive Federal oversight of underlying Bitcoin or virtual 
currency spot markets.'' \67\ In addition, while certain bitcoin 
derivatives exchanges that trade bitcoin futures and options on bitcoin 
futures are regulated by the CFTC, the CFTC's

[[Page 14937]]

regulations do not extend to the bitcoin spot platforms. And, with 
respect to NYSE Arca's statements about the growth of the bitcoin 
derivatives markets,\68\ although the Exchange claims that the CFTC-
regulated bitcoin derivative markets have developed substantially, the 
Exchange has not explained why such development mitigates against the 
Commission's concerns about fraud and manipulation such that it would 
not be necessary for the Exchange to enter into a surveillance-sharing 
agreement with a regulated market of significant size.\69\
---------------------------------------------------------------------------

    \65\ See USBT Order, 85 FR at 12604; WisdomTree Order, 86 FR at 
69328; Valkyrie Order, 86 FR at 74162; SkyBridge Order, 87 FR at 
3877.
    \66\ See id.
    \67\ See 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).
    \68\ See supra notes 49-50 and accompanying text.
    \69\ As discussed herein, the information in the record does not 
establish that the CME bitcoin futures market is a ``market of 
significant size'' related to bitcoin. See infra Section III.B.2.
---------------------------------------------------------------------------

    Moreover, NYSE Arca does not sufficiently contest the presence of 
possible sources of fraud and manipulation in the bitcoin spot market 
generally that the Commission has raised in previous orders, which have 
included (1) ``wash'' trading, (2) persons with a dominant position in 
bitcoin manipulating bitcoin pricing, (3) hacking of the bitcoin 
network and trading platforms, (4) malicious control of the bitcoin 
network, (5) trading based on material, non-public information (such as 
plans of market participants to significantly increase or decrease 
their holdings in bitcoin; new sources of demand for bitcoin; the 
decision of a bitcoin-based investment vehicle on how to respond to a 
``fork'' in the bitcoin blockchain), or trading based on the 
dissemination of false and misleading information, (6) manipulative 
activity involving the purported ``stablecoin'' Tether (USDT), and (7) 
fraud and manipulation at bitcoin trading platforms.\70\
---------------------------------------------------------------------------

    \70\ See USBT Order, 85 FR at 12600-01 & nn.66-67 (discussing J. 
Griffin & A. Shams, Is Bitcoin Really Untethered? (October 28, 
2019), available at https://ssrn.com/abstract=3195066 and published 
in 75 J. Finance 1913 (2020)); Winklevoss Order, 83 FR at 37585-86; 
Valkyrie Order, 86 FR at 74160; SkyBridge Order, 87 FR at 3872.
---------------------------------------------------------------------------

    In addition, NYSE Arca does not address risk factors specific to 
the bitcoin blockchain and bitcoin platforms, described in the Trust's 
Registration Statement, that undermine the argument that the concerns 
previously articulated by the Commission relating to fraud and 
manipulation of the bitcoin market have been mitigated.\71\ For 
example, the Registration Statement acknowledges that the ``venues 
through which bitcoin trades are relatively new and may be more exposed 
to operational problems or failure than trading venues for other 
assets''; that ``[o]ver the past several years, a number of bitcoin 
exchanges have been closed due to fraud, failure or security 
breaches''; that the bitcoin blockchain could be vulnerable to a ``51% 
attack,'' in which a bad actor (or actors) or botnet that controls a 
majority of the processing power of the bitcoin network may be able to 
alter the bitcoin blockchain on which the bitcoin network and bitcoin 
transactions rely; and that ``[r]ecently, some digital asset networks 
have been subject to malicious activity achieved through control over 
50% of the processing power on the network.'' \72\
---------------------------------------------------------------------------

    \71\ See, e.g., SkyBridge Order, 87 FR at 3873.
    \72\ See Registration Statement at 14-15, 21.
---------------------------------------------------------------------------

    Finally, the Commission finds that NYSE Arca has not demonstrated 
that in-kind creations and redemptions provide the Shares with a unique 
resistance to manipulation. The Commission has previously addressed 
similar assertions.\73\ As the Commission stated before, in-kind 
creations and redemptions are a common feature of ETPs, and the 
Commission has not previously relied on the in-kind creation and 
redemption mechanism as a basis for excusing exchanges that list ETPs 
from entering into surveillance-sharing agreements with significant, 
regulated markets related to the portfolio's assets.\74\ Accordingly, 
the Commission is not persuaded here that the Trust's in-kind creations 
and redemptions afford it a unique resistance to manipulation.
---------------------------------------------------------------------------

    \73\ See 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.
    \74\ See, e.g., iShares COMEX Gold Trust, Securities Exchange 
Act Release No. 51058 (Jan. 19, 2005), 70 FR 3749, 3751-55 (Jan. 26, 
2005) (SR-Amex-2004-38); iShares Silver Trust, Securities Exchange 
Act Release No. 53521 (Mar. 20, 2006), 71 FR 14969, 14974 (Mar. 24, 
2006) (SR-Amex-2005-072).
---------------------------------------------------------------------------

(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 
surveillance-sharing agreements will be sufficient to prevent 
fraudulent and manipulative acts and practices, the Commission next 
examines whether the record supports the conclusion that NYSE Arca has 
entered into a comprehensive surveillance-sharing agreement with a 
regulated market of significant size relating to the underlying assets. 
In this context, the term ``market of significant size'' includes a 
market (or group of markets) as to which (i) there is a reasonable 
likelihood that a person attempting to manipulate the ETP would also 
have to trade on that market to successfully manipulate the ETP, so 
that a surveillance-sharing agreement would assist in detecting and 
deterring misconduct, and (ii) it is unlikely that trading in the ETP 
would be the predominant influence on prices in that market.\75\
---------------------------------------------------------------------------

    \75\ See 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.
---------------------------------------------------------------------------

    As the Commission has stated in the past, it considers two markets 
that are members of the ISG to have a comprehensive surveillance-
sharing agreement with one another, even if they do not have a separate 
bilateral surveillance-sharing agreement.\76\ Accordingly, based on the 
common membership of NYSE Arca and the CME in the ISG,\77\ NYSE Arca 
has the equivalent of a comprehensive surveillance-sharing agreement 
with CME. However, while the Commission recognizes that the CFTC 
regulates the CME futures market,\78\ including the CME bitcoin futures 
market, and thus such market is ``regulated,'' in the context of the 
proposed ETP, the record does not, as explained further below, 
establish that the CME bitcoin futures market is a ``market of 
significant size'' as that term is used in the context of the 
applicable standard here.
---------------------------------------------------------------------------

    \76\ See id. at 37580 n.19.
    \77\ See Notice, 86 FR at 38135.
    \78\ While the Commission recognizes that the CFTC regulates the 
CME, the CFTC is not responsible for direct, comprehensive 
regulation of the underlying bitcoin spot market. See Winklevoss 
Order, 83 FR at 37587, 37599. See also supra notes 65-67 and 
accompanying text.
---------------------------------------------------------------------------

(a) Whether There Is a Reasonable Likelihood That a Person Attempting 
To Manipulate the ETP Would Also Have To Trade on the CME Bitcoin 
Futures Market To Successfully Manipulate the ETP
    The first prong in establishing whether the CME bitcoin futures 
market constitutes a ``market of significant size'' is the 
determination that there is a reasonable likelihood that a person 
attempting to manipulate the ETP would have to trade on the CME bitcoin 
futures market to successfully manipulate the ETP.
    As discussed above, NYSE Arca states that the market for trading of 
bitcoin futures has developed substantially \79\ and argues that 
``[t]he significant growth in trading volumes, open interest, large 
open interest holders, and total market participants in the bitcoin 
futures market since the [USBT Order] was issued is reflective of that 
market's

[[Page 14938]]

growing influence on the spot price of bitcoin.'' \80\
---------------------------------------------------------------------------

    \79\ See supra notes 49-52 and accompanying text.
    \80\ See Notice, 86 FR at 38135.
---------------------------------------------------------------------------

    NYSE Arca further states that some academic research ``suggests 
that the bitcoin futures market has been leading bitcoin spot market 
price discovery since as early as 2018.'' \81\ NYSE Arca also states 
that the Sponsor has developed ``more recent proprietary research, 
including lead-lag analyses, that demonstrates that prices in the CME 
bitcoin futures market do indeed lead prices in the bitcoin spot 
market, including non-U.S. bitcoin spot markets.'' \82\ NYSE Arca 
asserts that the Sponsor's finding ``supports the thesis that a market 
participant attempting to manipulate the Shares would have to trade on 
that market to manipulate the ETP.'' \83\
---------------------------------------------------------------------------

    \81\ See id. at 38135 & n.18 (citing Y. Hu, Y. Hou & L. Oxley, 
What role do futures markets play in Bitcoin pricing? Causality, 
cointegration and price discovery from a time-varying perspective, 
72 Int'l Rev. of Fin. Analysis 101569 (2020) (available at: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7481826/) (``Hu, Hou & 
Oxley'')).
    \82\ See Notice, 86 FR at 38135.
    \83\ See id.
---------------------------------------------------------------------------

    NYSE Arca also states that the Sponsor's research ``shows that the 
bitcoin futures market is one of the primary venues that market 
participants use to transact large exposures to bitcoin.'' \84\ 
According to the Exchange, this ``can be attributed to multiple 
factors, such as institutional familiarity with futures margining and 
settlement processes, the simplicity of cash settlement instead of 
physical settlement in a novel asset, and the efficient leverage 
offered by exchange margining.'' \85\
---------------------------------------------------------------------------

    \84\ Id.
    \85\ See id.
---------------------------------------------------------------------------

    The Exchange states that, ``[i]n contrast to the efficient leverage 
offered through the futures market, many bitcoin spot trading venues 
require full pre-funding of trading, which means it would be highly 
capital intensive to `spoof' or `layer' order books on spot trading 
venues.'' \86\ According to the Exchange, this ``further supports [the 
Sponsor's] conclusion that if a market participant intended to 
manipulate the price of bitcoin, and thereby the Shares, the bitcoin 
futures market is the one that would be manipulated first.\87\
---------------------------------------------------------------------------

    \86\ See id.
    \87\ See id.
---------------------------------------------------------------------------

    The record does not demonstrate that there is a reasonable 
likelihood that a person attempting to manipulate the proposed ETP 
would have to trade on the CME bitcoin futures market to successfully 
manipulate it. NYSE Arca's assertions about the general upward trends 
in trading volume and open interest of, and in the number of large open 
interest holders and number of unique accounts trading in, bitcoin 
futures do not establish that the CME bitcoin futures market is a 
market of significant size.\88\ While NYSE Arca provides data showing 
absolute growth in the size of the CME and ICE bitcoin futures markets, 
it provides no data relative to the concomitant growth in either the 
bitcoin spot markets or other bitcoin futures markets (including 
unregulated futures markets). Moreover, even if the CME has grown in 
relative size, as the Commission has previously articulated, the 
interpretation of the term ``market of significant size'' or 
``significant market'' depends on the interrelationship between the 
market with which the listing exchange has a surveillance-sharing 
agreement and the proposed ETP.\89\ Accordingly, NYSE Arca's recitation 
of data reflecting the size of two bitcoin futures market, either 
currently or in relation to previous years, is not sufficient to 
establish an interrelationship between the CME bitcoin futures market 
and the proposed ETP.\90\
---------------------------------------------------------------------------

    \88\ See also supra note 69 and accompanying text.
    \89\ See USBT Order, 85 FR at 12611.
    \90\ See id. at 12612. The Commission has previously considered 
and rejected similar arguments. See VanEck Order, 86 FR at 64547; 
Kryptoin Order, 86 FR 74175-76; SkyBridge Order, 87 FR 3875-76; Wise 
Origin Order, 87 FR at 5534-35. Moreover, it is unclear how the data 
provided by the Exchange supports the assertion that the CME is a 
market of significant size, as it appears to be aggregate data for 
bitcoin futures contracts trading on both the CME and the ICE. See 
supra note 52 and accompanying text.
---------------------------------------------------------------------------

    Further, the econometric evidence in the record for this proposal 
also does not support the conclusion that an interrelationship exists 
between the CME bitcoin futures market and the bitcoin spot market such 
that it is reasonably likely that a person attempting to manipulate the 
proposed ETP would also have to trade on the CME bitcoin futures market 
to successfully manipulate the proposed ETP.\91\ While NYSE Arca states 
that CME bitcoin futures pricing has been leading bitcoin spot market 
price discovery since 2018,\92\ it relies on the findings of a price 
discovery analysis in one section of a single academic paper to support 
the overall thesis.\93\ However, the findings of that paper's Granger 
causality analysis, which is widely used to formally test for lead-lag 
relationships, are concededly mixed.\94\ In addition, the Commission 
considered an unpublished version of the paper in the USBT Order, as 
well as a comment letter submitted by the authors on that record.\95\ 
In the USBT Order, as part of the Commission's conclusion that ``mixed 
results'' in academic studies failed to demonstrate that the CME 
bitcoin futures market constitutes a market of significant size, the 
Commission noted the paper's inconclusive evidence that CME bitcoin 
futures prices lead spot prices--in particular that the months at the 
end of the paper's sample period showed that the spot market was the 
leading market--and stated that the record did not include evidence to 
explain why this would not indicate a shift towards prices in the spot 
market leading the futures market that would be expected to persist 
into the future.\96\ The Commission also stated that the paper's use of 
daily price data, as opposed to intraday prices, may not be able to 
distinguish which market incorporates new information faster.\97\ NYSE 
Arca has not addressed either issue here.\98\
---------------------------------------------------------------------------

    \91\ See USBT Order, 85 FR at 12611. Listing exchanges have 
attempted to demonstrate such an ``interrelationship'' by presenting 
the results of various econometric ``lead-lag'' analyses. The 
Commission considers such analyses to be central to understanding 
whether it is reasonably likely that a would-be manipulator of the 
ETP would need to trade on the CME bitcoin futures market. See id. 
at 12612. See also VanEck Order, 86 FR at 64547; WisdomTree Order, 
86 FR 69330-31; Kryptoin Order, 86 FR 74176; SkyBridge Order, 87 FR 
at 3876; Wise Origin Order, 87 FR at 5535.
    \92\ See Notice, 86 FR at 38135.
    \93\ See supra note 81 and accompanying text. NYSE Arca 
references the following conclusion from the ``time-varying price 
discovery'' section of Hu, Hou & Oxley: ``There exist no episodes 
where the Bitcoin spot markets dominates the price discovery 
processes with regard to Bitcoin futures. This points to a 
conclusion that the price formation originates solely in the Bitcoin 
futures market. We can, therefore, conclude that the Bitcoin futures 
markets dominate the dynamic price discovery process based upon 
time-varying information share measures. Overall, price discovery 
seems to occur in the Bitcoin futures markets rather than the 
underlying spot market based upon a time-varying perspective . . .'' 
See Notice, 86 FR at 38135 n.18.
    \94\ The paper finds that the CME bitcoin futures market 
dominates the spot markets in terms of Granger causality, but that 
the causal relationship is bi-directional, and a Granger causality 
episode from March 2019 to June/July 2019 runs from bitcoin spot 
prices to CME bitcoin futures prices. The paper concludes: ``[T]he 
Granger causality episodes are not constant throughout the whole 
sample period. Via our causality detection methods, market 
participants can identify when markets are being led by futures 
prices and when they might not be.'' See Hu, Hou & Oxley, supra note 
81.
    \95\ See USBT Order, 85 FR at 12609.
    \96\ See id. at 12613 n.244.
    \97\ See id.
    \98\ See VanEck Order, 86 FR at 64547; WisdomTree Order, 86 FR 
at 69331; Kryptoin Order, 86 FR 74176; Wise Origin Order, 87 FR 
5535.
---------------------------------------------------------------------------

    Moreover, while NYSE Arca asserts that the Sponsor has conducted 
proprietary research, including lead-lag analyses, to demonstrate that 
the CME bitcoin futures market prices lead the bitcoin spot market, the 
Exchange does not provide any information relating to its proprietary 
research, including any

[[Page 14939]]

assumptions, parameters, or methodologies used, or furnish any data or 
analysis to support such a conclusion. Accordingly, the Exchange's 
unsupported representations constitute an insufficient basis for 
approving a proposed rule change in circumstances where, as here, the 
Exchange's assertion would form such an integral role in the 
Commission's analysis and the assertion is subject to several 
challenges.\99\ In this context, NYSE Arca's reliance on a single 
paper, whose own lead-lag results are inconclusive, and its own 
proprietary research that it has not provided is especially lacking 
because the academic literature on the lead-lag relationship and price 
discovery between bitcoin spot and futures markets is unsettled.\100\ 
In the USBT Order, the Commission responded to multiple academic papers 
that were cited and concluded that, in light of the mixed results 
found, the exchange there had not demonstrated that it is reasonably 
likely that a would-be manipulator of the proposed ETP would transact 
on the CME bitcoin futures market.\101\ Likewise, here, given the body 
of academic literature to indicate to the contrary, the Commission 
concludes that the information that NYSE Arca provides is not a 
sufficient basis to support a determination that it is reasonably 
likely that a would-be manipulator of the proposed ETP would have to 
trade on the CME bitcoin futures market.\102\
---------------------------------------------------------------------------

    \99\ See Susquehanna, 866 F.3d at 447.
    \100\ See, e.g., D. Baur & T. Dimpfl, Price discovery in bitcoin 
spot or futures?, 39 J. Futures Mkts. 803 (2019) (finding that the 
bitcoin spot market leads price discovery); O. Entrop, B. Frijns & 
M. Seruset, The determinants of price discovery on bitcoin markets, 
40 J. Futures Mkts. 816 (2020) (finding that price discovery 
measures vary significantly over time without one market being 
clearly dominant over the other); J. Hung, H. Liu & J. Yang, Trading 
activity and price discovery in Bitcoin futures markets, 62 J. 
Empirical Finance 107 (2021) (finding that the bitcoin spot market 
dominates price discovery); B. Kapar & J. Olmo, An analysis of price 
discovery between Bitcoin futures and spot markets, 174 Econ. 
Letters 62 (2019) (finding that bitcoin futures dominate price 
discovery); E. Akyildirim, S. Corbet, P. Katsiampa, N. Kellard & A. 
Sensoy, The development of Bitcoin futures: Exploring the 
interactions between cryptocurrency derivatives, 34 Fin. Res. 
Letters 101234 (2020) (finding that bitcoin futures dominate price 
discovery); A. Fassas, S. Papadamou, & A. Koulis, Price discovery in 
bitcoin futures, 52 Res. Int'l Bus. Fin. 101116 (2020) (finding that 
bitcoin futures play a more important role in price discovery) 
(``Fassas et al''); S. Aleti & B. Mizrach, Bitcoin spot and futures 
market microstructure, 41 J. Futures Mkts. 194 (2021) (finding that 
relatively more price discovery occurs on the CME as compared to 
four spot exchanges); J. Wu, K. Xu, X. Zheng & J. Chen, Fractional 
cointegration in bitcoin spot and futures markets, 41 J. Futures 
Mkts. 1478 (2021) (finding that CME bitcoin futures dominate price 
discovery). See also C. Alexander & D. Heck, Price discovery in 
Bitcoin: The impact of unregulated markets, 50 J. Financial 
Stability 100776 (2020) (finding that, in a multi-dimensional 
setting, including the main price leaders within futures, 
perpetuals, and spot markets, CME bitcoin futures have a very minor 
effect on price discovery; and that faster speed of adjustment and 
information absorption occurs on the unregulated spot and 
derivatives platforms than on CME bitcoin futures).
    \101\ See USBT Order, 85 FR at 12613 nn.239-244 and accompanying 
text.
    \102\ In addition, the Exchange fails to address the 
relationship (if any) between prices on other bitcoin futures 
markets and the CME bitcoin futures market and/or the bitcoin spot 
market, or where price formation occurs when the entirety of bitcoin 
futures markets, not just CME, is considered. See VanEck Order, 86 
FR at 64547-8; WisdomTree Order, 86 FR at 69331; Kryptoin Order, 86 
FR 74176; Wise Origin Order, 87 FR 5535.
---------------------------------------------------------------------------

    The Exchange also asserts that the Sponsor's research shows that 
the bitcoin futures market is one of the primary venues that market 
participants use to transact large exposures to bitcoin.\103\ However, 
as previously mentioned, NYSE Arca does not provide information 
relating to the Sponsor's research or furnish any data or analysis to 
support these conclusions. Nor does the Exchange explain the 
significance of its assertion in the overall analysis of whether there 
is a reasonable likelihood that a person attempting to manipulate the 
ETP would have to trade on the CME bitcoin futures market to 
successfully manipulate the ETP, as opposed to other bitcoin futures 
markets.
---------------------------------------------------------------------------

    \103\ See id.
---------------------------------------------------------------------------

    The Exchange further asserts that the efficient leverage offered 
through the futures market in contrast to the spot market, where it 
would be highly capital intensive to ``spoof'' or ``layer'' order books 
on spot trading venues, supports the conclusion that that would-be 
manipulators of bitcoin prices would attempt to do so in the bitcoin 
futures market.\104\ Again, the Exchange does not provide any 
additional data or analysis to support its conclusions or any examples 
that would demonstrate that such assertion is reasonable, especially as 
it relates to the CME. In other words, even assuming that the 
Commission concurred with the Exchange's premise that it is reasonably 
likely that a would-be manipulator would attempt to manipulate the ETP 
by trading on the bitcoin futures market, the Exchange does not explain 
why such manipulator would do so specifically on the CME bitcoin 
futures market. Furthermore, the NYSE Arca does not provide any 
information on the actual leverage provided by trading CME futures 
contracts versus unregulated bitcoin futures markets or why would-be 
manipulators would be likely to trade on the CME rather than other 
bitcoin futures platforms that may have lower margin requirements.\105\
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    \104\ See Notice, 86 FR at 38135.
    \105\ For example, CME bitcoin futures currently have a 50% 
margin requirement. See https://www.cmegroup.com/markets/cryptocurrencies/bitcoin/bitcoin.margins.html (last visited December 
1, 2021). On the other hand, the contract specifications for bitcoin 
futures contracts on BitMex, Deribit, and Binance specify initial 
margin requirements of 1%, 1%, and 2%, respectively. See https://www.bitmex.com/app/contract/XBTUSD (last visited Dec. 1, 2021); 
https://legacy.deribit.com/pages/docs/futures (last visited Dec. 1, 
2021); and https://www.binance.com/en/support/announcement/34801a0c405a4b058f9ae18a1a34cad3 (last visited Dec. 1, 2021). Thus, 
it would appear to require less capital commitment to manipulate the 
bitcoin price using bitcoin futures traded on BitMex or other 
unregulated futures platforms rather than the CME, given the lower 
margin requirements on such unregulated platforms. The Exchange does 
not address this. See SkyBridge Order, 87 FR at 3876.
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    The Commission accordingly concludes that the information provided 
in the record for this proposal does not establish a reasonable 
likelihood that a would-be manipulator of the proposed ETP would have 
to trade on the CME bitcoin futures market to successfully manipulate 
the proposed ETP. Therefore, the information in the record also does 
not establish that the CME bitcoin futures market is a ``market of 
significant size'' with respect to the proposed ETP.
(b) Whether It Is Unlikely That Trading in the Proposed ETP Would Be 
the Predominant Influence on Prices in the CME Bitcoin Futures Market
    The second prong in establishing whether the CME bitcoin futures 
market constitutes a ``market of significant size'' is the 
determination that it is unlikely that trading in the proposed ETP 
would be the predominant influence on prices in the CME bitcoin futures 
market.\106\
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    \106\ See Winklevoss Order, 83 FR at 37594; USBT Order, 85 FR at 
12596-97.
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    NYSE Arca asserts that trading in the Shares would not be the 
predominant force on prices in the bitcoin futures market (or spot 
market) because of the significant volume in the bitcoin futures market 
(in excess of $2.5 billion in average daily volume as of April 30, 
2021), the size of bitcoin's market capitalization (in excess of $1 
trillion as of April 30, 2021), and the significant liquidity available 
in the spot market (in excess of $2.5 billion in average daily volume 
as of April 30, 2021).\107\
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    \107\ See Notice, 86 FR at 38136.
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    In addition, NYSE Arca states that, based on the Sponsor's 
analysis, considering a small subset of spot bitcoin trading platforms, 
the cost to buy or sell $5 million worth of bitcoin and $10 million 
worth of bitcoin averages roughly 20 basis points and 40

[[Page 14940]]

basis points, respectively.\108\ NYSE Arca explains that this is 
comparable to the liquidity of existing commodity-based ETPs and that 
using more sophisticated execution strategies and additional liquidity 
sources would likely result in a lower cost to trade.\109\ Thus, NYSE 
Arca concludes that the overall size of the bitcoin market and the 
ability for market participants (including authorized participants 
creating and redeeming in-kind with the Trust) to buy or sell large 
amounts of bitcoin without significant market impact supports the 
reasoning that the Shares are unlikely to become a predominant force on 
pricing in either the bitcoin spot or the bitcoin futures market.\110\
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    \108\ See id. According to NYSE Arca, these statistics are based 
on three random daily samples of bitcoin liquidity in U.S. dollars 
(excluding stablecoins or Euro liquidity) based on executable quotes 
on Coinbase Pro, Bitstamp, and itBit from January 1, 2021, to April 
30, 2021. See id. at n.20.
    \109\ See id. at 38136.
    \110\ See id.
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    The record, however, does not demonstrate that it is unlikely that 
trading in the proposed ETP would be the predominant influence on 
prices in the CME bitcoin futures market. NYSE Arca's assertions about 
the potential effect of trading in the Shares on the CME bitcoin 
futures market and bitcoin spot market are general and conclusory, 
repeating the aforementioned trade volume of the bitcoin futures market 
and the size and liquidity of the bitcoin spot market, as well as the 
market impact of a large transaction, without analysis or evidence to 
support these assertions. For example, there is no limit on the amount 
of mined bitcoin that the Trust may hold. Yet NYSE Arca does not 
provide any information on the expected growth in the size of the Trust 
and the resultant increase in the amount of bitcoin held by the Trust 
over time, or on the overall expected number, size, and frequency of 
creations and redemptions--or how any of the foregoing could (if at 
all) influence prices in the CME bitcoin futures market. Thus, the 
Commission cannot conclude, based on NYSE Arca's statements alone and 
absent any evidence or analysis in support of NYSE Arca's assertions, 
that it is unlikely that trading in the ETP would be the predominant 
influence on prices in the CME bitcoin futures market.\111\
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    \111\ See VanEck Order, 86 FR at 64548-59; WisdomTree Order, 86 
FR at 69332-33; Kryptoin Order, 86 FR at 74177; SkyBridge Order, 87 
FR at 3879; Wise Origin Order, 87 FR at 5537.
---------------------------------------------------------------------------

    The Commission also is not persuaded by NYSE Arca's assertions 
about the minimal effect a large market order to buy or sell bitcoin 
would have on the bitcoin market.\112\ While NYSE Arca surmises by way 
of a $10 million market order example that buying or selling large 
amounts of bitcoin would have insignificant market impact, the 
conclusion does not analyze the extent of any impact on the CME bitcoin 
futures market, the market that the Exchange, in the proposal, argues 
is the significant market under consideration. Even assuming, however, 
that NYSE Arca is suggesting that a single $10 million order in bitcoin 
would have immaterial impact on the prices in the CME bitcoin futures 
market, this prong of the ``market of significant size'' determination 
concerns the influence on prices from trading in the proposed ETP, 
which is broader than just trading by the proposed ETP. While 
authorized participants of the Trust might only transact in the bitcoin 
spot market as part of their creation or redemption of Shares, the 
Shares themselves would be traded in the secondary market on NYSE Arca. 
The record does not discuss the expected number or trading volume of 
the Shares, or establish the potential effect of the Shares' trade 
prices on CME bitcoin futures prices. For example, NYSE Arca does not 
provide any data or analysis about the potential effect the quotations 
or trade prices of the Shares might have on market-maker quotations in 
CME bitcoin futures contracts and whether those effects would 
constitute a predominant influence on the prices of those futures 
contracts.\113\
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    \112\ See supra notes 108-110 and accompanying text.
    \113\ See VanEck Order, 86 FR at 64549; WisdomTree Order, 86 FR 
at 69333; Kryptoin Order, 86 FR at 74177; SkyBridge Order, 87 FR at 
3879; Wise Origin Order, 87 FR at 5537.
---------------------------------------------------------------------------

    Thus, because NYSE Arca has not provided sufficient information to 
establish both prongs of the ``market of significant size'' 
determination, the Commission cannot conclude that the CME bitcoin 
futures market is a ``market of significant size'' such that NYSE Arca 
would be able to rely on a surveillance-sharing agreement with the CME 
to provide sufficient protection against fraudulent and manipulative 
acts and practices.
    The requirements of Section 6(b)(5) of the Exchange Act apply to 
the rules of national securities exchanges. Accordingly, the relevant 
obligation for a comprehensive surveillance-sharing agreement with a 
regulated market of significant size, or other means to prevent 
fraudulent and manipulative acts and practices that are sufficient to 
justify dispensing with the requisite surveillance-sharing agreement, 
resides with the listing exchange. Because there is insufficient 
evidence in the record demonstrating that NYSE Arca has satisfied this 
obligation, the Commission cannot approve the proposed ETP for listing 
and trading on NYSE Arca.

C. Whether NYSE Arca Has Met Its Burden To Demonstrate That the 
Proposal Is Designed To Protect Investors and the Public Interest

    NYSE Arca contends that, if approved, the proposed ETP would 
protect investors and the public interest. However, the Commission must 
consider these potential benefits in the broader context of whether the 
proposal meets each of the applicable requirements of the Exchange 
Act.\114\ Because NYSE Arca has not demonstrated that its proposed rule 
change is designed to prevent fraudulent and manipulative acts and 
practices, the Commission must disapprove the proposal.
---------------------------------------------------------------------------

    \114\ See Winklevoss Order, 83 FR at 37602. See also 
GraniteShares Order, 83 FR at 43931; ProShares Order, 83 FR at 
43941; USBT Order, 85 FR at 12615.
---------------------------------------------------------------------------

    NYSE Arca asserts that the proposed rule change is designed to 
protect investors and the public interest because an investment in the 
Trust would provide investors with exposure to bitcoin in a manner that 
may be more efficient, more convenient, and more regulated than the 
purchase of bitcoin or other investment products that provide exposure 
to bitcoin.\115\ For example, the Sponsor notes that OTC bitcoin funds, 
which have attracted significant investor interest, offer exposure to 
bitcoin in a similar manner as the Trust.\116\ However, according to 
the Exchange, the OTC bitcoin funds do not offer a creation or 
redemption mechanism that would keep their shares trading in line with 
their NAVs and, as a result, OTC bitcoin funds have historically traded 
at significant premiums or discounts compared to their NAVs.\117\ NYSE 
Arca asserts that, in contrast, if the Trust's Shares were to trade at 
a premium or discount compared to their NAV, creation or redemption 
could be facilitated by authorized participants to drive the value of 
the Shares towards their NAV.\118\ The Exchange states that investors 
in OTC bitcoin funds also have historically borne significantly higher 
fees and expenses than those that would be borne by investors in the 
Trust.\119\
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    \115\ See Notice, 86 FR at 38134.
    \116\ See id.
    \117\ See id.
    \118\ See id.
    \119\ See id.

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[[Page 14941]]

    NYSE Arca further asserts that, with the growth of OTC bitcoin 
funds, so too has grown the potential risk to U.S. investors.\120\ 
Specifically, NYSE Arca argues that significant and prolonged premiums 
and discounts, significant premium/discount volatility, high fees, 
insufficient disclosures, limited liquidity to trade or borrow shares, 
and the lack of surveillance and oversight through a listed exchange 
place U.S. investor money at risk in ways that could potentially be 
eliminated through access to the Shares.\121\ As such, the Exchange 
believes that the proposal would act to limit risk to U.S. investors 
that are increasingly seeking exposure to bitcoin, while providing 
benefits such as the elimination of significant and prolonged premiums 
and discounts, the reduction of significant premium/discount 
volatility, the reduction of management fees through meaningful 
competition, the avoidance of risks associated with investing in 
operating companies that are imperfect proxies for bitcoin exposure, 
and substantially greater surveillance and regulatory oversight.\122\
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    \120\ See id. at 38136.
    \121\ See id. For example, NYSE Arca states that the largest 
U.S. OTC bitcoin fund returned 46.41% year-to-date through April 30, 
2021, while spot bitcoin returned 95.61% over the same period. NYSE 
Arca asserts that the deviation in price performance can be 
attributed to the fluctuation in NAV of this fund. See id.
    \122\ See id.
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    Additionally, the Exchange states that investors holding bitcoin 
through a cryptocurrency trading platform often face credit risk to the 
platform for cash balances, and often face risk of loss or theft of 
their bitcoin as a result of the platform using internet-connected 
storage (i.e., ``hot'' wallets) and/or having poor private key 
management (e.g., insufficient password protection, lost key, 
etc.).\123\ The Exchange states that, on the other hand, through use of 
the Bitcoin Custodian, the Trust would hold bitcoin in 100% ``cold'' 
storage, meaning the entire storage process would be done completely 
offline, with a regulated and licensed entity (i.e., the Bitcoin 
Custodian) applying industry best practices.\124\
---------------------------------------------------------------------------

    \123\ See id. at 38134.
    \124\ See id. See also supra note 30.
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    In essence, NYSE Arca argues that the risky nature of direct 
investment in the underlying bitcoin and the unregulated markets on 
which bitcoin and OTC bitcoin funds trade compel approval of the 
proposed rule change. The Commission disagrees. Pursuant to Section 
19(b)(2) of the Exchange Act, the Commission must approve a proposed 
rule change filed by a national securities exchange if it finds that 
the proposed rule change is consistent with the applicable requirements 
of the Exchange Act--including the requirement under Section 6(b)(5) 
that the rules of a national securities exchange be designed to prevent 
fraudulent and manipulative acts and practices--and it must disapprove 
the filing if it does not make such a finding.\125\ Thus, even if a 
proposed rule change purports to protect investors from a particular 
type of investment risk--such as the susceptibility of an asset to loss 
or theft--the proposed rule change may still fail to meet the 
requirements under the Exchange Act.\126\
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    \125\ See Exchange Act Section 19(b)(2)(C), 15 U.S.C. 
78s(b)(2)(C).
    \126\ See SolidX Order, 82 FR at 16259; VanEck Order, 86 FR at 
54550-51; WisdomTree Order, 86 FR at 69334; Kryptoin Order, 86 FR at 
74179; Valkyrie Order, 86 FR at 74163; SkyBridge Order, 87 FR at 
3881; Wise Origin Order, 87 FR at 5538.
---------------------------------------------------------------------------

    Here, even if it were true that, compared to trading in unregulated 
bitcoin spot markets or trading in OTC bitcoin funds, trading in a 
bitcoin-based ETP on a national securities exchange provides some 
additional protection to investors, the Commission must consider this 
potential benefit in the broader context of whether the proposal meets 
each of the applicable requirements of the Exchange Act.\127\ As 
explained above, for bitcoin-based ETPs, the Commission has 
consistently required that the listing exchange have a comprehensive 
surveillance-sharing agreement with a regulated market of significant 
size related to bitcoin, or demonstrate that other means to prevent 
fraudulent and manipulative acts and practices are sufficient to 
justify dispensing with the requisite surveillance-sharing agreement. 
The listing exchange has not met that requirement here. Therefore, the 
Commission is unable to find that the proposed rule change is 
consistent with the statutory standard.
---------------------------------------------------------------------------

    \127\ See supra note 114.
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2) of the Exchange Act, the Commission 
must disapprove a proposed rule change filed by a national securities 
exchange if it does not find that the proposed rule change is 
consistent with the applicable requirements of the Exchange Act--
including the requirement under Section 6(b)(5) that the rules of a 
national securities exchange be designed to prevent fraudulent and 
manipulative acts and practices.\128\
---------------------------------------------------------------------------

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

    For the reasons discussed above, NYSE Arca has not met its burden 
of demonstrating that the proposal is consistent with Exchange Act 
Section 6(b)(5),\129\ and, accordingly, the Commission must disapprove 
the proposal.\130\
---------------------------------------------------------------------------

    \129\ 15 U.S.C. 78f(b)(5).
    \130\ In disapproving the proposed rule change, the Commission 
has considered its impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

D. Other Comments

    The Commission received a comment letter that addressed the general 
nature and intrinsic value of bitcoin.\131\ Ultimately, however, 
additional discussion of these topics is unnecessary, as they do not 
bear on the basis for the Commission's decision to disapprove the 
proposal.
---------------------------------------------------------------------------

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

    For the reasons set forth above, the Commission does not find, 
pursuant to Section 19(b)(2) of the Exchange Act, that the proposed 
rule change is consistent with the requirements of the Exchange Act and 
the rules and regulations thereunder applicable to a national 
securities exchange, and in particular, with Section 6(b)(5) of the 
Exchange Act.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act, that proposed rule change SR-NYSEArca-2021-57 be, and 
hereby is, disapproved.

    By the Commission.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2022-05499 Filed 3-15-22; 8:45 am]
BILLING CODE 8011-01-P