Document ID: SEC-2021-1359-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2021-10-05T04:00Z

[Federal Register Volume 86, Number 190 (Tuesday, October 5, 2021)]
[Notices]
[Pages 55073-55083]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-21609]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93171; File No. SR-NYSEArca-2021-67]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change To List and Trade Shares of the One River 
Carbon Neutral Bitcoin Trust Under NYSE Arca Rule 8.201-E

September 29, 2021.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on September 20, 2021, NYSE Arca, Inc. (``NYSE Arca'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade shares of the One River 
Carbon Neutral Bitcoin Trust under NYSE Arca Rule 8.201-E. The proposed 
change is available on the Exchange's website at www.nyse.com, 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 self-regulatory organization 
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 those 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 parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade shares (``Shares'') of the 
One River Carbon Neutral Bitcoin Trust (the ``Trust'') pursuant to NYSE 
Arca Rule 8.201-E which governs the listing and trading of ``Commodity-
Based Trust Shares.'' \4\
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    \4\ Commodity-Based Trust Shares are securities issued by a 
trust that represent investors' discrete identifiable and undivided 
beneficial ownership interest in the commodities deposited into the 
Trust.
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Description of the Trust
    The Shares will be issued by the Trust, a Delaware statutory 
trust.\5\ The sponsor of the Trust is One River Digital Asset 
Management, LLC (``Sponsor''), a Delaware limited liability company. 
The Sponsor is a wholly-owned subsidiary of One River Asset Management, 
LLC. The trustee for the Trust is Delaware Trust Company (``Trustee''). 
The custodian for the Trust is Coinbase Custody Trust Company, LLC 
(``Custodian''). The Custodian will hold all of the Trust's bitcoin on 
the Trust's behalf. The marketing agent for the Trust is Foreside 
Global Services, LLC (the ``Marketing Agent''). The Bank of New York 
Mellon acts as the Trust's transfer agent (in such capacity, the 
``Transfer Agent'') and its administrator (in such capacity, the 
``Administrator'') to perform various administrative, accounting and 
recordkeeping functions on behalf of the Trust.
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    \5\ The Trust is a Delaware statutory trust, formed on April 27, 
2021, pursuant to the Delaware Statutory Trust Act. The Trust 
operates pursuant to the Trust Agreement dated April 26, 2021. On 
May 24, 2021, the Trust filed a registration statement on Form S-1 
under the Securities Act of 1933 (15 U.S.C. 77a) (the ``Securities 
Act'') (File No. 333-256407) (the ``Registration Statement on Form 
S-1'' or ``Registration Statement''). The Trust intends to adopt an 
Amended and Restated Trust Agreement as described in the 
Registration Statement on Form S-1 prior to requesting accelerated 
effectiveness thereof.
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Operation of the Trust \6\
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    \6\ The description of the operation of the Trust, the Shares 
and the bitcoin market contained herein are based, in part, on the 
Registration Statement. See note 5, supra.
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    According to the Registration Statement, the Trust's investment 
objective is to seek to track the performance of bitcoin, as measured 
by the performance of the MVIS One River Carbon Neutral Bitcoin Index 
(the ``Index''), adjusted for the Trust's expenses and other 
liabilities. The Index is designed to reflect the performance of 
bitcoin in U.S. dollars on a carbon neutral basis. As described below, 
the Trust intends to offset the carbon footprint associated with 
bitcoin once a quarter by paying for the instantaneous retirement of 
carbon credits necessary to account for the daily estimated carbon 
emissions associated with the bitcoins

[[Page 55074]]

held by the Trust.\7\ MVIS, with the assistance of its affiliates, is 
also the calculation agent for the Index and MVIS[supreg] CryptoCompare 
Bitcoin Benchmark Rate.
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    \7\ The instantaneous retirement of carbon credits means that 
the Trust does not hold an intangible asset and that the carbon 
credit is permanently removed from tradeable supply.
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    In seeking to achieve its investment objective, the Trust will hold 
bitcoin and will value its Shares based on the same methodology used to 
calculate the Index, as adjusted to reflect the expenses associated 
with offsetting carbon credits. The Trust aims to provide a cost-
efficient, carbon neutral way for shareholders to implement strategic 
and tactical asset allocation strategies that use bitcoin by investing 
in the Trust's Shares rather than purchasing, holding, and trading 
bitcoin directly.
    Under normal circumstances, the Trust will not purchase or sell 
bitcoin directly, although the Trust may direct the Custodian to sell 
or transfer bitcoin to pay certain expenses. The Trust will also not 
hold cash or cash equivalents. However, there may be situations where 
the Trust will hold cash on a temporary basis. The Trust has entered 
into a cash custody agreement with BNYM (in such capacity, the ``Cash 
Custodian'') under which BNYM acts as custodian of the Trust's cash and 
cash equivalents. The Fund will not hold futures, options or options on 
futures.
    The Trust will process all creations and redemptions in-kind. 
Financial firms that are authorized to purchase or redeem Shares with 
the Trust (known as ``Authorized Participants'') will deliver, or 
facilitate the delivery of, bitcoin to the Bitcoin Account (as defined 
below) in exchange for Shares when they purchase Shares. The Trust, 
through the Custodian, will then deliver bitcoin to such Authorized 
Participants when they redeem Shares. All bitcoin will be held by the 
Custodian. The Transfer Agent will facilitate the processing of 
purchase and sale orders in ``Creation Baskets'' (defined below) from 
the Trust.
    Although the Trust will create Baskets only upon the receipt of 
bitcoins, and will redeem Baskets only by distributing bitcoins, a 
separate cash exchange process will be made available to Authorized 
Participants, which can be used, for example, by Authorized 
Participants who cannot or do not wish to own a bitcoin digital wallet 
address. Under the cash exchange process, an Authorized Participant may 
deposit cash with the Administrator, which will facilitate the purchase 
or sale of bitcoins through a liquidity provider (each, a ``Liquidity 
Provider'') on behalf of an Authorized Participant. The bitcoin 
purchased (or sold) by the Liquidity Provider in connection with the 
cash exchange process will, in turn, be delivered to (or from, as 
appropriate) the Custodian, on behalf of the Trust, in exchange for 
Baskets. To the extent an Authorized Participant chooses to rely on 
this cash exchange process when submitting an order to create or redeem 
a Basket, that Authorized Participant will pay (or receive) a cash 
amount based on a firm quote calculated by the Liquidity Provider, 
which will be equal to the spot price of bitcoin, as reported by the 
BBR (as defined below), at the time at which the Administrator receives 
the appropriate cash collateral amount (or the time at which the 
Administrator notifies the Authorized Participant that the order has 
been accepted, in the case of redemptions), plus a proportional 
transaction fee that is intended to cover the Liquidity Provider's 
expenses in connection with the creation or redemption order. 
Regardless of whether an Authorized Participant chooses to rely on this 
cash exchange process in connection with a given creation or redemption 
order, 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.
The Index and Carbon Neutrality
    The MVIS One River Carbon Neutral Bitcoin Index is designed to 
reflect the performance of bitcoin in U.S. dollars on a carbon neutral 
basis. The Index is constructed using bitcoin price feeds from eligible 
bitcoin spot markets and volume weighted median price average 
(``VWMP''), calculated over 20 intervals in rolling three-minute 
increments,\8\ less the estimated cost of offsetting the daily carbon 
emissions attributable to each bitcoin in the network.
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    \8\ Unlike previous proposed rule changes relating to the 
listing of bitcoin products on U.S. exchanges that the Commission 
has disapproved, see, e.g., Order Disapproving a Proposed Rule 
Change, as Modified by Amendment No. 1, Relating to the Listing and 
Trading of Shares of the Bitwise Bitcoin ETF Trust Under NYSE Arca 
Rule 8.201-E, Securities Exchange Act Release No. 87267 (Oct. 9, 
2019), 84 FR 55382 (Oct. 16, 2019) (SR-NYSEArca-2019-01) (the 
``Bitwise Order'') (measuring price over 6 consecutive five-minute 
segments) and 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 (February 26, 2020), 85 FR 
12595 (March 3, 2020) (SR-NYSEArca-2019-39) (the ``Wilshire Phoenix 
Order'') (measuring price over 12 consecutive five-minute segments), 
the Sponsor believes that the use of 20 consecutive three-minute 
segments will better enable the Index to approximate a normal 
sampling distribution with respect to bitcoin prices and, thus, will 
result in overall more accurate pricing of bitcoin.
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    The Index methodology was developed by MV Index Solutions GmbH (the 
``Index Provider'' or ``MVIS'') and is monitored by the One River Index 
Committee (the ``Committee''), an independent, third-party calculation 
agent for the Index. MVIS, with the assistance of its affiliates, is 
also the calculation agent for the MVIS[supreg] CryptoCompare Bitcoin 
Benchmark Rate, which measures the value of the underlying bitcoin 
represented by the Index. The Index and its public dissemination 
provide transparency to investors.
    In establishing the Index, MVIS and the Sponsor created a robust, 
transparent process for quantifying the carbon footprint of bitcoin in 
a clear, repeatable manner. 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 \9\ 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, thus, providing a daily account of the 
cost of carbon for each bitcoin.
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    \9\ Bitcoin in circulation is number of coins that are 
circulating in the market and are in public hands. It is analogous 
to the flowing shares in the stock market. Several third-party 
vendors provide verified data on at least a daily basis. See https://coinmarketcap.com/currencies/bitcoin/.
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    The 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. Voluntary carbon credits are certified 
and standardized under the Verra Verified Carbon Standard (``Verra''), 
an organization that

[[Page 55075]]

establishes and manages standards and programs in connection with 
voluntary carbon credits. The Trust will only utilize carbon credits 
that meet the Verra standards.
    The Trust has entered into an agreement with LIRDES S.A. (doing 
business as 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. 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 or publicly 
traded markets. The MCO2 tokens issued by Moss are carbon offsets 
encrypted and tokenized utilizing blockchain technology and are stored 
on a registry managed by Verra.
    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.
    The Trust will purchase MCO2 tokens from Moss at the end of March, 
June, September, and December at pre-negotiated prices and Moss will 
instantaneously retire the tokens to the public blockchain.\10\ The 
number of MCO2 tokens paid for by the Trust will 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. Employing tokenized carbon credits provides investors with 
enhanced transparency as the blockchain serves as a public record of 
the Trust transactions in carbon offsets on the Verra registry.
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    \10\ MCO2 tokens are recorded on the Ethereum blockchain and is 
publicly available. See https://www.blockchain.com/explorer?view=eth.
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    The Index value is the benchmark value of the bitcoin less the 
estimated daily cost of offsetting the carbon emissions of a single 
bitcoin. The value of the carbon offset provides the marketplace with a 
tangible measurement of the implied market cost of carbon emissions. 
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.
    The Trust does not hold the carbon offset MCO2 tokens as an asset. 
Instead, the Trust pays for the MCO2 tokenized carbon offsets from 
Moss, who then instantaneously retire the tokens to the public 
blockchain, to reduce global carbon emissions by the carbon dioxide 
tonnage (or tonnage of other similar greenhouse gases) corresponding to 
such tokens. In tokenized form, investors and the marketplace can 
validate the activity in carbon credit offsets through the public 
blockchain, enhancing transparency. The retirement of the carbon offset 
makes it unusable in the future and is the final step in offsetting 
emissions. Upon expiration of its agreement with Moss in April 2031, 
the Trust will either enter into a replacement agreement, or 
alternatively pay for the retirement of MCO2 tokens or similar carbon 
credits at then current spot prices for such instruments.
    According to the Sponsor, the Index is the aggregation of executed 
trade data for major bitcoin spot exchanges. To be eligible for 
inclusion in the Index, a constituent bitcoin exchange (``Constituent 
Bitcoin Exchange'') must facilitate spot trading of bitcoin against the 
US Dollar and make trade data and order data available through an 
application programming interface (``API'') with sufficient 
reliability, relevant data, and appropriate speed. The volume for spot 
trading must meet a minimum threshold when compared to the total volume 
of all Constituent Bitcoin Exchanges included in the Index. To be 
considered, an exchange must also enforce policies to ensure fair and 
transparent market conditions and have processes in place to impede 
illegal, or manipulative trading practices. Additionally, to be 
included as a constituent in the Index, each Constituent Bitcoin 
Exchange must comply with applicable law and regulation, including 
proper AML/KYC procedures.
    The MVIS[supreg] CryptoCompare Bitcoin Benchmark Rate (BBR), the 
bitcoin component of the Index, is the bitcoin benchmark used in the 
tracking of funds comprising $821.2 million in total capitalization as 
of June 29, 2021, including recently introduced exchange-traded 
products in Canada.\11\ The constituent exchanges are based on the top 
five ranking CryptoCompare exchange benchmarks: Coinbase, Gemini, 
Bitstamp, Kraken, and itBit. BBR was first released in 2019 to improve 
upon systematic evaluation of exchange counterparties with no 
established framework for assessing various exchange risks. 
CryptoCompare assigns a grade from AA to F to each spot exchange, with 
the goal of helping markets assess the lowest-risk exchanges in the 
industry. Eligible spot markets include all U.S. digital asset 
exchanges and/or regulated digital asset exchanges selected by the 
Committee. Such markets will be evaluated semi-annually, and the final 
selections will 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.
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    \11\ See MVIS Investible Indices, available at: https://www.mvis-indices.com/indices/digital-assets/mvis-cryptocompare-bitcoin-benchmark-rate.
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    Top-tier exchanges are in the AA-B bracket and meet the standard of 
acceptable risk. More than 160 global spot exchanges are evaluated 
monthly based on data transparency, KYC stringency and transaction 
monitoring. Operational standards have increased across the board. The 
Sponsor notes that after ascertaining API data from these exchanges, 
the information is aggregated from actual trade data in a manner 
specifically designed to resist manipulation. Partitions are utilized 
to ensure large individual trades have a limited effect on the price of 
the Index by only influencing the volume-weighted median for a 
particular partition. Use of volume-weighted medians, as opposed to 
volume-weighted means, verifies that transactions conducted at outlying 
prices do not have an excessive effect on the value of a partition. The 
Index weighs each partition equally and also weighs each exchange that 
is a part of the Index equally.
Bitcoin and the Bitcoin Network \12\
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    \12\ Bitcoin (with an uppercase ``B'') is used to describe the 
system as a whole that is involved in maintaining the ledger of 
bitcoin ownership and facilitating the transfer of bitcoin among 
parties. When referring to the digital asset within the Bitcoin 
network, bitcoin is written with a lower case ``b.''
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    According to the Registration Statement, bitcoin is a digital asset 
that can be transferred among participants on the Bitcoin network on a 
peer-to-peer basis via the internet. Unlike other means of electronic 
payments, bitcoin can be transferred without the use of a central 
administrator or clearing agency. Because a central party is not 
necessary to administer bitcoin transactions or maintain the bitcoin 
ledger, the term decentralized is often used in descriptions of 
bitcoin.
    The ``Bitcoin network'' is a decentralized, open-source protocol of 
a peer-to-peer network. No single entity owns or operates the Bitcoin 
network.

[[Page 55076]]

Bitcoin is not issued by any government, by banks or similar 
organizations. The infrastructure of the Bitcoin network is 
collectively maintained by a decentralized user base. The Bitcoin 
network is accessed through software, and software governs the 
creation, movement, and ownership of ``bitcoin,'' the unit of account 
on the Bitcoin network ledger. The value of bitcoin is determined, in 
part, by the supply of, and demand for, bitcoin in the global markets 
for trading bitcoin, market expectations for the adoption of bitcoin as 
a decentralized store of value, the number of merchants and/or 
institutions that accept bitcoin as a form of payment and the volume of 
private end-user-to-end-user transactions.
    The first step in using bitcoin for transactions is to download 
specialized software referred to as a ``bitcoin wallet.'' A user's 
bitcoin wallet can run on a computer or smartphone, and can be used 
both to send and to receive bitcoin. Within a bitcoin wallet, a user 
can generate one or more unique ``bitcoin addresses,'' which are 
conceptually similar to bank account numbers on the Bitcoin Blockchain 
and are associated with a pair of public and private keys. After 
establishing a bitcoin address, a user can send or receive bitcoin from 
his or her bitcoin address to another user's address using the public 
and private keys. Sending bitcoin from one bitcoin address to another 
is similar in concept to sending a bank wire from one person's bank 
account to another person's bank account.
    The amount of bitcoin associated with each bitcoin address is 
listed in a public ledger, referred to as a ``blockchain.'' Copies of 
the Bitcoin Blockchain exist on thousands of computers on the Bitcoin 
network throughout the internet. A user's bitcoin wallet will either 
contain a copy of the Bitcoin Blockchain or be able to connect with 
another computer that holds a copy of the Bitcoin Blockchain.
    When a bitcoin user wishes to transfer bitcoin to another user, the 
sender must first request a bitcoin address from the recipient. The 
sender then uses his or her bitcoin wallet software to create a data 
packet containing the proposed addition (often referred to as a 
``transaction'') to the Bitcoin Blockchain. The proposed transaction 
would reduce the sender's address and increase the recipient's address 
by the amount of bitcoin desired to be transferred, and is sent on a 
peer-to-peer basis to other computers participating in the Bitcoin 
network.
    Bitcoin transaction and ownership records are reflected on the 
``Bitcoin Blockchain,'' which is a digital public record or ledger. 
Copies of this ledger are stored in a decentralized manner on the 
computers of each Bitcoin network node (a node is any user who 
maintains on their computer a full copy of all the bitcoin transaction 
records, the blockchain, as well as related software). Transaction data 
is permanently recorded in files called ``blocks,'' which reflect 
transactions that have been recorded and authenticated by Bitcoin 
network participants. The Bitcoin network software source code includes 
protocols that govern the creation of new bitcoin and the cryptographic 
system that secures and verifies bitcoin transactions.
Bitcoin Transactions
    According to the Registration Statement, bitcoin transactions are 
similar to an irreversible digital check. The transaction contains the 
sender's bitcoin address, the recipient's bitcoin address, the amount 
of bitcoin to be sent, a transaction fee and the sender's digital 
signature. The sender's use of his or her digital signature enables 
participants on the Bitcoin network to verify the authenticity of the 
bitcoin transaction. A user's digital signature is generated via usage 
of the user's so-called ``private key,'' one of two numbers in a so-
called cryptographic ``key pair.'' A key pair consists of a ``public 
key'' and its corresponding private key, both of which are lengthy 
alphanumeric codes, derived together and possessing a unique 
relationship. Public keys are associated with bitcoin addresses that 
are publicly known and can accept a bitcoin transfer. Private keys are 
used to sign transactions that initiate the transfer of bitcoin from a 
sender's bitcoin address to a recipient's bitcoin address. Only the 
holder of the private key associated with a particular bitcoin address 
can digitally sign a transaction proposing a transfer of bitcoin from 
that particular bitcoin address.
    Bitcoin can be transferred in direct peer-to-peer transactions 
through the direct sending of bitcoin over the Bitcoin Blockchain from 
one bitcoin address to another. Among end-users, bitcoin can be used to 
pay other members of the Bitcoin network for goods and services under 
what resembles a barter system. Consumers can also pay merchants and 
other commercial businesses for goods or services through direct peer-
to-peer transactions on the Bitcoin Blockchain or through third-party 
service providers. In addition, investors may purchase and sell bitcoin 
to speculate as to the value of bitcoin in the bitcoin market, or as a 
long-term investment to diversify their portfolio.
    The value of bitcoin within the market is determined, in part, by 
the supply of and demand for bitcoin in the global bitcoin market, 
market expectations for the adoption of bitcoin as a store of value, 
the number of merchants that accept bitcoin as a form of payment, and 
the volume of peer-to-peer transactions, among other factors.
Custody of the Trust's Bitcoins
    The Custodian will retain custody of the Trust's bitcoin in an 
account for the Trust (the ``Bitcoin Account''). The Custodian will 
keep a substantial portion of the private keys associated with the 
Trust's bitcoin in ``cold storage'' or similarly secure technology. 
Cold storage is a safeguarding method with multiple layers of 
protections and protocols, by which the private key(s) corresponding to 
the Trust's bitcoin is (are) generated and stored in an offline manner. 
Private keys are generated in offline computers that are not connected 
to the internet so that they are resistant to hacking.
Calculation of Net Asset Value
    The NAV of the Trust will 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 act as an expense 
to the Trust. The payment for the retirement of carbon offsets will 
occur once per quarter of the calendar year. The number of MCO2 tokens 
retired will equal the aggregated sum of offsets implied by the daily 
carbon footprint for each bitcoin during the quarter. The NAV will 
accrue the estimated carbon cost daily.
    The Trust will not hold carbon offsets as assets; they are 
functionally equivalent to an expense of the Trust and will be retired 
by the Trust instantaneously upon payment. Furthermore, the creation of 
the Index and tokenization of the carbon offsets will provide 
additional transparency to investors with respect to the NAV of the 
Trust vis-[agrave]-vis the estimated carbon footprint of the bitcoin 
retired by the Trust, and will thus give investors an opportunity to 
independently monitor the Trust's efforts to offset the carbon 
emissions associated with its bitcoin holdings.
    The Administrator will calculate the NAV of the Trust once each 
Exchange trading day. The NAV for a normal trading day will be released 
after 4:00

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p.m. Eastern Time (``E.T.''). Trading during the core trading session 
on the Exchange typically closes at 4:00 p.m. E.T. However, NAVs are 
not officially struck until later in the day (often by 5:30 p.m. E.T. 
and almost always by 8:00 p.m. E.T.). The pause between 4:00 p.m. E.T. 
and 5:30 p.m. E.T. (or later) provides an opportunity to 
algorithmically detect, flag, investigate, and correct unusual pricing 
should it occur.
Intraday Indicative Value
    In order to provide updated information relating to the Trust for 
use by Shareholders and market professionals, the Trust's website, as 
well as one or more major market data vendors, will disseminate an 
updated intraday indicative value (``IIV'') per Share updated every 15 
seconds through the facilities of CTA/CQ High Speed Lines during the 
Exchange's Core Trading Session.\13\ The IIV will 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.
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    \13\ Several major market data vendors display and/or make 
widely available IIVs taken from the Consolidated Tape Association 
(``CTA'') or other data feeds. In addition, the IIV will be 
available through on-line information services such as Bloomberg and 
Reuters.
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    The IIV disseminated during the NYSE Arca Core Trading Session 
should not be viewed as an actual real-time update of the NAV, which 
will be calculated only once at the end of each trading day. The IIV 
will be widely disseminated on a per Share basis every 15 seconds 
during the NYSE Arca Core Trading Session by one or more major market 
data vendors. In addition, the IIV will be available through on-line 
information services.
Creation and Redemption of Shares
    According to the Registration Statement, the Trust will issue 
Shares on an ongoing basis, but only in one or more Baskets. A Basket 
equals a block of 50,000 Shares. The Trust intends to redeem Shares in 
Baskets on an ongoing basis from Authorized Participants, according to 
the procedures described herein.
    The creation and redemption of a Basket requires the delivery to 
the Trust, or the distribution by the Trust, of the number of whole and 
fractional bitcoins represented by each Basket being created or 
redeemed, the number of which is determined by dividing the number of 
bitcoins owned by the Trust at 4:00 p.m. E.T. on the trade date of a 
creation or redemption order, as adjusted for the number of whole and 
fractional bitcoins constituting accrued but unpaid fees and expenses 
of the Trust, by the number of Shares outstanding at such time (the 
quotient so obtained calculated to one one-hundred-millionth of one 
bitcoin), and multiplying such quotient by 50,000 (the ``Basket Bitcoin 
Amount''). The Basket Bitcoin Amount multiplied by the number of 
Baskets being created or redeemed is the ``Total Basket Bitcoin 
Amount.''
    The MCO2 tokenized carbon offset is not a part of the Basket as it 
is not an asset to the Trust, nor does the Trust's payment for the 
retirement of such MCO2 tokens impact the process by which the Trust 
creates or redeems Baskets. The Trust will pay for the retirement of 
such carbon offsets at a quarterly frequency, thereby permanently 
offsetting carbon emissions.
    According to the Registration Statement, Authorized Participants 
are the only persons that may place orders to create and redeem 
Creation Baskets. Authorized Participants must (1) be a registered 
broker-dealer, (2) enter into a Participant Agreement with the Sponsor, 
the Administrator, the Marketing Agent and the Liquidity Providers,\14\ 
and (3) in the case of the creation or redemption of Baskets that do 
not use the Conversion Procedures,\15\ own a bitcoin wallet address 
that is recognized by the Custodian as belonging to the Authorized 
Participant.
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    \14\ Although the Trust will create Baskets only upon the 
receipt of bitcoins, and will redeem Baskets only by distributing 
bitcoins, an Authorized Participant may deposit cash with the 
Administrator, which will facilitate the purchase or sale of 
bitcoins through a Liquidity Provider on behalf of an Authorized 
Participant (the ``Conversion Procedures''). Liquidity Providers 
must (1) enter into a Participant Agreement with the Sponsor, the 
Administrator, the Marketing Agent and each Authorized Participant 
and (2) own a Liquidity Provider Account.
    \15\ The Conversion Procedures will be facilitated by a single 
Liquidity Provider. On an order-by-order basis, the Sponsor will 
select the Liquidity Provider that it believes will provide the best 
execution of the Conversion Procedures, and will base its decision 
on factors such as the Liquidity Provider's creditworthiness, 
financial stability, the timing and speed of execution, liquidity 
and the likelihood of, and capabilities in, execution, clearance and 
settlement. In the event that an order cannot be filled in its 
entirety by a single Liquidity Provider, additional Liquidity 
Provider(s) will be selected by the Sponsor to fill the remaining 
amount based on the criteria above.
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Creation Procedures
    According to the Registration Statement, on any business day, an 
Authorized Participant may order one or more Creation Baskets from the 
Trust by placing a creation order with the Administrator. For purposes 
of processing both purchase and redemption orders, a ``business day'' 
means any day other than a day when the Exchange or the New York Stock 
Exchange is closed for regular trading.
    As noted above, creation orders will be placed ``in-kind.'' 
Creation orders must be placed no later than 3:59:59 p.m. E.T. on each 
business day. Authorized Participants may only create Baskets and 
cannot create any Shares in an amount less than a Basket.
    The Basket Bitcoin Amount required for a Creation Basket will be 
determined by dividing the number of bitcoins owned by the Trust at 
4:00 p.m. E.T. on the trade date of a creation or redemption order, as 
adjusted for the number of whole and fractional bitcoins constituting 
accrued but unpaid fees and expenses of the Trust, by the number of 
Shares outstanding at such time (the quotient so obtained calculated to 
one one-hundred-millionth of one bitcoin), and multiplying such 
quotient by 50,000. All questions as to the composition of a Basket 
Bitcoin Amount will be conclusively determined by the Sponsor and will 
be final and binding on all persons interested in the Trust.
Redemption Procedures
    According to the Registration Statement, the procedures by which an 
Authorized Participant can redeem one or more Creation Baskets mirror 
the procedures for the creation of Creation Baskets. On any business 
day, an Authorized Participant may place a redemption order specifying 
the number of Redemption Baskets to be redeemed. As noted above, 
redemption orders must be placed ``in-kind.'' Redemption orders must be 
placed no later than 3:59:59 p.m. E.T. on each Business Day. The 
Authorized Participants may only redeem Baskets and cannot redeem any 
Shares in an amount less than a Basket.
Bitcoin and Investor Protection
    In prior orders relating to the listing of products on U.S. 
exchanges, the Commission Staff expressed its concern that the global 
market for bitcoin may be subject to potential manipulation.\16\ In

[[Page 55078]]

order for any proposed rule change from an exchange to be approved, the 
Commission must determine that, among other things, the proposal is 
consistent with the requirements of Section 6(b)(5) of the Act.\17\ In 
these disapproval orders, the Commission outlined that a proposal 
relating to a Bitcoin-based ETP could satisfy its concerns regarding 
potential for fraud and manipulation by demonstrating that (1) the 
underlying commodity market is inherently resistant to fraud and 
manipulation; (2) there are other means to prevent fraudulent and 
manipulative acts and practices that are sufficient; or (3) the listing 
exchange has entered into a surveillance sharing agreement with a 
regulated market of significant size relating to the underlying or 
reference assets.
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    \16\ 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) (the ``Winklevoss 
Order''); the Bitwise Order; Order the Wilshire Phoenix Order; 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) (the ``ProShares 
Order''); Order Disapproving a Proposed Rule Change Relating to 
Listing and Trading of the Direxion Daily Bitcoin Bear 1X Shares, 
Direxion Daily Bitcoin 1.25X Bull Shares, Direxion Daily Bitcoin 
1.5X Bull Shares, Direxion Daily Bitcoin 2X Bull Shares, and 
Direxion Daily Bitcoin 2X Bear Shares Under NYSE Arca Rule 8.200-E, 
Securities Exchange Act Release No. 83912 (Aug. 22, 2018), 83 FR 
43912 (Aug. 28, 2018) (SR-NYSEArca-2018-02) (the ``Direxion 
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-
01) (the ``GraniteShares Order'').
    \17\ 15 U.S.C. 78f(b)(5).
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    According to the Sponsor,\18\ bitcoin is dominant, accounting for 
more than 49% of the total market capitalization of cryptoassets.\19\ 
As of June 2021, the market cap for Bitcoin is over $600 billion.\20\ 
Bitcoin also has the longest history of any cryptoasset. Alongside the 
growth in users, active wallets and market capitalization, 
institutional ratings of various tokens have increased substantially. 
Ratings are based on factors such as core team, project, and ecosystem 
metrics. Bitcoin ranks as one of the most widely used, if not the most 
widely used, cryptoassets in the global token market. Within the 
Bitcoin network, 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. Holding periods for bitcoin are also relatively long, as 58% of 
owners maintain ownership for longer than a one-year period, and 70% of 
all holders are in profitable positions.\21\
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    \18\ See Registration Statement on Form S-1 at 42.
    \19\ Coinmarketcap.com, bitcoin price statistics are available 
at https://coinmarketcap.com/currencies/bitcoin/.
    \20\ See id.
    \21\ See Coinmarketcap.com, on-chain analysis of bitcoin 
available at https://coinmarketcap.com/currencies/bitcoin/onchain-analysis/.
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    The marketplace is maturing with increased institutional 
participation.\22\ Twenty-eight public companies hold bitcoin, 
accounting for less than 1% of the total supply. More traditional 
financial market participants appear to be embracing cryptoassets: 
Large insurance companies,\23\ asset managers,\24\ university 
endowments,\25\ pension funds,\26\ and even historically bitcoin 
skeptical fund managers \27\ are allocating to bitcoin. Established 
companies like Tesla, Inc.,\28\ MicroStrategy Incorporated,\29\ and 
Square, Inc.,\30\ among others, have recently announced substantial 
investments in bitcoin in amounts as large as $1.5 billion (Tesla) and 
$425 million (MicroStrategy). MassMutual Insurance Company, one of the 
nation's oldest private companies and a historically conservative 
investor, has purchased over $100 million in bitcoin.
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    \22\ See Registration Statement on Form S-1 at 42.
    \23\ On December 10, 2020, Massachusetts Mutual Life Insurance 
Company (MassMutual) announced that it had purchased $100 million in 
bitcoin for its general investment account. See MassMutual Press 
Release ``Institutional Bitcoin provider NYDIG announces minority 
stake purchase by MassMutual'' (December 10, 2020), available at: 
https://www.massmutual.com/about-us/news-and-press-releases/press-releases/2020/12/institutional-bitcoin-provider-nydig-announces-minority-stake-purchase-by-massmutual.
    \24\ See, e.g., ``BlackRock's Rick Rieder says the world's 
largest asset manager has `started to dabble' in bitcoin' '' 
(February 17, 2021) available at: https://www.cnbc.com/2021/02/17/blackrock-has-started-to-dabble-in-bitcoin-says-rick-rieder.html and 
``Guggenheim's Scott Minerd Says Bitcoin Should Be Worth $400,000'' 
(December 16, 2020), available at: https://www.bloomberg.com/news/articles/2020-12-16/guggenheim-s-scott-minerd-says-bitcoin-should-be-worth-400-000.
    \25\ See, e.g., ``Harvard and Yale Endowments Among Those 
Reportedly Buying Crypto'' (January 25, 2021), available at: https://www.bloomberg.com/news/articles/2021-01-26/harvard-and-yale-endowments-among-those-reportedly-buying-crypto.
    \26\ See, e.g., ``Virginia Police Department Reveals Why its 
Pension Fund is Betting on Bitcoin'' (February 14, 2019), available 
at: https://finance.yahoo.com/news/virginia-police-department-reveals-why-194558505.html.
    \27\ See, e.g., ``Bridgewater: Our Thoughts on Bitcoin'' 
(January 28, 2021), available at: https://www.bridgewater.com/research-and-insights/our-thoughts-on-bitcoin and ``Paul Tudor Jones 
says he likes bitcoin even more now, rally still in the `first 
inning' '' (October 22, 2020), available at: https://www.cnbc.com/2020/10/22/-paul-tudor-jones-says-he-likes-bitcoin-even-more-now-rally-still-in-the-first-inning.html.
    \28\ See Form 10-K submitted by Tesla, Inc., for the fiscal year 
ended December 31, 2020 at 23: https://www.sec.gov/ix?doc=/Archives/edgar/data/1318605/000156459021004599/tsla-10k20201231.htm.
    \29\ See Form 10-Q submitted by MicroStrategy Incorporated for 
the quarterly period ended September 30, 2020 at 8: https://www.sec.gov/ix?doc=/Archives/edgar/data/1050446/000156459020047995/mstr-10q20200930.htm.
    \30\ See Form 10-Q submitted by Square, Inc., for the quarterly 
period ended September 30, 2020 at 51: https://www.sec.gov/ix?doc=/Archives/edgar/data/1512673/000151267320000012/sq-20200930.htm.
---------------------------------------------------------------------------

    The rise in the digital economy has led to an increase in activity 
within the regulated banking system, reflecting increased institutional 
demand. Silvergate Bank, a commercial bank service provider in 
California, reported fee income from digital currency customers of $7.1 
million in the first quarter of 2021, up from $1.7 million a year 
earlier. These are substantial developments since the Commission last 
reviewed a bitcoin ETF proposal. Additionally, licensed and regulated 
service providers have emerged to provide fund custodial services for 
digital assets, among other services. For example, in December 2020, 
the Commission adopted a conditional no-action position permitting 
certain special purpose broker-dealers to custody digital asset 
securities under Rule 15c3-3 under the Exchange Act; in September 2020, 
the Staff of the Commission released a no-action letter permitting 
certain broker-dealers to operate a non-custodial Alternative Trading 
System (``ATS'') for digital asset securities, subject to specified 
conditions.
    Further, the U.S. Department of the Treasury's (the ``Treasury'') 
Financial Crimes Enforcement Network (``FinCEN''), which in 2013 and 
2019 released guidance regarding the applicability of the Bank Secrecy 
Act (``BSA'') and its implementing regulations to exchangers and 
administrators of convertible virtual currency,\31\ has recently 
proposed two separate 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,

[[Page 55079]]

including identification information of persons engaged in such 
transactions.\32\ Although FinCEN has not finalized these proposed 
rules, they signal an intention by FinCEN to close any regulatory gaps 
and require certain cryptoasset transactions to be subject to anti-
money laundering compliance measures. Further to this point, 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 know-your-
customer, compliance requirements applicable to transactions in virtual 
assets or involving virtual asset service providers.\33\ Although 
FinCEN has not finalized its proposed rules yet, and the FATF guidance 
does not have the force of law, 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. In 
addition, 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.\34\ The proposed anti-money laundering 
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 (as described below). These regulatory and 
enforcement actions acknowledge the increasing use of bitcoin and other 
cryptoassets within the broader global financial sector generally, and 
represent ongoing efforts to regularize the use of such cryptoassets 
within existing regulatory frameworks.
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    \31\ See, e.g., FIN-2013-G001, Application of FinCEN's 
Regulations to Persons Administering, Exchanging, or Using Virtual 
Currencies (Mar. 18, 2013); FIN-2019-G001, Application of FinCEN's 
Regulations to Certain Business Models Involving Convertible Virtual 
Currencies (May 9, 2019) (consolidating existing FinCEN regulations, 
guidance and administrative rulings that relate to money 
transmission involving virtual currency and applying the same 
interpretive criteria to other common business models involving 
convertible virtual currencies). See also FIN-2019-A003, Advisory on 
Illicit Activity Involving Convertible Virtual Currency (May 9, 
2019) (advising financial institutions in identifying and reporting 
suspicious activity related to criminal exploitation of convertible 
virtual currencies for money laundering, sanctions evasion, and 
other illicit financing purposes).
    \32\ Joint Notice of Proposed Rulemaking, Threshold for the 
Requirement To Collect, Retain, and Transmit Information on Funds 
Transfers and Transmittals of Funds That Begin or End Outside the 
United States, and Clarification of the Requirement to Collect, 
Retain, and Transmit Information on Transactions Involving 
Convertible Virtual Currencies and Digital Assets with Legal Tender 
Status, 85 FR 68005 (Oct. 27, 2020); Notice of Proposed Rulemaking, 
Requirements for Certain Transactions Involving Convertible Virtual 
Currency or Digital Assets, 85 FR 83840 (Dec. 23, 2020).
    \33\ See FATF Draft updated Guidance for a risk-based approach 
to virtual assets and VASPs (March 2021), available at http://www.fatf-gafi.org/media/fatf/documents/recommendations/March%202021%20-%20VA%20Guidance%20update%20-%20Sixth%20draft%20-%20Public%20consultation.pdf.
    \34\ See Enforcement Release, U.S. Dep't of the Treasury, ``OFAC 
Enters Into $507,375 Settlement with BitPay, Inc. for Apparent 
Violations of Multiple Sanctions Programs Related to Digital 
Currency Transactions'' (Feb. 18, 2021), available at https://home.treasury.gov/system/files/126/20210218_bp.pdf and Enforcement 
Release, U.S. Dep't of the Treasury, ``OFAC Enters Into $98,830 
Settlement with BitGo, Inc. for Apparent Violations of Multiple 
Sanctions Programs Related to Digital Currency Transactions'' (Dec. 
30, 2020), available at https://home.treasury.gov/system/files/126/20201230_bitgo.pdf.
---------------------------------------------------------------------------

    Technological advancements on the bitcoin protocol are also 
progressing and will broaden institutional adoption of the bitcoin 
protocol as a technology. The last major upgrade to the protocol 
occurred in 2017, when the technical feature known as ``segregated 
witness'' (``Segregated Witness'') was added. The Segregated Witness 
advancement allowed for the rise in block space and enabled the 
Lightning Network, a fast and inexpensive payment system that operates 
on the bitcoin protocol, to be safely employed. The Lightning network's 
capacity has risen from less than $200 thousand to more than $50 
million since then.
    Taproot is a technological innovation that will be implemented in 
November 2021. This innovation will allow for single-signature and 
multi-signature scripts and other complex transactions to become 
identical-looking commitments on the Bitcoin Blockchain. The Taproot 
innovation will accommodate complex transactions through smart 
contracts, which will have broader financial adoption. Institutional 
holdings of bitcoin reflect collateral that can benefit from these 
technological advancements.
    There have also been advancements in regulatory frameworks, both on 
a global and national scale, on cryptoasset exposures since the 
Commission's last review. The Bank of International Settlements, the 
global bank for central banks who supports monetary and financial 
stability, provided consultation on prudential treatment of 
cryptoassets. The philosophy behind the guidance was ``same risk, same 
activity, same treatment,'' reinforcing the concept of ``technological 
neutrality.'' The design of the prudential treatment of cryptoassets is 
conservative, with a 1250% risk weight applied to the maximum of long 
and short exposures.\35\
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    \35\ The Basel Committee on Banking Supervision has published a 
public consultation on preliminary proposals for the prudential 
treatment of banks' cryptoasset exposures. See Prudential Treatment 
of Cryptoasset Exposures available at: https://www.bis.org/bcbs/publ/d519.htm.
---------------------------------------------------------------------------

    Furthermore, within the United States, 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,\36\ 
including, in certain cases, against defendants for direct trading of 
cryptoassets.\37\
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    \36\ The CFTC's annual report for Fiscal Year 2020 (which ended 
on September 30, 2020) noted that the CFTC ``continued to 
aggressively prosecute misconduct involving digital assets that fit 
within the CEA's definition of commodity'' and ``brought a record 
setting seven cases involving digital assets.'' See CFTC FY2020 
Division of Enforcement Annual Report, available at: https://www.cftc.gov/media/5321/DOE_FY2020_AnnualReport_120120/download.
    \37\ See CFTC v. Gelfman Blueprint, No. 17-7181 (S.D.N.Y. Sept. 
21, 2017) (``Gelfman'') 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) (``CabbageTech'').
---------------------------------------------------------------------------

    In Gelfman, the CFTC filed for injunctive relief against Gelfman 
Blueprint Inc., and its CEO, Nicholas Gelfman, concerning an alleged 
Ponzi scheme, asserting jurisdiction on the basis of Mr. Gelfman 
engaging in some Bitcoin trading and thereby engaging in manipulative 
trading in commodities. Similarly, in CabbageTech, CabbageTech, Corp. 
was found guilty of fraudulent behavior in another case brought by the 
CFTC for ``a deceptive and fraudulent virtual currency scheme.'' The 
CFTC has historically asserted jurisdiction over spot market 
commodities trading, where manipulative trading in the spot market can 
affect its derivatives market. The Gelfman case is unique in that the 
CFTC asserted jurisdiction over the spot market when there was little 
to no derivatives trading in the United States. Similarly, the 
CabbageTech case did not indicate that there was any derivatives 
trading conducted, yet the court rejected the defendant's claim that 
the CFTC had no jurisdiction in the matter. Courts 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.\38\ The CFTC's enforcement 
division has remained consistently active in the virtual currency 
space. On October 1, 2020, the CFTC filed a civil enforcement action 
against the owner/operators of the BitMEX trading platform, which was 
one of the largest bitcoin derivative exchanges.\39\ On March 19, 2021, 
the CFTC ordered digital asset exchange

[[Page 55080]]

operator CoinBase Inc., to pay $6.5 million in monetary penalties and 
desist from further violations of Commodity Exchange Act and CFTC rules 
in connection with alleged reckless delivery of false, misleading, or 
inaccurate reports concerning transactions in digital assets, including 
bitcoin, on the Global Digital Asset Exchange (GDAX) electronic trading 
platform, as well as allegations of manipulative market activities by 
CoinBase Inc. employees.\40\
---------------------------------------------------------------------------

    \38\ See Commodity Futures Trading Comm'n v. My Big Coin Pay, 
Inc., 334 F. Supp. 3d 492, 496-97 (D. Mass. 2018) (finding that 
defendants' virtual currency, ``My Big Coin,'' was a commodity 
subject to CFTC anti-fraud and anti-manipulation authority because 
contracts for future delivery of virtual currencies were already 
``dealt in'' even if futures contracts for My Big Coin, 
specifically, were not).
    \39\ See CFTC Release No. 8270-20 (October 1, 2020), available 
at: https://www.cftc.gov/PressRoom/PressReleases/8270-20.
    \40\ See CFTC Release No. 8369-21 (March 19, 2021), available 
at: https://www.cftc.gov/PressRoom/PressReleases/8369-21.
---------------------------------------------------------------------------

    The U.S. Office of the Comptroller of the Currency (``OCC'') has 
also made clear that federally-chartered banks are able to provide 
custody services for cryptoassets and other digital assets.\41\ In 
addition, the Board of Governors of the Federal Reserve System proposed 
guidelines to evaluate the requests for account services at Federal 
Reserve Banks in light of recent changes to the financial payments 
landscape.\42\ The guidelines are in response to the rapidly-evolving 
technological progress and new financial services observed through 
cryptoassets, of which bitcoin is the dominant asset. The proposal is 
aimed at financial stability, protecting consumers, and promoting 
innovation in the payments system.
---------------------------------------------------------------------------

    \41\ See OCC News Release 2021-2 (January 4, 2021), available 
at: https://www.occ.gov/news-issuances/news-releases/2021/nr-occ-2021-2.html.
    \42\ See Federal Reserve Docket No. OP-1747 (May 5, 2021), 
available at https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20210505a1.pdf.
---------------------------------------------------------------------------

    The Sponsor notes below the advancement of the application of the 
Index (as described below) over that same period of time, including how 
the Index articulates the potential remedy that it can be to 
sufficiently mitigate the pricing issues and various risks surrounding 
market manipulation.
Bitcoin and Market Integrity
    The bitcoin market has evolved significantly as adoption pressure 
has broadened from both retail and institutional clients from a global 
perspective. There has been concern over whether cryptoasset exchanges 
have mechanisms in place to report and remediate price and ensure 
market integrity. As the industry has grown substantially and the 
number of marketplaces expands, it follows that the quality of these 
marketplaces will vary. This notion is amplified for exchanges that are 
unregulated or decentralized. Therefore, the Sponsor believes that 
there must be sufficiency of data inputs for the calculation of the 
spot price of bitcoin. In turn the data must be provided under 
licensing arrangements with each exchange, which in turn impose strict 
entry criteria. As described below, the design of the methodology and 
framework of the Index are sufficiently resistant to market 
manipulation while providing oversight managed by an independent 
committee.
Index Price Manipulation
    According to the Sponsor, 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. In addition, the use of multiple eligible bitcoin 
spot markets is designed to mitigate the potential for idiosyncratic 
market risk, as the failure of any individual bitcoin spot market 
should not materially impact pricing for the Trust.
    The use of 20 rolling three-minute increments means 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. The use of a ``median'' price limits the ability 
of outlier prices, which may have been caused by attempts to manipulate 
the price on a particular market, to impact the NAV, as it 
systematically excludes those outlier prices from the NAV calculation. 
Any 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.
    The Sponsor further believes that because the Trust will, in all 
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.\43\ This is true even with respect to transactions with 
Authorized Participants who rely on the cash exchange process, as 
regardless of whether an Authorized Participant chooses to rely on such 
process in connection with a given creation or redemption order, 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. 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 bitcoin per Share 
held by the Trust would not be impacted. Therefore, long-term 
Shareholders of the Trust would be protected in a way that shareholders 
of trusts processing creations or redemptions directly in cash would 
not be protected. In other words, 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 Authorized Participants 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 Authorized 
Participant relies on the cash exchange process to facilitate such 
creation or redemption.
---------------------------------------------------------------------------

    \43\ 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.
---------------------------------------------------------------------------

    The Trust's NAV incorporates unpaid expenses, including costs of 
carbon offsets through the MCO2 token. If MCO2 tokens are unavailable 
for any reason, the carbon credit prices will be benchmarked to the 
average wholesale price as defined by IHS Markit survey for voluntary 
carbon credit wholesale prices, OPIS, plus the cost of tokenizing the 
credits. In addition, the Trust's performance will necessarily fall 
below that of similar bitcoin-focused investment vehicles due to the 
expenses associated with retiring MCO2 tokens as required to track the 
Index. Given the Trust's focus on carbon neutrality, its performance 
from a purely financial perspective will necessarily fall below other 
similar investment structures that do not seek to achieve a carbon 
neutral result from their portfolio investments. However, as discussed 
above, the Sponsor believes that the Trust's use of in-kind creations 
and distributions will tend to insulate Shareholders from any impact 
that these carbon neutrality-related expenses may have on the price of 
Shares by ensuring that Shareholders will pay (for creations) and 
receive (for

[[Page 55081]]

redemptions) the same number of bitcoin regardless of Share price.
Availability of Information
    Quotation and last-sale information regarding the Shares will be 
disseminated through the facilities of the CTA. The IIV will be 
available through on-line information services.
    Information about the Shares will be posted to the Trust's website 
https://www.oneriveram.com/digital-strategies. Information will 
include: (i) The NAV and NAV per Share for each Exchange trading day, 
posted at end of day; (ii) the daily holdings of the Trust, before 9:30 
a.m. E.T. on each Exchange trading day; (iii) the Trust's effective 
prospectus, in a form available for download; and (v) the Shares' 
ticker and CUSIP information; and additional quantitative information 
updated on a daily basis for the Trust. The Trust's website will 
include: (i) The prior business day's trading volume, the prior 
business day's reported NAV and closing price, and a calculation of the 
premium and discount of the closing price or mid-point of the bid/ask 
spread at the time of NAV calculation (``Bid/Ask Price'') against the 
NAV and (ii) data in chart format displaying the frequency distribution 
of discounts and premiums of the daily closing price or Bid/Ask Price 
against the NAV, within appropriate ranges, for at least each of the 
four previous calendar quarters.
    The Index value is available on Calculation Agent's website and 
from major market data vendors. Quotation and last sale information for 
bitcoin will be widely disseminated through a variety of major market 
data vendors, including Bloomberg and Reuters. In addition, the 
complete real-time price (and volume) data for bitcoin is available by 
subscription from Reuters and Bloomberg. The spot price of bitcoin also 
is available on a 24-hour basis from major market data vendors, 
including Bloomberg and Reuters. Information relating to trading, 
including price and volume information, in bitcoin will be available 
from major market data vendors and from the exchanges on which bitcoin 
are traded. The normal trading hours for bitcoin exchanges are 24-hours 
per day, 365-days per year.
    The Sponsor will publish the NAV per Share on the Trust's website 
as soon as practicable after its determination. The Trust will provide 
website disclosure of its NAV daily. The website disclosure of the 
Trust's NAV will occur at the same time as the disclosure by the 
Sponsor of the NAV to Authorized Participants so that all market 
participants are provided such information at the same time. Therefore, 
the same information will be provided on the public website as well as 
in electronic files provided to Authorized Participants. Accordingly, 
each investor will have access to the current NAV of the Trust through 
the Trust's website, as well as from one or more major market data 
vendors.
Trading
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. Shares will trade on 
the NYSE Arca Marketplace from 4:00 to 8:00 p.m. E.T. in accordance 
with NYSE Arca Rule 7.34-E (Early, Core, and Late Trading Sessions). 
The Exchange has appropriate rules to facilitate transactions in the 
Shares during all trading sessions. As provided in NYSE Arca Rule 7.6-
E, the minimum price variation (``MPV'') for quoting and entry of 
orders in equity securities traded on the NYSE Arca Marketplace is 
$0.01, with the exception of securities that are priced less than 
$1.00, for which the MPV for order entry is $0.0001.
    The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Rule 8.201-E. Trading of the Shares will be 
subject to NYSE Arca Rule 8.201-E(g), which sets forth certain 
restrictions on Equity Trading Permit (``ETP'') holders (``ETP 
Holders'') acting as registered market makers in Commodity-Based Trust 
Shares to facilitate surveillance. The Exchange represents that, for 
initial and continued listing, the Trust will be in compliance with 
Rule 10A-3 \44\ under the Act, as provided by NYSE Arca Rule 5.3-E. A 
minimum of 100,000 Shares of the Trust will be outstanding at the 
commencement of trading on the Exchange.
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    \44\ 17 CFR 240.10A-3.
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Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Trust.\45\ Trading in Shares of the Trust 
will be halted if the circuit breaker parameters in NYSE Arca Rule 
7.12-E have been reached. Trading also may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable.
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    \45\ See NYSE Arca Rule 7.12-E.
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    The Exchange may halt trading during the day in which an 
interruption to the dissemination of the IIV occurs.\46\ If the 
interruption to the dissemination of the IIV persists past the trading 
day in which it occurred, the Exchange will halt trading no later than 
the beginning of the trading day following the interruption. In 
addition, if the Exchange becomes aware that the NAV with respect to 
the Shares is not disseminated to all market participants at the same 
time, it will halt trading in the Shares until such time as the NAV is 
available to all market participants. The Exchange may also halt 
trading if the value of the Index is no longer calculated or available 
on at least a 15-second delayed basis from a source unaffiliated with 
the Sponsor, Trust, Custodian or the Exchange.
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    \46\ A limit up/limit down condition in the futures market would 
not be considered an interruption requiring the Trust to be halted.
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Surveillance
    The Exchange represents that trading in the Shares of the Trust 
will be subject to the existing trading surveillances administered by 
the Exchange, as well as cross-market surveillances administered by 
FINRA on behalf of the Exchange, which are designed to detect 
violations of Exchange rules and applicable federal securities 
laws.\47\ The Exchange represents that these procedures are adequate to 
properly monitor Exchange trading of the Shares in all trading sessions 
and to deter and detect violations of Exchange rules and federal 
securities laws applicable to trading on the Exchange.
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    \47\ FINRA conducts cross-market surveillances on behalf of the 
Exchange pursuant to a regulatory services agreement. The Exchange 
is responsible for FINRA's performance under this regulatory 
services agreement.
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    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations.
    The Exchange or FINRA, on behalf of the Exchange, or both, will 
communicate as needed regarding trading in the Shares with other 
markets and other entities that are members of the Intermarket 
Surveillance Group (``ISG''), and the Exchange or FINRA, on behalf of 
the Exchange, or both, may obtain trading information regarding trading 
in the Shares from such markets and other entities. In addition, the 
Exchange may obtain information regarding trading in the Shares from

[[Page 55082]]

markets and other entities that are members of ISG or with which the 
Exchange has in place a comprehensive surveillance sharing agreement 
(``CSSA'').\48\ The Exchange is also able to obtain information 
regarding trading in the Shares in connection with such ETP Holders' 
proprietary or customer trades which they effect through ETP Holders on 
any relevant market.
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    \48\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Trust may trade on markets that are members of ISG or with which the 
Exchange has in place a CSSA.
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    In addition, the Exchange also has a general policy prohibiting the 
improper distribution of material, non-public information by its 
employees.
    All statements and representations made in this filing regarding 
(1) the description of the portfolios of the Trust, (2) limitations on 
portfolio holdings or reference assets, or (3) the applicability of 
Exchange listing rules specified in this rule filing shall constitute 
continued listing requirements for listing the Shares on the Exchange.
    The Sponsor has represented to the Exchange that it will advise the 
Exchange of any failure by the Trust to comply with the continued 
listing requirements, and, pursuant to its obligations under Section 
19(g)(1) of the Act, the Exchange will monitor for compliance with the 
continued listing requirements. If the Trust is not in compliance with 
the applicable listing requirements, the Exchange will commence 
delisting procedures under NYSE Arca Rule 5.5-E(m).
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \49\ that an exchange have rules that 
are designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to remove 
impediments to, and perfect the mechanism of a free and open market 
and, in general, to protect investors and the public interest.
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    \49\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in NYSE Arca Rule 8.201-E. The 
Exchange has in place surveillance procedures that are adequate to 
properly monitor trading in the Shares in all trading sessions and to 
deter and detect violations of Exchange rules and applicable federal 
securities laws. The Exchange or FINRA, on behalf of the Exchange, or 
both, will communicate as needed regarding trading in the Shares with 
other markets that are members of the ISG, and the Exchange or FINRA, 
on behalf of the Exchange, or both, may obtain trading information 
regarding trading in the Shares from such markets. In addition, the 
Exchange may obtain information regarding trading in the Shares from 
markets that are members of ISG or with which the Exchange has in place 
a CSSA. Also, pursuant to NYSE Arca Rule 8.201-E(g), the Exchange is 
able to obtain information regarding trading in the Shares and the 
underlying bitcoin or any bitcoin derivative through ETP Holders acting 
as registered market makers, in connection with such ETP Holders' 
proprietary or customer trades through ETP Holders which they effect on 
any relevant market.
    The proposed rule change is designed to prevent fraudulent and 
manipulative acts and practices. The Exchange believes that its 
surveillance procedures are adequate to properly monitor the trading of 
the Shares on the Exchange during all trading sessions and to deter and 
detect violations of Exchange rules and the applicable federal 
securities laws, and the Exchange may obtain information regarding 
trading in the Shares via the ISG, from other exchanges who are members 
or affiliates of the ISG, or with which the Exchange has entered into a 
comprehensive surveillance sharing agreement. Beyond the use of such 
surveillance agreements, the Exchange believes 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 
Authorized Participants, further mitigates the risk associated with 
potential manipulation and financially disincentivizes manipulation of 
the Index.
    To protect investors and the public interest, there is a 
considerable amount of bitcoin price and market information available 
on public websites and through professional and subscription services. 
Investors may obtain, on a 24-hour basis, bitcoin pricing information 
based on the spot price for bitcoin from various financial information 
service providers. The closing price and settlement prices of bitcoin 
are readily available from exchanges and other publicly available 
websites. In addition, such prices are published in public sources, or 
on-line information services such as Bloomberg and the Wall Street 
Journal. In addition to the price transparency of the Index and of 
bitcoin itself, the Trust will provide website disclosure of its 
bitcoin holdings daily, as well as additional information about the 
Trust. Quotation and last-sale information regarding the Shares will be 
disseminated through the facilities of the CTA. The IIV will be widely 
disseminated on a per Share basis 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 one 
or more major market data vendors. In addition, the IIV will be 
available through on-line information services. The Exchange represents 
that the Exchange may halt trading during the day in which an 
interruption to the dissemination of the IIV or the Index value occurs. 
If the interruption to the dissemination of the IIV or the Index value 
persists past the trading day in which it occurred, the Exchange will 
halt trading no later than the beginning of the trading day following 
the interruption. In addition, if the Exchange becomes aware that the 
NAV with respect to the Shares is not disseminated to all market 
participants at the same time, it will halt trading in the Shares until 
such time as the NAV is available to all market participants.
    The proposed rule change is also designed to promote just and 
equitable principles of trade and to protect investors and the public 
interest in that there is a considerable amount of bitcoin price and 
market information available on public websites and through 
professional and subscription services. Investors may obtain, on a 24-
hour basis, bitcoin pricing information based on the spot price for 
bitcoin from various financial information service providers.
    The Trust's website will also include a form of the prospectus for 
the Trust that may be downloaded. The website will include the Shares' 
ticker and CUSIP information, along with additional quantitative 
information updated on a daily basis for the Trust. The Trust's website 
will include (i) daily trading volume, the prior business day's 
reported NAV and closing price, and a calculation of the premium and 
discount of the closing price or mid-point of the Bid/Ask Price against 
the NAV; and (ii) data in chart format displaying the frequency 
distribution of discounts and premiums of the daily closing price or 
Bid/Ask Price against the NAV, within appropriate ranges, for at least 
each of the four previous calendar quarters. The Trust's website will 
be publicly available prior to the public offering of Shares and 
accessible at no charge.
    The Index value is available on Calculation Agent's website and 
from major market data vendors. The spot

[[Page 55083]]

price of bitcoin also is available on a 24-hour basis from major market 
data vendors.
    Trading in Shares of the Trust will be halted if the circuit 
breaker parameters in NYSE Arca Rule 7.12-E have been reached or 
because of market conditions or for reasons that, in the view of the 
Exchange, make trading in the Shares inadvisable.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of a 
new type of exchange-traded product based on the price of bitcoin that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, the Exchange has in 
place surveillance procedures that are adequate to properly monitor 
trading in the Shares in all trading sessions and to deter and detect 
violations of Exchange rules and applicable federal securities laws.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange notes that the 
proposed rule change will facilitate the listing and trading of an 
additional type of exchange-traded product, and the first such product 
based on Bitcoin, which will enhance competition among market 
participants, to the benefit of investors and the marketplace.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or up to 90 days (i) as the Commission may designate 
if it finds such longer period to be appropriate and publishes its 
reasons for so finding or (ii) as to which the self-regulatory 
organization consents, the Commission will:
    A. By order approve or disapprove the proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2021-67 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2021-67. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 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-NYSEArca-2021-67 and should be submitted 
on or before October 26, 2021.
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    \50\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\50\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-21609 Filed 10-4-21; 8:45 am]
BILLING CODE 8011-01-P