[Federal Register Volume 88, Number 190 (Tuesday, October 3, 2023)]
[Notices]
[Pages 68214-68236]
[FR Doc No: 2023-21788]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98563; File No. SR-NASDAQ-2023-035]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of a Proposed Rule Change To List and Trade Shares of
the Hashdex Nasdaq Ethereum ETF Under Nasdaq Rule 5711(i)

September 27, 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 September 20, 2023, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I and II below, which Items have been prepared by the Exchange.
The Commission is publishing this notice to solicit comments on the
proposed rule change 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

    The Exchange proposes to list and trade the shares of the Hashdex
Nasdaq Ethereum ETF under Nasdaq Rule 5711(i) (``Trust Units''). The
units of the Trust are referred to herein as the ``Shares.''
    The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, at
the principal office of the Exchange, and at the Commission's Public
Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to list and trade Shares of the Hashdex
Nasdaq Ethereum ETF (the ``Fund'') under Nasdaq Rule 5711(i),\3\ which
governs the listing and trading of Trust Units on the Exchange.
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    \3\ The Commission approved Nasdaq Rule 5711 in Securities
Exchange Act Release No. 66648 (March 23, 2012), 77 FR 19428 (March
30, 2012) (SR-NASDAQ-2012-013).
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    The Fund is a series of Tidal Commodities Trust I (the ``Trust''),
a Delaware statutory trust.\4\ The Fund is managed and controlled by
Toroso Investments LLC (``Sponsor''). The Sponsor is registered as a
commodity pool operator (``CPO'') with the Commodity Futures Trading
Commission (``CFTC'') and is a member of the National Futures
Association (``NFA'').
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    \4\ On September 8, 2023, the Trust confidentially filed a draft
registration statement under the Securities Act (the ``Registration
Statement''). The Jumpstart Our Business Startups Act (the ``JOBS
Act''), enacted on April 5, 2012, added Section 6(e) to the
Securities Act. Secction 6(e) of the Securities Act provides that an
``emerging growth company'' may confidentially submit to the
Commission a draft registration statement for confidential, non-
public review by the Commission staff prior to public filing,
provided that the initial confidential submission and all amendments
thereto shall be publicly filed not later than 21 days before the
date on which the issuer conducts a road show, as such term is
defined in Securities Act Rule 433(h)(4). An emerging growth company
is defined in Section 2(a)(19) of the Securities Act as an issuer
with less than $1,000,000,000 total annual gross revenues during its
most recently completed fiscal year. The Trust meets the definition
of an emerging growth company and consequently submitted its
Registration Statement to the Commission on a confidential basis.
The description of the operation of the Trust and the Fund herein is
based, in part, on the Registration Statement.
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The Fund's Investment Objective and Strategy
    According to the Registration Statement, the Chicago Mercantile
Exchange, Inc. (``CME'') currently offers two Ether futures contracts
(``Ether Futures Contracts''), one contract representing 50 ether
(``ETH Contracts'') and another contract representing 0.10 ether (``MET
Contracts'').\5\ Each ETH Contract and MET Contract settles daily to
the ETH Contract volume-weighted average price (``VWAP'') of all trades
that occur between 2:59 p.m. and 3:00 p.m., Central Time, the
settlement period, rounded to the nearest tradable tick. ETH Contracts
and MET Contracts each expire on the last Friday of the contract month,
and the final settlement value for each contract is based on the CME CF
Ether Dollar Reference Rate (``ETHUSD_RR'').\6\
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    \5\ ETH Contracts began trading on the CME Globex (``Globex'')
trading platform on February 8, 2021 under the ticker symbol ``ETH''
and are cash-settled in U.S. dollars. MET Contracts began trading on
the Globex trading platform on December 6, 2021 under the ticket
symbol ``MET'' and are also cash-settled in U.S. dollars.
    \6\ The ETHUSD_RR is a daily reference rate of the U.S. dollar
price of one ether calculated daily as of 4:00 p.m. London time. It
is calculated by the CME based on the ether trading activity on CME-
specified consituent spot ether exchanges during a calculation
window between 3:00 p.m. and 4:00 p.m. London time. The CME launched
the ETHUSD_RR in May 2018.
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    ETH Contracts and MET Contracts each trade six consecutive monthly
contracts plus two additional December contract months (if the 6
consecutive months include December, only one additional December
contract month is listed). Because ETH Contracts and MET Contracts are
exchange-listed, they allow investors to gain exposure to ether

(the native cryptocurrency to the Ethereum blockchain, herein referred
to interchangeably as ``Ether'' or ``Ethereum'') without having to hold
the underlying cryptocurrency. Like a futures contract on a commodity
or stock index, ETH Contracts and MET Contracts allow investors to
hedge investment positions or speculate on the future price of Ether.
    According to the Registration Statement, the Fund's investment
objective is to have the daily changes in the net asset value (``NAV'')
of the Shares reflecting the daily changes in the price of the Nasdaq
Ether Reference Price (NQETH) (the ``Benchmark''), less expenses from
the Fund's operations. The Benchmark is designed to track the price
performance of Ether. Under normal market conditions,\7\ the Fund will
invest in Ether, Ether Futures Contracts listed on the CME, and in cash
and cash equivalents.\8\ Because the Fund's investment objective is to
track the price of the Benchmark by investing in Ether and Ether
Futures Contracts, changes in the price of the Shares may vary from
changes in the spot price of Ether. The Benchmark is calculated using
the Nasdaq Ethereum Reference Price--Settlement (the ``NQETHS'').\9\
According to the Sponsor, the NQETHS is designed to allow investors to
track the price of Ether by applying a rigorous methodology to trade
data captured from cryptocurrency exchanges that meet eligibility
criteria of the Nasdaq Crypto Index (``NCI''). The NQETHS is calculated
once every trading day through the application of a publicly available
rules-based pricing methodology to a diverse collection of pricing
sources to provide an institutional-grade reference price for
Ethereum.\10\ The pricing methodology is designed to account for
variances in price across a wide range of sources, each of which has
been vetted according to criteria identified in the methodology.
Specifically, the settlement value is the Time Weighted Average Price
(``TWAP'') calculated across VWAPs for each minute in the settlement
price window, which is between 2:50:00 and 3:00:00 p.m. New York Time.
Where there are no transactions observed in any given minute of the
settlement price window, that minute is excluded from the calculation
of the TWAP.
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    \7\ The term ``normal market conditions'' includes, but is not
limited to, the absence of: trading halts in the applicable
financial markets generally; operational issues (e.g., systems
failure) causing dissemination of inaccurate market information; or
force majeure type events such as a natural or man-made disaster,
act of God, armed conflict, act of terrorism, riot or labor
disruption or any similar intervening circumstance. See Nasdaq Rules
4120 and 4121.
    \8\ The term ``cash equivalents'' includes short term Treasury
bills, money market funds, and demand deposit accounts.
    \9\ See https://indexes.nasdaqomx.com/Index/Overview/NQETHS.
    \10\ See https://indexes.nasdaqomx.com//docs/methodology/NCI.pdf.
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    According to the Sponsor, the NQETHS methodology also utilizes
penalty factors to mitigate the impact of anomalous trading activity
such as manipulation, illiquidity, large block trading, or operational
issues that could compromise price representation. Three types of
penalties are applied: abnormal price penalties, abnormal volatility
penalties, and abnormal volume penalties. These penalties are defined
as adjustment factors on the weight of information from each exchange
that contributes pricing information based on the deviation of an
exchange's price, volatility, or volume from the median across all
exchanges. For example, if a core exchange's price is 2.5 standard
deviations away from the median price, its price penalty factor will be
a \1/2\.5 multiplier.
    Finally, as a means of achieving the highest degrees of confidence
in the reported volume, data is sourced only from ``core exchanges''
that are screened, selected, and approved by the Nasdaq Crypto Index
Oversight Committee (the ``NCIOC''). Core exchanges must: (1) have
strong forking controls; (2) have effective anti-money laundering (AML)
controls; (3) have reliable and transparent application programming
interface (API) that provides real-time and historical trading data;
(4) charge fees for trading and structure trading incentives that do
not interfere with the forces of supply and demand; (5) be licensed by
a public independent governing body; (6) include surveillance for
manipulative trading practices and erroneous transactions; (7) evidence
a robust IT infrastructure; (8) demonstrate active capacity management;
(9) evidence cooperation with regulators and law enforcement; and (10)
have a minimum market representation for trading volume. Additionally,
the NCIOC conducts further diligence to assess an exchange's
eligibility and will consider additional criteria such as the
exchange's organizational and ownership structure, security history,
and reputation; the list of existing core exchanges will be recertified
by the NCIOC at minimum on an annual basis.
    The Sponsor believes that the NQETHS is suitable for use in
calculating the Benchmark because (i) it would provide reliable pricing
for purposes of tracking the actual performance of spot Ether, (ii) it
is administered by an independent index administrator, and (iii) its
methodology is specifically designed to mitigate potential manipulation
coming from unregulated markets. Specifically, the Sponsor believes
that (i) by tracking the actual price of spot Ether, NQETHS is
transparent and adequate for the Fund's investors; (ii) using a
Benchmark that has its own independent index administrator provides
investors the best practices in governance and accountability and
benchmark quality; and (iii) the pricing methodology underlying the
NQETHS is designed to be resistant to potential price manipulation by
applying a robust methodology to trade data captured from NCI core
exchanges, which have to meet strict criteria created by the NCIOC,
thereby drawing on a diverse collection of trustworthy pricing sources
to provide an institutional-grade reference price for Ether that
accounts for variances in price across a wide range of sources and that
adjusts to mitigate the impact of anomalous trading activity that could
compromise the integrity of the NQETHS price.
    According to the Registration Statement, the Fund seeks to maintain
its holdings in Ether Futures Contracts with a roughly constant
expiration profile. Therefore, the Fund's positions in Ether Futures
Contracts will be changed or ``rolled'' on a regular basis by closing
out first to expire contracts prior to settlement, and then entering
into second to expire contracts. Accordingly, the Fund will never carry
futures positions all the way to cash settlement--the Fund will price
only off of the daily settlement prices of the Ether Futures
Contracts.\11\ To achieve this, the Fund will roll its futures holdings
prior to cash settlement of the expiring contract.
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    \11\ As discussed in more detail below, the CME determines the
daily settlements for Ether futures based on trading activity on CME
Globex between 14:59:00 and 15:00:00 Central Time (CT), which is the
``settlement period.''
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    In seeking to achieve the Fund's investment objective, the Sponsor
will employ a ``neutral'' investment strategy that is intended to track
the changes in the Benchmark regardless of whether the Benchmark goes
up or goes down. The Fund will endeavor to trade in Ether and Ether
Futures Contracts so that the Fund's average daily tracking error
against the Benchmark will be less than 10 percent over any period of
30 trading days. The Fund's ``neutral'' investment strategy is designed
to permit investors generally to purchase and sell the Fund's Shares
for the purpose of investing in the Ether and Ether Futures Contracts
(as discussed

below). Such investors may include participants in the Ether market
seeking to hedge the risk of losses in their Ether-related
transactions, as well as investors seeking price exposure to the Ether
market.
    According to the Registration Statement, one factor determining the
total return from investing in futures contracts is the price
relationship between soon to expire contracts and later to expire
contracts. If the futures market is in a state of backwardation (i.e.,
when the price of ETH Contracts and MET Contracts in the future is
expected to be less than the current price), the Fund will buy later to
expire contracts for a lower price than the sooner to expire contracts
that it sells. Hypothetically, and assuming no changes to either
prevailing ETH Contracts and MET Contracts' prices or the price
relationship between soon to expire contracts and later to expire
contracts, the value of a contract will rise as it approaches
expiration. Over time, if backwardation remained constant, the
performance of a portfolio would continue to be affected. If the
futures market is in contango, the Fund will buy later to expire
contracts for a higher price than the sooner to expire contracts that
it sells. Hypothetically, and assuming no other changes to either
prevailing ETH Contracts and MET Contracts' prices or the price
relationship between the spot price, soon to expire contracts and later
to expire contracts, the value of a contract will fall as it approaches
expiration. Over time, if contango remained constant, the performance
of a portfolio would continue to be affected. Frequently, whether
contango or backwardation exists is a function, among other factors, of
the prevailing market conditions of the underlying market and
government policy.
    The Fund's investments will be consistent with the Fund's
investment objective and will not be used to enhance leverage. That is,
the Fund's investments will not be used to seek performance that is the
multiple or inverse multiple (e.g., 2Xs, 3Xs, -2Xs, and -3Xs) of the
Fund's Benchmark.
    According to the Registration Statement, the Fund will seek to
achieve its investment objective by investing not only in Ether Futures
Contracts, but also in physical Ether to the extent allowed by the
Fund's investment restrictions on spot Ether, using a pricing
methodology, for purposes of calculating the Fund's NAV, that will
derive spot Ether prices from Ether Futures Contracts and not from
unregulated exchanges, as further explained below (``Spot Ether''). In
doing so, the Sponsor expects to provide Ether exposure to investors
while still using Ether Futures Contracts in its strategy and relying
on the CME as its ``market of relevant size.'' In particular, to avoid
any exposure to potential manipulation from unregulated exchanges, the
Fund's NAV will be calculated using a Spot Ether price derived from CME
futures prices, as further explained below, and the Fund expects to
purchase and sell physical Ether via CME's Exchange for Physical
Transactions, which are subject to CME's market surveillance.
The Ethereum Network and Ether Transactions
    As discussed in further detail below, Ether is the digital asset
that is native to, created and transmitted through the operations of,
the peer-to-peer Ethereum network, an open-source protocol of the
network of computers that operates on cryptographic protocols and
governs the creation, movement, and ownership of Ether and hosts the
public ledger, or ``blockchain,'' (``Ethereum Network''). The
decentralized nature of the Ethereum Network allows parties to transact
directly with one another based on cryptographic proof instead of
relying on a trusted third party. No single entity owns or operates the
Ethereum Network, the infrastructure of which is collectively
maintained by a decentralized user base. The Ethereum Network allows
people to exchange tokens of value and settle multiple types of data,
which are recorded on the blockchain.
    Ether is the native token for the Ethereum Network. Such a
statement implies that, in order to settle any information on the
Ethereum Network, there will be a fee (named ``gas fee'') to be paid in
Ether, in order to use that block space. Ether may be also used as a
medium of exchange, unit of account or store of value. Ethers exist and
are stored on the blockchain, which serves as the decentralized
transaction ledger for the Ethereum Network. All transactions,
including the creation of new ethers through staking, are recorded on
the blockchain, ensuring the verification of each ether's location in
specific digital wallets.
    The responsibility for maintaining the Ether Account lies with the
Ether Custodian, who utilizes cold storage mechanisms for the vault
account. Digital wallets can be accessed using their respective private
keys, which are held by the Ether Custodians in cold storage at various
vaulting locations. The locations of these vaulting premises are kept
confidential to enhance security. ``Cold storage'' refers to a
safeguarding method where private keys associated with ethers are kept
offline, away from internet-connected devices. This could involve
storing the private keys on a non-networked computer or electronic
device. To send ethers from a digital wallet with private keys in cold
storage, the private keys must be retrieved and entered into an ether
software program for transaction signing, or the unsigned transaction
is sent to a ``cold'' server where the private keys are held for
signature.
    The Ethereum Network is decentralized and does not require
governmental authorities or financial institution intermediaries to
create, transmit, or determine the value of Ether. In addition, no
party may easily censor transactions on the Ethereum Network. As a
result, the Ethereum Network is often referred to as decentralized and
censorship resistant.
    The value of Ether is determined by the supply of and demand for
Ether. New tokens are created (or ``minted'') and rewarded to the
parties providing security to the Ethereum Network (the ``stakes''), by
staking their own Ether and running a computer node in order to verify
transactions and add them to the blockchain.
The Crypto Industry Has Progressed and Matured Significantly
    Ether and Bitcoin are the two largest and most well-known
cryptoassets. In a similar vein to the Ethereum Network, the bitcoin
network governs the creation, transaction, and ownership of its native
token (``Bitcoin'' and ``Bitcoin Network''). The Bitcoin Protocol was
launched in 2009 and lays out the rate of issuance of new Bitcoins
within the Bitcoin Network, a rate that is reduced by half
approximately every four years with an eventual hard cap of 21 million.
It is generally understood that the combination of these two features--
a systemic hard cap of 21 million Bitcoin and the ability to transact
with anyone connected to the Bitcoin Network--gives Bitcoin its value.
    After ``The Merge,'' which marked the merging of Ethereum's
original execution layer with its new ``proof-of-stake'' consensus
layer, known as the Beacon Chain, a significant change occurred. This
modification eliminated the resource-intensive mining process,
replacing it with the option to secure the network through the
utilization of staked Ether. In October 2022, Ether supply dynamics
transitioned as more Ether was burned verifying transactions than was
created in the same period, which became a constant trend ever since
that period. This behavior, similar to Bitcoin's capped supply (limited
to 21 million), plays a significant role in

influencing its long-term price dynamics.
    The first rule filing proposing to list an exchange-traded product
to provide exposure to crypto in the U.S. was submitted by the Cboe BZX
Exchange, Inc. on June 30, 2016.\12\ At that time, blockchain
technology, and digital assets that utilized it, were relatively new to
the broader public. No registered offering of digital asset securities
or shares in an investment vehicle with exposure to a digital asset had
yet been conducted, and the regulated infrastructure for conducting a
digital asset securities offering had not begun to develop. Conversely,
the first rule filing proposing to list an exchange-traded product to
provide exposure to Ether in the U.S. was submitted on August 18,
2021.\13\ When CME Globex began trading ETH Contracts in February 2021,
the digital assets financial ecosystem had progressed, and matured
significantly.
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    \12\ See Order Setting Aside Action by Delegated Authority and
Disapproving a Proposed Rule Change, as Modified by Amendments No. 1
and 2, to List and Trade Shares of the Winklevoss Bitcoin Trust,
Securities Exchange Act Release No. 83723 (July 26, 2018), 83 FR
37579 (August 1, 2018) (the ``Winklevoss II Order''). This proposal
was subsequently disapproved by the Commission.
    \13\ See https://www.nasdaq.com/articles/vaneck-proshares-abruptly-withdraw-ether-futures-etf-proposals-2021-08-20.
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    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 and shares
in investment vehicles holding crypto futures. Additionally, licensed,
and regulated service providers have emerged to provide fund custodial
services for digital assets, among other services. For example, in
December 2020, the Commission adopted a conditional no-action position
permitting certain special purpose broker-dealers to custody digital
asset securities under Rule 15c3-3 under the Exchange Act.\14\ In
September 2020, 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.\15\ In October 2019, 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; \16\ and multiple transfer agents who
provide services for digital asset securities have registered with the
Commission.\17\
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    \14\ 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).
    \15\ 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.
    \16\ 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.
    \17\ 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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    Beyond the Commission's purview, the regulatory landscape has also
changed significantly since 2016, and cryptocurrency markets have grown
and evolved as well. The U.S. Office of the Comptroller of the Currency
(the ``OCC'') has made clear that federally chartered banks are able to
provide custody services for cryptocurrencies and other digital
assets.\18\ The OCC recently granted conditional approval of two
charter conversions by state-chartered trust companies to national
banks, both of which provide cryptocurrency custody services.\19\ NYDFS
has granted no fewer than twenty-five BitLicenses, including to
established public payment companies like PayPal Holdings, Inc. and
Square, Inc., and limited purpose trust charters to entities providing
cryptocurrency custody services. The U.S. Treasury Financial Crimes
Enforcement Network (``FinCEN'') has released extensive guidance
regarding the applicability of the Bank Secrecy Act (``BSA'') and
implementing regulations to virtual currency businesses,\20\ and has
proposed rules imposing requirements on entities subject to the BSA
that are specific to the technological context of virtual
currencies.\21\ In addition, the Treasury's Office of Foreign Assets
Control (``OFAC'') has brought enforcement actions over apparent
violations of the sanction's laws in connection with the provision of
wallet management services for digital assets.\22\
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    \18\ See OCC News Release 2021-2 (January 4, 2021), available
at: https://www.occ.gov/news-issuances/news-releases/2021/nr-occ-2021-2.html.
    \19\ See OCC News Release 2021-6 (January 13, 2021), available
at: https://www.occ.gov/news-issuances/news-releases/2021/nr-occ-2021-6.html and OCC News Release 2021-19 (February 5, 2021),
available at: https://www.occ.gov/news-issuances/news-releases/2021/nr-occ-2021-19.html.
    \20\ See FinCEN Guidance FIN-2019-G001 (May 9, 2019)
(Application of FinCEN's Regulations to Certain Business Models
Involving Convertible Virtual Currencies), available at: https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20Guidance%20CVC%20FINAL%20508.pdf.
    \21\ See U.S. Department of the Treasury Press Release: ``The
Financial Crimes Enforcement Network Proposes Rule Aimed at Closing
Anti-Money Laundering Regulatory Gaps for Certain Convertible
Virtual Currency and Digital Asset Transactions'' (December 18,
2020), available at: https://home.treasury.gov/news/press-releases/sm1216.
    \22\ 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.
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    In addition to the mentioned regulatory advancements, there is a
noticeable trend of increased acceptance of digital assets among
traditional financial market participants. Notably, major insurance
companies,\23\ investment banks,\24\ asset managers,\25\ credit card
companies,\26\ university endowments,\27\ pension funds,\28\ and even
previously crypto-wary fund managers \29\ are now allocating funds to
the crypto space.
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    \23\ On December 10, 2020, Massachusetts Mutual Life Insurance
Company (MassMutual) announced that it had purchased $100 million in
Bitcoin for its general investment account. See MassMutual Press
Release ``Institutional Bitcoin provider NYDIG announces minority
stake purchase by MassMutual'' (December 10, 2020), available at:
https://www.massmutual.com/about-us/news-and-press-releases/press-releases/2020/12/institutional-bitcoin-provider-nydig-announces-minority-stake-purchase-by-massmutual.
    \24\ See, e.g., ``Morgan Stanley to Offer Rich Clients Access to
Bitcoin Funds'' (March 17, 2021) available at: https://www.bloomberg.com/news/articles/2021-03-17/morgan-stanley-to-offer-rich-clients-access-to-bitcoin-funds.
    \25\ See, e.g., ``BlackRock's Rick Rieder says the world's
largest asset manager has `started to dabble' in Bitcoin'' (February
17, 2021), available at: https://www.cnbc.com/2021/02/17/blackrock-has-started-to-dabble-in-bitcoin-says-rick-rieder.html and
``Guggenheim's Scott Minerd Says Bitcoin Should Be Worth $400,000''
(December 16, 2020), available at: https://www.bloomberg.com/news/articles/2020-12-16/guggenheim-s-scott-minerd-says-bitcoin-should-be-worth-400-000.
    \26\ See, e.g., ``Visa Moves to Allow Payment Settlements Using
Cryptocurrency'' (March 29, 2021), available at: https://www.reuters.com/business/autos-transportation/exclusive-visa-moves-allow-payment-settlements-using-cryptocurrency-2021-03-29/.
    \27\ See, e.g., ``Harvard and Yale Endowments Among Those
Reportedly Buying Crypto'' (January 25, 2021), available at: https://www.bloomberg.com/news/articles/2021-01-26/harvard-and-yaleendowments-among-those-reportedly-buying-crypto.
    \28\ See, e.g., ``Virginia Police Department Reveals Why its
Pension Fund is Betting on Bitcoin'' (February 14, 2019), available
at: https://finance.yahoo.com/news/virginia-police-department-reveals-why- 194558505.html.
    \29\ See, e.g., ``Bridgewater: Our Thoughts on Bitcoin''
(January 28, 2021) available at: https://www.bridgewater.com/research-and-insights/our-thoughts-on-bitcoin and ``Paul Tudor Jones
says he likes bitcoin even more now, rally still in the `first
inning' '' (October 22, 2020), available at: https://www.cnbc.com/2020/10/22/-paul-tudor-jones-says-he-likes-bitcoin-even-more-now-rally-still-in-the-first-inning.html.

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The Ether Futures Market Has Developed Alongside the Ether Spot Market
Into a Strong and Viable Marketplace That Stands On Its Own
    CME began offering trading in Ether Futures Contracts in 2021, and
each of the contract's final cash settlement is based on the CME CF
Ether Dollar Reference Rate (the ``ETHUSD_RR'').\30\ The contracts
trade and settle like other cash-settled commodity futures contracts.
According to the Sponsor, trading in CME Ether futures contracts has
increased significantly, in particular with respect to ETH Contracts.
Nearly every measurable metric related to ETH Contracts has trended
consistently up since launch and/or accelerated upward. For example,
there was approximately $12.53 billion in trading in ETH Contracts in
July 2023 compared to $7.53 billion in total trading in December 2022.
ETH Contracts traded over $544.78 million per day in July 2023 and
represented $403.58 million in open interest compared to $337.99
million in December 2022. This general upward trend in trading volume
and open interest is captured in the following chart.
---------------------------------------------------------------------------

    \30\ According to the CME, the ETHUSD--RR aggregates the trade
flow of major Ether spot exchanges during a specific calculation
window into a once-a-day reference rate of the U.S. dollar price of
Ether. 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/files/ether-futures-fact-card-launch.pdf.
[GRAPHIC] [TIFF OMITTED] TN03OC23.001

    Similarly, the number of large open interest holders has continued
to increase even as the price of Ether has risen, as have the number of
unique accounts trading Ether Futures Contracts.\31\
---------------------------------------------------------------------------

    \31\ See https://www.cmegroup.com/newsletters/quarterly-cryptocurrencies-report/2022-q3-cryptocurrency-recap.html.
---------------------------------------------------------------------------

The Structure and Operation of the Trust Satisfies Commission
Requirements for Cryptocurrencies-Based Exchange Traded Products
    The Sponsor believes that the Fund's holding a combination of Ether
Futures Contracts, Spot Ether, and cash could significantly mitigate
the risk of market manipulation while still providing the market with a
regulated product that tracks the actual price of Ethereum, creating a
secure way for U.S. investors to gain exposure to Spot Ether without
having to rely on unregulated products, offshore regulated products, or
indirect strategies such as investing in publicly traded companies that
hold Ether.
    In determining whether to approve listing and trading of new
exchange-traded products (``ETPs''), the Commission conducts a thorough
analysis to ensure the proposal is consistent with Section 6(b)(5) of
the Act. Section 6(b)(5) of the Act mandates that the rules of a
national securities exchange be designed to prevent fraudulent and
manipulative acts and practices, and to protect investors and the
public interest. With respect to ETPs, the Commission often considers
how the listing exchange would access necessary information to detect
and deter market manipulation, illegal trading, and other abuses, which
listing exchanges may accomplish by entering into a comprehensive
surveillance-sharing agreement (``CSSA'') with other entities, such as
the markets trading the ETP's underlying assets. Historically, for
commodity-trust ETPs, there has always been at least one regulated
market of significant size for trading futures on the underlying
commodity--whether gold, silver, platinum, palladium, or copper. Then,
the listing exchange would enter into CSSA with, or hold Intermarket
Surveillance Group (``ISG'') membership in common with, that regulated
market.\32\ As the Commission has stated, it considers two markets to
have a comprehensive surveillance-sharing agreement with one another if
they are both members of the ISG, even if they do not have a separate
bilateral surveillance-sharing agreement.
---------------------------------------------------------------------------

    \32\ See Order Setting Aside Action by Delegated Authority and
Disapprovng a Proposed Rule Change, as Modified by Amendments No. 1
and 2, To List and Trade Shares of the Winklevoss Bitcoin Trust,
Securities Exchange Act Release No. 83723 (July 26, 2018), 83 FR
37579 at 37592-94 (Aug. 1, 2018) (SR-BatsBZX-2016-30) (the
``Winklevoss Order''); Order Disapproving a Proposed Rule Change, as
Modified by Amendment No. 1, Relating to the Listing and Trading of
Shares of the Bitwise Bitcoin ETF Trust Under NYSE Arca Rule 8.201-
E, Securities Exchange Act Release No. 87267 (Oct. 9, 2019), 84 FR
55382 at 55383, 55410 (Oct. 16, 2019) (SR-NYSEArca-2019-01) (the
``Bitwise Order''); Order Disapproving a Proposed Rule Change, as
Modified by Amendment No. 1, to Amend NYSE Arca Rule 8.201-E
(Commodity-Based Trust Shares) and to List and Trade Shares of the
United States Bitcoin and Treasury Investment Trust Under NYSE Arca
Rule 8.201-E, Securities Exchange Act Release No. 88284 (February
26, 2020), 85 FR 12595 at 12609 (March 3, 2020) (SR-NYSEArca-2019-
39) (the ``Wilshire Phoenix Order'').
---------------------------------------------------------------------------

    In the context of Ethereum, the CME Ether Futures Market (the ``CME
Market'') is currently the only regulated market in the U.S.
    The Commission has previously interpreted the terms ``significant

market'' and ``market of significant size'' to include a market (or
group of markets) where:
    1. There is a reasonable likelihood that a person attempting to
manipulate the ETP would also have to trade on that market to
successfully manipulate the ETP, such that a surveillance-sharing
agreement would assist the ETP listing market in detecting and
deterring misconduct; and
    2. It is unlikely that trading in the ETP would be the predominant
influence on prices in that market.\33\
---------------------------------------------------------------------------

    \33\ See, e.g., Winklevoss Order, 83 FR at 37594. The Commission
further noted that ``significant markets'' and ``markets of
significant size,'' but this definition is an example that will
provide guidance to market participants.'' Id.
---------------------------------------------------------------------------

    With respect to the first prong of the Commission's interpretation,
the Commission has previously explained that the lead/lag relationship
between the Bitcoin futures market and the spot market is central to
understanding this first prong. With respect to the second prong, the
Commission's prior analysis has focused on the potential size and
liquidity of the ETP compared to the size and liquidity of the market.
    The Commission recognized in the Teucrium Approval Order \34\ that
``the CME [Market] is a `significant market' related to CME bitcoin
futures contracts,'' and thus that the Exchange has entered into the
requisite surveillance-sharing agreement with respect to its Bitcoin
Futures Contracts holdings. However, there is still a lack of consensus
on whether the CME Market is of ``significant size'' in relation to the
spot Bitcoin or Ether market based on the test historically applied by
the Commission.
---------------------------------------------------------------------------

    \34\ See Securities Exchange Act Release No. 34-94620 (April 6,
2022) (SR-NYSEArca-2021-53) (Order Granting Approval of a Proposed
Rule Change, as Modified by Amendment No. 2, To List and Trade
Shares of the Teucrium Bitcoin Futures Fund Under NYSE Arca Rule
8.200-E, Commentary .02 (Trust Issued Receipts)) (the ``Teucrium
Approval Order'').
---------------------------------------------------------------------------

Interrelationship Between the CME and the Fund
    The Commission has previously stated that ``the interpretation of
the term market of significant size depends on the interrelationship
between the market with which the listing exchange has a surveillance-
sharing agreement and the proposed ETP.'' \35\ The Sponsor intends to
adopt an innovative approach to mitigate the risks of fraud and
manipulation that are unique to the Fund. The core principle of this
approach would be to structure the operation of the Fund such that the
regulated market of significant size in relation to the Fund is the CME
Market because it is the same market on which the Fund trades its non-
cash assets. Therefore, the Sponsor's strategy aims to establish a
comprehensive interrelationship between the CME Market and the Fund to
unequivocally classify the CME Market as the market of significant size
in relation to the ETP. The Sponsor notes that, although the Fund may,
as proposed, hold physical ether, it does not rely on any information
or services from unregulated ether spot exchanges (such as Coinbase or
Binance). Therefore, no spot ether exchange could be considered a
``market of relevant size'' in relation to the Fund.
---------------------------------------------------------------------------

    \35\ See Securities Exchange Act Release No. 95180 (June 29,
2022), 87 FR 40299 at 40312 (July 6, 2022) (SR-NYSEArca-2021-90)
(Order Disapproving a Proposed Rule Change, as Modified by Amendment
No. 1, to List and Trade Shares of Grayscale Bitcoin Trust Under
NYSE Arca Rule 8.201-E (Commodity-Based Trust Shares)).
---------------------------------------------------------------------------

    The Sponsor has designed the Fund to have five features that
underscore its significant interrelationship with the CME:
    1. Investment strategy: The Fund will hold a mix of Ether Futures
Contracts, Spot Ether, and cash and cash equivalents, subject to
certain investment restrictions (as further discussed below).
    2. Futures-based pricing for Spot Ether: The price determination
for Spot Ether holdings in the NAV calculation will be derived from the
CME Market's Ether futures curve. As a result, the price of Spot Ether
holdings will depend solely on Ether futures settlement prices on the
CME Market and will not depend directly on price information from
unregulated spot Ether markets (as further below).
    3. Investment restrictions on Spot Ether: The Fund will be subject
to dynamic investment restrictions that are designed to mitigate the
risk that Shares of the Fund could be manipulated by manipulating the
Ether spot market and ensuring that the CME Market is the only ``market
of significant size'' with respect to the Fund.
    4. Physical Ether purchases on the CME Market: The Fund will use
the CME Market's Exchange for Physical (``EFP'') \36\ transactions to
acquire and dispose of Spot Ether, instead of transactions on
unregulated spot exchanges. Moreover, as described below, the
transactions are quoted as basis points over the Ethereum futures
contracts prices, creating a direct and unequivocal lead-lag
relationship between the prices on CME and the spot market transaction
prices that the Fund engages. Accordingly, the only non-cash assets
held by the Fund (Ether Futures Contracts and Ether via EFP) would be
traded on the CME Market, such that the exchanges' ability to share
information pursuant to their common ISG membership could assist in
detecting and deterring fraudulent or manipulative misconduct related
to those assets.
---------------------------------------------------------------------------

    \36\ See https://www.cmegroup.com/trading/equity-index/exchange-for-physical-efp-transactions.html.
---------------------------------------------------------------------------

    5. Creations and redemptions: The Fund will use cash creations and
redemptions \37\ to deter intraday Share price manipulation that could
originate from in kind creation or redemption from physical spot Ether
sourced in unregulated spot markets. Investment in Spot Ether thus
would not be directly related to creation/redemptions, but instead on
target portfolio exposure, as allowed by the investment restrictions on
spot Ether. Trading for Spot Ether could thus be accomplished in
smaller sizes and at unpredictable times, reducing the risk of
manipulation in the creation or redemption processes.
---------------------------------------------------------------------------

    \37\ In a cash creation/redemption format, the AP delivers cash
to the fund instead of Spot Ether.
---------------------------------------------------------------------------

    The Sponsor believes that these features of the Fund are designed
to provide a robust framework for mitigating the risks of market
manipulation, thereby protecting investors, and maintaining the
integrity of the market, and further believes that, given these
features of the Fund, the CME Market would be considered the regulated
market of significant size in relation to the Fund.
    Additionally, as further discussed below, the Sponsor believes that
the Fund investment strategy is designed such that it would be highly
unlikely that a person attempting to manipulate the Fund could be
successful by trading on unregulated spot and derivatives markets.
Thus, no market other than CME could be considered as of significant
size in relation to the Fund.
    The Sponsor further believes that the novel approach proposed is in
line with the first prong of the Commission's interpretation of the
definition of ``regulated market of significant size'' as to the CME
Market and that there is a reasonable likelihood that a person
attempting to manipulate the Fund would also have to trade on the CME
Market to successfully manipulate the ETP (and, accordingly, the
exchange's common ISG membership would aid the Exchange in detecting
and deterring potential misconduct).
    According to the Sponsor, the Sponsor's approach is designed in
such a way that any attempt to manipulate the Fund would require
trading on the CME Market, for the following reasons:

    1. Futures-based pricing for Spot Ether: Because the price
determination for Spot Ether holdings in the Fund would be derived from
the CME Market futures curve, any attempt to manipulate the price of
the Fund would require influencing the futures curve on the CME Market
because the spot price (which could be a target for manipulation) does
not directly influence the price of the Fund. There is thus a direct
and unequivocal lead-lag relationship in which CME Market prices lead
both the spot price used by the Fund to determine its NAV and the
Fund's market price.
    2. Investment restrictions on Spot Ether: The dynamic investment
restrictions in place for the Fund (as discussed in the section below
entitled ``Investment Restrictions on Spot Ether'') ensure that any
significant trading activity aimed at the Fund would likely spill over
into the CME Market because the investment restrictions are designed to
prevent the Fund from becoming so large in relation to the unregulated
spot market that the cost-benefit tradeoff is favorable for the
potential manipulator to execute without influencing the futures
market.
    3. Spot Ether operations via EFP on the CME Market: Because the
Fund's Spot Ether operations would take place via CME Market EFP
transactions, any attempt to manipulate the Fund's transactions in Spot
Ether holdings would need to occur on the CME Market. Accordingly, any
potential manipulation of the Fund is closely tied to the CME Market.
    4. Creations and redemptions: The Fund's use of cash creations and
redemptions also reduces the potential for manipulation through the
creation and redemption processes. Any significant creation or
redemption activity aimed at manipulating the Fund would likely
influence the futures market, given that the investment in spot is
based on target portfolio exposure and not directly related to
creations or redemptions.
    Given these factors, the Sponsor believes that the Exchange and CME
Market's common membership in the ISG would be an effective tool in
assisting the Exchange in detecting and deterring potential misconduct.
The agreement would provide the Exchange with access to necessary
trading data from the CME Market, which is intrinsically linked to the
Fund, allowing for comprehensive oversight and the ability to quickly
identify and investigate any suspicious trading activity.
    The Sponsor believes that trading in the Fund is unlikely to have a
predominant impact on prices in the CME Market, primarily due to the
volume and size of the CME futures market, and the significant
liquidity available in the spot market. In addition, considering the
Investment Restrictions on Spot Ether detailed below, the holding of
Ether Spot by the Fund will not alter its impact on prices in the
``significant market''.
    In relation to crypto futures market, the Commission has previously
stated that 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'' and that 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 [Fund] 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.'' \38\ The Commission further noted that, as a
result, ``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
[Fund]''.\39\ The Sponsor further believes that CME surveillance can be
relied upon to capture any possible manipulation of the CME Ether
futures markets, even when the attempt is made indirectly by trading
outside the CME in unregulated markets.
---------------------------------------------------------------------------

    \38\ See Teucrium Approval Order of the Hashdex Bitcoin Futures
ETF, 87 FR at 21679.
    \39\ Id.
---------------------------------------------------------------------------

    When discussing the second prong of the analysis in the Teucrium
Approval Order, the Commission observed that the CME bitcoin futures
market has progressed and matured significantly, and nearly every
measurable metric related to bitcoin futures contracts has trended
consistently up since the launch of 1940 Act \40\-registered bitcoin
futures ETFs. This fact persuaded the Commission that trading in the
proposed ETP is not likely to be the predominant influence on prices in
the CME bitcoin futures market. In that case, the Commission concluded
that the CME bitcoin futures market had sufficiently developed to
support ETPs seeking exposure to bitcoin by holding CME futures
contracts.
---------------------------------------------------------------------------

    \40\ Investment Company Act of 1940 (``1940 Act'').
---------------------------------------------------------------------------

    The Sponsor understands that a similar effect would happen to
Ether: the approval of Ether products could potentially facilitate the
maturation of the market. Moreover, based on the Commission's findings
regarding the Bitcoin futures market, the Sponsor anticipates that the
approval of the proposed ETP is unlikely to significantly impact prices
in the CME Ether futures market. Market dynamics and the influence of
these cryptocurrencies-based products on prices are expected to follow
comparable patterns. Just as the bitcoin futures ETF did not disrupt
the CME bitcoin futures market's equilibrium, the Sponsor anticipates a
similar behavior upon the introduction of an Ether-based ETP.
    Nevertheless, the Sponsor believes that the analysis below
illustrates that the progress observed in the Ether Futures Contracts
and Ether Spot markets in the last few years is on par with what was
observed for the bitcoin futures and spot markets right before the
approval of the 1940 Act-registered bitcoin futures ETFs. Nearly every
measurable metric related to Ether is trending up and the Ether market
is still growing in volume and liquidity, approaching the size of
markets for other commodity interests.
    As the CME Market continues to develop and more closely resemble
other commodity futures markets, the Sponsor believes that it is
reasonable to expect that the relationship between the Ether futures
market and Ether spot market will behave similarly to other future/spot
market relationships, where the spot market may have no relationship to
the futures market (although the current proposal does not depend on
such similarity).
    Despite the negative price performance of Ether in 2022, there has
been significant growth in CME Ether Futures Markets relative to
unregulated spot and derivatives markets. The Sponsor also notes that
in the same period during which CME Market trading volume increased
11.3%, the trading volume of unregulated Ether futures and spot markets
had a significant drawdown of 38%.

                                                 Trading Volume
----------------------------------------------------------------------------------------------------------------
                                                          August 31, 2022    August 31, 2023        1-year %
                                                             (millions)         (millions)         variation
----------------------------------------------------------------------------------------------------------------
CME Ether Futures Market \41\..........................               $327               $364               11.3
Unregulated Futures Market \42\........................             $7,930             $4,930              -37.8
Spot Ether Market \43\.................................             $7,950             $4,930                -38
----------------------------------------------------------------------------------------------------------------

    The Sponsor believes that the data above suggests an increase in
market appetite for regulated products (e.g., CME Market Ether futures)
vis-a-vis a significant decrease in interest for unregulated products
(e.g., unregulated futures and spot Ether).
---------------------------------------------------------------------------

    \41\ Data in this table is sourced from: Bloomberg.
    \42\ https://www.theblock.co/data/crypto-markets/futures.
    \43\ https://www.coinglass.com/currencies/ETH.
---------------------------------------------------------------------------

    The Sponsor further considers that the CME Market managed to
maintain its open interest level despite the price volatility that
Ether experienced in 2022, demonstrating its resilience and that it is
sufficiently developed such that it is unlikely that trading in the
Fund would be the predominant influence on its prices.

                Chicago Mercantile Exchange Ether Futures
------------------------------------------------------------------------
                                            August 31,      August 31,
                                               2022            2023
------------------------------------------------------------------------
Open Interest...........................     207,650 ETH     219,650 ETH
------------------------------------------------------------------------

    The CME Market is also sufficiently developed to support ETPs that
seek exposure to Ether by holding a mix of CME Market Ether Futures
Contracts and physical Ether through the use of CME Market EFP
transactions, and thus the CME Market is the only market on which the
Fund's only proposed non-cash assets would trade. Thus, the CME Market
remains the ``significant market'' in relation to the Fund, as
proposed.
    Moreover, as detailed above, the Sponsor's proposed investment
strategy ensures that no unregulated spot exchange could be considered
a ``market of relevant size'' in relation to the Fund, given that the
Fund does not rely on any information or services coming from
unregulated markets. All of the Fund's operations, including the
purchase and sale of spot Ether and its NAV determination, are
conducted through the CME Market. Thus, all transactions are registered
and monitored on a regulated exchange, providing an additional layer of
security and transparency. Because any attempt to manipulate the Fund
would require significant trading on the CME Market, and not on any
unregulated spot Ether exchange, there is significantly reduced
potential for manipulation and fraud, further protecting investors and
maintaining the integrity of the market.
    The Sponsor further believes that the holding of Spot Ether would
not significantly alter the influence of the Fund's trading on the CME
Market. The Spot Ether in the Fund's portfolio would be converted from
futures positions using EFP transactions on the CME Market. The Fund's
Spot Ether holdings would thus be directly linked to the futures market
and would not introduce a new, independent variable that could
significantly influence the futures market. Indeed, because both sides
of the trade track the same benchmark, an EFP is market-neutral and, as
such, the pricing of an EFP is quoted in terms of the basis between the
price of the futures contract and the level of the underlying index.
    Additionally, the dynamic investment restrictions and futures-based
pricing for Spot Ether would ensure that the Fund's Spot Ether holdings
remain at a level where they are unlikely to impact the futures market
significantly and that the futures market continues to influence the
price of the Fund's Spot Ether holdings (and not the other way around).
    The Sponsor believes that, even with the holding of Spot Ether by
using EFP transactions on the CME Market, the Fund's trading would not
become the predominant influence on prices of the futures market.
Therefore, considering the maturation of the CME Ether futures market
since its inception, including but not limited to the overall size,
volume, liquidity, and number of years of trading, the Sponsor
considers that the second prong of the standard for ``market of
significant size'' has been established.
    In reviewing prior proposals to list and trade shares of various
cryptoassets-based trust issued receipts, the Commission noted that
some of such proposals did not adequately demonstrate that they were
designed to prevent fraudulent and manipulative acts and practices and
to protect investors and the public interest, consistent with Section
6(b)(5) of the

Act.\44\ The Commission does not apply a ``cannot be manipulated''
standard, but instead seeks to examine whether a proposal meets the
requirements of the Act.\45\ The Commission has explained that a
proposal could satisfy the requirements of the Act in the first
instance by demonstrating that the listing exchange has entered into a
CSSA with a regulated ``market of significant size'' related to the
underlying or reference crypto-assets.\46\ The Commission has also
recognized that a listing exchange would not necessarily need to enter
into such an agreement with a regulated significant market if the
underlying commodity market inherently possessed a unique resistance to
manipulation beyond the protections that are utilized by traditional
commodity or securities markets or if the listing exchange could
demonstrate that there were sufficient ``other means to prevent
fraudulent and manipulative acts and practices.'' \47\ As the
Commission explained in the Teucrium Approval Order, the approval of
that fund was based on a finding that the CME is a ``significant
market'' related to the exclusive non-cash holdings of the proposed
ETPs, which in that case would be CME bitcoin futures contracts.\48\
---------------------------------------------------------------------------

    \44\ See e.g., Order Disapproving a Proposed Rule Change, as
Modified by Amendments No. 1 and 2, to BZX Rule 14.11(e)(4),
Commodity-Based Trust Shares, To List and Trade Shares, Issued by
the Winklevoss Bitcoin Trust, Securities Exchange Act Release No.
80206 (March 10,2017), 82 FR 14076 (March 16, 2017) (SR-BatsBZX-
2016-30) (the ``Winklevoss I Order'') the Winklevoss II Order; Order
Disapproving a Proposed Rule change, as Modified by Amendment No. 1,
Relating to the Listing and Trading of Shares of the Bitwise Bitcoin
ETF Trust Under NYSE Arca Rule 8.201-E, Securities Exchange Act
Release No. 87267 (October 9, 2019), 84 FR 55382 (October 16, 2019
(SR-NYSEArca-2019-01) (the ``Bitwise Order''); the Wilshire Phoenix
Order; Order Disapproving a Proposed Rule Change to List and Trade
the Shares of the ProSharess Bitcoin ETF and the ProShares Short
Bitcoin ETF, Securities Exchange Act Release No. 83904 (August 22,
2018), 83 FR 43934 (August 28, 2018) SR-NYSEArca-2017-139); Order
Disapproving a Proposed Rule Change Relating to Listing and Trading
of the Direxion Daily Bitcoin Bear IX Shares, Direxion Daily Bitcoin
1.25X Bull Shares, Direxion Daily Bitcoin 2X Bull Shares, and
Direxion Daily Bitcoin 2X Bear Shares Under NYSE Arca Rule 8.200-E,
Securities Exchange Act Release No. 83912 (August 22, 2018), 83 FR
43912 (August 28, 2018) (SR-NYSEArca-2018-02); Order Disapproving a
Proposed Rule Change to List and Trade the Shares of the
GraniteShares Bitcoin ETF and the GraniteShares Short Bitcoin ETF,
Securities Exchange Act Release No. 83913 (August 22, 2018), 83 FR
43923 (August 28, 2018) (SR-CboeBZX-2018-01) (the ``GraniteShares
Order'').
    \45\ See Winklevoss II Order, 83 FR at 37582.
    \46\ See Wilshire Phoenix Order, 85 FR at 12596-97.
    \47\ See Winkle II Order, 83 FR at 37580, 37582-91; Bitwise
Order, 84 FR at 55383, 55385-406; Wilshire Phoenix Order, 85 FR at
12597.
    \48\ See Teucrium Approval Order.
---------------------------------------------------------------------------

    As described below, the Sponsor believes the structure and
operation of the Trust are designed to prevent fraudulent and
manipulative acts and practices, to protect investors and the public
interest, and to respond to the specific concerns that the Commission
has identified with respect to potential fraud and manipulation in the
context of a crypto product. Further, as the Commission has previously
acknowledged, trading in an Ether-based ETP on a national securities
exchange, as compared to trading in an unregulated Ether spot market,
may provide additional protection to investors.\49\ The Sponsor also
believes that listing of the Shares on the Exchange will provide
investors with such an opportunity to obtain exposure to Ether within a
regulated environment.
---------------------------------------------------------------------------

    \49\ See GraniteShares Order, 83 FR at 43931 See also Hester M.
Peirce, U.S Sec. Exch. Comm'n, Dissent of Commissioner Hester M.
Peirce to Release No. 34-83723 (July 26, 2018), available at:
https://www.sec.gov/news/public-statement/peirce-dissent-34-83723
(``An ETP based on bitcoin would offer investors indirect exposure
to bitcoin through a product that trades on a regulated securities
market and in manner that eliminates some of the frictions and
worries of buying and holding bitcoin dirctly. If we were to approve
the ETP at issue here, investors could choose whether to buy it or
avoid it'').
---------------------------------------------------------------------------

Futures-Based Spot Price (``FBSP'')
    The value of Spot Ether held by the Fund would be determined by the
Sponsor and by Hashdex Asset Management Ltd. (the ``Digital Asset
Adviser'') in good faith based on a methodology that is entirely
derived from the settlement prices of Ether Futures Contracts on the
CME Market and that considers all available facts and all available
information on the valuation date.
    The method involves a calculation that is sensitive to both the
length of time (the ``tenor'') until each Ether Futures Contract is due
for settlement and the final settlement price for each contract. The
calculation takes into account each contract's tenor and the tenor
squared. This approach is designed to give more importance to contracts
that are due for settlement in the near term, considering that the
prices of these near-term contracts are more reliable indicators of the
current spot price of Ether and are also more heavily traded. The
calculation produces a set of weighting factors, with each factor
indicating the contribution of the corresponding Ether Futures Contract
to the estimated current spot price of Ether. The estimated spot price
is the component of the result corresponding to a tenor of zero days.
The Sponsor and Digital Asset Advisor do not use data from Ether
exchanges or directly from spot Ether trading activity in determining
the value of Spot Ether held by the Fund.
    As an example, the table below demonstrates how the weights of each
hypothetical Ether Futures Contract change over time as the first
contract gets closer to maturity.

[GRAPHIC] [TIFF OMITTED] TN03OC23.002

    The Sponsor believes that the accuracy of the proposed pricing
methodology can be measured by comparing its pricing results to the
real time version of Ether price benchmarks such as ETHUSD_RR and
NQETHS. FBSP is derived from futures settlement prices, which are
usually VWAPs from all contracts traded on Globex between 14:59:00 and
15:00:00 Central Time (``CT''). Accordingly, for purposes of developing
a useful proxy, the Sponsor's analysis uses the arithmetic average of
the Benchmark closing prices at 14:59:00 and 15:00:00 CT, which is not
sensitive to the fluctuations that occur within this minute. By design,
this difference in the price metric introduces an artificial distortion
in the comparison, resulting in figures that are less adherent than in
reality. Therefore, the figures set forth below represent a
conservative estimation of the true adherence between FBSP and the
Benchmark, considering that the actual adherence to the Benchmark is
higher than these results can indicate.\50\
---------------------------------------------------------------------------

    \50\ The difference in the price metrics introduces an
artificial distortion in the comparison. Indeed, a regression
analysis shows that the ratio between the maximum and minimum spot
prices within the Ether Futures VWAP window is a significant
variable that explains the absolute divergences between FBSP and the
spot prices. The higher the ratio between the maximum and minimum
spot prices, the higher expected absolute divergence between FBSP
and the spot prices. The correlation of these two metrics in the
case of the real time version of NQETHS is approximately 17%,
suggesting that the actual adherence between FBSP and the spot
benchmarks is even higher than the figures discussed herein
indicate.
---------------------------------------------------------------------------

    Using data available on Bloomberg on August 28, 2023, the Sponsor
compared FBSP to NQETHS and ETHUSD_RR from February 16, 2023 to August
28, 2023 and determined that FBSP behaves very similarly to both
indexes. The following charts show a direct comparison between those
two benchmark values and FBSP:
BILLING CODE 8011-01-P

[GRAPHIC] [TIFF OMITTED] TN03OC23.003

    In the above charts, each black point indicates one day, and their
proximity to the red line shows how similar FBSP is to each of NQETHS
and ETHUSD_RR. The correlations between FBSP and each of NQETHS and
ETHUSD_RR exceed 99.8%, and the mean absolute percentage divergences
are 21 basis points (``bps'') and 21 bps, respectively, while the
median absolute percentage divergences are 12 bps and 13 bps,
respectively.
    The charts below provide another visualization of the results of
this comparison, as time series of the percentage divergences:

[GRAPHIC] [TIFF OMITTED] TN03OC23.004

BILLING CODE 8011-01-C
    These charts show that there are no clusters of abnormal
divergences. In both cases, more than 90% of the days exhibit
percentage divergences below 51 bps. The highest percentage divergence
in absolute terms, with 91 bps for the NQETHS and 89 bps for the
ETHUSD_RR, was observed on March 31, 2023, and coincided with
significant volatility in the Ether markets; on that day, NQETHS gain
2.60% from $1780.66 to $1826.99 and the FBSP, which settles one hour
later, gain 3.54%, from $1781.28 to $1844.39. The Sponsor notes that,
even on the day with the highest percentage divergence between FBSP and
the other two benchmarks, that percentage divergence was insignificant
in comparison to the intraday volatility of Ether itself and could be
attributable to the different market structures of the regulated CME
Market and the unregulated spot markets.
    The Sponsor believes that this data strongly suggests that FBSP is
a suitable choice for the NAV calculation, both for the settlement and
the real time proxy, and that the following additional considerations
further support the soundness of the FBSP methodology:
     Ether is a highly volatile asset traded in multiple venues
across the world, and divergences of the magnitude found in this
analysis are not unusual across different price sources or exchanges.
     As noted above, the mean absolute percentage divergences
are 21 bps and 21 bps respectively, the median absolute percentage
divergences are 12 bps and 13 bps, and March 31, 2023 was the day with
the highest percentage divergence in absolute terms, with 91 bps for
the NQETHS and 89 bps for ETHUSD_RR. The Sponsor believes that these
divergences between FBSP and the underlying benchmarks are in a
reasonable range and support that FBSP closely tracks NQETHS and
ETHUSD_RR.
    Finally, the Sponsor notes that, even considering that FBSP could
create some level of uncertainty due to the potential divergences
between the FBSP and the spot prices observed in unregulated markets,
the authorized participants (``APs'') are able to hedge potential
exposure by buying the basket of futures that represents FBSP and
selling it during the futures settlement window. In doing so, APs can
emulate a situation where they know ex ante the value of the creation
basket. The opposite trade can have the same effect for the case of
redemptions. Thus, the APs providing liquidity on the secondary market
during the day will always be in a position to hedge their exposure
using exclusively the CME Market, which will make them more likely to
provide liquidity to the Fund thus making its market price converge to
its NAV.
Preventing Manipulation
    While the Commission has raised valid concerns about the potential
influence of unregulated Ether markets on the daily settlement price on
CME Market, the Sponsor believes that the proposed methodology
described above provides a significant and sufficient

degree of insulation from such influences, for the following reasons:
    1. Regulated market influence: The daily settlement price of Ether
Futures Contracts on the CME Market, which is the basis for the NAV
calculation of both futures contracts and physical holdings of the
Fund, is primarily influenced by trading activity within the regulated
futures market itself. This market is subject to stringent oversight
and surveillance mechanisms designed to detect and deter manipulative
and fraudulent practices, thus significantly limiting the possible
influence of unregulated Ether markets on the daily settlement price.
    2. High liquidity and volume: The CME Market is characterized by
high liquidity and trading volume, such that any attempt to influence
the daily settlement price through trading activity in other,
unregulated Ether markets would require a significant amount of capital
and coordination. The Sponsor thus believes that any such manipulation
attempts would be highly detectable by the CME Market's market
surveillance.
    3. Complex pricing methodology: The NAV calculation methodology is
comprehensive and accounts for both the tenor and final settlement
price of each futures contract. In addition, the FBSP used in the NAV
calculation methodology incorporates all maturities of Ether Futures
Contracts, which exhibit a robust price relationship among themselves.
As a result, attempting to manipulate these prices in a coordinated
manner to generate a substantial impact on NAV would be very
challenging for potential manipulators and likely financially
unfeasible. The Sponsor thus believes that the complexity of the
methodology provides an additional layer of protection against
manipulation, as it would be extremely difficult for a manipulator to
influence all these factors in a coordinated way to impact the Fund's
NAV without leaving a detectable trail that would alert market
surveillance.
    4. Focus on near-term contracts: The Fund's methodology gives more
importance to futures contracts that are due for settlement in the near
term because such contracts are more heavily traded, and their prices
are more reliable indicators of the current spot price of Ether. The
Sponsor believes that the methodology's focus on near-term contracts
further reduces the potential for manipulation, as these contracts are
less susceptible to manipulation due to their higher trading volumes
and liquidity.
    The Sponsor also believes that it is highly unlikely that a person
attempting to manipulate the NAV of the Fund could do so successfully
by trading on unregulated spot and derivatives markets. Because of
direct arbitrage, it is reasonable to assume that the ETP's market
price (in the secondary market) would be highly adherent to the Fund's
Intraday Net Asset Value, since APs can always create and redeem shares
of the Fund hedging with a basket of Ether Futures Contracts and the
value of the creation basket is determined based on the NAV of the
Fund, which is calculated using the FBSP prices that is based on such
basket of Ether Futures Contracts. Consequently, the likelihood of a
potential manipulator of the ETP to succeed by exclusively trading in
unregulated Ether markets would depend on how much the prices in these
markets have an impact over the CME Ether Futures Contracts prices. The
likelihood that a potential manipulator would undertake such an effort
is also decreased when considering the financial burden of manipulating
the unregulated markets and the overall expected profitability of any
such manipulation.
    To further assess such likelihood, the Sponsor carried out the
following analysis to investigate the relationship between prices from
relevant unregulated Ether markets and the prices of the CME Ether
Futures Contracts, to assess the impact that a manipulation on those
markets would have on CME. The Sponsor collected one-minute bars data
between February 21 and September 6 \51\ of prices for the nearest CME
Ether Futures Contract (``CME Futures'') and the following alternative
Ether prices (``AEP''): spot Ether (in USD) on BitStamp, Coinbase,
Gemini and Kraken, spot Ether (in USDT), and ETHUSDT USDs-Margined
Perpetuals on Binance. For each day and each AEP, a simple regression
model was estimated with one-minute CME Futures log-returns as the
dependent variable, and two independent variables: (1) the log CME
Futures closing price of the previous minute (as a control variable)
and (2) the difference between the AEP log return and the CME Futures
log return in the previous minute (as the variable of interest).
---------------------------------------------------------------------------

    \51\ This date range represents days with intraday data
available on Bloomberg as of September 6. Days with less than 40
observations for a given AEP were excluded from the analysis of such
AEP.
---------------------------------------------------------------------------

    The estimated coefficients associated with the variable of interest
are a measure of the expected response from the CME Futures (as
measured by its returns) to a divergence between its own return
information and the one from AEP in the near past (one-minute lagged
returns). Such divergences are expected to occur in cases of
manipulation. A higher coefficient (closer to one) would indicate that
CME Futures are more sensitive to and strongly influenced by the
divergence, while a lower coefficient (closer to zero) would suggest
that CME Futures are less responsive and not significantly influenced
by the information coming from AEP. The Sponsor believes that these
coefficients can be considered a conservative estimation of the real
impact that manipulation in an AEP would have over the CME Futures
price because the estimations are calculated under normal circumstances
rather than under a manipulative attack, in which some other
indicators, such as abnormal volume and volatility, would warn market
participants and undermine their perception of the attacked AEP as a
reliable price reference. The results of the Sponsor's analysis are
summarized in the table below:\52\
---------------------------------------------------------------------------

    \52\ The market depth information was obtained from
CoinMarketCap on August 31, 2023. The AEPs with blank cells in this
table were not included in the August 31, 2023 snapshot.

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

[GRAPHIC] [TIFF OMITTED] TN03OC23.005

    The Sponsor's analysis suggests that the influence of AEP over the
CME Futures prices is relatively low. For instance, if a would-be
manipulator chose to attack Binance Spot (ETH-USDT), which is an AEP
with higher coefficients and thus higher potential to impact CME
futures, the average coefficient of 0.33 means that in order to
manipulate CME Futures prices by 1%, the would-be manipulator would
have to distort Binance's prices by 3% (1% divided by 0.33) on average.
To be successful with 90% confidence (1st Decile) this manipulator
would have to distort Binance's prices by more than 8.3% (1% divided by
0.12). The Sponsor believes that its analysis supports that, even
considering these conservative estimations, indirect manipulation would
be extremely inefficient.
    The market depth columns in the above table indicate that
substantial financial resources, running into millions of dollars, are
present on both sides of the order book for the most influential AEPs
(even without including hidden orders, bots, and arbitrageurs that
effectively enhance liquidity). The considerable financial commitment
that would be required makes the manipulation of these prices an
expensive endeavor.
    The Sponsor believes that its analysis demonstrates that the low
efficiency of attempts to manipulate AEPs, coupled with the significant
cost involved in influencing impactful AEPs, makes potential
manipulation of spot Ether markets an unattractive proposition, and
that it is therefore highly unlikely that a potential manipulator of
the ETP could succeed by exclusively trading in unregulated Ether
markets. The combination of the high costs and the inefficiencies
associated with manipulation makes it a daunting and unprofitable
venture.
    In summary, while the Sponsor acknowledges the potential for
influence from trades settled in unregulated Ether markets, the Sponsor
believes that the NAV calculation methodology, coupled with the
inherent characteristics of the CME, provides a significant degree of
protection against such influence being deliberately used to manipulate
the Fund's market price or NAV without it being subject to detection by
CME market surveillance.
Investment Strategy
    The Sponsor believes that the investment strategy of the Fund is
designed to mitigate the risk of manipulation by diversifying its
holdings and is responsive to the Commission's concerns with respect to
an ETP that holds spot Ether. Instead of holding 100% spot Ether, which
could make it more susceptible to price manipulation in the spot
market, the Fund will hold a mix of Spot Ether, Ether Futures
Contracts, and cash. This diversified portfolio is subject to
investment restrictions, which further reduces the potential for
manipulation, as explained below:
    1. Diversification: By holding a combination of Spot Ether, Ether
Futures Contracts, and cash, the Fund reduces its exposure to any
single asset class. This diversification also makes it more difficult
for a would-be manipulator to influence the NAV of the Fund by
manipulating the price of spot Ether alone; for instance, even if a
manipulator were able to influence the spot price of Ether, their
actions would only affect a portion of the Fund's portfolio, thereby
limiting the overall impact of such manipulation on the Fund's NAV.
    2. Investment restrictions: The Fund's holdings of Spot Ether would
be subject to investment restrictions, which are further discussed
below. These restrictions cap the amount of Spot Ether that the Fund
can hold, further reducing the potential for manipulation by, for
example, preventing the Fund from becoming so large in relation to the
spot market that it could be manipulated without influencing the
futures market. The Sponsor believes that these investment restrictions
ensure that any significant trading activity aimed at manipulating the
Fund would likely spill over into the CME Market, a regulated market
with robust surveillance mechanisms in place to detect and deter
manipulation, and with which the Exchange could receive information
pursuant to common ISG membership.
    3. Reduced dependence on spot market: By holding Ether Futures
Contracts and cash in addition to Spot Ether, the Fund reduces its
dependence on the spot market, thereby mitigating concerns about
potential manipulation in unregulated Ether spot exchanges. Instead,
the Fund will rely on Ether Futures Contracts and Ether futures EFPs
that are traded on the CME Market, a regulated exchange, which provides
a higher level of transparency and oversight compared to unregulated
spot exchanges.
    4. Dynamic adjustment: The mix of Spot Ether, Ether Futures
Contracts, and cash in the Fund's portfolio can be dynamically adjusted
based on market conditions and regulatory developments. This
flexibility allows the Fund to respond quickly to any signs of
potential manipulation or other market abuses, further enhancing its
resilience against manipulation.
    In summary, by diversifying its holdings and imposing investment
restrictions, the Fund reduces its vulnerability to manipulation in any
single market, thereby protecting investors and maintaining the
integrity of the Fund.
Investment Restrictions on Spot Ether
    According to the Sponsor, the Fund will be subject to investment
restrictions on Spot Ether (the ``Investment Restrictions'') that are
specific constraints on its exposure to Ether, particularly with
respect to spot holdings. These investment restrictions, which are
designed to mitigate the risk of manipulation of the Fund's Shares by
insulating the Fund from events impacting the Ether spot market, are
variable based on factors such as the Commission's recognition of the
CME as a regulated market of significant size related to spot Ether,
the NAV of the Fund, and the prevailing trading conditions on the core
exchanges of the Benchmark.

    The first constraint, termed in the Registration Statement as the
``Spot Ether Relative Position Restriction,'' caps the Fund's exposure
to the ether spot market to a specified proportion of the Fund's NAV.
This limit is designed to curb the potential success of any attempts to
materially manipulate the Fund's Share prices through undue influence
on the ether spot market.
    The second constraint, referred to in the Registration Statement as
the ``Spot Ether Notional Exposure Restriction,'' restricts the Fund's
notional exposure to ether to a set proportion. The dual objectives of
this second constraint are: (a) to deter potential manipulative actions
on the Shares by making the cost-benefit tradeoff highly unfavorable
for the manipulator, as it would require them to transact a volume that
surpasses the Fund's total exposure in the ether spot market, thus
making the potential costs of manipulation outweigh the benefits, and
(b) to restrict the Fund's trading activities in such a way that they
are not expected to become the primary driving force behind price
variations in the ether spot market.
    The Sponsor believes that the Investment Restrictions serve two
main purposes:
    1. They deter potential manipulative actions directed towards the
Fund's Shares by making the cost-benefit tradeoff highly unfavorable
for the manipulator. To manipulate the Fund's price using an
unregulated spot market, a manipulator would need to transact a volume
that surpasses the Fund's total exposure in spot Ether, making the
potential costs of manipulation outweigh the benefits.
    2. They ensure that the Fund's trading activities do not become the
primary driving force behind price variations in the Ether spot market.
By restricting the Fund's notional exposure to a proportion of the
ADTV, this constraint ensures that the Fund's trading activities are
always a fraction of the overall market activity, thereby reducing the
potential for the Fund to unduly influence market prices.
    As an example, in the 30-day period ending on August 31, 2023, the
ADTV of spot Ether on Coinbase was $146 million. Thus, the Fund's
notional exposure to Ether is restricted to up to $146 million, meaning
that if the Fund's AUM is, for example, $100 million, it could have up
to 100% allocation to Spot Ether. However, if the Fund's AUM is, for
example, $1 billion, it could still only have up to $146 million of
notional exposure to Spot Ether, which would be the equivalent of up to
14.6% of the Fund's NAV, and the rest of the portfolio would need to be
allocated to Ether Futures Contracts, cash, or cash equivalents.
    To ensure that the Fund's trading activities do not become the
primary driving force of the Spot Ether price, the Sponsor intends to
keep its notional allocation to spot Ether as a small proportion of the
overall trading activity of spot Ether.
    The Sponsor intends to do so by restricting the maximum notional
exposure to Spot Ether to a proportion of the 30-day ADTV, with the
ADTV data based on the most trusted exchanges (meeting the double
requirements of being a core exchange per the NQETHS methodology and
being subject to regulatory and reporting rules in the United States,
which make them liable for any false volume data reporting).
    Currently, only one exchange meets those requirements, and over the
last three months, it accounted for 9.75% to 11.83% of all Ether
trading, whereas the largest unregulated spot Ether exchange accounted
for 35% to 40% of the spot Ether volume over the same period.\53\
---------------------------------------------------------------------------

    \53\ See https://www.theblock.co/data/crypto-markets/spot/the-block-legitimate-volume-index-eth-only.

                                           Spot Ether 30-Day ADTV \54\
----------------------------------------------------------------------------------------------------------------
                                        June 30, 2023              July 31, 2023             August 31 2023
----------------------------------------------------------------------------------------------------------------
Top 10 Exchanges................  $2,012.24 million........  $1,560.15 million........  $1,499.43 million
Single Core Exchange meeting      $203.56 million..........  $184.64 million..........  $146.22 million
 Sponsor's requirement.
Single Core Exchange's market     10.12%...................  11.83%...................  9.75%
 share.
All 5 Core Exchanges............  $271.02 million..........  $227.84 million..........  $187.53 million
All 5 Core Exchanges' market      13.47%...................  14.60%...................  12.51%
 share.
----------------------------------------------------------------------------------------------------------------

    The Sponsor believes that it is therefore unlikely that the single
exchange on which the Sponsor bases the ADTV data on will be the
primary driver of spot Ether price given its relatively small market
share. As a result, even with the Fund's notional Spot Ether exposure
limited at 100% of the ADTV on that single exchange, the Fund's Spot
Ether holdings would likely represent only 9.75% to 11.83% of the daily
liquidity of the spot Ether market (on the biggest 10 exchanges by
volume) and thus is unlikely to become the primary driver of the spot
market price formation.
---------------------------------------------------------------------------

    \54\ See Messari, volume data is for USD, USDT and USDC traded
against Bitcoin. Core Exchanges.
---------------------------------------------------------------------------

    Additionally, with the spot Ether notional exposure at 9.75% to
11.83 of ADTV, a would-be manipulator would need to trade on exchanges
that account for most of the liquidity and, in particular, the largest
one. The Sponsor believes that the cost benefit analysis of attempting
to distort the price on the largest exchange, which accounts for
approximately 35% to 40% of the liquidity (or approximately 3 to 4
times the size of the Fund), to manipulate the price of the Fund would
not be compelling.
    In summary, the Sponsor believes that the Investment Restrictions
are a key tool in the Fund's strategy to prevent manipulation. By
limiting the Fund's exposure to the spot market and ensuring that the
Fund's trading activities do not become the predominant influence on
market prices, these restrictions provide a robust defense against
potential manipulation attempts.
Investor Protection and Spot and Proxy Exposure
    The Sponsor believes that U.S. investor exposure to Ether directly
through holding Ether itself has grown and the potential risk to U.S.
investors has also grown. As described, premium and discount
volatility, high fees, insufficient disclosures, and technical hurdles
are exposing U.S. investors to risks that could potentially be
eliminated through access to an Ether futures-based fund with
investment restrictions on its exposure to Spot Ether. The Sponsor
believes that the Commission's concerns have been sufficiently
mitigated by the use of futures contracts, the investment restrictions
and EFP transactions. Accordingly, the Sponsor believes that

the Fund represents an opportunity for U.S. investors to gain price
exposure to Ether in a regulated and transparent exchange-traded
vehicle that limits risks by: (i) reducing premium and discount
volatility; (ii) reducing management fees through meaningful
competition; and (iii) reducing risks associated with investing in
operating companies that are imperfect proxies for Ether exposure.
    According to the Sponsor, exposure to Ether through the Fund also
presents certain advantages for retail investors compared to buying
spot Ether directly. A retail investor holding Spot Ether directly in a
self-hosted wallet may suffer from inexperience in private key
management (e.g., insufficient password protection, lost key, etc.),
which could cause them to lose some or all of their Ether holdings. In
addition, retail investors will be able to hold the Shares in
traditional brokerage accounts which provide SIPC protection if a
brokerage firm fails.
Creations and Redemptions
    According to the Sponsor (and as discussed further below), the Fund
uses cash creations and redemptions. With respect to Spot Ether, an AP
delivers cash to the Fund instead of Spot Ether in the creation
process, and an AP receives cash instead of Spot Ether in the
redemption process. The cash delivered or received during the creation
or redemption process is then used by the Sponsor to purchase or sell
Ether Futures Contracts with an aggregate market value that
approximates the amount of cash received or paid upon the creation or
redemption. On a daily basis, the Sponsor will analyze the current
portfolio allocation of the Fund between Spot Ether and Ether Futures
Contracts and, based on the Investment Restrictions and target
portfolio exposure, may decide to engage in an EFP transaction on CME
to buy or sell Spot Ether for the equivalent position in Ether Futures
Contracts.
    The Sponsor believes that this method protects against manipulation
in the creation and redemption process and of the Fund's market price
from trading in unregulated spot markets. Investment in spot Ether will
not be directly related to creation or redemption of Fund Shares, but
instead on target portfolio exposure, such that trades can be performed
in smaller sizes and at unpredictable times, reducing the risk of
creation or redemption manipulation.
    The Sponsor believes that the use of cash creations and redemptions
in the Fund serves as a deterrent to manipulation in several ways:
    1. Decoupling from spot market: By using cash instead of Spot Ether
for creations and redemptions, the Fund's operations are decoupled from
the unregulated spot market. The creation and redemption process does
not directly influence the unregulated spot market or vice versa,
thereby reducing the potential for manipulation through this process.
    2. Unpredictable trading times: The Fund's investment in Spot Ether
is not directly related to creations or redemptions, but instead on
target portfolio exposure. As a result, trading can be done in smaller
sizes and at unpredictable times, making it harder for potential
manipulators to time their actions.
    3. Reduced impact of large trades: By effecting creations and
redemptions in cash, large trades that could potentially influence the
unregulated spot market are mitigated. Instead, these trades are
absorbed in the CME Market, which is sufficiently liquid and can
reasonably be relied upon to assist in detecting and deterring
fraudulent or manipulative misconduct.
    4. Reduced influence of Ether sourced from unregulated spot
exchanges: In-kind creation may create a direct relationship between
the Fund's market price and prices on unregulated exchanges such as
Binance by arbitrage, because an AP could buy or sell Ether from
Binance and receive or deliver Ether from the Fund through the creation
or redemption process. With creations and redemptions in cash, however,
that arbitrage cannot be executed without going through pricing and
trading on the CME Market.
    The Sponsor believes that the Fund's creation and redemption
process is designed to minimize the potential for market manipulation,
thereby protecting investors and maintaining the integrity of the
markets.
Exchange for Physical Transactions
    EFP transactions, also known as Exchange for Related Position or
EFRP transactions,\55\ are a type of private agreement between two
parties to trade a futures position for the underlying asset. In the
context of the Fund, these transactions will be used to purchase and
sell Spot Ether by delivering or receiving the equivalent futures
position.
---------------------------------------------------------------------------

    \55\ See https://www.cmegroup.com/clearing/operations-and-deliveries/accepted-trade-types/efp-efr-eoo-trades.html.
---------------------------------------------------------------------------

    In an EFP transaction, two parties exchange equivalent but
offsetting positions in an Ether Futures Contract and the underlying
physical Ether. One party is the buyer of futures and the seller of the
physical Ether, and the other party takes the opposite position (seller
of futures and buyer of physical). While the EFP is a privately-
negotiated transaction between the two parties to the trade, the
consummated transaction must be reported to CME Market and its
conditions and prices are subject to CME Market's market regulation
oversight.
    EFPs may be transacted at such commercially reasonable prices as
are mutually agreed upon by the parties to the transaction, provided
that the price conforms to the applicable futures price increments set
forth for the relevant futures contract. The Sponsor believes that EFPs
executed at off-market prices are more likely to be reviewed by CME's
Market Regulation. CME's Rule 538 establishes that ``EFPs may not be
priced off-market for the purpose of shifting substantial sums of cash
from one party to another, to allocate gains and losses between the
futures or options on futures and the cash or OTC derivative components
of the EFRP, to evade taxes, to circumvent financial controls by
disguising a firm's financial condition, or to accomplish some other
unlawful purpose.''
    Because both sides of the trade track the same benchmark (Ether),
an EFP is market-neutral. As such, the pricing of an EFP is quoted in
terms of the basis between the price of the futures contract and the
level of the underlying Ether. Because the Fund proposes to use EFP
transactions to purchase and sell Spot Ether, the only non-cash assets
held by the Fund (Ether Futures Contracts and Ether) are traded on CME
Market. Because the Exchange and the CME Market are both ISG members,
information shared by the CME Market with the Exchange can be used to
assist in detecting and deterring fraudulent or manipulative misconduct
related to those assets.
    In the proposed strategy for the operation of the Fund, every time
the Fund is required to purchase or sell Ether, the Sponsor will
perform a request for quotation auction (``RFQ Auction'') with multiple
market makers using the settlement price as the reference for the
futures contracts. Market makers present their quotes in terms of basis
points (``bps''), where 1bp = 0.01% between the futures contract price
and the spot price. The Sponsor will then confirm the trade with the
best offer and report the EFP transaction to the CME Market. The
Sponsor believes that performing an RFQ Auction with multiple market
makers is an efficient price formation mechanism that generates enough
competition and

attracts sufficient liquidity to minimize the transaction costs for the
ETP.
    As an example, assume that the Fund needs to buy 500 ethers (ETH)
in exchange for 10 units of the next maturity of Ether Futures
Contracts (``ETHA''). The Sponsor will perform an RFQ Auction by
requesting 3 market makers to provide their best price for buying ETHA
versus ETH. The Market Makers provide a bid/ask quote in terms of basis
between the futures and spot. Market Maker 1 (MM1) bids +22bps, Market
Maker 2 (MM2) bids +20bps, and Market Maker 3 (MM3) bids +25bps. The
Sponsor will then agree to pay the best bid of +25bps from MM3.
Assuming ETHA is at $1,634, the price for the spot transaction is fixed
at $1,629.92. The transaction is then reported within the time period
and in the manner specified by the CME Market. Upon completion of the
EFP, the Fund and MM3 would have different positions but same exposure:
     The Fund was long 10 Ether Futures Contracts and now has
converted this exposure into 500 Ethers.
     MM3 had 500 Ethers and now holds an equal position long 10
Ether Futures Contracts.
    The table below illustrates the steps in this EFP transaction:

------------------------------------------------------------------------
             Steps                      MM3                 Fund
------------------------------------------------------------------------
1. Starting Position...........  500 ETH..........  10 ETHA.
2. EFP is privately negotiated.  MM3 and the Fund
                                  agree to terms
                                  of the EFP:
                                  Fund
                                  sells/MM3 buys
                                  10 ETHA at
                                  $1,634..
                                  Fund
                                  buys/MM3 sells
                                  500 ETH at
                                  1,629.92
                                  (+25bps).
3. MM3 sends Ether to the Fund.  -500 ETH.........  + 500 ETH.
4. EFP reported to CME.........  + 10 ETHA........  -10 ETHA.
5. Final Position..............  10 ETHA..........  500 ETH.
------------------------------------------------------------------------

    As required by CME Market's regulation, the Fund and all other
parties related to the transaction will maintain all records relevant
to this transaction, including order tickets, RFQ Auction message
history, and custody transaction records, and provide them to CME upon
request for surveillance purposes pursuant to CFTC Regulation 1.35.
    EFP volumes are reported daily on the CME Group website.
Historically, trading activity in EFP transactions is sporadic as it
depends on the demand for a regulated conversion between futures and
spot positions. Nonetheless, the Sponsor believes that a large number
of liquidity providers are ready to execute this type of transaction
and can provide enough liquidity to support the proposed ETP's demand.
A subset of firms that are ready to provide liquidity on EFP Ether
transactions is available on CME's website.\56\
---------------------------------------------------------------------------

    \56\ See https://www.cmegroup.com/trading/bitcoin-brokers-and-block-liquidity-providers.html.
---------------------------------------------------------------------------

    1. Regulated environment: EFP transactions occur on the CME Market,
which is a regulated exchange with processes in place to prevent market
manipulation, including monitoring transaction prices and investigating
potential manipulations, as outlined in CME Rule 538.\57\ All
transactions are monitored and subject to rules and regulations
designed to prevent market manipulation. Moreover, all parties to an
EFP transaction are required to maintain all records relevant to the
transaction pursuant to CFTC Regulation 1.35, thus providing the
ability for CME and the CFTC to conduct surveillance inquiries and
investigations in an efficient and effective manner for the protection
of customers and ensuring market integrity. Since the transactions are
quoted as basis points based on the ethereum futures contracts prices,
the Sponsor believes that there is a direct and unequivocal lead-lag
relationship between the prices on CME and the spot market price that
the Fund trades. Furthermore, as an additional protection measure, to
enforce the highest standard on the sourcing of such underlying
physical Ether, the Sponsor represents that it will only participate in
EFP transactions with broker-dealers that are FINRA regulated or part
of corporate groups that are, which would provide another layer of
regulatory oversight in how Ether exposures are sourced, as those
counterparties already have an ongoing commercial relationship with the
Sponsor and are active participants in trading Ether regulated products
worldwide.
---------------------------------------------------------------------------

    \57\ See https://www.cmegroup.com/rulebook/files/cme-group-Rule-538.pdf.
---------------------------------------------------------------------------

    2. Surveillance-sharing agreement: Nasdaq and the CME Market are
both members of the ISG, which allows for the sharing of information
and cooperation in investigations, which can help detect and deter
market manipulation.
    3. Transparency: EFP transactions must be reported to the CME
Market, which is a regulated exchange, providing transparency and
making it more difficult for manipulative practices to go unnoticed.
Parties to EFP transactions must maintain all records relevant to the
CME futures contract and the related position transaction, pursuant to
CFTC Regulation 1.35, adding another layer of regulatory scrutiny and
transparency. In addition, EFP transactions volumes are required to be
reported with the daily large trader positions by each clearing member,
omnibus account, and foreign broker.
    4. Market-neutrality: Because EFP transactions involve exchanging
equivalent but offsetting positions, they are market-neutral. As a
result, EFP transactions do not create imbalances in the market that
could be exploited for manipulative purposes.
    5. Unpredictability: EFP transactions are privately negotiated
between the fund and other parties, making them less predictable and
therefore more difficult to manipulate.
    The Sponsor believes that, by using EFP transactions to purchase
and sell spot Ether, the Fund would ensure that its operations are
conducted in a regulated, transparent, and market-neutral manner,
significantly reducing the dependency on and the risk of manipulation
from unregulated spot exchanges.
Settlement of ETH and MET Contracts
    According to the Registration Statement, each ETH Contract and MET
Contract settles daily to the ETH Contract volume-weighted average
price (``VWAP'') of all trades that occur between 2:59 p.m. and 3:00
p.m., Central Time, the settlement period, rounded to the nearest
tradable tick.\58\

ETH Contracts and MET Contracts each expire on the last Friday of the
contract month and are settled with cash. The final settlement value is
based on the ETHUSD_RR at 4:00 p.m. London time on the expiration day
of the futures contract.\59\
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    \58\ VWAP is calculated based first on Tier 1 (if there are
trades during the settlement period); then Tier 2 (if there are no
trades during the settlement period); and then Tier 3 (in the
absence of any trade activity or bid/ask in a given contract month
during the current trading day, as follows: Tier 1: Each contract
month settles to its VWAP of all trades that occur between 14:59:00
and 15:00:00 CT, the settlement period, rounded to the nearest
tradable tick. If the VWAP is exactly in the middle of two tradable
ticks, then the settlement will be the tradable price that is closer
to the contract's prior day settlement price. Tier 2: If no trades
occur on CME Globex between 14:59:00 and 15:00:00 CT, the settlement
period, then the last trade (or the contract's settlement price from
the previous day in the absence of a last trade price) is used to
determine whether to settle to the bid or the ask during this
period. a. If the last trade price is outside of the bid/ask spread,
then the contract month settles to the nearest bid or ask price. b.
If the last trade price is within the bid/ask spread, or if a bid/
ask spread is not available, then the contract month settles to the
last trade price. Tier 3: In the absence of any trade activity or
bid/ask in a given contract month during the current trading day,
the daily settlement price will be determined by applying the net
change from the preceding contract month to the given contract
month's prior daily settlement price.]
    \59\ The ETHUSD_RR is a daily reference rate of the U.S. dollar
price of one ether calculated daily as of 4:00 p.m. London time. It
is calculated by the CME based on the ether trading activity on CME-
specified constituent spot ether exchanges during a calculation
window between 3 p.m. and 4 p.m. London time. The CME launched the
ETHUSD_RR in May 2018.
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    As proposed, the Fund will rollover its soon to expire Ether
Futures Contracts to extend the expiration or maturity of its position
forward by closing the initial contract holdings and opening a new
longer-term contract holding for the same underlying asset at the then-
current market price. The Fund does not intend to hold any Ether
futures positions into cash settlement.
Net Asset Value
    According to the Registration Statement, the Fund's NAV per Share
will be calculated by taking the current market value of its total
assets, subtracting any liabilities, and dividing that total by the
number of Shares.
    The Sub-Administrator of the Fund will calculate the NAV once each
trading day, as of the earlier of the close of the Nasdaq or 4:00 p.m.
New York time.
    According to the Registration Statement, to determine the value of
Ether Futures Contracts, the Fund's Sub-Administrator will use the
Ether Futures Contract settlement price on the exchange on which the
contract is traded, except that the ``fair value'' of Ether Futures
Contracts (as described in more detail below) may be used when Ether
Futures Contracts close at their price fluctuation limit for the day.
The Fund's Sub-Administrator will determine the value of Fund
investments as of the earlier of the close of the New York Stock
Exchange or 4:00 p.m. New York time. The Fund's NAV will include any
unrealized profit or loss on open Ether futures contacts and any other
credit or debit accruing to the Fund but unpaid or not received by the
Fund.
    According to the Registration Statement, the value of spot Ether
held by the Fund is determined by the Sponsor in good faith based on a
methodology that is entirely derived from the settlement prices of
Ether Futures Contracts on the CME. The method involves a calculation
that is a function of both the length of time (the tenor) until each
Ether Futures Contract is due for settlement, and the final settlement
price for each contract on that day. The calculation takes into account
each contract's tenor and the tenor squared. This approach is designed
to give more importance to contracts that are due for settlement in the
near term, considering that the prices of these near-term contracts are
more reliable indicators of the current spot price of Ether and are
also more heavily traded. The calculation produces a set of weighting
factors, with each factor indicating the contribution of the
corresponding Ether Futures Contract to the estimated current spot
price of Ether. The estimated spot price is the component of the result
corresponding to a tenor of zero days. The Fund does not use data from
ether exchanges or from spot ether trading activity. By way of example,
the table below shows how the weights of each hypothetical Ether
Futures Contract change over time as the first contract gets closer to
maturity.
BILLING CODE 8011-01-P

[GRAPHIC] [TIFF OMITTED] TN03OC23.006

BILLING CODE 8011-01-C
    The Fund's Sub-Administrator will determine the value of Fund
investments as of the earlier of the close of the Nasdaq or 4:00 p.m.
New York time. The Fund's NAV will include any unrealized profit or
loss on open Ether futures contacts and any other credit or debit
accruing to the Fund but unpaid or not received by the Fund.
    According to the Registration Statement, the fair value of the
Fund's holdings will be determined by the Fund's Sponsor in good faith
and in a manner that assesses the future Ether market value based on a
consideration of all available facts and all available information on
the valuation date. When an Ether Futures Contract has closed at its
price fluctuation limit, the fair value determination will attempt to
estimate the price at which such Ether Futures Contract would be
trading in the absence of the price fluctuation limit (either above
such limit when an upward limit has been reached or below such limit
when a downward limit has been reached). Typically, this estimate will
be made primarily by reference to exchange traded instruments at 4:00
p.m. New York time on settlement day. The fair value of ETH Contracts
and MET Contracts may not reflect such security's market value or the
amount that the Fund might reasonably expect to receive for the ETH
Contracts and MET Contracts upon its current sale.
    According to the Registration Statement and as discussed above, the
value of Spot Ether held by the Fund would be determined by the Sponsor
and by Hashdex Asset Management Ltd. (the ``Digital Asset Adviser'')
via an FBSP methodology that is sensitive to both the tenor of an Ether
Futures Contract and the final settlement price for such contract. The
calculation produces a set of weighting factors, with each factor
indicating the contribution of the corresponding Ether Futures Contract
to the estimated current spot price of Ether. The estimated spot price
is the component of the result corresponding to a tenor of zero days.
The Sponsor and Digital Asset Advisor will not use data from Ether
exchanges or directly from spot Ether trading activity in determining
the value of Spot Ether held by the Fund.
Indicative Fund Value
    According to the Registration Statement, in order to provide
updated information relating to the Fund for use by investors and
market professionals, a third party financial data provider will
calculate an updated Indicative Fund Value (``IFV''). The IFV will be
calculated by using the prior day's closing NAV per Share of the Fund
as a base and will be updated throughout the Core Trading Session of
9:30 a.m. E.T. to 4:00 p.m. E.T. to reflect changes in the value of the
Fund's holdings during the trading day.
    The IFV will be disseminated on a per Share basis every 15 seconds
during the Exchange's Core Trading Session and be widely disseminated
by one or more major market data vendors during the Exchange's Core
Trading Session.\60\
---------------------------------------------------------------------------

    \60\ Several major market data vendors display and/or make
widely available IFVs taken from the Consolidated Tape Association
(``CTA'') or other data feeds.
---------------------------------------------------------------------------

Creation and Redemption of Shares
    According to the Registration Statement, the Shares issued by the
Fund may only be purchased by APs and only in blocks of 10,000 Shares
called ``Creation Baskets.'' The amount of the purchase payment for a
Creation Basket is equal to the total NAV of Shares in the Creation
Basket. Similarly, only APs may redeem Shares and only

in blocks of 10,000 Shares called ``Redemption Baskets.'' The amount of
the redemption proceeds for a Redemption Basket is equal to the total
NAV of Shares in the Redemption Basket. The purchase price for Creation
Baskets and the redemption price for Redemption Baskets are the actual
NAV calculated at the end of the business day when a request for a
purchase or redemption is received by the Fund.
    ``APs'' will be the only persons that may place orders to create
and redeem Creation Baskets. APs must be (1) either registered broker-
dealers or other securities market participants, such as banks and
other financial institutions, that are not required to register as
broker-dealers to engage in securities transactions, and (2) DTC
Participants. An AP is an entity that has entered into an Authorized
Purchaser Agreement with the Sponsor.
    With respect to Spot Ether, an AP delivers cash to the Fund instead
of Spot Ether in the creation process, and an AP receives cash instead
of Spot Ether in the redemption process. The cash delivered or received
during the creation or redemption process is then used by the Sponsor
to purchase or sell Ether Futures Contracts with an aggregate market
value that approximates the amount of cash received or paid upon the
creation or redemption. On a daily basis, the Sponsor will analyze the
current portfolio allocation of the Fund between Spot Ether and Ether
Futures Contracts and, based on the Investment Restrictions and target
portfolio exposure, may decide to engage in an EFP transaction on CME
to buy or sell Spot Ether for the equivalent position in Ether Futures
Contracts.
Creation Procedures
    According to the Registration Statement, on any ``Business Day,''
an AP may place an order with the Transfer Agent to create one or more
Creation Baskets. For purposes of processing both purchase and
redemption orders, a ``Business Day'' means any day other than a day
when the CME or Nasdaq is closed for regular trading. Purchase orders
for Creation Baskets must be placed by 3:00 p.m. New York time or one
hour prior to the close of trading on Nasdaq, whichever is earlier. The
day on which the Distributor receives a valid purchase order is
referred to as the purchase order date. If the purchase order is
received after the applicable cut-off time, the purchase order date
will be the next Business Day. Purchase orders are irrevocable.
    By placing a purchase order, an AP agrees to deposit cash with the
Custodian.
Redemption Procedures
    According to the Registration Statement, the procedures by which an
AP can redeem one or more Creation Baskets will mirror the procedures
for the creation of Creation Baskets. On any Business Day, an AP may
place an order with the Transfer Agent to redeem one or more Creation
Baskets.
    The redemption procedures allow APs to redeem Creation Baskets.
Individual shareholders may not redeem directly from the Fund. By
placing a redemption order, an AP agrees to deliver the Creation
Baskets to be redeemed through DTC's book entry system to the Fund by
the end of the next Business Day following the effective date of the
redemption order or by the end of such later business day.
Determination of Redemption Distribution
    According to the Registration Statement, the redemption
distribution from the Fund will consist of an amount of cash, that is
in the same proportion to the total assets of the Fund on the date that
the order to redeem is properly received as the number of Shares to be
redeemed under the redemption order is in proportion to the total
number of Shares outstanding on the date the order is received.
Delivery of Redemption Distribution
    According to the Registration Statement, an AP who places a
purchase order will transfer to the Custodian the required amount of
cash, cash equivalents and/or Ether futures by the end of the next
business day following the purchase order date or by the end of such
later business day, not to exceed three business days after the
purchase order date, as agreed to between the AP and the Custodian when
the purchase order is placed (the ``Purchase Settlement Date''). Upon
receipt of the deposit amount, the Custodian will direct DTC to credit
the number of Creation Baskets ordered to the AP's DTC account on the
Purchase Settlement Date.
Availability of Information
    The NAV for the Fund's Shares will be disseminated daily to all
market participants at the same time. The intraday, closing prices, and
settlement prices of the Ether Futures Contracts will be readily
available from the applicable futures exchange websites, automated
quotation systems, published or other public sources, or major market
data vendors. 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.
    Complete real-time data for the Ether Futures Contracts will be
available by subscription through on-line information services. Nasdaq
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
Ether Futures Contracts will also be available on such websites, as
well as other financial informational sources. Quotation and last-sale
information regarding the Shares will be disseminated through the
facilities of the CTA. Quotation information for cash equivalents and
commodity futures may be obtained from brokers and dealers who make
markets in such instruments. Intra-day price and closing price level
information for the Benchmark will be available from major market data
vendors. The Benchmark value will be disseminated once every 15
seconds. The IFV will be available through on-line information
services.
    In addition, the Fund's website, https://hashdex-etfs.com/, will
display the applicable end of day closing NAV and the daily holdings of
the Fund. The Fund's website will also include a form of the prospectus
for the Fund that may be downloaded. The website will include the
Shares' ticker and CUSIP information along with additional quantitative
information updated on a daily basis, including: (1) the prior Business
Day's reported NAV and closing price and a calculation of the premium
and discount of the closing price or mid-point of the bid/ask spread at
the time of NAV calculation (the ``Bid/Ask Price'') against the NAV;
and (2) data in chart format displaying the frequency distribution of
discounts and premiums of the daily closing price or Bid/Ask Price
against the NAV, within appropriate ranges, for at least each of the
four previous calendar quarters. The website disclosure of portfolio
holdings will be made daily and will include, as applicable, (i) the
name, quantity, price, and market value of the Fund's holdings, (ii)
the counterparty to and value of forward contracts and any other
financial instruments tracking the Benchmark, and (iii) the total cash
and cash equivalents held in the Fund's portfolio, if applicable.
    The Fund's website will be publicly available at the time of the
public

offering of the Shares and accessible at no charge.
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 Nasdaq Rules 4120 and 4121, including
without limitation the conditions specified in Nasdaq Rule 4120(a)(9)
and the trading pauses under Nasdaq Rules 4120(a)(11) and (12).
    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: (i) the extent to which trading is not
occurring in the Ether Futures Contracts or the Ether underlying the
Shares; or (ii) whether other unusual conditions or circumstances
detrimental to the maintenance of a fair and orderly market are
present.
    If the intraday indicative value of the Fund's NAV (``IIV'') or the
value of the underlying Ether Futures Contracts or underlying Ether 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 underlying Ether Futures Contracts or
underlying Ether occurs. If the interruption to the dissemination of
the IIV or the value of the underlying Ether Futures Contracts or
underlying Ether 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. The Exchange will
allow trading in the Shares from 4:00 a.m. to 8:00 p.m. (ET). The
Exchange has appropriate rules to facilitate transactions in the Shares
during all trading sessions. The Shares of the Fund will conform to the
initial and continued listing criteria set forth in Nasdaq Rule
5711(i).
Surveillance
    The Exchange represents that trading in the Shares of the Fund will
be subject to the existing trading surveillances administered by the
Exchange, as well as cross-market surveillances administered by the
Financial Industry Regulatory Authority, Inc. (``FINRA'') on behalf of
the Exchange, which are designed to detect violations of Exchange rules
and applicable federal securities laws.\61\ The Exchange represents
that these procedures are adequate to properly monitor Exchange trading
of the Shares in all trading sessions and to deter and detect
violations of Exchange rules and federal securities laws applicable to
trading on the Exchange.
---------------------------------------------------------------------------

    \61\ FINRA conducts cross-market surveillances on behalf of the
Exchange pursuant to a regulatory services agreement. The Exchange
is responsible for FINRA's performance under this regulatory
services agreement.
---------------------------------------------------------------------------

    The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
    The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares and the Fund's
holdings with other markets and other entities that are members of the
ISG, and the Exchange or FINRA, on behalf of the Exchange, or both, may
obtain trading information regarding trading in the Shares and the
Fund's holdings from such markets and other entities. In addition, the
Exchange may obtain information regarding trading in the Shares and the
Fund's holdings from markets and other entities that are members of ISG
or with which the Exchange has in place a CSSA. The Exchange is also
able to obtain information regarding trading in the Shares, the
physical commodities underlying the futures contracts through ETP
Holders, in connection with such ETP Holders' proprietary or customer
trades which they effect through ETP Holders on any relevant market.
The Exchange can obtain market surveillance information, including
customer identity information, with respect to transactions (including
transactions in futures contracts) occurring on US futures exchanges,