[Federal Register Volume 88, Number 245 (Friday, December 22, 2023)]
[Notices]
[Pages 88668-88683]
[FR Doc No: 2023-28194]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99197; File No. SR-CboeBZX-2023-101]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To List and Trade Shares of the Pando
Asset Spot Bitcoin Trust Under BZX Rule 14.11(e)(4), Commodity-Based
Trust Shares

December 18, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on December 5, 2023, Cboe BZX Exchange, Inc. (``Exchange'' or ``BZX'')
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 Exchange. 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\ 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

    Cboe BZX Exchange, Inc. (``BZX'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (``Commission'' or ``SEC'')
a proposed rule change to list and trade shares of the Pando Asset Spot
Bitcoin Trust (the ``Trust''),\3\ under BZX Rule 14.11(e)(4),
Commodity-Based Trust Shares.
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    \3\ The Trust was formed as a Delaware statutory trust on
November 16, 2023, and is operated as a grantor trust for U.S.
federal tax purposes. The Trust has no fixed termination date.
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    The text of the proposed rule change is also available on the
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary,

and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.

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

1. Purpose
    The Exchange proposes to list and trade the Shares under BZX Rule
14.11(e)(4),\4\ which governs the listing and trading of Commodity-
Based Trust Shares on the Exchange.\5\ Pando Asset AG (``Sponsor'').
The Shares will be registered with the Commission by means of the
Trust's registration statement on Form S-1 (the ``Registration
Statement'').\6\ Coinbase Custody Trust Company, LLC (the ``Bitcoin
Custodian''), which is a third-party U.S.-based trust company and
qualified custodian, will be responsible for custody of the Trust's
bitcoin holdings.
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    \4\ The Commission approved BZX Rule 14.11(e)(4) in Securities
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148
(September 6, 2011) (SR-BATS-2011-018).
    \5\ Any of the statements or representations regarding the index
composition, the description of the portfolio or reference assets,
limitations on portfolio holdings or reference assets, dissemination
and availability of index, reference asset, intraday indicative
values, and Verified Intraday Indicative Values (as applicable), or
the applicability of Exchange listing rules specified in any filing
to list a series of Other Securities (collectively, ``Continued
Listing Representations'') shall constitute continued listing
requirements for the securities listed on the Exchange.
    \6\ See Form S-1 Registration Statement filed on November 29,
2023 (Registration No. 333-275781). The Registration Statement is
not yet effective, and the Shares will not trade on the Exchange
until such time that the Registration Statement is effective.
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    As further discussed below, the Commission has historically
approved or disapproved exchange filings to list and trade series of
Trust Issued Receipts,\7\ including spot-based Commodity-Based Trust
Shares, on the basis of whether the listing exchange has in place a
comprehensive surveillance sharing agreement with a regulated market of
significant size related to the underlying commodity to be held.\8\
Prior orders from the Commission have pointed out that in every prior
approval order for Commodity-Based Trust Shares, there has been a
derivatives market that represents the regulated market of significant
size, generally a Commodity Futures Trading Commission (the ``CFTC'')
regulated futures market.\9\

Further to this point, the Commission's prior orders have noted that
the spot commodities and currency markets for which it has previously
approved spot exchange-traded products (``ETPs'') are generally
unregulated and that the Commission relied on the underlying futures
market as the regulated market of significant size that formed the
basis for approving the series of Currency \10\ and Commodity-Based
Trust Shares, including gold, silver, platinum, palladium, copper, and
other commodities and currencies. The Commission specifically noted in
the Winklevoss Order that the First Gold Approval Order ``was based on
an assumption that the currency market and the spot gold market were
largely unregulated.'' \11\
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    \7\ See Exchange Rule 14.11(f)(1).
    \8\ See Securities Exchange Act Release No. 83723 (July 26,
2018), 83 FR 37579 (August 1, 2018). This proposal was subsequently
disapproved by the Commission. See Securities Exchange Act Release
No. 83723 (July 26, 2018), 83 FR 37579 (August 1, 2018) (the
``Winklevoss Order'').
    \9\ See streetTRACKS Gold Shares, Exchange Act Release No. 50603
(Oct. 28, 2004), 69 FR 64614, 64618-19 (Nov. 5, 2004) (SR-NYSE-2004-
22) (the ``First Gold Approval Order''); iShares COMEX Gold Trust,
Exchange Act Release No. 51058 (Jan. 19, 2005), 70 FR 3749, 3751,
3754-55 (Jan. 26, 2005) (SR-Amex-2004-38); iShares Silver Trust,
Exchange Act Release No. 53521 (Mar. 20, 2006), 71 FR 14967, 14968,
14973-74 (Mar. 24, 2006) (SR-Amex-2005-072); ETFS Gold Trust,
Exchange Act Release No. 59895 (May 8, 2009), 74 FR 22993, 22994-95,
22998, 23000 (May 15, 2009) (SR-NYSEArca-2009-40); ETFS Silver
Trust, Exchange Act Release No. 59781 (Apr. 17, 2009), 74 FR 18771,
18772, 18775-77 (Apr. 24, 2009) (SR-NYSEArca-2009-28); ETFS
Palladium Trust, Exchange Act Release No. 61220 (Dec. 22, 2009), 74
FR 68895, 68896 (Dec. 29, 2009) (SR-NYSEArca-2009-94) (notice of
proposed rule change included NYSE Arca's representation that
``[t]he most significant palladium futures exchanges are the NYMEX
and the Tokyo Commodity Exchange,'' that ``NYMEX is the largest
exchange in the world for trading precious metals futures and
options,'' and that NYSE Arca ``may obtain trading information via
the Intermarket Surveillance Group,'' of which NYMEX is a member,
Exchange Act Release No. 60971 (Nov. 9, 2009), 74 FR 59283, 59285-
86, 59291 (Nov. 17, 2009)); ETFS Platinum Trust, Exchange Act
Release No. 61219 (Dec. 22, 2009), 74 FR 68886, 68887-88 (Dec. 29,
2009) (SR-NYSEArca-2009-95) (notice of proposed rule change included
NYSE Arca's representation that ``[t]he most significant platinum
futures exchanges are the NYMEX and the Tokyo Commodity Exchange,''
that ``NYMEX is the largest exchange in the world for trading
precious metals futures and options,'' and that NYSE Arca ``may
obtain trading information via the Intermarket Surveillance Group,''
of which NYMEX is a member, Exchange Act Release No. 60970 (Nov. 9,
2009), 74 FR 59319, 59321, 59327 (Nov. 17, 2009)); Sprott Physical
Gold Trust, Exchange Act Release No. 61496 (Feb. 4, 2010), 75 FR
6758, 6760 (Feb. 10, 2010) (SR-NYSEArca-2009-113) (notice of
proposed rule change included NYSE Arca's representation that the
COMEX is one of the ``major world gold markets,'' that NYSE Arca
``may obtain trading information via the Intermarket Surveillance
Group,'' and that NYMEX, of which COMEX is a division, is a member
of the Intermarket Surveillance Group, Exchange Act Release No.
61236 (Dec. 23, 2009), 75 FR 170, 171, 174 (Jan. 4, 2010)); Sprott
Physical Silver Trust, Exchange Act Release No. 63043 (Oct. 5,
2010), 75 FR 62615, 62616, 62619, 62621 (Oct. 12, 2010) (SR-
NYSEArca-2010-84); ETFS Precious Metals Basket Trust, Exchange Act
Release No. 62692 (Aug. 11, 2010), 75 FR 50789, 50790 (Aug. 17,
2010) (SR-NYSEArca-2010-56) (notice of proposed rule change included
NYSE Arca's representation that ``the most significant gold, silver,
platinum and palladium futures exchanges are the COMEX and the
TOCOM'' and that NYSE Arca ``may obtain trading information via the
Intermarket Surveillance Group,'' of which COMEX is a member,
Exchange Act Release No. 62402 (Jun. 29, 2010), 75 FR 39292, 39295,
39298 (July 8, 2010)); ETFS White Metals Basket Trust, Exchange Act
Release No. 62875 (Sept. 9, 2010), 75 FR 56156, 56158 (Sept. 15,
2010) (SR-NYSEArca-2010-71) (notice of proposed rule change included
NYSE Arca's representation that ``the most significant silver,
platinum and palladium futures exchanges are the COMEX and the
TOCOM'' and that NYSE Arca ``may obtain trading information via the
Intermarket Surveillance Group,'' of which COMEX is a member,
Exchange Act Release No. 62620 (July 30, 2010), 75 FR 47655, 47657,
47660 (Aug. 6, 2010)); ETFS Asian Gold Trust, Exchange Act Release
No. 63464 (Dec. 8, 2010), 75 FR 77926, 77928 (Dec. 14, 2010) (SR-
NYSEArca-2010-95) (notice of proposed rule change included NYSE
Arca's representation that ``the most significant gold futures
exchanges are the COMEX and the Tokyo Commodity Exchange,'' that
``COMEX is the largest exchange in the world for trading precious
metals futures and options,'' and that NYSE Arca ``may obtain
trading information via the Intermarket Surveillance Group,'' of
which COMEX is a member, Exchange Act Release No. 63267 (Nov. 8,
2010), 75 FR 69494, 69496, 69500-01 (Nov. 12, 2010)); Sprott
Physical Platinum and Palladium Trust, Exchange Act Release No.
68430 (Dec. 13, 2012), 77 FR 75239, 75240-41 (Dec. 19, 2012) (SR-
NYSEArca-2012–111) (notice of proposed rule change included
NYSE Arca's representation that ``[f]utures on platinum and
palladium are traded on two major exchanges: The New York Mercantile
Exchange . . . and Tokyo Commodities Exchange'' and that NYSE Arca
``may obtain trading information via the Intermarket Surveillance
Group,'' of which COMEX is a member, Exchange Act Release No. 68101
(Oct. 24, 2012), 77 FR 65732, 65733, 65739 (Oct. 30, 2012)); APMEX
Physical--1 oz. Gold Redeemable Trust, Exchange Act Release No.
66930 (May 7, 2012), 77 FR 27817, 27818 (May 11, 2012) (SR-NYSEArca-
2012-18) (notice of proposed rule change included NYSE Arca's
representation that NYSE Arca ``may obtain trading information via
the Intermarket Surveillance Group,'' of which COMEX is a member,
and that gold futures are traded on COMEX and the Tokyo Commodity
Exchange, with a cross-reference to the proposed rule change to list
and trade shares of the ETFS Gold Trust, in which NYSE Arca
represented that COMEX is one of the ``major world gold markets,''
Exchange Act Release No. 66627 (Mar. 20, 2012), 77 FR 17539, 17542-
43, 17547 (Mar. 26, 2012)); JPM XF Physical Copper Trust, Exchange
Act Release No. 68440 (Dec. 14, 2012), 77 FR 75468, 75469-70, 75472,
75485-86 (Dec. 20, 2012) (SR-NYSEArca-2012-28); iShares Copper
Trust, Exchange Act Release No. 68973 (Feb. 22, 2013), 78 FR 13726,
13727, 13729-30, 13739-40 (Feb. 28, 2013) (SR-NYSEArca-2012-66);
First Trust Gold Trust, Exchange Act Release No. 70195 (Aug. 14,
2013), 78 FR 51239, 51240 (Aug. 20, 2013) (SR-NYSEArca-2013-61)
(notice of proposed rule change included NYSE Arca's representation
that FINRA, on behalf of the exchange, may obtain trading
information regarding gold futures and options on gold futures from
members of the Intermarket Surveillance Group, including COMEX, or
from markets ``with which [NYSE Arca] has in place a comprehensive
surveillance sharing agreement,'' and that gold futures are traded
on COMEX and the Tokyo Commodity Exchange, with a cross-reference to
the proposed rule change to list and trade shares of the ETFS Gold
Trust, in which NYSE Arca represented that COMEX is one of the
``major world gold markets,'' Exchange Act Release No. 69847 (June
25, 2013), 78 FR 39399, 39400, 39405 (July 1, 2013)); Merk Gold
Trust, Exchange Act Release No. 71378 (Jan. 23, 2014), 79 FR 4786,
4786-87 (Jan. 29, 2014) (SR-NYSEArca-2013-137) (notice of proposed
rule change included NYSE Arca's representation that ``COMEX is the
largest gold futures and options exchange'' and that NYSE Arca ``may
obtain trading information via the Intermarket Surveillance Group,''
including with respect to transactions occurring on COMEX pursuant
to CME and NYMEX's membership, or from exchanges ``with which [NYSE
Arca] has in place a comprehensive surveillance sharing agreement,''
Exchange Act Release No. 71038 (Dec. 11, 2013), 78 FR 76367, 76369,
76374 (Dec. 17, 2013)); Long Dollar Gold Trust, Exchange Act Release
No. 79518 (Dec. 9, 2016), 81 FR 90876, 90881, 90886, 90888 (Dec. 15,
2016) (SR-NYSEArca-2016-84).
    \10\ See Exchange Rule 14.11(e)(5).
    \11\ See Winklevoss Order at 37592.
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    As such, the regulated market of significant size test does not
require that the spot bitcoin market be regulated in order for the
Commission to approve this proposal, and precedent makes clear that an
underlying market for a spot commodity or currency being a regulated
market would actually be an exception to the norm. These largely
unregulated currency and commodity markets do not provide the same
protections as the markets that are subject to the Commission's
oversight, but the Commission has consistently looked to surveillance
sharing agreements with the underlying futures market in order to
determine whether such products were consistent with the Act. With this
in mind, the Chicago Mercantile Exchange (``CME'') bitcoin futures
(``Bitcoin Futures'') market is the proper market to consider in
determining whether there is a related regulated market of significant
size.
    Further to this point, the Exchange notes that the Commission has
approved proposals related to the listing and trading of funds that
would primarily hold CME Bitcoin Futures that are registered under the
Securities Act of 1933.\12\ In the Teucrium Approval, the Commission
found the CME Bitcoin Futures market to be a regulated market of
significant size as it relates to CME Bitcoin Futures; a position that
represents a departure from prior disapproval orders for ETPs that
would hold actual bitcoin instead of derivatives contracts (``Spot
Bitcoin ETPs'') that use the exact same pricing methodology as the CME
Bitcoin Futures. In the recently decided Grayscale Investments, LLC v
Securities and Exchange Commission,\13\ however, the court addressed
this conflict by finding that the SEC had failed to provide a coherent
explanation as to why it had approved the Bitcoin Futures ETPs while
disapproving the proposal to list and trade shares of the Grayscale
Bitcoin Trust and vacating the disapproval order.\14\ As further
discussed below, both the Exchange and the Sponsor believe that this
proposal and the included analysis are sufficient to establish that the
CME Bitcoin Futures market represents a regulated market of significant
size as it relates both to the CME Bitcoin Futures market and to the
spot bitcoin market and that this proposal should be approved,
consistent with the Teucrium precedent and in view of the court's
findings relating to the Grayscale Order.
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    \12\ See Exchange Act Release No. 94620 (April 6, 2022), 87 FR
21676 (April 12, 2022) (the ``Teucrium Approval'') and 94853 (May 5,
2022) (collectively, with the Teucrium Approval, the ``Bitcoin
Futures Approvals'').
    \13\ Grayscale Investments, LLC v. Securities and Exchange
Commission, et al., Case No. 22-1142 (the ``Grayscale Order'').
    \14\ Id.
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    Finally, as discussed in greater detail below, by using
professional custodians and other service providers, the Trust provides
investors interested in exposure to bitcoin via the securities markets
with important protections that are not always available to investors
that invest directly in bitcoin, including protection against
counterparty insolvency, cyber attacks, and other risks. For example,
an exchange-traded vehicle such as the Trust, which will be subject to
the registration and periodic reporting requirements of the 1933 Act
and the Exchange Act, would offer U.S. investors an alternative to
directing their bitcoin investments into loosely regulated offshore
vehicles (including loosely regulated centralized exchanges that have
since faced bankruptcy proceedings or other insolvencies).
Background
    Bitcoin is a digital asset based on the decentralized, open source
protocol of the peer-to-peer computer network launched in 2009 that
governs the creation, movement, and ownership of bitcoin and hosts the
public ledger, or ``blockchain,'' on which all bitcoin transactions are
recorded (the ``Bitcoin Network'' or ``Bitcoin''). The decentralized
nature of the Bitcoin Network allows parties to transact directly with
one another based on cryptographic proof instead of relying on a
trusted third party. The protocol also lays out the rate of issuance of
new bitcoin within the Bitcoin Network, a rate that is reduced by half
approximately every four years with an eventual hard cap of 21 million.
It's generally understood that the combination of these two features--a
systemic hard cap of 21 million bitcoin and the ability to transact
trustlessly with anyone connected to the Bitcoin Network--gives bitcoin
its value. The first rule filing proposing to list an ETP to provide
exposure to bitcoin in the U.S. was submitted by the Exchange on June
30, 2016.\15\ At that time, blockchain technology, and digital assets
that utilized it, were relatively new to the broader public. The market
capitalization of all bitcoin in existence at that time was
approximately $10 billion. No registered offering of digital asset
securities or shares in an investment vehicle with exposure to bitcoin
or any other cryptocurrency had yet been conducted, and the regulated
infrastructure for conducting a digital asset securities offering had
not begun to develop.\16\ Similarly, regulated U.S. Bitcoin Futures
contracts did not exist. The CFTC had determined that bitcoin is a
commodity,\17\ but had not engaged in significant enforcement actions
in the space. The New York Department of Financial Services (``NYDFS'')
adopted its final BitLicense regulatory framework in 2015, but had only
approved four entities to engage in activities relating to virtual
currencies (whether through granting a BitLicense or a limited-purpose
trust charter) as of June 30, 2016.\18\ While the first over-the-

counter bitcoin fund launched in 2013, public trading was limited and
the fund had only $60 million in assets.\19\ There were very few, if
any, traditional financial institutions engaged in the space, whether
through investment or providing services to digital asset companies. In
January 2018, the staff of the Commission noted in a letter to the
Investment Company Institute (``ICI'') and Securities Industry and
Financial Markets Association (``SIFMA'') that it was not aware, at
that time, of a single custodian providing fund custodial services for
digital assets.\20\ The digital assets financial ecosystem, including
bitcoin, has progressed significantly in the intervening years. The
development of a regulated market for digital asset securities has
significantly evolved, with market participants having conducted
registered public offerings of both digital asset securities \21\ and
shares in investment vehicles holding Bitcoin Futures.\22\
Additionally, licensed and regulated service providers have emerged to
provide fund custodial services for digital assets, among other
services, including the bitcoin Custodian. For example, in February
2023, the Commission proposed to amend Rule 206(4)-2 under the Advisers
Act of 1940 (the ``custody rule'') to expand the scope beyond client
funds and securities to include all crypto assets, among other assets;
\23\ in May 2021, the staff of the Commission released a statement
permitting open-end mutual funds to invest in cash-settled Bitcoin
Futures; 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 (the ``Custody Statement''); \24\ 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; \25\ in
October 2019, the staff of the Commission granted temporary relief from
the clearing agency registration requirement to an entity seeking to
establish a securities clearance and settlement system based on
distributed ledger technology,\26\ and multiple transfer agents who
provide services for digital asset securities registered with the
Commission.\27\
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    \15\ See Winklevoss Order.
    \16\ Digital assets that are securities under U.S. law are
referred to throughout this proposal as ``digital asset
securities.'' All other digital assets, including bitcoin, are
referred to interchangeably as ``cryptocurrencies'' or ``virtual
currencies.'' The term ``digital assets'' refers to all digital
assets, including both digital asset securities and
cryptocurrencies, together.
    \17\ See ``In the Matter of Coinflip, Inc.'' (``Coinflip'')
(CFTC Docket 15-29 (September 17, 2015)) (order instituting
proceedings pursuant to Sections 6(c) and 6(d) of the CEA, making
findings and imposing remedial sanctions), in which the CFTC stated:
``Section 1a(9) of the CEA defines `commodity' to include, among
other things, `all services, rights, and interests in which
contracts for future delivery are presently or in the future dealt
in.' 7 U.S.C. 1a(9). The definition of a `commodity' is broad. See,
e.g., Board of Trade of City of Chicago v. SEC, 677 F. 2d 1137, 1142
(7th Cir. 1982). Bitcoin and other virtual currencies are
encompassed in the definition and properly defined as commodities.''
    \18\ A list of virtual currency businesses that are entities
regulated by the NYDFS is available on the NYDFS website. See
https://www.dfs.ny.gov/apps_and_licensing/virtual_currency_businesses/regulated_entities.
    \19\ Data as of March 31, 2016 according to publicly available
filings. See Bitcoin Investment Trust Form S-1, dated May 27, 2016,
available: https://www.sec.gov/Archives/edgar/data/1588489/000095012316017801/filename1.htm.
    \20\ See letter from Dalia Blass, Director, Division of
Investment Management, U.S. Securities and Exchange Commission to
Paul Schott Stevens, President & CEO, Investment Company Institute
and Timothy W. Cameron, Asset Management Group--Head, Securities
Industry and Financial Markets Association (January 18, 2018),
available at https://www.sec.gov/divisions/investment/noaction/2018/cryptocurrency-011818.htm.
    \21\ See Prospectus supplement filed pursuant to Rule 424(b)(1)
for INX Tokens (Registration No. 333-233363), available at: https://www.sec.gov/Archives/edgar/data/1725882/000121390020023202/ea125858-424b1_inxlimited.htm.
    \22\ See Prospectus filed by Stone Ridge Trust VI on behalf of
NYDIG Bitcoin Strategy Trust Registration, available at: https://www.sec.gov/Archives/edgar/data/1764894/000119312519309942/d693146d497.htm.
    \23\ See Investment Advisers Act Release No. 6240 88 FR 14672
(March 9, 2023) (Safeguarding Advisory Client Assets).
    \24\ See Securities Exchange Act Release No. 90788, 86 FR 11627
(February 26, 2021) (File Number S7-25-20) (Custody of Digital Asset
Securities by Special Purpose Broker-Dealers).
    \25\ See letter from Elizabeth Baird, Deputy Director, Division
of Trading and Markets, U.S. Securities and Exchange Commission to
Kris Dailey, Vice President, Risk Oversight & Operational
Regulation, Financial Industry Regulatory Authority (September 25,
2020), available at: https://www.sec.gov/divisions/marketreg/mr-noaction/2020/finra-ats-role-in-settlement-of-digital-asset-security-trades-09252020.pdf.
    \26\ See letter from Jeffrey S. Mooney, Associate Director,
Division of Trading and Markets, U.S. Securities and Exchange
Commission to Charles G. Cascarilla & Daniel M. Burstein, Paxos
Trust Company, LLC (October 28, 2019), available at: https://www.sec.gov/divisions/marketreg/mr-noaction/2019/paxos-trust-company-102819-17a.pdf.
    \27\ See, e.g., Form TA-1/A filed by Tokensoft Transfer Agent
LLC (CIK:<PHONE_NUMBER>) on January 8, 2021, available at: https://www.sec.gov/Archives/edgar/data/1794142/000179414219000001/xslFTA1X01/primary_doc.xml.
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    Outside the Commission's purview, the regulatory landscape has also
changed significantly since 2016, and cryptocurrency markets have grown
and evolved as well. The market for bitcoin is approximately 100 times
larger, having at one point reached a market capitalization of over $1
trillion.\28\ According to the CME Bitcoin Futures Report, from
February 13, 2023 through March 27, 2023, CFTC regulated Bitcoin
Futures represented between $750 million and $3.2 billion in notional
trading volume on CME Bitcoin Futures on a daily basis.\29\ Open
interest was over $1.4 billion for the entirety of the period and at
one point was over $2 billion.\30\ ETPs that primarily hold CME Bitcoin
Futures have raised over $1 billion dollars in assets. The CFTC has
exercised its regulatory jurisdiction in bringing a number of
enforcement actions related to bitcoin and against trading platforms
that offer cryptocurrency trading.\31\ As of February 14, 2023, the
NYDFS has granted no fewer than thirty-four BitLicenses,\32\ including
to established public payment companies like PayPal Holdings, Inc. and
Square, Inc., and limited purpose trust charters to entities providing
cryptocurrency custody services. In addition, the Treasury's Office of
Foreign Assets Control (``OFAC'') has brought enforcement actions over
apparent violations of applicable sanctions laws in connection with the
provision of wallet management services for digital assets.\33\
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    \28\ As of December 1, 2021, the total market capitalization of
all bitcoin in circulation was approximately $1.08 trillion.
    \29\ Data sourced from the CME Bitcoin Futures Report: 30 March
2023, available at: https://www.cmegroup.com/markets/cryptocurrencies/bitcoin/bitcoin.volume.htm.
    \30\ See, e.g., Id.
    \31\ The CFTC's annual report for Fiscal Year 2022 (which ended
on September 30, 2022) noted that the CFTC completed the fiscal year
with 18 enforcement filings related to digital assets. ``Digital
asset actions included manipulation, a $1.7 billion fraudulent
scheme, and a decentralized autonomous organization (DAO) failing to
register as a SEF or FCM or to seek DCM designation.'' See CFTC FY
2022 Agency Financial Report, available at: https://www.cftc.gov/media/7941/2022afr/download. Additionally, the CFTC filed on March
27, 2023, a civil enforcement action against the owner/operators of
the Binance centralized digital asset trading platform, which is one
of the largest bitcoin derivative exchanges. See CFTC Release No.
8680-23 (March 27, 2023), available at: https://www.cftc.gov/PressRoom/PressReleases/8680-23.
    \32\ See https://www.dfs.ny.gov/virtual_currency_businesses.
    \33\ See U.S. Department of the Treasury Enforcement Release:
``OFAC Enters Into $98,830 Settlement with BitGo, Inc. for Apparent
Violations of Multiple Sanctions Programs Related to Digital
Currency Transactions'' (December 30, 2020) available at: https://home.treasury.gov/system/files/126/20201230_bitgo.pdf. See also U.S.
Department of the Treasury Enforcement Release: ``Treasury Announces
Two Enforcement Actions for over $24M and $29M Against Virtual
Currency Exchange, Bittrex, Inc.'' (October 11, 2022) available at:
https://home.treasury.gov/news/press-releases/jy1006. See also U.S.
Department of Treasure Enforcement Release ``OFAC Settles with
Virtual Currency Exchange Kraken for $362,158.70 Related to Apparent
Violations of the Iranian Transactions and Sanctions Regulations''
(November 28, 2022) available at: https://home.treasury.gov/system/files/126/20221128_kraken.pdf.
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    In addition to the regulatory developments laid out above, more
traditional financial market participants have become more active in
cryptocurrency trading and investment activity: large insurance
companies, asset managers, university endowments, pension funds, and
even historically bitcoin skeptical fund managers have allocated to
bitcoin investments. As noted in the Financial Stability Oversight
Council (``FSOC'') report on Digital Asset Financial Stability Risks
and Regulation, ``[i]ndustry surveys suggest that the scale of these
investments grew quickly during the

boom in crypto-asset markets through late 2021. In June 2022, PwC
estimated that the number of crypto-specialist hedge funds was more
than 300 globally, with $4.1 billion in assets under management. In
addition, in a survey PwC found that 38 percent of surveyed traditional
hedge funds were currently investing in `digital assets,' compared to
21 percent the year prior.'' \34\ The largest over-the-counter bitcoin
fund previously filed a Form 10 registration statement, which the staff
of the Commission reviewed and which took effect automatically, and is
now a reporting company.\35\ Established U.S. exchange-traded companies
like Tesla, Inc., MicroStrategy Incorporated, and Square, Inc., among
others, have announced substantial investments in bitcoin in amounts as
large as $1.5 billion (Tesla) and $425 million (MicroStrategy). The
foregoing examples demonstrate that bitcoin has gained mainstream usage
and recognition across the U.S. market.
---------------------------------------------------------------------------

    \34\ See the FSOC ``Report on Digital Asset Financial Stability
Risks and Regulation 2022'' (October 3, 2022) (at footnote 26) at
https://home.treasury.gov/system/files/261/FSOC-Digital-Assets-Report-2022.pdf.
    \35\ See Letter from Division of Corporation Finance, Office of
Real Estate & Construction to Barry E. Silbert, Chief Executive
Officer, Grayscale Bitcoin Trust (January 31, 2020) https://www.sec.gov/Archives/edgar/data/1588489/000000000020000953/filename1.pdf.
---------------------------------------------------------------------------

    Despite these developments, access for U.S. retail investors to
gain exposure to bitcoin via a transparent and U.S. regulated, U.S.
exchange-traded vehicle remains limited. Instead current options
include: (i) facing the counter-party risk, legal uncertainty,
technical risk, and complexity associated with accessing spot bitcoin;
(ii) over-the-counter bitcoin funds (``OTC Bitcoin Trusts'') with high
management fees and potentially volatile premiums and discounts; \36\
(iii) purchasing shares of operating companies that they believe will
provide proxy exposure to bitcoin with limited disclosure about the
associated risks; \37\ or (iv) purchasing Bitcoin Futures exchange-
traded funds (``ETFs''), as defined below, which represent a sub-
optimal structure for long-term investors that will cost them
significant amounts of money every year compared to Spot Bitcoin ETPs,
as further discussed below. Meanwhile, investors in many other
countries, including Canada and Brazil, are able to use more
traditional exchange listed and traded products (including ETFs holding
physical bitcoin) to gain exposure to bitcoin. Similarly, investors in
Switzerland and across Europe have access to ETPs which trade on
regulated exchanges and provide exposure to a broad array of spot
crypto assets. U.S. investors, by contrast, are left with fewer and
more risky means of getting bitcoin exposure, as described above.\38\
---------------------------------------------------------------------------

    \36\ The premium and discount for OTC Bitcoin Trusts is known to
move rapidly. For example, over the period of 12/21/20 to 1/21/21,
the premium for the largest OTC Bitcoin Trust went from 40.18% to
2.79%. While the price of bitcoin appreciated significantly during
this period and NAV per share increased by 41.25%, the price per
share increased by only 3.58%. This means that investors are buying
shares of a fund that experiences significant volatility in its
premium and discount outside of the fluctuations in price of the
underlying asset. Even operating within the normal premium and
discount range, it's possible for an investor to buy shares of an
OTC Bitcoin Trust only to have those shares quickly lose 10% or more
in dollar value excluding any movement of the price of bitcoin. That
is to say--the price of bitcoin could have stayed exactly the same
from market close on one day to market open the next, yet the value
of the shares held by the investor decreased only because of the
fluctuation of the premium. As more investment vehicles, including
mutual funds and ETFs, seek to gain exposure to bitcoin, the easiest
option for a buy and hold strategy for such vehicles is often an OTC
Bitcoin Trust, meaning that even investors that do not directly buy
OTC Bitcoin Trusts can be disadvantaged by extreme premiums (or
discounts) and premium/discount volatility.
    \37\ A number of operating companies engaged in unrelated
businesses--such as Tesla (a car manufacturer) and MicroStrategy (an
enterprise software company)--have announced investments as large as
$5.3 billion in bitcoin. Without access to bitcoin exchange-traded
products, retail investors seeking investment exposure to bitcoin
may end up purchasing shares in these companies in order to gain the
exposure to bitcoin that they seek. In fact, mainstream financial
news networks have written a number of articles providing investors
with guidance for obtaining bitcoin exposure through publicly traded
companies (such as MicroStrategy, Tesla, and bitcoin mining
companies, among others) instead of dealing with the complications
associated with buying spot bitcoin in the absence of a Bitcoin ETP.
See e.g., ``7 public companies with exposure to bitcoin'' (February
8, 2021) available at: https://finance.yahoo.com/news/7-public-companies-with-exposure-to-bitcoin-154201525.html; and ``Want to get
in the crypto trade without holding bitcoin yourself? Here are some
investing ideas'' (February 19, 2021) available at: https://www.cnbc.com/2021/02/19/ways-to-invest-in-bitcoin-without-holding-the-cryptocurrency-yourself-.html.
    \38\ The Exchange notes that the list of countries above is not
exhaustive and that securities regulators in a number of additional
countries have either approved or otherwise allowed the listing and
trading of Spot Bitcoin ETPs.
---------------------------------------------------------------------------

    To this point, the lack of a Spot Bitcoin ETP exposes U.S. investor
assets to significant risk because investors that would otherwise seek
crypto asset exposure through a Spot Bitcoin ETP are forced to find
alternative exposure through generally riskier means. For instance,
many U.S. investors that held their digital assets in accounts at
FTX,\39\ Celsius Network LLC,\40\ BlockFi Inc.\41\ and Voyager Digital
Holdings, Inc.\42\ have become unsecured creditors in the insolvencies
of those entities. If a Spot Bitcoin ETP was available, it is likely
that at least a portion of the billions of dollars tied up in those
proceedings would still reside in the brokerage accounts of U.S.
investors, having instead been invested in a transparent, regulated,
and well-understood structure--a Spot Bitcoin ETP. To this point,
approval of a Spot Bitcoin ETP would represent a major win for the
protection of U.S. investors in the crypto asset space. As further
described below, the Trust, like all other series of Commodity-Based
Trust Shares, is designed to protect investors against the risk of
losses through fraud and insolvency that arise by holding bitcoin, on
centralized platforms.
---------------------------------------------------------------------------

    \39\ See FTX Trading Ltd., et al., Case No. 22-11068.
    \40\ See Celsius Network LLC, et al., Case No. 22-10964.
    \41\ See BlockFi Inc., Case No. 22-19361.
    \42\ See Voyager Digital Holdings, Inc., et al., Case No. 22-
10943.
---------------------------------------------------------------------------

    Additionally, investors in other countries, specifically Canada,
generally pay lower fees than U.S. retail investors that invest in OTC
Bitcoin Trusts due to the fee pressure that results from increased
competition among available bitcoin investment options. Without an
approved and regulated Spot Bitcoin ETP in the U.S. as a viable
alternative, U.S. investors could seek to purchase shares of non-U.S.
bitcoin vehicles in order to get access to bitcoin exposure. Given the
separate regulatory regime and the potential difficulties associated
with any international litigation, such an arrangement would create
more risk exposure for U.S. investors than they would otherwise have
with a U.S. exchange listed ETP. In addition to the benefits to U.S.
investors articulated throughout this proposal, approving this proposal
(and others like it) would provide U.S. ETFs and mutual funds with a
U.S.-listed and regulated product to provide such access rather than
relying on either more expensive, riskier U.S. based products or
products listed and primarily regulated in other countries.
Bitcoin Futures ETFs
    The Exchange and Sponsor applaud the Commission for allowing the
launch of ETFs registered under the Investment Company Act of 1940, as
amended (the ``1940 Act'') and the Bitcoin Futures Approvals that
provide exposure to bitcoin primarily through CME Bitcoin Futures
(``Bitcoin Futures ETFs''). Allowing such products to list and trade is
a productive first step in providing U.S. investors and traders with
transparent, exchange-listed tools for expressing an investment view on
bitcoin. The Bitcoin Futures Approvals,

however, have created a logical inconsistency in the application of the
standard the Commission applies when considering Bitcoin ETP proposals.
    As discussed further below, the standard applicable to Bitcoin ETPs
is whether the listing exchange has in place a comprehensive
surveillance sharing agreement with a regulated market of significant
size in the underlying asset. Previous disapproval orders have made
clear that a market that constitutes a regulated market of significant
size is generally a futures and/or options market based on the
underlying reference asset rather than the spot commodity markets,
which are often unregulated.\43\ Leaving aside the analysis of that
standard until later in this proposal,\44\ the Exchange believes that
the following rationale the Commission applied to a Bitcoin Futures ETF
should result in the Commission approving this and other Spot Bitcoin
ETP proposals:
---------------------------------------------------------------------------

    \43\ See Winklevoss Order at 37593, specifically footnote 202,
which includes the language from numerous approval orders for which
the underlying futures markets formed the basis for approving series
of ETPs that hold physical metals, including gold, silver,
palladium, platinum, and precious metals more broadly; and 37600,
specifically where the Commission provides that ``when the spot
market is unregulated--the requirement of preventing fraudulent and
manipulative acts may possibly be satisfied by showing that the ETP
listing market has entered into a surveillance-sharing agreement
with a regulated market of significant size in derivatives related
to the underlying asset.'' As noted above, the Exchange believes
that these citations are particularly helpful in making clear that
the spot market for a spot commodity ETP need not be ``regulated''
in order for a spot commodity ETP to be approved by the Commission,
and in fact that it's been the common historical practice of the
Commission to rely on such derivatives markets as the regulated
market of significant size because such spot commodities markets are
largely unregulated.
    \44\ As further outlined below, both the Exchange and the
Sponsor believe that the Bitcoin Futures market represents a
regulated market of significant size and that this proposal and
others like it should be approved on this basis.

    The CME ``comprehensively surveils futures market conditions and
price movements on a real-time and ongoing basis in order to detect
and prevent price distortions, including price distortions caused by
manipulative efforts.'' Thus, the CME's surveillance can reasonably
be relied upon to capture the effects on the CME Bitcoin Futures
market caused by a person attempting to manipulate the proposed
futures ETP by manipulating the price of CME Bitcoin Futures
contracts, whether that attempt is made by directly trading on the
CME Bitcoin Futures market or indirectly by trading outside of the
CME Bitcoin Futures market. As such, when the CME shares its
surveillance information with Arca, the information would assist in
detecting and deterring fraudulent or manipulative misconduct
related to the non-cash assets held by the proposed ETP.\45\
---------------------------------------------------------------------------

    \45\ See Teucrium Approval at 21679.

    CME Bitcoin Futures pricing is based on pricing from spot bitcoin
markets. The statement from the Teucrium Approval that ``CME's
surveillance can reasonably be relied upon to capture the effects on
the CME Bitcoin Futures market caused by a person attempting to
manipulate the proposed futures ETP by manipulating the price of CME
Bitcoin Futures contracts . . . indirectly by trading outside of the
CME Bitcoin Futures market,'' makes clear that the Commission believes
that CME's surveillance can capture the effects of trading on the
relevant spot markets on the pricing of CME Bitcoin Futures.
    This was further acknowledged in the ``Grayscale lawsuit'' \46\
when Judge Rao stated ``. . . the Commission in the Teucrium order
recognizes that the futures prices are influenced by the spot prices,
and the Commission concludes in approving futures ETPs that any fraud
on the spot market can be adequately addressed by the fact that the
futures market is a regulated one . . .''. The Exchange agrees with the
Commission on this point and notes that the pricing mechanism
applicable to the Shares is similar to that of the CME Bitcoin Futures.
---------------------------------------------------------------------------

    \46\ Grayscale Investments, LLC v. Securities and Exchange
Commission, et al., Case No. 22-1142.
---------------------------------------------------------------------------

    In addition to potentially being more susceptible to manipulation
than a Spot Bitcoin ETP, the structure of Bitcoin Futures ETFs provides
negative outcomes for buy and hold investors as compared to a Spot
Bitcoin ETP.\47\ Specifically, the cost of rolling CME Bitcoin Futures
contracts will cause the Bitcoin Futures ETFs to lag the performance of
bitcoin itself and would cost U.S. investors significant amounts of
money on an annual basis compared to Spot Bitcoin ETPs. Such rolling
costs would not be required for Spot Bitcoin ETPs that hold bitcoin.
Further, Bitcoin Futures ETFs could potentially hit CME position
limits, which would force a Bitcoin Futures ETF to invest in non-
futures assets for bitcoin exposure and cause potential investor
confusion and lack of certainty about what such Bitcoin Futures ETFs
are actually holding to try to get exposure to bitcoin, which would
also materially change the risk profile associated with such an ETF.
While Bitcoin Futures ETFs represent a useful trading tool, they are
clearly sub-optimal as the sole exchange traded vehicle structure for
U.S. investors that are looking for long-term exposure to bitcoin and
could, based on the calculations above, unnecessarily cost U.S.
investors significant amounts of money every year compared to Spot
Bitcoin ETPs. The Exchange believes that any proposal to list and trade
a Spot Bitcoin ETP should be reviewed by the Commission with this
important investor protection context in mind.
---------------------------------------------------------------------------

    \47\ See e.g., ``Bitcoin ETF's Success Could Come at
Trustholders' Expense,'' Wall Street Journal (October 24, 2021),
available at: https://www.wsj.com/articles/bitcoin-etfs-success-could-come-at-fundholders-expense-11635080580; ``Physical Bitcoin
ETF Prospects Accelerate,'' ETF.com (October 25, 2021), available
at: https://www.etf.com/sections/blog/physical-bitcoin-etf-prospects-shine?nopaging=1&__cf_chl_jschl_tk__=pmd_JsK.fjXz9eAQW9zol0qpzhXDrrlpIVdoCloLXbLjl44-1635476946-0-gqNtZGzNApCjcnBszQql.
---------------------------------------------------------------------------

    Based on the foregoing, the Exchange and Sponsor believe that an
objective review of the proposals to list Spot Bitcoin ETPs compared to
and in view of the Bitcoin Futures ETFs and the Bitcoin Futures
Approvals as well as limitations of existing approved product
structures, would lead to the conclusion that Spot Bitcoin ETPs would
benefit U.S. investors and should be available to U.S. investors. As
such, this proposal and other comparable proposals to list and trade
Spot Bitcoin ETPs should be approved by the Commission. In summary,
U.S. investors lose significant amounts of money from holding Bitcoin
Futures ETFs as compared to Spot Bitcoin ETPs, losses which could be
prevented by the Commission approving Spot Bitcoin ETPs. Additionally,
any concerns related to preventing fraudulent and manipulative acts and
practices related to Spot Bitcoin ETPs would apply equally to the spot
markets underlying the futures contracts held by a Bitcoin Futures ETF.
Both the Exchange and Sponsor believe that the CME Bitcoin Futures
market is a regulated market of significant size and that such
manipulation concerns are mitigated, as described extensively below.
After allowing and approving the listing and trading of Bitcoin Futures
ETFs that hold primarily CME Bitcoin Futures, however, the only
consistent outcome would be approving Spot Bitcoin ETPs on the basis
that the CME Bitcoin Futures market is a regulated market of
significant size.
    Given the current landscape, approving this proposal (and others
like it) and allowing Spot Bitcoin ETPs to be listed and traded
alongside Bitcoin Futures ETFs would establish a consistent regulatory
approach, provide U.S. investors with choice in product structures for
bitcoin exposure, and offer flexibility in the means of gaining
exposure to bitcoin through transparent, regulated, U.S. exchange-
listed vehicles.

Bitcoin Futures
    CME began offering trading in Bitcoin Futures in 2017. Each
contract represents five bitcoin and is based on the CME CF Bitcoin
Reference Rate.\48\ The contracts trade and settle like other cash-
settled commodity futures contracts. Nearly every measurable metric
related to Bitcoin Futures has generally trended up since launch,
although certain notional volume calculations have decreased roughly in
line with the decrease in the price of bitcoin. For example, there were
143,215 Bitcoin Futures contracts traded in April 2023 (approximately
$20.7 billion) compared to 193,182 ($5 billion), 104,713 ($3.9
billion), 118,714 ($42.7 billion), and 111,964 ($23.2 billion)
contracts traded in April 2019, April 2020, April 2021, and April 2022,
respectively.\49\
---------------------------------------------------------------------------

    \48\ According to CME, the CME CF Bitcoin Reference Rate
aggregates the trade flow of major bitcoin spot exchanges during a
specific calculation window into a once-a-day reference rate of the
U.S. dollar price of bitcoin. Calculation rules are geared toward
maximum transparency and real-time replicability in underlying spot
markets, including Bitstamp, Coinbase, Gemini, itBit, and Kraken.
For additional information, refer to https://www.cmegroup.com/trading/cryptocurrency-indices/cf-bitcoin-reference-rate.html?redirect=/trading/cf-bitcoin-reference-rate.html.
    \49\ Source: CME, Yahoo Finance 4/30/23.
    [GRAPHIC] [TIFF OMITTED] TN22DE23.015

    The number of large open interest holders \50\ and unique accounts
trading Bitcoin Futures have both increased, even in the face of
heightened bitcoin price volatility.
---------------------------------------------------------------------------

    \50\ A large open interest holder in Bitcoin Futures is an
entity that holds at least 25 contracts, which is the equivalent of
125 bitcoin. At a price of approximately $29,268.81 per bitcoin on
4/30/2023, more than 100 firms had outstanding positions of greater
than $3.65 million in Bitcoin Futures.
[GRAPHIC] [TIFF OMITTED] TN22DE23.016

[GRAPHIC] [TIFF OMITTED] TN22DE23.017

    The Sponsor further believes that publicly available research,
including research done as part of rule filings proposing to list and
trade shares of Spot Bitcoin ETPs, corroborates the overall trend
outlined above and supports the thesis that the Bitcoin Futures pricing
leads the spot market and, thus, a person attempting to manipulate the
Shares would also have to trade on that market to manipulate the ETP.
Specifically, the Sponsor believes that such research indicates that
Bitcoin Futures lead the bitcoin spot market in price formation.\51\
---------------------------------------------------------------------------

    \51\ See Exchange Act Releases No. 94080 (January 27, 2022), 87
FR 5527 (April 12, 2022) (specifically ``Amendment No. 1 to the
Proposed Rule Change To List and Trade Shares of the Wise Origin
Bitcoin Trust Under BZX Rule 14.11(3)(4), Commodity-Based Trust
Shares''); 94982 (May 25, 2022), 87 FR 33250 (June 1, 2022); 94844
(May 4, 2022), 87 FR 28043 (May 10, 2022); and 93445 (October 28,
2021), 86 FR 60695 (November 3, 2021). See also Hu, Y., Hou, Y. and
Oxley, L. (2019). ``What role do futures markets play in Bitcoin
pricing? Causality, cointegration and price discovery from a time-
varying perspective'' (available at: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7481826/). This academic research paper concludes
that ``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.''
---------------------------------------------------------------------------

Section 6(b)(5) and the Applicable Standards
    The Commission has approved numerous series of Trust Issued
Receipts,\52\ including Commodity-Based Trust Shares,\53\ to be listed
on U.S. national securities exchanges. In 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, specifically including: (i)
the requirement that a national securities exchange's rules are
designed to prevent fraudulent and manipulative acts and practices;
\54\ and (ii) the requirement that an exchange proposal be designed, in
general, to protect investors and the public interest. The Exchange
believes that this proposal is consistent with the requirements of
Section 6(b)(5) of the Act and that this filing sufficiently
demonstrates that the CME Bitcoin Futures market represents a regulated
market of significant size and that, on the whole, the manipulation
concerns previously articulated by the Commission are sufficiently
mitigated to the point that they are outweighed by quantifiable
investor protection issues that would be resolved by approving this
proposal.
---------------------------------------------------------------------------

    \52\ See Exchange Rule 14.11(f).
    \53\ Commodity-Based Trust Shares, as described in Exchange Rule
14.11(e)(4), are a type of Trust Issued Receipt.
    \54\ As the Exchange has stated in a number of other public
documents, it continues to believe that bitcoin is resistant to
price manipulation and that ``other means to prevent fraudulent and
manipulative acts and practices'' exist to justify dispensing with
the requisite surveillance sharing agreement. The geographically
diverse and continuous nature of bitcoin trading render it difficult
and prohibitively costly to manipulate the price of bitcoin. The
fragmentation across bitcoin platforms, the relatively slow speed of
transactions, and the capital necessary to maintain a significant
presence on each trading platform make manipulation of bitcoin
prices through continuous trading activity challenging. To the
extent that there are bitcoin exchanges engaged in or allowing wash
trading or other activity intended to manipulate the price of
bitcoin on other markets, such pricing does not normally impact
prices on other exchange because participants will generally ignore
markets with quotes that they deem non-executable. Moreover, the
linkage between the bitcoin markets and the presence of arbitrageurs
in those markets means that the manipulation of the price of bitcoin
price on any single venue would require manipulation of the global
bitcoin price in order to be effective. Arbitrageurs must have funds
distributed across multiple trading platforms in order to take
advantage of temporary price dislocations, thereby making it
unlikely that there will be strong concentration of funds on any
particular bitcoin exchange or OTC platform. As a result, the
potential for manipulation on a trading platform would require
overcoming the liquidity supply of such arbitrageurs who are
effectively eliminating any cross-market pricing differences.
---------------------------------------------------------------------------

(i) Designed To Prevent Fraudulent and Manipulative Acts and Practices
    In order to meet this standard in a proposal to list and trade a
series of Commodity-Based Trust Shares, the Commission requires that an
exchange demonstrate that there is a comprehensive surveillance-sharing
agreement in place \55\ with a regulated

market of significant size. Both the Exchange and CME are members of
the intermarket surveillance group (``ISG'').\56\ The only remaining
issue to be addressed is whether the Bitcoin Futures market constitutes
a market of significant size, which both the Exchange and the Sponsor
believe that it does. 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
manipulate the ETP, so that a surveillance-sharing agreement would
assist the listing exchange 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.\57\
---------------------------------------------------------------------------

    \55\ As previously articulated by the Commission, ``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.'' 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 underlying securities 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. 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.'' The
Commission has historically held that joint membership in the ISG
constitutes such a surveillance-sharing agreement. See Securities
Exchange Act Release No. 88284 (February 26, 2020), 85 FR 12595
(March 3, 2020) (SR-NYSEArca-2019-39) (the ``Wilshire Phoenix
Disapproval'').
    \56\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com.
    \57\ See Wilshire Phoenix Disapproval.
---------------------------------------------------------------------------

    The Commission has also recognized that the ``regulated market of
significant size'' standard is not the only means for satisfying
Section 6(b)(5) of the act, specifically providing that a listing
exchange could demonstrate that ``other means to prevent fraudulent and
manipulative acts and practices'' are sufficient to justify dispensing
with the requisite surveillance-sharing agreement.\58\
---------------------------------------------------------------------------

    \58\ See Winklevoss Order at 37580. The Commission has also
specifically noted that it ``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.''
Id. at 37582.
---------------------------------------------------------------------------

(a) Manipulation of the ETP
    According to the research and analysis presented above, the Bitcoin
Futures market is the leading market for bitcoin price formation. Where
Bitcoin Futures lead the price in the spot market such that a potential
manipulator of the bitcoin spot market (beyond just the constituents of
the Reference Rate) \59\ would have to participate in the Bitcoin
Futures market, it follows that a potential manipulator of the Shares
would similarly have to transact in the Bitcoin Futures market because
the Index is based on spot prices. As such, the Exchange believes that
part (a) of the significant market test outlined above is satisfied and
that common membership in ISG between the Exchange and CME would assist
the listing exchange in detecting and deterring misconduct in the
trading of the Shares.
---------------------------------------------------------------------------

    \59\ As further described below, the ``Index'' for the Trust is
the CME CF Bitcoin Reference Rate.
---------------------------------------------------------------------------

(b) Predominant Influence on Prices in Spot and Bitcoin Futures
    The Exchange and Sponsor also believe that trading in the Shares
would not be the predominant force influencing prices in the Bitcoin
Futures market or spot market for a number of reasons, including the
significant daily trading volume in the Bitcoin Futures market, the
size of bitcoin's market capitalization, and the significant liquidity
available in the spot market. In addition to the Bitcoin Futures market
data points cited above, the spot market for bitcoin is also very
liquid. As the court found in the Grayscale Order, the Exchange and the
Sponsor submit that ``[b]ecause the spot market is deeper and more
liquid than the futures market, manipulation should be more difficult,
not less.''
(c) Other Means To Prevent Fraudulent and Manipulative Acts and
Practices
    The Commission also permits a listing exchange to demonstrate that
``other means to prevent fraudulent and manipulative acts and
practices'' are sufficient to justify dispensing with the requisite
surveillance-sharing agreement. The Exchange and Sponsor believe that
such conditions are present.
(ii) Designed To Protect Investors and the Public Interest
    The Exchange believes that the proposal is designed to protect
investors and the public interest. Over the past several years, U.S.
investor exposure to bitcoin through OTC Bitcoin Trusts has grown into
the tens of billions of dollars, including through Bitcoin Futures
ETFs. With that growth, so too has grown the quantifiable investor
protection issues to U.S. investors including in connection with roll
costs for Bitcoin Futures ETFs and premium/discount volatility and
management fees for OTC Bitcoin Trusts. The Exchange believes that the
concerns related to the prevention of fraudulent and manipulative acts
and practices have been sufficiently addressed for this proposal to be
consistent with the Act and, to the extent that the Commission
disagrees with that assertion, such concerns are now outweighed by
investor protection concerns. As such, the Exchange believes that
approving this proposal (and comparable proposals) provides the
Commission with the opportunity to allow U.S. investors to access
bitcoin in a regulated and transparent exchange-traded vehicle that
would act to limit risk and benefit U.S. investors by: (i) reducing
premium and discount volatility as compared to OTC investment vehicles;
(ii) increasing competitive pressure on management fees resulting in
fee compression/reductions; (iii) reducing risks and costs as compared
to those associated with investing in Bitcoin Futures ETFs and
operating companies that represent imperfect proxies for bitcoin
exposure; and (iv) providing an alternative to custodying spot bitcoin.
Pando Asset Spot Bitcoin Trust
    Donald J. Puglisi is the trustee (``Trustee''). The Bitcoin
Custodian will be responsible for safekeeping of the Trust's bitcoin.
    According to the Registration Statement, each Share will represent
a fractional undivided beneficial interest and ownership in the Trust.
The Trust's assets will consist of bitcoin held by the Bitcoin
Custodian on behalf of the Trust and cash holdings, if any.
    According to the Registration Statement, the Trust is neither an
investment company registered under the Investment Company Act of 1940,
as amended,\60\ nor a commodity pool for purposes of the Commodity
Exchange Act (``CEA''), and none of the Trust, the Trust or the Sponsor
is subject to regulation as a commodity pool operator or a commodity
trading adviser in connection with the Shares.
---------------------------------------------------------------------------

    \60\ 15 U.S.C. 80a-1.
---------------------------------------------------------------------------

    When the Trust sells or redeems its Shares, it will do so in cash
or ``in-kind'' transactions in blocks of 5,000 Shares (a ``Creation
Basket'') at the Trust's NAV. Authorized participants will deliver, or
facilitate the delivery of, cash or bitcoin to the Trust's account with
the Bitcoin Custodian in exchange for Shares when they purchase Shares,
and the Trust, through the Bitcoin Custodian, will deliver cash or
bitcoin to such authorized participants when they redeem Shares.
Authorized participants may then offer Shares to the public at prices
that depend on various factors, including the supply and demand for
Shares, the value of the Trust's assets, and market conditions at the
time of a transaction. Shareholders who buy or sell Shares during the
day from their broker may do so at a premium or discount relative to
the NAV of the Shares of the Trust.
Investment Objective
    According to the Registration Statement and as further described

below, the investment objective of the Trust is to generally reflect
the performance of the price of bitcoin before payment of the Trust's
expenses. In seeking to achieve its investment objective, the Trust
will only hold bitcoin, cash and cash equivalents. The Trust will value
its Shares daily based on the value of bitcoin as reflected by the CME
CF Bitcoin Reference Rate (the ``Index''), which is an independently
calculated value based on an aggregation of executed trade flow of
major bitcoin spot exchanges. Specifically, the Index is calculated
based on certain transactions of all of its constituent bitcoin
exchanges, which are currently Bitstamp, Coinbase, itBit, Kraken,
Gemini, and LMAX Digital, and which may change from time to time. If
the Index is not available or the Sponsor determines, in its sole
discretion, that the Index should not be used, the Trust's holdings may
be fair valued in accordance with the policy approved by the Sponsor.
The Index
    As described in the Registration Statement, the Trust will
determine the bitcoin Index price and value its Shares daily based on
the value of bitcoin as reflected by the Index. The Index is calculated
daily and aggregates the notional value of bitcoin trading activity
across major bitcoin spot exchanges. The Index uses the same
methodology as the CME CF Bitcoin Reference Rate (``BRR''), including
utilizing the same constituent bitcoin exchanges, which is the
underlying rate to determine settlement of CME Bitcoin Futures
contracts, except that the Index is calculated as of 4 p.m. ET, whereas
the BRR is calculated as of 4 p.m. London time. The Index is designed
based on the International Organization of Securities Commissions
(``IOSCO'') Principals for Financial Benchmarks. The administrator of
the Index is CF Benchmarks Ltd. (the ``Index Provider'').
    The Index was created to facilitate financial products based on
bitcoin. It serves as a once-a-day benchmark rate of the U.S. dollar
price of bitcoin (USD/BTC), calculated as of 4:00 p.m. ET. The Index
aggregates the trade flow of several bitcoin exchanges, during an
observation window between 3:00 p.m. and 4:00 p.m. ET into the U.S.
dollar price of one bitcoin at 4:00 p.m. ET. Specifically, the Index is
calculated based on the ``Relevant Transactions'' (as defined below) of
all of its constituent bitcoin exchanges, which are currently Coinbase,
Bitstamp, Kraken, itBit, LMAX Digital and Gemini (the ``Constituent
Platforms''), as follows:
     All Relevant Transactions are added to a joint list,
recording the time of execution, trade price and size for each
transaction.
     The list is partitioned by timestamp into 12 equally-sized
time intervals of 5 (five) minute length.
     For each partition separately, the volume-weighted median
trade price is calculated from the trade prices and sizes of all
Relevant Transactions, i.e., across all Constituent Platforms. A
volume-weighted median differs from a standard median in that a
weighting factor, in this case trade size, is factored into the
calculation.
     The Index is then determined by the equally-weighted
average of the volume medians of all partitions.
    The Index does not include any futures prices in its methodology. A
``Relevant Transaction'' is any cryptocurrency versus U.S. dollar spot
trade that occurs during the observation window between 3:00 p.m. and
4:00 p.m. ET on a Constituent Platform in the BTC/USD pair that is
reported and disseminated by a Constituent Platform through its
publicly available Application Programming Interface (``API'') and
observed by the Index Provider.
    The Sponsor believes that the use of the Index is reflective of a
reasonable valuation of the average spot price of bitcoin and that
resistance to manipulation is a priority aim of its design methodology.
The methodology: (i) takes an observation period and divides it into
equal partitions of time; (ii) then calculates the volume-weighted
median of all transactions within each partition; and (iii) the value
is determined from the arithmetic mean of the volume-weighted medians,
equally weighted. By employing the foregoing steps, the Index thereby
seeks to ensure that transactions in bitcoin conducted at outlying
prices do not have an undue effect on the value of the Index, large
trades or clusters of trades transacted over a short period of time
will not have an undue influence on the Index value, and the effect of
large trades at prices that deviate from the prevailing price are
mitigated from having an undue influence on the Index value.
    In addition, the Sponsor notes that an oversight function is
implemented by the Index Provider in seeking to ensure that the Index
is administered through codified policies for Index integrity.
    Index data and the description of the Index are based on
information made publicly available by the Index Provider on its
website at https://www.cfbenchmarks.com.
Net Asset Value
    NAV means the total assets of the Trust (which includes bitcoin and
cash holdings) less total liabilities of the Trust. The Administrator
will determine the NAV of the Trust on each day that the Exchange is
open for regular trading, as promptly as practical after 4:00 p.m. EST.
The NAV of the Trust is the aggregate value of the Trust's assets less
its estimated accrued but unpaid liabilities (which include accrued
expenses). In determining the Trust's NAV, the Administrator values the
bitcoin held by the Trust based on the price set by the Index as of
4:00 p.m. EST. The Administrator also determines the NAV per Share.
    The NAV for the Trust will be calculated by the Administrator once
a day and will be disseminated daily to all market participants at the
same time. Quotation and last-sale information regarding the Shares
will be disseminated through the facilities of the Consolidated Tape
Association (``CTA'').
    If the Index is not available or the Sponsor determines, in its
sole discretion, that the Index should not be used, the Trust's
holdings may be fair valued in accordance with the policy approved by
the Sponsor.
Intraday Indicative Value
    The Trust will provide an Intraday Indicative Value (``IIV'') per
Share updated every 15 seconds, as calculated by the Exchange or a
third-party financial data provider during the Exchange's Regular
Trading Hours (9:30 a.m. to 4:00 p.m. E.T.). The IIV will be calculated
by using the prior day's closing NAV per Share as a base and updating
that value during Regular Trading Hours to reflect changes in the value
of the Trust's bitcoin holdings during the trading day.
    The IIV disseminated during Regular Trading Hours 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
Exchange's Regular Trading Hours by one or more major market data
vendors. In addition, the IIV will be available through on-line
information services.
Availability of Information
    In addition to the price transparency of the Index, the Trust will
provide information regarding the Trust's bitcoin holdings as well as
additional data regarding the Trust. The Trust will provide an Intraday
Indicative Value (``IIV'') per Share updated every 15

seconds, as calculated by the Exchange or a third-party financial data
provider during the Exchange's Regular Trading Hours (9:30 a.m. to 4:00
p.m. E.T.). The IIV will be calculated by using the prior day's closing
NAV per Share as a base and updating that value during Regular Trading
Hours to reflect changes in the value of the Trust's bitcoin holdings
during the trading day.
    The IIV disseminated during Regular Trading Hours 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
Exchange's Regular Trading Hours by one or more major market data
vendors. In addition, the IIV will be available through on-line
information services.
    The website for the Trust, which will be publicly accessible at no
charge, will contain the following information: (a) the current NAV per
Share daily and the prior business day's NAV and the reported closing
price; (b) the BZX Official Closing Price \61\ in relation to the NAV
as of the time the NAV is calculated and a calculation of the premium
or discount of such price against such NAV; (c) data in chart form
displaying the frequency distribution of discounts and premiums of the
Official Closing Price against the NAV, within appropriate ranges for
each of the four previous calendar quarters (or for the life of the
Trust, if shorter); (d) the prospectus; and (e) other applicable
quantitative information. The Trust will also disseminate the Trust's
holdings on a daily basis on the Trust's website. The price of bitcoin
will be made available by one or more major market data vendors,
updated at least every 15 seconds during Regular Trading Hours.
Information about the Index, including key elements of how the Index is
calculated, will be publicly available at https://www.cfbenchmarks.com.
---------------------------------------------------------------------------

    \61\ As defined in Rule 11.23(a)(3), the term ``BZX Official
Closing Price'' shall mean the price disseminated to the
consolidated tape as the market center closing trade.
---------------------------------------------------------------------------

    The NAV for the Trust will be calculated by the Administrator once
a day and will be disseminated daily to all market participants at the
same time. Quotation and last-sale information regarding the Shares
will be disseminated through the facilities of the Consolidated Tape
Association (``CTA'').
    Quotation and last sale information for bitcoin is widely
disseminated through a variety of major market data vendors, including
Bloomberg and Reuters, as well as the Index. Information relating to
trading, including price and volume information, in bitcoin is
available from major market data vendors and from the exchanges on
which bitcoin are traded. Depth of book information is also available
from bitcoin exchanges. The normal trading hours for bitcoin exchanges
are 24 hours per day, 365 days per year.
    Complete real-time data for the Bitcoin Futures Contracts will be
available by subscription through on-line information services. ICE
Futures U.S. and CME also provide delayed futures and options on
futures information on current and past trading sessions and market
news free of charge on their respective websites. The specific contract
specifications for Bitcoin Futures Contracts will also be available on
such websites, as well as other financial informational sources.
    Information regarding market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. Information
regarding the previous day's closing price and trading volume
information for the Shares will be published daily in the financial
section of newspapers.
The Bitcoin Custodian
    The Bitcoin Custodian carefully considers the design of the
physical, operational and cryptographic systems for secure storage of
the Trust's private keys in an effort to lower the risk of loss or
theft. The Bitcoin Custodian utilizes a variety of security measures to
ensure that private keys necessary to transfer digital assets remain
uncompromised and that the Trust maintains exclusive ownership of its
assets. The Bitcoin Custodian will keep a substantial portion of the
private keys associated with the Trust's bitcoin in ``cold storage''
\62\ or similarly secure technology (the ``Cold Vault Balance'') The
hardware, software, systems, and procedures of the Bitcoin Custodian
may not be available or cost-effective for many investors to access
directly Only specific individuals are authorized to participate in the
custody process, and no individual acting alone will be able to access
or use any of the private keys. In addition, no combination of the
executive officers of the Sponsor, acting alone or together, will be
able to access or use any of the private keys that hold the Trust's
bitcoin.
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    \62\ The term ``cold storage'' refers to a safeguarding method
by which the private keys corresponding to bitcoins stored on a
digital wallet are removed from any computers actively connected to
the internet. Cold storage of private keys may involve keeping such
wallet on a non-networked computer or electronic device or storing
the public key and private keys relating to the digital wallet on a
storage device (for example, a USB thumb drive) or printed medium
(for example, papyrus or paper) and deleting the digital wallet from
all computers.
---------------------------------------------------------------------------

Creation and Redemption of Shares
    When the Trust sells or redeems its Shares, it will do so in cash
or in-kind transactions in blocks of 5,000 Shares that are based on the
quantity of bitcoin attributable to each Share of the Trust (e.g., a
Creation Basket) at the NAV. According to the Registration Statement,
on any business day, an authorized participant may place an order to
create one or more baskets. Purchase orders must be placed by 4:00 p.m.
Eastern Time, or the close of regular trading on the Exchange,
whichever is earlier. The day on which an order is received is
considered the purchase order date. The total deposit of bitcoin
required is an amount of bitcoin that is in the same proportion to the
total assets of the Trust, net of accrued expenses and other
liabilities, on the date the order to purchase is properly received, as
the number of Shares to be created under the purchase order is in
proportion to the total number of Shares outstanding on the date the
order is received. Each night, the Sponsor will publish the amount of
bitcoin that will be required in exchange for each creation order. The
Administrator determines the required deposit for a given day by
dividing the number of bitcoin held by the Trust as of the opening of
business on that business day, adjusted for the amount of bitcoin
constituting estimated accrued but unpaid fees and expenses of the
Trust as of the opening of business on that business day, by the
quotient of the number of Shares outstanding at the opening of business
divided by the number of Shares in a Creation Basket. The procedures by
which an authorized participant can redeem one or more Creation Baskets
mirror the procedures for the creation of Creation Baskets.
Rule 14.11(e)(4)--Commodity-Based Trust Shares
    The Shares will be subject to BZX Rule 14.11(e)(4), which sets
forth the initial and continued listing criteria applicable to
Commodity-Based Trust Shares. The Exchange represents that, for initial
and continued listing, the Trust must be in compliance with Rule 10A-3
under the Act. A minimum of 100,000 Shares will be outstanding at the
commencement of listing on the Exchange. The Exchange will obtain a
representation that the NAV will be calculated daily and that these
values and information about the assets of the Trust will be made
available to all

market participants at the same time. The Exchange notes that, as
defined in Rule 14.11(e)(4)(C)(i), the Shares will be: (a) issued by a
trust that holds a specified commodity \63\ deposited with the trust;
(b) issued by such trust in a specified aggregate minimum number in
return for a deposit of a quantity of the underlying commodity; and (c)
when aggregated in the same specified minimum number, may be redeemed
at a holder's request by such trust which will deliver to the redeeming
holder the quantity of the underlying commodity.
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    \63\ For purposes of Rule 14.11(e)(4), the term commodity takes
on the definition of the term as provided in the Commodity Exchange
Act. As noted above, the CFTC has opined that Bitcoin is a commodity
as defined in Section 1a(9) of the Commodity Exchange Act. See
Coinflip.
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    Upon termination of the Trust, the Shares will be removed from
listing. The Trustee, Delaware Trust Company, is a trust company having
substantial capital and surplus and the experience and facilities for
handling corporate trust business, as required under Rule
14.11(e)(4)(E)(iv)(a) and that no change will be made to the trustee
without prior notice to and approval of the Exchange. The Exchange also
notes that, pursuant to Rule 14.11(e)(4)(F), neither the Exchange nor
any agent of the Exchange shall have any liability for damages, claims,
losses or expenses caused by any errors, omissions or delays in
calculating or disseminating any underlying commodity value, the
current value of the underlying commodity required to be deposited to
the Trust in connection with issuance of Commodity-Based Trust Shares;
resulting from any negligent act or omission by the Exchange, or any
agent of the Exchange, or any act, condition or cause beyond the
reasonable control of the Exchange, its agent, including, but not
limited to, an act of God; fire; flood; extraordinary weather
conditions; war; insurrection; riot; strike; accident; action of
government; communications or power failure; equipment or software
malfunction; or any error, omission or delay in the reports of
transactions in an underlying commodity. Finally, as required in Rule
14.11(e)(4)(G), the Exchange notes that any registered market maker
(``Market Maker'') in the Shares must file with the Exchange in a
manner prescribed by the Exchange and keep current a list identifying
all accounts for trading in an underlying commodity, related commodity
futures or options on commodity futures, or any other related commodity
derivatives, which the registered Market Maker may have or over which
it may exercise investment discretion. No registered Market Maker shall
trade in an underlying commodity, related commodity futures or options
on commodity futures, or any other related commodity derivatives, in an
account in which a registered Market Maker, directly or indirectly,
controls trading activities, or has a direct interest in the profits or
losses thereof, which has not been reported to the Exchange as required
by this Rule. In addition to the existing obligations under Exchange
rules regarding the production of books and records (see, e.g., Rule
4.2), the registered Market Maker in Commodity-Based Trust Shares shall
make available to the Exchange such books, records or other information
pertaining to transactions by such entity or registered or non-
registered employee affiliated with such entity for its or their own
accounts for trading the underlying physical commodity, related
commodity futures or options on commodity futures, or any other related
commodity derivatives, as may be requested by the Exchange.
    The Exchange is able to obtain information regarding trading in the
Shares and the underlying bitcoin, Bitcoin Futures contracts, options
on Bitcoin Futures, or any other bitcoin derivative through members
acting as registered Market Makers, in connection with their
proprietary or customer trades.
    As a general matter, the Exchange has regulatory jurisdiction over
its members, and their associated persons. The Exchange also has
regulatory jurisdiction over any person or entity controlling a member,
as well as a subsidiary or affiliate of a member that is in the
securities business. A subsidiary or affiliate of a member organization
that does business only in commodities would not be subject to Exchange
jurisdiction, but the Exchange could obtain information regarding the
activities of such subsidiary or affiliate through surveillance sharing
agreements with regulatory organizations of which such subsidiary or
affiliate is a member.
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. The Exchange will halt trading in the Shares
under the conditions specified in BZX Rule 11.18. Trading may be halted
because of market conditions or for reasons that, in the view of the
Exchange, make trading in the Shares inadvisable. These may include:
(1) the extent to which trading is not occurring in the bitcoin
underlying the Shares; or (2) whether other unusual conditions or
circumstances detrimental to the maintenance of a fair and orderly
market are present. Trading in the Shares also will be subject to Rule
14.11(e)(4)(E)(ii), which sets forth circumstances under which trading
in the Shares may be halted.
    If the IIV or the value of the Index is not being disseminated as
required, the Exchange may halt trading during the day in which the
interruption to the dissemination of the IIV or the value of the Index
occurs. If the interruption to the dissemination of the IIV or the
value of the Index 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.
Trading Rules
    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. BZX will allow
trading in the Shares during all trading sessions on the Exchange. The
Exchange has appropriate rules to facilitate transactions in the Shares
during all trading sessions. As provided in BZX Rule 11.11(a) the
minimum price variation for quoting and entry of orders in securities
traded on the Exchange is $0.01 where the price is greater than $1.00
per share or $0.0001 where the price is less than $1.00 per share. The
Shares of the Trust will conform to the initial and continued listing
criteria set forth in BZX Rule 14.11(e)(4).
Surveillance
    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. Trading of the Shares
through the Exchange will be subject to the Exchange's surveillance
procedures for derivative products, including Commodity-Based Trust
Shares.
    The Exchange will communicate as needed regarding trading in the
Shares and Bitcoin Futures with other markets and other entities that
are members of the ISG, and the Exchange, or FINRA, on behalf of the
Exchange, may obtain trading information regarding trading in

the Shares and Bitcoin Futures from such markets and other
entities.\64\
---------------------------------------------------------------------------

    \64\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com.
---------------------------------------------------------------------------

    The Exchange is able to obtain information regarding trading in the
Shares and the underlying bitcoin, Bitcoin Futures contracts, options
on Bitcoin Futures, or any other bitcoin derivative through members
acting as registered Market Makers, in connection with their
proprietary or customer trades. As a general matter, the Exchange has
regulatory jurisdiction over its members, and their associated persons.
The Exchange also has regulatory jurisdiction over any person or entity
controlling a member, as well as a subsidiary or affiliate of a member
that is in the securities business. A subsidiary or affiliate of a
member organization that does business only in commodities would not be
subject to Exchange jurisdiction, but the Exchange could obtain
information regarding the activities of such subsidiary or affiliate
through surveillance sharing agreements with regulatory organizations
of which such subsidiary or affiliate is a member.
    In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
    The issuer has represented to the Exchange that it will advise the
Exchange of any failure by the Trust or the Shares to comply with the
continued listing requirements, and, pursuant to its obligations under
Section 19(g)(1) of the Exchange Act, the Exchange will surveil for
compliance with the continued listing requirements. If the Trust or the
Shares are not in compliance with the applicable listing requirements,
the Exchange will commence delisting procedures under Exchange Rule
14.12.
Information Circular
    Prior to the commencement of trading, the Exchange will inform its
members in an Information Circular of the special characteristics and
risks associated with trading the Shares. Specifically, the Information
Circular will discuss the following: (i) the procedures for the
creation and redemption of Creation Baskets (and that the Shares are
not individually redeemable); (ii) BZX Rule 3.7, which imposes
suitability obligations on Exchange members with respect to
recommending transactions in the Shares to customers; (iii) how
information regarding the IIV and the Trust's NAV are disseminated;
(iv) the risks involved in trading the Shares outside of Regular
Trading Hours \65\ when an updated IIV will not be calculated or
publicly disseminated; (v) the requirement that members deliver a
prospectus to investors purchasing newly issued Shares prior to or
concurrently with the confirmation of a transaction; and (vi) trading
information. The Information Circular will also reference the fact that
there is no regulated source of last sale information regarding
bitcoin, that the Commission has no jurisdiction over the trading of
bitcoin as a commodity, and that the CFTC has regulatory jurisdiction
over the trading of Bitcoin Futures contracts and options on Bitcoin
Futures contracts.
---------------------------------------------------------------------------

    \65\ Regular Trading Hours is the time between 9:30 a.m. and
4:00 p.m. Eastern time.
---------------------------------------------------------------------------

    In addition, the Information Circular will advise members, prior to
the commencement of trading, of the prospectus delivery requirements
applicable to the Shares. Members purchasing the Shares for resale to
investors will deliver a prospectus to such investors. The Information
Circular will also discuss any exemptive, no-action and interpretive
relief granted by the Commission from any rules under the Act.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section
6(b) of the Act \66\ in general and Section 6(b)(5) of the Act \67\ in
particular in that it is 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 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.
---------------------------------------------------------------------------

    \66\ 15 U.S.C. 78f.
    \67\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission has approved numerous series of Trust Issued
Receipts, including Commodity-Based Trust Shares, to be listed on U.S.
national securities exchanges. In 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, specifically including: (i) the requirement
that a national securities exchange's rules are designed to prevent
fraudulent and manipulative acts and practices; \68\ and (ii) the
requirement that an exchange proposal be designed, in general, to
protect investors and the public interest. The Exchange believes that
this proposal is consistent with the requirements of Section 6(b)(5) of
the Act and that this filing, in conjunction with precedent filings,
sufficiently demonstrates that the CME Bitcoin Futures market
represents a regulated market of significant size and that, on the
whole, the manipulation concerns previously articulated by the
Commission are sufficiently mitigated to the point that they are
outweighed by quantifiable investor protection issues that would be
resolved by approving this proposal.
---------------------------------------------------------------------------

    \68\ As the Exchange has stated in a number of other public
documents, it continues to believe that bitcoin is resistant to
price manipulation and that ``other means to prevent fraudulent and
manipulative acts and practices'' exist to justify dispensing with
the requisite surveillance sharing agreement. The geographically
diverse and continuous nature of bitcoin trading render it difficult
and prohibitively costly to manipulate the price of bitcoin. The
fragmentation across bitcoin platforms, the relatively slow speed of
transactions, and the capital necessary to maintain a significant
presence on each trading platform make manipulation of bitcoin
prices through continuous trading activity challenging and
impractical. To the extent that there are bitcoin exchanges engaged
in or allowing wash trading or other activity intended to manipulate
the price of bitcoin on other markets, such pricing does not
normally impact prices on other exchange because participants will
generally ignore markets with quotes that they deem non-executable.
Moreover, the linkage between the bitcoin markets and the presence
of arbitrageurs in those markets means that the manipulation of the
price of bitcoin price on any single venue would require
manipulation of the global bitcoin price in order to be effective.
Arbitrageurs must have funds distributed across multiple trading
platforms in order to take advantage of temporary price
dislocations, thereby making it unlikely that there will be strong
concentration of funds on any particular bitcoin exchange or OTC
platform. As a result, the potential for manipulation on a trading
platform would require overcoming the liquidity supply of such
arbitrageurs who are effectively eliminating any cross-market
pricing differences.
---------------------------------------------------------------------------

(i) Designed To Prevent Fraudulent and Manipulative Acts and Practices
    In order to meet this standard in a proposal to list and trade a
series of Commodity-Based Trust Shares, the Commission requires that an
exchange demonstrate that there is a comprehensive surveillance-sharing
agreement in place \69\ with a regulated

market of significant size. Both the Exchange and CME are members of
ISG. The only remaining issue to be addressed is whether the Bitcoin
Futures market constitutes a market of significant size, which both the
Exchange and the Sponsor believe that it does. 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 manipulate the ETP, so that a surveillance-sharing
agreement would assist the listing exchange 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.\70\
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    \69\ As previously articulated by the Commission, ``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.'' 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 underlying securities 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. 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.'' The
Commission has historically held that joint membership in the ISG
constitutes such a surveillance sharing agreement. See Wilshire
Phoenix Disapproval).
    \70\ Id.
---------------------------------------------------------------------------

    The Commission has also recognized that the ``regulated market of
significant size'' standard is not the only means for satisfying
Section 6(b)(5) of the act, specifically providing that a listing
exchange could demonstrate that ``other means to prevent fraudulent and
manipulative acts and practices'' are sufficient to justify dispensing
with the requisite surveillance-sharing agreement.\71\
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    \71\ See Winklevoss Order at 37580. The Commission has also
specifically noted that it ``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.''
Id. at 37582.
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(a) Manipulation of the ETP
    According to the research and analysis presented above, the Bitcoin
Futures market is the leading market for bitcoin price formation. Where
Bitcoin Futures lead the price in the spot market such that a potential
manipulator of the bitcoin spot market (beyond just the constituents of
the Index) would have to participate in the Bitcoin Futures market, it
follows that a potential manipulator of the Shares would similarly have
to transact in the Bitcoin Futures market because the Index is based on
spot prices. As such, the Exchange believes that part (a) of the
significant market test outlined above is satisfied and that common
membership in ISG between the Exchange and CME would assist the listing
exchange in detecting and deterring misconduct in the Shares.
(b) Predominant Influence on Prices in Spot and Bitcoin Futures
    The Exchange and Sponsor also believe that trading in the Shares
would not be the predominant influence on prices in the Bitcoin Futures
market or spot market for a number of reasons, including the
significant daily trading volume in the Bitcoin Futures market, the
size of bitcoin's market capitalization, and the significant liquidity
available in the spot market. In addition to the Bitcoin Futures market
data points cited above, the spot market for bitcoin is also very
liquid. As the court found in the Grayscale Order, the Exchange and the
Sponsor submit that ``[b]ecause the spot market is deeper and more
liquid than the futures market, manipulation should be more difficult,
not less.''
(c) Other Means To Prevent Fraudulent and Manipulative Acts and
Practices
    As noted above, the Commission also permits a listing exchange to
demonstrate that ``other means to prevent fraudulent and manipulative
acts and practices'' are sufficient to justify dispensing with the
requisite surveillance-sharing agreement. The Exchange and Sponsor
believe that such conditions are present in this case, in addition to
the existence of a surveillance sharing agreement that meets the
Commission's previously articulated standards.
(ii) Designed To Protect Investors and the Public Interest
    The Exchange believes that the proposal is designed to protect
investors and the public interest. Over the past several years, U.S.
investor exposure to bitcoin through OTC Bitcoin Trusts has grown into
the tens of billions of dollars, including through Bitcoin Futures
ETFs. With that growth, so too has grown the quantifiable investor
protection issues to U.S. investors including in connection with roll
costs for Bitcoin Futures ETFs and premium/discount volatility and
management fees for OTC Bitcoin Trusts. The Exchange believes that the
concerns related to the prevention of fraudulent and manipulative acts
and practices have been sufficiently addressed for this proposal to be
consistent with the Act and, to the extent that the Commission
disagrees with that assertion, such concerns are now outweighed by
investor protection concerns. As such, the Exchange believes that
approving this proposal (and comparable proposals) provides the
Commission with the opportunity to allow U.S. investors to access
bitcoin in a regulated and transparent exchange-traded vehicle that
would act to limit risk and benefit U.S. investors by: (i) reducing
premium and discount volatility as compared to OTC investment vehicles;
(ii) increasing competitive pressure on management fees resulting in
fee compression/reductions; (iii) reducing risks and costs as compared
to those associated with investing in Bitcoin Futures ETFs and
operating companies that represent imperfect proxies for bitcoin
exposure; and (iv) providing an alternative to custodying spot bitcoin.
Commodity-Based Trust Shares
    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 on the Exchange pursuant to the initial and
continued listing criteria in Exchange Rule 14.11(e)(4). 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. Trading of the Shares through the
Exchange will be subject to the Exchange's surveillance procedures for
derivative products, including Commodity-Based Trust Shares. The issuer
has represented to the Exchange that it will advise the Exchange of any
failure by the Trust or the Shares to comply with the continued listing
requirements, and, pursuant to its obligations under Section 19(g)(1)
of the Exchange Act, the Exchange will surveil for compliance with the
continued listing requirements. If the Trust or the Shares are not in
compliance with the applicable listing requirements, the Exchange will
commence delisting procedures under Exchange Rule 14.12. The Exchange
may obtain information regarding trading in the Shares and listed
bitcoin derivatives 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.
Availability of Information
    The Exchange also believes that the proposal promotes market
transparency in that a large amount of information is currently
available about bitcoin and will be available regarding the Trust and
the Shares. In addition to the price transparency of the Index, the
Trust will

provide information regarding the Trust's bitcoin holdings as well as
additional data regarding the Trust.
    The website for the Trust, which will be publicly accessible at no
charge, will contain the following information: (a) the current NAV per
Share daily and the prior business day's NAV and the reported closing
price; (b) the BZX Official Closing Price in relation to the NAV as of
the time the NAV is calculated and a calculation of the premium or
discount of such price against such NAV; (c) data in chart form
displaying the frequency distribution of discounts and premiums of the
Official Closing Price against the NAV, within appropriate ranges for
each of the four previous calendar quarters (or for the life of the
Trust, if shorter); (d) the prospectus; and (e) other applicable
quantitative information. The Trust will also disseminate the Trust's
holdings on a daily basis on the Trust's website. The price of bitcoin
will be made available by one or more major market data vendors,
updated at least every 15 seconds during Regular Trading Hours. The
aforementioned information will be published as of the close of
business available on the Trust's website www.pandoasset.com.
    The price of bitcoin will be made available by one or more major
market data vendors, updated at least every 15 seconds during Regular
Trading Hours.
    The NAV for the Trust will be calculated by the Administrator once
a day and will be disseminated daily to all market participants at the
same time. Quotation and last-sale information regarding the Shares
will be disseminated through the facilities of the Consolidated Tape
Association (``CTA'').
    As noted above, the Index is calculated daily and aggregates the
notional value of bitcoin trading activity across major bitcoin spot
exchanges. Index data and the description of the Index are based on
information made publicly available by the Index Provider on its
website at https://www.cfbenchmarks.com.
    Quotation and last sale information for bitcoin is widely
disseminated through a variety of major market data vendors, including
Bloomberg and Reuters, as well as the Index. Information relating to
trading, including price and volume information, in bitcoin is
available from major market data vendors and from the exchanges on
which bitcoin are traded. Depth of book information is also available
from bitcoin exchanges. The normal trading hours for bitcoin exchanges
are 24 hours per day, 365 days per year.
    Complete real-time data for the Bitcoin Futures Contracts will be
available by subscription through on-line information services. ICE
Futures U.S. and CME also provide delayed futures and options on
futures information on current and past trading sessions and market
news free of charge on their respective websites. The specific contract
specifications for Bitcoin Futures Contracts will also be available on
such websites, as well as other financial informational sources.
    Information regarding market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. Information
regarding the previous day's closing price and trading volume
information for the Shares will be published daily in the financial
section of newspapers.
    In sum, the Exchange believes that this proposal is consistent with
the requirements of Section 6(b)(5) of the Act, that this filing
sufficiently demonstrates that the CME Bitcoin Futures market
represents a regulated market of significant size, and that on the
whole the manipulation concerns previously articulated by the
Commission are sufficiently mitigated to the point that they are
outweighed by investor protection issues that would be resolved by
approving this proposal.
    The Exchange believes that the proposal is, in particular, designed
to protect investors and the public interest. The investor protection
issues for U.S. investors has grown significantly over the last several
years, through roll costs for Bitcoin Futures ETFs and premium/discount
volatility and management fees for OTC Bitcoin Trusts. As discussed
herein, this growth investor protection concerns need to be reevaluated
and rebalanced with the prevention of fraudulent and manipulative acts
and practices concerns that previous disapproval orders have relied
upon. Finally, the Exchange notes that in addition to all of the
arguments herein which it believes sufficiently establish the CME
Bitcoin Futures market as a regulated market of significant size, it is
logically inconsistent to find that the CME Bitcoin Futures market is a
significant market as it relates to the CME Bitcoin Futures market, but
not a significant market as it relates to the bitcoin spot market for
the numerous reasons laid out above.
    For the above reasons, the Exchange believes that the proposed rule
change is consistent with the requirements of Section 6(b)(5) of the
Act.

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 purpose of the Act. The Exchange notes that the
proposed rule change, rather will facilitate the listing and trading of
an additional exchange-traded product that will enhance competition
among both market participants and listing venues, 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

    The Exchange neither solicited nor received comments on 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 within such longer period 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 Exchange consents, the Commission will:
    A. by order approve or disapprove such 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include
file number SR-CboeBZX-2023-101 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-CboeBZX-2023-101. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use

only one method. The Commission will post all comments on the
Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10 a.m. and 3
p.m. Copies of the filing also will be available for inspection and
copying at the principal office of the Exchange. Do not include
personal identifiable information in submissions; you should submit
only information that you wish to make available publicly. We may
redact in part or withhold entirely from publication submitted material
that is obscene or subject to copyright protection. All submissions
should refer to file number SR-CboeBZX-2023-101 and should be submitted
on or before January 12, 2024.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\72\
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    \72\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-28194 Filed 12-21-23; 8:45 am]
 BILLING CODE 8011-01-P