[Federal Register Volume 86, Number 172 (Thursday, September 9, 2021)]
[Notices]
[Pages 50570-50583]
[FR Doc No: 2021-19420]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92865; File No. SR-NASDAQ-2021-066]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of a Proposed Rule Change, as Modified by Amendment
No. 1, To List and Trade Shares of the Valkyrie XBTO Bitcoin Futures
Fund Under Nasdaq Rule 5711(g)

September 2, 2021.
    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 August 23, 2021, 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.
On August 25, 2021, the Exchange filed Amendment No. 1 to the proposed
rule change. The Commission is publishing this notice to solicit
comments on the proposed rule change, as amended, from interested
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to list and trade shares of the Valkyrie XBTO
Bitcoin Futures Fund (the ``Trust'') under Nasdaq Rule 5711(g)
(``Commodity Futures Trust Shares''). The shares 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 ETF community has worked for many years to obtain the approval
of an exchange tradeable product that provides investors with the
important opportunity to gain exposure to digital currencies such as
bitcoin. Since March 2017, the Commission has disapproved more than a
dozen such proposals and failed to act on many others that were filed
and later withdrawn. During that period, digital assets have gained
substantial traction in the global and domestic economy; have become a
sought-after investment tool for a rapidly-expanding number of
institutional and individual investors; and have spurred significant
investment and improvement in all aspects of digital currency
ownership, including storage, security, payments, and exchange.\3\
---------------------------------------------------------------------------

    \3\ For example, Coinbase (COIN) alone sports an enterprise
market capitalization of around $67 billion and it recently reported
over 68 million individual accounts holding $180 billion of digital
currencies, and $462 billion in quarterly notional value of trading
volume.
---------------------------------------------------------------------------

    Nasdaq believes that bitcoin and its surrounding ecosystem have
evolved sufficiently to support the approval of a Bitcoin Futures ETF
because the concerns the Commission has identified previously have been
addressed. To that end, Nasdaq believes that its current proposal
differs from previous filings recently submitted due to significant
developments in the domestic bitcoin futures market, including:
    (1) In previous disapproval orders, the Commission expressed
concern over a bitcoin fund holding physical bitcoin, but the Trust
instead will pursue its investment objective solely by holding CME
Bitcoin Futures that are cash-settled and traded on the Chicago
Mercantile Exchange, Inc. (the ``CME''), which was self-certified with
the Commodity Futures Trading Commission (the ``CFTC'') (aside from
holding cash and Money Market Instruments, as defined herein);
    (2) The Commission expressed concern in previous disapproval orders
about self-regulation and the oversight necessary to maintain and
promote the fair and transparent trading of listed products, including
bitcoin futures. Specifically, the Commission expressed concern with
the listing exchange's ability to deter fraud and manipulation in
compliance with Section 6(b)(5) of the Act. The Commission stated that
this could be addressed by entering into a surveillance agreement with
a ``regulated market of significant size.'' Since the previous
disapproval orders, both the bitcoin and bitcoin futures markets have
developed to the point that the CME Bitcoin Futures market is a
``regulated market of significant size,'' for purposes of compliance
with Section 6(b)(5) of the Act.
    (3) The CME's compliance with the CFTC's Core Principles (detailed
further herein) also serves to strengthen the Trust's resistance to
fraud and manipulation and should appropriately address the
Commission's concerns regarding investor protection. The CME Bitcoin
Futures contract is cash settled, is not readily subject to
manipulation or distortion, and is subject to real-time trade
monitoring and comprehensive and accurate trade reconstruction.
Background
    The Exchange proposes to list and trade Shares of the Trust under
Nasdaq Rule 5711(g), which governs the listing and trading of Commodity
Futures Trust Shares on the Exchange.\4\ The Shares will be offered by
the Trust, which was established as a Delaware statutory trust on May
18, 2021. According to the Draft Registration Statement (as defined
below), the Trust will not be registered as an investment company under
the Investment Company Act of 1940 and is not required to register
under such act.\5\ The Trust is registered as a commodity pool under
the Commodity Exchange Act (``CEA'').\6\ The Shares of the Trust will
be registered with the Commission by means of the Trust's registration
statement on Form S-1 (the ``Registration Statement'') under the
Securities Act of 1933, as amended (the ``Securities Act''). The
Registration Statement will be effective as of the date of any offer
and sale pursuant to the Registration Statement. A draft registration
statement (the ``Draft Registration Statement'') was filed
confidentially with the Commission on May 21, 2021.\7\
---------------------------------------------------------------------------

    \4\ Nasdaq Rule 5711(g)(iii) defines Commodity Futures Trust
Shares as ``a security that (A) is issued by a trust (``Trust'')
that (1) is a commodity pool as defined in the Commodity Exchange
Act and regulations thereunder, and that is managed by a commodity
pool operator registered with the Commodity Futures Trading
Commission, and (2) holds positions in futures contracts that track
the performance of a specified commodity, or interests in a
commodity pool which, in turn, holds such positions; and (B) is
issued and redeemed daily in specified aggregate amounts at net
asset value.''
    \5\ 15 U.S.C. 80a-1.
    \6\ 7 U.S.C. 1.
    \7\ See Draft Registration Statement on Form S-1 confidentially
filed with the Commission on May 21, 2021 (file no. 377-04910). The
descriptions of the Trust and the Shares contained herein are based,
in part, on information in the Draft Registration Statement.
---------------------------------------------------------------------------

    Valkyrie Funds LLC (the ``Sponsor'') serves as the Trust's sponsor
and commodity pool operator. Vident Investment Advisory, LLC (the
``Sub-Advisor'') serves as the Trust's sub-advisor and commodity
trading advisor. XBTO Trading, LLC is the research provider for the
Sponsor and the Sub-Advisor. Delaware Trust Company (the ``Trustee'')
serves as the trustee for the Trust. The Sponsor is currently
considering third-party service providers for the roles of
Administrator, Transfer Agent, Custodian and Marketing Agent, as
described in the Draft Registration Statement.
The Bitcoin Industry and Market
Bitcoin
    Bitcoin is the digital asset that is native to, and created and
transmitted through the operations of, the peer-to-peer Bitcoin
Network, a decentralized network of computers that operates on
cryptographic protocols. No single entity owns or operates the Bitcoin
Network, the infrastructure of which is collectively maintained by a
decentralized user base. The Bitcoin Network allows people to exchange
tokens of value, called bitcoin, which are recorded on a public
transaction ledger known as the Blockchain. Bitcoin can be used to pay
for goods and services, or it can be converted to fiat currencies, such
as the U.S. dollar, at rates determined on bitcoin trading platforms or
in individual end-user-to-end-user transactions under a barter system.
    The Bitcoin Network is decentralized and does not require
governmental authorities or financial institution intermediaries to
create, transmit, or determine the value of bitcoin. In addition, no
party may easily censor transactions on the Bitcoin Network. As a
result, the Bitcoin Network is often

referred to as decentralized and censorship resistant.
    The value of bitcoin is determined by the supply of and demand for
bitcoin. New bitcoins are created and rewarded to the parties providing
the Bitcoin Network's infrastructure (``miners'') in exchange for their
expending computational power to verify transactions and add them to
the Blockchain. The Blockchain is effectively a decentralized database
that includes all blocks that have been solved by miners, and is
updated to include new blocks as they are solved. Each bitcoin
transaction is broadcast to the Bitcoin Network and, when included in a
block, recorded in the Blockchain. Each new block records outstanding
bitcoin transactions, and outstanding transactions are settled and
validated through such recording. The Blockchain represents a complete,
transparent, and unbroken history of all transactions of the Bitcoin
Network.
    The method for creating new bitcoin is mathematically controlled in
a manner so that the supply of bitcoin grows at a limited rate pursuant
to a pre-set schedule. The number of bitcoin awarded for solving a new
block is automatically halved every 210,000 blocks. Thus, the current
fixed reward for solving a new block is 6.25 bitcoin per block; the
reward decreased from twenty-five bitcoin in July 2016 and 12.5 in May
2020. It is estimated to halve again at the start of 2024. This
deliberately controlled rate of bitcoin creation means that the number
of bitcoin in existence will never exceed twenty-one million and that
bitcoin cannot be devalued through excessive production unless the
Bitcoin Network's source code (and the underlying protocol for bitcoin
issuance) is altered. As of January 1, 2021, approximately 18,587,000
bitcoin have been mined. It is estimated that more than ninety percent
of the twenty-one million bitcoin will have been produced by 2022.
Bitcoin Network
    The first step in directly using the Bitcoin Network for
transactions is to download specialized software referred to as a
``bitcoin wallet.'' A user's bitcoin wallet can run on a computer or
smartphone and can be used both to send and to receive bitcoin. Within
a bitcoin wallet, a user can generate one or more unique ``bitcoin
addresses,'' which are conceptually similar to bank account numbers.
After establishing a bitcoin address, a user can send or receive
bitcoin from his or her bitcoin address to another user's address.
Sending bitcoin from one bitcoin address to another is similar in
concept to sending a bank wire from one person's bank account to
another person's bank account, provided, however, that such
transactions are not managed by an intermediary and erroneous
transactions generally may not be reversed or remedied once sent.
    The amount of bitcoin associated with each bitcoin address, as well
as each bitcoin transaction to or from such address, is transparently
reflected in the Blockchain and can be viewed by websites that operate
as ``blockchain explorers.'' Copies of the Blockchain exist on
thousands of computers on the Bitcoin Network. Anyone can view the
blockchain as it is available to observe without restriction. A user's
bitcoin wallet will either contain a copy of the blockchain or be able
to connect with another computer that holds a copy of the blockchain.
The innovative design of the Bitcoin Network protocol allows each
Bitcoin user to trust that their copy of the Blockchain will generally
be updated consistent with each other user's copy because it is
extraordinarily unlikely that the Blockchain could be retroactively
changed.
    When a Bitcoin user wishes to transfer bitcoin to another user, the
sender must first have the recipient's Bitcoin address. The sender then
uses his or her Bitcoin wallet software to create a proposed
transaction to be added to the Blockchain. The proposal would reduce
the amount of bitcoin allocated to the sender's address and increase
the amount allocated to the recipient's address, in each case by the
amount of bitcoin desired to be transferred. The proposal is completely
digital in nature, similar to a file on a computer, and it can be sent
to other computers participating in the Bitcoin Network.
Bitcoin Transactions
    A bitcoin transaction contains the sender's bitcoin address, the
recipient's bitcoin address, the amount of bitcoin to be sent, a
transaction fee, and the sender's digital signature. Bitcoin
transactions are secured by a type of cryptography known as public-
private key cryptography, represented by the bitcoin addresses and
digital signature in a transaction's data file. Each Bitcoin Network
address, or wallet, is associated with a unique ``public key'' and
``private key'' pair, both of which are lengthy alphanumeric codes,
derived together and possessing a unique relationship.
    The public key is visible to the public and analogous to the
Bitcoin Network address. The private key is a secret and may be used to
digitally sign a transaction in a way that proves the transaction has
been signed by the holder of the public-private key pair, without
having to reveal the private key. A user's private key must be kept in
accordance with appropriate controls and procedures to ensure that it
is used only for legitimate and intended transactions. If an
unauthorized third person learns of a user's private key, that third
person could forge the user's digital signature and send the user's
bitcoin to any arbitrary bitcoin address, thereby stealing the user's
bitcoin. Similarly, if a user loses his private key and cannot restore
such access (e.g., through a backup), the user may permanently lose
access to the bitcoin contained in the associated address.
    The Bitcoin Network incorporates a system to prevent double-
spending of a single bitcoin. To prevent the possibility of double-
spending a single bitcoin, each validated transaction is recorded, time
stamped and publicly displayed in a ``block'' in the Blockchain, which
is publicly available. Thus, the Bitcoin Network provides confirmation
against double-spending by memorializing every transaction in the
Blockchain, which is publicly accessible and downloaded in part or in
whole by all users of the Bitcoin Network software program. Any user
may validate, through their Bitcoin wallet or a blockchain explorer,
that each transaction in the Bitcoin Network was authorized by the
holder of the applicable private key. Bitcoin Network mining software
consistent with reference software requirements typically validates
each such transaction before including it in the Blockchain. This
cryptographic security ensures that bitcoin transactions may not
generally be counterfeited, although it does not protect against the
``real world'' theft or coercion of use of a Bitcoin user's private
key, including the hacking of a Bitcoin user's computer or a service
provider's systems.
    A Bitcoin transaction between two parties is settled when recorded
in a block added to the Blockchain. Validation of a block is achieved
by confirming the cryptographic hash value included in the block's
solution and by the block's addition to the longest confirmed
Blockchain on the Bitcoin Network. For a transaction, inclusion in a
block on the Blockchain constitutes a ``confirmation'' of a Bitcoin
transaction. As each block contains a reference to the immediately
preceding block, additional blocks appended to and incorporated into
the Blockchain constitute additional confirmations of the transactions
in such prior blocks, and a transaction included in a block for the
first time is confirmed once against

double-spending. The layered confirmation process makes changing
historical blocks (and reversing transactions) exponentially more
difficult the further back one goes in the Blockchain.
    To undo past transactions in a block recorded on the Blockchain, a
malicious actor would have to exert tremendous computer power in re-
solving each block in the Blockchain starting with and after the target
block and broadcasting all such blocks to the Bitcoin Network. The
Bitcoin Network is generally programmed to consider the longest
Blockchain containing solved and valid blocks to be the most accurate
Blockchain. In order to undo multiple layers of confirmation and alter
the Blockchain, the malicious actor would have to re-solve all of the
old blocks sought to be regenerated and be able to continuously add new
blocks to the Blockchain at a speed that would have to outpace that of
all of the other miners on the Bitcoin Network, who would be
continuously solving for and adding new blocks to the Blockchain. There
are no known reports of malicious parties taking control of the Bitcoin
Network or undoing past transactions in a block recorded on the
Blockchain.
Bitcoin Futures
    The CME began offering trading in Bitcoin Futures in 2017. Each
contract represents five bitcoin and is based on the CME CF Bitcoin
Reference Rate (the ``CME CF BRR'').\8\ The contracts trade and settle
like other cash-settled commodity futures contracts. Nearly every
measurable metric related to CME Bitcoin Futures has trended
consistently up since launch and/or accelerated upward in the past
year.\9\ For example, there was approximately $2.7 billion in trading
in Bitcoin Futures in March 2021 compared to $118 million, $70 million,
and $262 million in total trading in March 2018, March 2019 and March
2020, respectively. Bitcoin Futures traded over $63 billion in notional
amount on the CME in March 2021 and represented $2.5 billion in average
daily open interest compared to $151 million in March 2020. This
general upward trend in trading volume and open interest is captured in
the following chart:
---------------------------------------------------------------------------

    \8\ According to CME, the CME CF Bitcoin Reference Rate
aggregates the trade flow of major bitcoin spot exchanges during a
specific calculation window into a once-a-day reference rate of the
U.S. dollar price of bitcoin. Calculation rules are geared toward
maximum transparency and real-time replicability in underlying spot
markets, including Bitstamp, Coinbase, Gemini, itBit, and Kraken.
For additional information, refer to https://www.cmegroup.com/trading/cryptocurrency-indices/cf-bitcoin-reference-rate.html?redirect=/trading/cf-bitcoin-reference-rate.html.
    \9\ The recent launch of a bitcoin futures-based mutual fund
from ProShares, the Bitcoin Strategy ProFund (BTCFX), has increased
approximately 14% since its July launch.
[GRAPHIC] [TIFF OMITTED] TN09SE21.002

    Prior to listing a new commodity futures contract, a designated
contract market must either submit a self-certification to the CFTC
that the contract complies with the CEA and CFTC regulations or
voluntarily submit the contract for CFTC approval. This process applies
to all futures contracts and all commodities underlying the futures
contracts, whether the new futures contracts are related to oil, gold,
or any other commodity.\10\ On December 1, 2017, it was announced \11\
that the CME had self-certified with the CFTC new contracts for bitcoin
futures products.\12\ The CME Bitcoin Futures \13\ trade and settle
like any other cash-settled commodity futures contracts.\14\ Like other
futures products on the CME, Bitcoin Futures are subject to oversight
by the CFTC, and the CME itself is empowered to enforce its own
rulebook as it relates to the Bitcoin Futures. Furthermore, the CME has
a surveillance team that monitors the trading of Bitcoin futures at all
times along with the underlying bitcoin spot exchanges with which the
CME has a surveillance agreement.
---------------------------------------------------------------------------

    \10\ Section 1a(9) of the CEA defines commodity to include,
among other things, ``all services, rights, and interests in which
contracts for future delivery are presently or in the future dealt
in.'' The definition of commodity is broad. 7 U.S.C. 1a(9).
    \11\ See ``CFTC Statement on Self-Certification of Bitcoin
Products by CME, CFE and Cantor Exchange,'' dated December 1, 2017,
available at http://www.cftc.gov/PressRoom/PressReleases/pr7654-17.
    \12\ Bitcoin is a commodity as defined in Section 1a(9) of the
CEA. 7 U.S.C. 1a(9). See In re Coinflip, Inc., No. 15-29 (CFTC Sept.
17, 2015), available at<EMAIL_ADDRESS>    \13\ The CME Bitcoin Futures are also cash-settled futures
contracts based on the CME CF BRR, which is based on an aggregation
of trade flow from several bitcoin spot exchanges, that will expire
on a monthly and quarterly basis. CME Futures began trading on
December 17, 2017.
    \14\ The CME is registered with the CFTC and seek to provide a
neutral, regulated marketplace for the trading of derivatives
contracts for commodities, such as futures, options and certain
swaps. The CME is a member of the Intermarket Surveillance Group.
---------------------------------------------------------------------------

    As such, the Exchange is proposing to list and trade Shares of the
Trust under Nasdaq Rule 5711(g), which governs the listing and trading
of Commodity Futures Trust Shares on the Exchange.
Investment Objective
    According to the Draft Registration Statement, the investment
objective of the Trust is for the Shares to reflect the performance of
bitcoin as represented by the CME CF BRR, less the Trust's liabilities
and expenses.
Investment Strategy
    The Trust pursues its investment objective primarily by investing
in Bitcoin Futures. Futures are financial contracts, the value of which
depends on, or is derived from, the underlying reference asset. In the
case of Bitcoin Futures, the underlying reference asset is Bitcoin.
Futures contracts may be cash-settled or physically-settled. When a
cash-settled future expires, if the value of the underlying asset
exceeds the futures price, the seller pays to the purchaser cash in the
amount of that excess, and if the futures price exceeds the value of
the underlying asset, the purchaser pays to the seller cash in the
amount of that excess. When a physically-settled future expires, the
seller is obligated to deliver the underlying asset to the purchaser in
exchange for the futures price agreed to at the outset of the contract.
The only Bitcoin Futures in which the Trust invests are cash-settled
Bitcoin Futures traded on commodity exchanges registered with the CFTC.
    At expiration, the cash settlement amount for the Bitcoin Futures
held by the Trust will be determined by comparing the price at which
the Trust purchased the futures contract on the relevant futures
exchange with the reference rate specified by that exchange on the
expiration date. For example, the CME has specified that the reference
rate for its Bitcoin Futures will be a volume-weighted composite of
Bitcoin prices on multiple Bitcoin exchanges. The Trust does not invest
in Bitcoin or other digital assets directly.
    The Trust seeks to purchase a number of Bitcoin Futures so that the
total value of the Bitcoin underlying the Bitcoin Futures held by the
Trust is as close to 100% of the net assets of the Trust (the ``Target
Exposure'') as it is reasonably practicable to achieve, although as
described further in the Draft Registration Statement, there can be no
assurance that the Trust will be able to achieve or maintain the Target
Exposure. The Trust intends to execute these purchases on commodity
exchanges registered with the CFTC through futures commission merchants
(``FCMs''). An FCM is a brokerage firm that solicits or accepts orders
to buy or sell futures contracts and accepts money or other assets from
customers to support such orders. The Trust does not intend to hold
short positions in any futures, and accordingly, the most an investor
could lose is the amount of his or her investment in the Trust.
Although the Trust's Bitcoin Futures will provide leverage to the
extent that they give the Trust exposure to an amount of underlying
Bitcoin with a greater value than the amount of collateral the Trust is
required to post, the Trust does not intend to provide investors with
exposure to an amount of Bitcoin in excess of the Trust's net assets.
The Trust will engage in active and frequent trading of Bitcoin Futures
in seeking to maintain the Target Exposure.
    In addition to the Trust's investments in Bitcoin Futures, the
Trust expects to have significant holdings of cash and high-quality,
short-term debt instruments that have terms-to-maturity of less than
397 days, such as U.S. government securities and repurchase agreements
(the ``Money Market Instruments''). The Money Market Instruments are
intended to provide liquidity, to serve as collateral for the Trust's
Bitcoin Futures and to support the Trust's use of leverage through the
Trust's Bitcoin Futures. The amount of Money Market Instruments held by
the Trust may change over time and will be determined primarily by the
amount needed to seek to achieve or maintain the Target Exposure.
    The Trust will generally hold its investments in Bitcoin Futures
during periods in which the price of Bitcoin is flat or declining as
well as during periods in which the price of Bitcoin is rising, and the
Advisor will generally not seek to change the Trust's Target Exposure
based on daily price changes. For example, if the Trust's positions in
Bitcoin Futures are declining in value, the Trust generally will not
close out its positions except in order to meet redemption requests. As
a result, any decrease in value of the Bitcoin Futures in which the
Trust invests will result in a decrease in the Trust's net asset value
(``NAV'').
Calculation of the Trust's NAV
    According to the Draft Registration Statement, the NAV of the Trust
will be determined in accordance with Generally Accepted Accounting
Principles (``GAAP'') as the total value of bitcoin held by the Trust,
plus any cash or other assets, less any liabilities including accrued
but unpaid expenses. The NAV per Share will be determined by dividing
the NAV of the Trust by the number of Shares outstanding.
    The NAV of the Trust is typically determined as of 4:00 p.m.
(Eastern time) on each day the Shares trade on the Exchange (a
``Business Day''). The Trust's daily activities are generally not
reflected in the NAV determined for the Business Day on which the
transactions are effected (the trade date), but rather on the following
Business Day.
    Bitcoin Futures traded on a U.S. exchange are generally valued
using the

last traded price before the NAV calculation time on the date with
respect to which the NAV is being determined. Money Market Instruments
will generally be valued at their market price using market quotations
or information provided by a pricing service.
    For more information regarding the valuation of Trust investments
in calculating the Trust's NAV, see the Draft Registration Statement.
Preventing Fraudulent and Manipulative Practices
Applicable Standard of Review
    In disapproving prior proposals to list and trade shares of various
bitcoin trusts and bitcoin-based trust issued receipts, the Commission
noted that 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.\15\ The Commission does not apply a ``cannot be
manipulated'' standard, but instead seeks to examine whether a proposal
meets the requirements of the Act.\16\ 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
comprehensive surveillance sharing agreement (``CSSA'') with a
regulated market of significant size relating to the underlying
assets.\17\ The Commission has also recognized that a listing exchange
would not necessarily need to enter into a CSSA 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.'' \18\ While the earliest of the prior disapproval orders
applied these standards to a commodity-trust based on bitcoin, the
Commission has stated its belief that these standards are also
appropriate for an ETP based on Bitcoin Futures.\19\
---------------------------------------------------------------------------

    \15\ See, e.g., Order Disapproving a Proposed Rule Change, as
Modified by Amendments No. 1 and 2, to BZX Rule 14.11(e)(4), To List
and Trade Shares Issued by the Winklevoss Bitcoin Trust, Securities
Exchange Act Release No. 80206 (Mar. 10, 2017), 82 FR 14076 (Mar.
16, 2017) (SR-BatsBZX-2016-30) (``Winklevoss I Order''); Order
Setting Aside Action by Delegated Authority and Disapproving a
Proposed Rule Change, as Modified by Amendments No. 1 and 2, to List
and Trade Shares of the Winklevoss Bitcoin Trust, Securities
Exchange Act Release No. 83723 (July 26, 2018), 83 FR 37579 (Aug. 1,
2018) (SR-BatsBZX-2016-30) (``the Winklevoss 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''); 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 (Mar. 3, 2020) (SR-
NYSEArca-2019-39) (the ``Wilshire Phoenix Order''); Order
Disapproving a Proposed Rule Change to List and Trade the Shares of
the ProShares Bitcoin ETF and the ProShares Short Bitcoin ETF,
Securities Exchange Act Release No. 83904 (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 1X Shares, Direxion Daily Bitcoin 1.25X Bull
Shares, Direxion Daily Bitcoin 1.5X Bull Shares, Direxion Daily
Bitcoin 2X Bull Shares, and Direxion Daily Bitcoin 2X Bear Shares
Under NYSE Arca Rule 8.200-E, Securities Exchange Act Release No.
83912 (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'').
    \16\ See Winklevoss II Order, 84 FR at 37582.
    \17\ See Wilshire Phoenix Order, 85 FR at 12596-97.
    \18\ See Winklevoss II Order, 84 FR at 37580, 37582-91; Bitwise
Order, 84 FR at 55383, 55385-406; Wilshire Phoenix Order, 85 FR at
12597.
    \19\ See GraniteShares Order, 83 FR 43925.
---------------------------------------------------------------------------

    The Commission has noted that information sharing agreements with
primary markets trading index components underlying a derivative
product are an important part of a self-regulatory organization's
ability to monitor for trading abuses in derivative products.\20\ In
addition, the Commission's approval orders for commodity-futures ETPs
note the ability of an ETP listing exchange to share surveillance
information either through surveillance sharing agreements or through
membership by the listing exchange and the relevant futures exchanges
in the Intermarket Surveillance Group (``ISG'').\21\ While the
Commission in those orders did not explicitly undertake an analysis of
whether the related futures markets were of ``significant size,'' the
exchanges proposing commodity-futures ETPs on a single reference asset
or benchmark generally made representations regarding the trading
volume of the futures markets, and the Commission was in each of those
cases dealing with a large futures market that had been trading for a
number of years before an exchange proposed an ETP based on those
futures.\22\ And where the Commission has considered a proposed ETP
based on futures that had only recently begun trading, the Commission
specifically addressed whether the futures on which the ETP was based--
which were futures on an index of well-established commodity futures--
were illiquid or susceptible to manipulation.\23\
---------------------------------------------------------------------------

    \20\ Id at 43926.
    \21\ Id at 43926, n. 35.
    \22\ Id at 43927.
    \23\ Id.
---------------------------------------------------------------------------

    As described below, the Exchange 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 bitcoin ETP. In particular, the Exchange believes that it
has addressed the Commission's previously stated concern that the
Exchange must have entered into a surveillance-sharing agreement with a
regulated market of significant size as evidence of the Trust's
resistance to manipulation. In addition, the Exchange believes that
Bitcoin Futures market has sufficiently developed since the prior
disapproval orders such that the market for Bitcoin Futures now
resembles the markets for other commodities at the time the related
commodity futures-based ETP was approved for listing. Finally, the
Exchange believes it has demonstrated that the Trust possesses other
means to prevent fraud or manipulation through the CME's use of the CME
CF BRR as the reference rate for Bitcoin Futures contracts. The
Exchange also believes that listing of the Trust's Shares on the
Exchange will provide investors with such an opportunity to obtain
exposure to bitcoin within a regulated environment.
Surveillance Sharing Agreements With a Market of Significant Size
    In previous orders rejecting the listing of Bitcoin ETFs, the
Commission noted its concerns that the bitcoin market could be subject
to manipulation.\24\ In these orders, the Commission cited numerous
precedents \25\ in which 19b-4 listing applications were approved based
on findings that the particular market was either inherently resistant
to manipulation or that the listing exchange had entered into a
surveillance sharing agreement with a

market of significant size.\26\ The Commission noted that, for
commodity-trust ETPs ``there has been in every case at least one
significant, regulated market for trading futures in the underlying
commodity--whether gold, silver, platinum, palladium or copper--and the
ETP listing exchange has entered into surveillance sharing agreements
with, or held [ISG] membership in common with, that market.'' \27\
---------------------------------------------------------------------------

    \24\ See Winklevoss I Order and Winklevoss II Order.
    \25\ For an extensive listing of such precedents, see Winklevoss
I Order, at 14083 n. 96.
    \26\ The Exchange to date has not entered into surveillance
sharing agreements with any cryptocurrency platform. However, the
CME, which calculates the CME CF BRR, and which has offered
contracts for bitcoin futures products since 2017, is, as noted
below, a member of the ISG. In addition, each Constituent Platform
has entered into a data sharing agreement with CME. See https://docs-cfbenchmarks.s3.amazonaws.com/CME+CF+Constituent+Exchanges+Criteria.pdf.
    \27\ See Winklevoss II Order, at 37594.
---------------------------------------------------------------------------

    The CME \28\ is a member of the ISG, the purpose of which is ``to
provide a framework for the sharing of information and the coordination
of regulatory efforts among exchanges trading securities and related
products to address potential intermarket manipulations and trading
abuses.'' \29\ Membership of a relevant futures exchange in ISG is
sufficient to meet the surveillance sharing requirement.\30\
---------------------------------------------------------------------------

    \28\ The CME is regulated by the CFTC, which has broad reaching
anti-fraud and anti-manipulation authority including with respect to
the bitcoin market since bitcoin has been designated as a commodity
by the CFTC. See A CFTC Primer on Virtual Currencies (October 17,
2017), available at https://www.cftc.gov/sites/default/files/idc/groups/public/documents/file/labcftc_primercurrencies100417.pdf (the
``CFTC Primer on Virtual Currencies'') (``The CFTC's jurisdiction is
implicated when a virtual currency is used in a derivatives contract
or if there is fraud or manipulation involving a virtual currency
traded in interstate commerce.''). See also 7 U.S.C. Sec. 7(d)(3)
(``The board of trade shall list on the contract market only
contracts that are not readily susceptible to manipulation.'').
    \29\ See https://isgportal.org/overview.
    \30\ See, e.g., Winklevoss II Order, at 37594.
---------------------------------------------------------------------------

    The Commission has previously noted that the existence of a
surveillance sharing agreement by itself is not sufficient for purposes
of meeting the requirements of Section 6(b)(5); the surveillance
sharing agreement must be with a market of significant size.\31\ The
Commission has provided an example of how it interprets the terms
``significant market'' and ``market of significant size,'' though that
definition is meant to be illustrative and not exclusive: ``the terms
`significant market' and `market of significant size' . . . include a
market (or group of markets) as to which (a) there is a reasonable
likelihood that a person attempting to manipulate the ETP would also
have to trade on that market to successfully manipulate the ETP so that
a surveillance sharing agreement would assist the ETP listing market in
detecting and deterring misconduct and (b) it is unlikely that trading
in the ETP would be the predominant influence on prices in that
market.'' \32\
---------------------------------------------------------------------------

    \31\ See, e.g., Winklevoss II Order, at 37589-90.
    \32\ See, e.g., Winklevoss II Order, at 37594; and see
GraniteShares Order, n. 85 and accompanying text.
---------------------------------------------------------------------------

    As discussed below, the Exchange maintains that the CME is a
``market of significant size'' as it satisfies both elements of the
example provided by the Commission.
Attempts To Manipulate the ETP Could Only Occur on the CME
    The first element of what constitutes a ``significant market'' or
``market of significant size'' is that there is a reasonable likelihood
that a person attempting to manipulate the ETP would also have to trade
on a market (or group of markets) to successfully manipulate the ETP so
that a surveillance sharing agreement would assist the ETP listing
market in detecting and deterring misconduct. The Commission has stated
that establishing a lead-lag relationship (i.e., that price formation
occurs on the lead market and informs or causes the price on the
lagging market) between the Bitcoin Futures market and the spot market
is central to understanding whether it is reasonably likely that a
would-be manipulator of the ETP would need to trade on the Bitcoin
Futures market to successfully manipulate prices on those spot
platforms that feed into the proposed ETP's pricing mechanism.\33\
---------------------------------------------------------------------------

    \33\ See Wilshire Phoenix Order at 12612.
---------------------------------------------------------------------------

    The Exchange believes that a lead-lag relationship between the
Bitcoin Futures market and the spot market currently exists. There is
robust evidence of this relationship that has become available since
the Commission's prior disapproval orders. First, the Bitcoin Futures
market has grown considerably since the Commission's Wilshire Phoenix
Disapproval Order, which is evidenced by plentiful empirical data.
Second, the staff of the Commission has itself acknowledged the
maturity of the Bitcoin Futures market such that it has indicated its
comfort with allowing investment companies registered under the
Investment Company Act of 1940 to invest in Bitcoin Futures in certain
circumstances. Finally, current academic research builds upon and
supplements the findings of previous studies reviewed by the Commission
that a lead-lag relationship can be statistically observed in
relatively recent data sets of the Bitcoin Futures and spot market
data.
Growth of the Bitcoin Futures Market
    Since the dates of the GraniteShares Order (the most recent
disapproval order related to a Bitcoin Futures ETP) and the Wilshire
Phoenix Order (the most recent disapproval order related to a spot
bitcoin ETP), there has been steady and robust growth observed on the
CME Bitcoin Futures market. The following chart displays such
development in terms of trading volumes and open interest:
---------------------------------------------------------------------------

    \34\ Figures calculated by the Exchange based on data available
at https://www.cmegroup.com/ftp/bitcoinfutures/. Each Bitcoin
Futures contract represents 5 bitcoin.
    \35\ Data for February 28, 2020 was not available and thus not
included in calculating the daily averages.

                                     Trade Data on CME Bitcoin Futures \34\
----------------------------------------------------------------------------------------------------------------
                                                          Daily average   Daily average
                                                            for week        for week
                                                            including       including
                                                           August 24,     February 26,    Daily average for the
                                                          2018 (week of   2020 (week of    week ending May 28,
                                                               the        the Wilshire             2021
                                                          GraniteShares  Phoenix order)
                                                             order)           \35\
----------------------------------------------------------------------------------------------------------------
Trading Volume--Notional Amount........................    $117,000,000    $354,750,000           $2,412,000,000
Trading Volume--Number of Contracts....................           3,629           7,731                   12,610
Open Interest--Notional Amount.........................     $95,400,000    $250,250,000           $1,662,600,000
Open Interest--Number of Contracts.....................           2,956           5,407                    8,677
----------------------------------------------------------------------------------------------------------------

    The table above unequivocally demonstrates that the Bitcoin Futures
market has grown at an accelerating pace since the prior disapproval
orders, likely as a result of the entry of institutional participants
into both the Bitcoin Futures market and the spot bitcoin market (e.g.,
Tesla, MicroStrategy, etc. have taken substantial bitcoin positions).
Accordingly, the Exchange maintains that because the Bitcoin Futures
market has grown to resemble other futures markets, a lead-lag
relationship that exists in other mature futures markets has also
likely developed between the Bitcoin Futures market and the bitcoin
spot market.\36\ Such a relationship is demonstrated through analytical
models or other methods that show that the activities in one market
cause the price formation on the other market, and there is an emerging
consensus among academics that such a lead-lag relationship in fact
exists.
---------------------------------------------------------------------------

    \36\ While the Exchange believes that the size of the bitcoin
futures market relative to the spot market has also grown, data on
the global bitcoin exchanges is difficult to state with certainty.
---------------------------------------------------------------------------

Recent Statements by the Staff of the Commission
    The Staff of the Commission's Division of Investment Management
recently issued its Staff Statement on Funds Registered under the
Investment Company Act Investing in the Bitcoin Futures Market.\37\ In
that statement, the Staff stated that mutual funds registered under the
Investment Company Act of 1940 could invest in the Bitcoin Futures
market so long as the fund had an appropriate investment strategy and
its prospectus contained full disclosure of material risks. In reaching
such a determination, the Staff noted that while previously the Bitcoin
Futures market was in a nascent state with limited trading volume,
``[t]he Bitcoin futures market has developed since then, with increased
trading volumes and open-interest positions. In addition, the Bitcoin
futures market consistently has produced a reportable price for Bitcoin
futures. The Bitcoin futures market also has not presented the custody
challenges associated with some cryptocurrency-based investing because
the futures are cash-settled.'' \38\ In support of this finding, the
Staff cited to the same CME data cited above regarding trading volumes
and open-interest.\39\ While the statement did not go so far as to
reach a conclusion that the Bitcoin Futures market is a significant
market or market of significant size related to bitcoin in the context
of the requirements of Exchange Act Section 6(b)(5), the Staff's own
observations regarding the maturity of the Bitcoin Futures market is
strong evidence that concerns previously raised regarding price
manipulation in that market have been significantly reduced.
---------------------------------------------------------------------------

    \37\ See Staff Statement on Funds Registered Under the
Investment Company Act Investing in the Bitcoin Futures Market (May
11, 2021), available at https://www.sec.gov/news/public-statement/staff-statement-investing-bitcoin-futures-market#_ftnref5.
    \38\ Id.
    \39\ Id at n. 4.
---------------------------------------------------------------------------

Third-Party Research
    In the most recent denial order, the Commission found that academic
evidence on whether a lead-lag relationship between the Bitcoin Futures
market and spot market was ``mixed'' and could not conclude based on
that research that a would-be manipulator of a proposed ETP would
transact on the CME Bitcoin Futures market.\40\ The Commission
critiqued the choices made by the authors of such research regarding
``time period, futures contracts, spot market platforms, spot market
prices, and analytic methodologies.'' The Exchange notes that the
studies cited in that denial order generally analyzed data sets
covering the first several years of the Bitcoin Futures market's
existence and therefore may not be indicative of current market
behavior. While scholarship stating the price discovery takes place in
the bitcoin spot market continues to be produced,\41\ the majority of
the academic literature, including more recent studies with more recent
data sets, supports the proposition that price discovery does take
place in the Bitcoin Futures market and therefore a lead-lag
relationship exists between the spot and futures markets.
---------------------------------------------------------------------------

    \40\ See Wilshire Phoenix Order at 12612-13.
    \41\ See, e.g., Jui-Cheng Hung, Hung-Chun Liu, and J. Jimmy
Yang, ``Trading Activity and Price Discovery in Bitcoin Futures
Markets'' (March 2021). The Exchange maintains that the vector error
correction model and the modified information shares model used in
this study are inferior to the Granger and Hasbrouck models used in
other studies for determining price-discovery over longer periods.
Even so, the authors of this study find that ``Bitcoin futures
contracts launched by the CME exhibit superior competitiveness in
the price discovery relative to those by CBOE.''
---------------------------------------------------------------------------

    In ``What Role do Futures Markets Play in Bitcoin Pricing?
Causality, Cointegration and Price Discovery from a Time-Varying
Perspective?'',\42\ the authors investigated the existence of causal
relationships, cointegration and price discovery between bitcoin spot
and futures markets from December 2017 to June/July 2019 from a time-
varying perspective. The study's authors applied both a time-varying
Granger causality approach and Hasbrouck information share approach to
explore the causal relationship between bitcoin spot and futures
markets.\43\ As the authors explain therein, the time-varying approach
taken for this study is an important distinction from other studies
that have reached an opposite conclusion, as it is now well known in
econometrics literature that some possible cointegration relationships
may be missed if the underlying model formulation is constrained to be
time invariant.\44\ This study, like others before it, reached the
conclusion that the CME futures market, apart from some short-period
exceptions, appears to dominate the underlying spot market under both a
Granger and Hasbrouck analysis.
---------------------------------------------------------------------------

    \42\ Yang Hu, Yang Greg Hou and Les Oxley, International Review
of Financial Analysis 72 (September 2020). The Exchange notes that
while the Commission has reviewed a working draft of this study in a
previous denial order, the study has since been peer-reviewed and
published.
    \43\ Id at 3. According to the study, ``Granger causality is
widely used to formally test for lead-lag relationships (temporal
ordering) to determine which market (the spot or the futures prices)
leads the other.'' The time-varying procedures employed in assessing
the Granger causality allowed the study to determine whether the
causal relationship varies over the time studied.
    \44\ Id at 2.
---------------------------------------------------------------------------

    In ``Fractional Cointegration in Bitcoin Spot and Futures
Markets'', the authors concluded that, with the exception of the
extraordinary market events in early months of the Covid-19 pandemic
period, ``the futures market dominates in the price discovery for
bitcoin.'' \45\ The dataset reviewed in that analysis involved 1-min
intraday data of bitcoin spot and futures prices in the US dollar from
December 18, 2017 to July 31, 2020. Unlike other research previously
reviewed by the Commission that used Granger and/or Hasbrouck analysis
to determine price formation, the authors of this study used a
fractionally cointegrated vector autoregressive model (``FCVAR'') to
determine which of the spot and futures price contributes more to price
discovery. According to the study, the FCVAR model ``is more general
[than the CVAR model] and less restricted when analyzing the
relationship between different variables'' in that it allows for
fractional values for the order of cointegration, whereas a CVAR model
allows only integers. The study found that while studies using a
nonfractional CVAR model significantly overestimate the price discovery
of the futures market, the FCVAR model still

concurred with the finding that the futures market leads the spot
market.
---------------------------------------------------------------------------

    \45\ Jinhong Wu et al., ``Fractional Cointegration in Bitcoin
Spot and Futures Markets'', Journal of Futures Markets, 1-17 (April
2021).
---------------------------------------------------------------------------

    The research results discussed above build upon the already
emerging academic consensus,\46\ demonstrated using multiple analytical
models, that the Bitcoin Futures market does lead the spot market such
that a would-be manipulator would necessarily conclude that it must
trade in the futures market to successfully manipulate the spot price
of bitcoin.
---------------------------------------------------------------------------

    \46\ See, e.g., Burcu Kapar and Jose Olmo, ``An Analysis of
Price Discovery Between Bitcoin Futures and Spot Markets'',
Economics Letters 174 (January 2019) (``. . . [T]he Bitcoin futures
market dominates the price discovery process.''); Erdinc Akyildirim,
``The Development of Bitcoin Futures: Exploring the Interactions
Between Cryptocurrency Derivatives'', Finance Research Letters 34
(May 2020) (``While analysing breakpoints in efficiency, we verify
the view that Bitcoin futures dominate price discovery relative to
spot markets.''); Alexander Chang, William Herrmann and William
Chai, ``Efficient Price Discovery in the Bitcoin Markets'', Wilshire
Phoenix (October 2020) (``[W]e conclude that the CME bitcoin futures
contribution to price formation was greater than the contribution
from the related spot markets made up of the Constituent Exchanges,
indicating that the futures lead the spot markets and thus
contribute more to price formation. . . .[T]his analysis was
performed using a methodology similar to the one employed by the
Division of Economic and Risk Analysis at the SEC to evaluate the
IEX exchange's contribution to price formation in the equities
markets.'') available at https://www.wilshirephoenix.com/efficient-price-discovery-in-the-bitcoin-markets/.
---------------------------------------------------------------------------

The Trust Will Not Be the Predominant Influence on Prices in the
Bitcoin Spot and Futures Markets
    The second element to determine whether a market or group of
markets is of ``significant size'' requires that it is unlikely that
trading in the ETP would be the predominant influence on prices in that
market. The Exchange also believes that trading in the Shares would not
be the predominant force on prices in the Bitcoin Futures market (or
spot market) for a number of reasons, including the significant volume
in the Bitcoin Futures market, the size of bitcoin's market cap
(approximately $1 trillion), and the significant liquidity available in
the spot market. In addition to the Bitcoin Futures market data points
cited above, the spot market for bitcoin is also very liquid.
    According to data from CoinRoutes from February 2021, the cost to
buy or sell $5 million worth of bitcoin averages roughly 10 basis
points with a market impact of 30 basis points.\47\ For a $10 million
market order, the cost to buy or sell is roughly 20 basis points with a
market impact of 50 basis points. Stated another way, a market
participant could enter a market buy or sell order for $10 million of
bitcoin and only move the market 0.5%. More strategic purchases or
sales (such as using limit orders and executing through OTC bitcoin
trade desks) would likely have less obvious impact on the market--which
is consistent with MicroStrategy,\48\ Tesla \49\ and Square \50\ being
able to collectively purchase billions of dollars in bitcoin without
resulting in significant price movements.
---------------------------------------------------------------------------

    \47\ These statistics are based on samples of bitcoin liquidity
in USD (excluding stablecoins or Euro liquidity) based on executable
quotes on Coinbase Pro, Gemini, Bitstamp, Kraken, LMAX Exchange,
BinanceUS, and OKCoin during February 2021.
    \48\ See Form 10-Q submitted by MicroStrategy Incorporated for
the quarterly period ended September 30, 2020 at 8: https://www.sec.gov/ix?doc=/Archives/edgar/data/1050446/000156459020047995/mstr-10q_20200930.htm.
    \49\ See Form 10-K submitted by Tesla, Inc. for the fiscal year
ended December 31, 2020 at 23: https://www.sec.gov/ix?doc=/Archives/edgar/data/1318605/000156459021004599/tsla-10k_20201231.htm.
    \50\ See Form 10-Q submitted by Square, Inc. for the quarterly
period ended September 30, 2020 at 51: https://www.sec.gov/ix?doc=/Archives/edgar/data/1512673/000151267320000012/sq-20200930.htm.
---------------------------------------------------------------------------

    The results from a study conducted by CF Benchmarks simulating to
determine the extent of ``slippage'' (i.e., the difference between the
expected price of a trade and the price at which the trade was actually
executed) offer further evidence that trading in the Shares is unlikely
to be the predominant influence in either the bitcoin spot or futures
market.\51\ The CF Benchmarks Analysis simulated the purchase of 50
bitcoins a day for 686 days (an amount chosen specifically to replicate
hypothetical trades by a bitcoin ETP) and found that the maximum amount
of slippage on a particular day was 0.3%, with the remainder of values
between 0% and 0.15%. Thus, according to CF Benchmarks, the slippage in
this study could be described as having been largely negligible or, at
most, minor during the observation period.\52\ While the study focused
on the impact of a hypothetical ETP in the bitcoin spot market,
arbitrage mechanisms in the spot and futures market dictate that it
would be unlikely for a Bitcoin Futures ETP such as the Trust to
overrun the Bitcoin Futures market without also overrunning the bitcoin
spot market. Accordingly, the CF Benchmarks analysis further bolsters
the Exchange's contention that the Trust and other similar ETPs would
be unlikely to overrun the market.
---------------------------------------------------------------------------

    \51\ See CF Benchmarks, ``An Analysis of the Suitability of the
CME CF BRR for the Creation of Regulated Financial Products,''
December 2020 (the ``CF Benchmarks Analysis''), available at:
https://docsend.com/view/kizk7rarzaba6jxf.
    \52\ Id.
---------------------------------------------------------------------------

    As such, the combination of Bitcoin Futures leading price
discovery, the overall size of the bitcoin market, and the ability for
market participants, including authorized participants creating and
redeeming in-kind with the Trust, to buy or sell large amounts of
bitcoin without significant market impact will help prevent the Shares
from becoming the predominant force on pricing in either the bitcoin
spot or Bitcoin Futures markets, satisfying part (b) of the test
outlined above.
    For these reasons, the Exchange believes that all evidence strongly
suggests that the CME Bitcoin Futures market has matured to a ``market
of significant size'' for purposes of the Commission's standard of
review as (a) a would-be manipulator of either bitcoin or Bitcoin
Futures would necessarily have to execute its scheme on the CME in
order to manipulate the ETP; and (b) the proposed ETP is unlikely to be
the predominant influence on prices in that market as the absolute size
of both the futures and spot markers have grown tremendously since the
prior disapproval orders.
Other Means To Prevent Fraudulent and Manipulative Acts and Practices
    As noted above, the Commission also permits a listing exchange to
demonstrate that ``other means to prevent fraudulent and manipulative
acts and practices'' are sufficient to justify dispensing with the
requisite surveillance-sharing agreement. The Exchange maintains that
the CME CF BRR is not readily susceptible to manipulation due to the
design of the methodology, which adequately protects the Trust from
potential price manipulation in the Bitcoin Futures and spot bitcoin
markets.\53\ The use of medians in the methodology reduces the effect
of outlier prices on one or more constituent exchange.\54\ The volume-
weighting of medians filters out high numbers of small trades that may
otherwise control the value of a non-volume weighted median.\55\ The
use of twelve non-weighted partitions assures that price information is
sourced equally over the entire observation period.\56\ Influencing the
rate would therefore require trading activity during multiple
partitions on several exchanges over an extended period, which would
prove a costly and an operationally intensive undertaking. The
methodology is designed to remove the reliance on any single
contributing exchange, where

delayed or missing data from an exchange does not cause a calculation
failure.
---------------------------------------------------------------------------

    \53\ See CME CR Cryptocurrency Reference Rates Methodology Guide
(Version 9.0) (July 31, 2021), available at https://docs-cfbenchmarks.s3.amazonaws.com/CME+CF+Reference+Rates+Methodology.pdf.
    \54\ Id at 6.
    \55\ Id.
    \56\ Id at 13.
---------------------------------------------------------------------------

    In accordance with the methodology, if for any constituent exchange
the absolute percentage deviation of the volume-weighted median trade
price in comparison with the median of the volume-weighted median trade
prices of all constituent exchanges exceeds a given threshold
(currently set at 10% and defined in the methodology), all relevant
transactions of that constituent exchange are flagged as potentially
erroneous and are disregarded in the calculation of CME CF BRR for that
calculation day.\57\ Furthermore, for inclusion in the CME CF BRR's
calculation, a constituent exchange's bitcoin U.S. Dollar spot trading
volume must meet the minimum threshold (currently, 3% relative
contribution over two (2) consecutive quarters) as detailed in the
methodology.\58\ The criteria collectively cause the constituent
exchanges to deliver transparent and consistent trade and order data to
CF Benchmarks via an API with sufficient reliability, detail and
timeliness.\59\
---------------------------------------------------------------------------

    \57\ Id at 11.
    \58\ See CME CF Cryptocurrency Pricing Products Constituent
Exchange Criteria (Version 5.0) (May 20, 2020) at 4, available at
https://docs-cfbenchmarks.s3.amazonaws.com/CME+CF+Constituent+Exchanges+Criteria.pdf.
    \59\ Id.
---------------------------------------------------------------------------

    Furthermore, the constituent exchanges maintain fair and
transparent market conditions to impede illegal, unfair or manipulative
trading practices, and comply with applicable law and regulations
including, capital markets regulations, money transmission regulations,
client money custody requirements, know-your-client (KYC) requirements,
and anti-money-laundering (AML) regulations.\60\ The constituent
exchanges are also required to cooperate with inquiries and
investigations of the administrator (CF Benchmarks) and execute a data
sharing agreement with CME.\61\
---------------------------------------------------------------------------

    \60\ Id.
    \61\ Id.
---------------------------------------------------------------------------

Core Principles Certification of CME BTC Futures Contracts
    The CME Bitcoin Futures comply with all Core Principles of the CEA.
In adhering to the Core Principles \62\ applicable to all Designated
Contract Markets (``DCM''), the CME certified that the CME Bitcoin
Futures met specific Core Principles as they apply to futures contracts
traded on a DCM. This compliance results in the Trust's core asset
being a well-regulated instrument that is not readily susceptible to
manipulation. The following Core Principles are of particular relevance
to the analysis of this filing.
---------------------------------------------------------------------------

    \62\ 17 CFR part 38.
---------------------------------------------------------------------------

Contracts Not Readily Subject to Manipulation
    In certifying the CME BTC Futures Contracts to the CFTC, the CME
was required to include an analysis describing the contract, a
discussion of the market research it conducted and note that the
contract was designed to meet the risk management needs of prospective
users and promote price discovery of bitcoin. The CME consulted with
market users to obtain their views and opinions during the contract's
design process to ensure that the contract's terms and conditions
reflected the underlying cash market and would perform the intended
risk management and/or price discovery functions.
    Since the CME BTC Futures Contract is cash settled by reference to
the CME CF BRR, the CME CF BRR's methodology was provided to the CFTC
with supporting information showing how the CME CF BRR is reflective of
the underlying cash market, is not readily subject to manipulation or
distortion, and is based on a cash price series that is reliable,
acceptable, publicly available and timely (as defined in paragraphs
(c)(2) and (c)(3) of Appendix C to part 38 of the CFTC's
Regulations).\63\
---------------------------------------------------------------------------

    \63\ Id. at Appendix C paragraphs (c)(2) and (c)(3).
---------------------------------------------------------------------------

Prevention of Market Disruption
    The Core Principles also required CME to certify that it has the
ability to prevent manipulation, price distortion, and disruptions of
the cash-settlement process through market surveillance, compliance,
and enforcement practices and procedures. This would include the
ability to conduct real-time trade monitoring and comprehensive and
accurate trade reconstruction. Such trade monitoring also allows for
the detection of developing market anomalies, such as abnormal price
movements and unusual trading volumes, and position-limit violations.
CME rules grant exchanges broad powers to intervene to prevent or
reduce market disruptions. Once a threatened or actual disruption is
detected, the CME may take steps to prevent the disruption or reduce
its severity. CME's program includes automated trading alerts to detect
market anomalies and position-limit violations as they develop and
before market disruptions occur or become more serious. CFTC guidance
also requires a DCM to have access to its traders' position and
transaction data in the underlying reference market. The CME has,
through an information sharing agreement with CF Benchmarks, the
ability to access information about trader positions and transactions
in the underlying spot BTC markets that contribute to the CME CF BRR.
The CME has also implemented a series of risk controls as outlined in
the CFTC Regulation's Acceptable Practices.\64\
---------------------------------------------------------------------------

    \64\ These risk controls include: (1) Dynamic circuit breakers,
which monitor for significant price movements within a trading
session by defining an upper and lower limit of how far bitcoin
futures can move (10%) in any one hour rolling window and, if
triggered, matching is suspended for 2 minutes; (2) velocity logic,
which is designed to detect market movement of a predefined number
of ticks either up or down within a predefined time and, if
triggered, matching is suspended for 10 seconds; (3) daily price
limits, which is the maximum daily price range permitted for BTC
futures (+/- 30% from prior day settlement); and (4) initial margin
(currently set at 35% of notional value for outright positions)
charged for all open positions based on expected volatility over a
two-day close out period.
---------------------------------------------------------------------------

Position Limits
    The CFTC's Core Principles also call for the use of position limits
or position accountability to reduce the threat of market manipulation
or congestion. The CME has set a position limit of 2,000 contracts for
the CME Bitcoin Futures. As a result of this position limit, an attempt
to manipulate the price of the CME Bitcoin Futures, and consequently
the shares in the Trust, would yield little benefit due to the limited
potential profit available from the trading of 2,000 contracts.
Ongoing Coordination With CFTC on CME Bitcoin Futures
    Since the launch of CME Bitcoin Futures, the CME has worked with
the CFTC on a regular and frequent basis to assess the trading in the
contract and ensure that the market is free from fraud and
manipulation. CFTC staff, in the recent past, has actively engaged CME
in reviewing CME's surveillance program for bitcoin products pursuant
to part 38 (Designated Contract Markets) of the CFTC's regulations.
This engagement has concerned CME's analysis of the trading activities
and strategies of bitcoin futures market participants of significant
size and outreach to these market participants. It has also concerned
CME's ability to obtain transactional information from the constituent
exchanges that contribute data to the bitcoin reference rate in
addition to CME's continued monitoring of the bitcoin reference rate as
a price series, particularly during the index's one-hour calculation
window.
Creation and Redemption of Shares
    According to the Draft Registration Statement, the Trust will issue
and

redeem Shares on a continuous basis at the NAV per Share only in large,
specified blocks each consisting of a certain number of Shares (each
such block of shares called a ``Creation Unit,'' and collectively, the
``Creation Units'') in transactions with broker-dealers and large
institutional investors that have entered into participation agreements
(``Authorized Participants''). It is currently anticipated that a
Creation Unit will consist of 50,000 Shares, although this number may
change from time to time. It is currently expected that the Trust's
Creation Units will generally be issued and redeemed for cash. Except
when aggregated in Creation Units, the Shares are not redeemable
securities. Once created, Shares of the Trust may trade on the
secondary market in amounts less than a Creation Unit.
    Creation Procedures. On any Business Day, an Authorized Participant
may place an order to create one or more Creation Units. Purchase
orders must be placed by 2:00 p.m. (Eastern time). The cut-off time may
be earlier if, for example, the Exchange or another exchange material
to the valuation or operation of the Trust closes before the cut-off
time. If a purchase order is received prior to the applicable cut-off
time, the day on which the Marketing Agent receives a valid purchase
order is 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, and prior to delivery of such Creation Units, an
Authorized Participant's DTC account will be charged the non-refundable
transaction fee due for the purchase order.
    Redemption Procedures. On any Business Day, an Authorized
Participant may place an order with the Marketing Agent to redeem one
or more Creation Units. Redemption orders must be received prior to
2:00 p.m. (Eastern time), or earlier if, for example, the Exchange or
another exchange material to the valuation or operation of the Trust
closes before the cut-off time. If a redemption order is received prior
to the applicable cut-off time, the day on which the Marketing Agent
receives a valid redemption order is the redemption order date. If the
redemption order is received after the applicable cut-off time, the
redemption order date will be the next day. Redemption orders are
irrevocable. Individual shareholders may not redeem directly from the
Trust.
    By placing a redemption order, an Authorized Participant agrees to
deliver the Creation Units to be redeemed through DTC's book-entry
system to the applicable Trust not later than noon (Eastern time), on
the first Business Day immediately following the redemption order date
(T+1). The Sponsor reserves the right to extend the deadline for the
Trust to receive the Creation Units required for settlement up to the
second Business Day following the redemption order date (T+2). By
placing a redemption order, and prior to receipt of the redemption
proceeds, an Authorized Participant must wire to the Custodian the non-
refundable transaction fee due for the redemption order or any proceeds
due will be reduced by the amount of the fee payable. At its sole
discretion, the Sponsor may agree to a delivery date other than T+2.
Additional fees may apply for special settlement.
    Upon the request of an Authorized Participant made at the time of a
redemption order, the Sponsor at its sole discretion may determine, in
addition to delivering redemption proceeds, to transfer futures
contracts to the Authorized Participant pursuant to an exchange of a
futures contract for related position (``EFCRP'') or to a block trade
sale of futures contracts to the Authorized Participant.
Availability of Information
    The Trust's website (www.valkyriefunds.io) will include
quantitative information on a per Share basis updated on a daily basis,
including (i) the current NAV per Share daily and the prior business
day's NAV and the reported closing price; (ii) the mid-point of the
bid-ask price \65\ in relation to the NAV as of the time the NAV is
calculated (``Bid-Ask Price'') and a calculation of the premium or
discount of such price against such NAV; and (iii) data in chart format
displaying the frequency distribution of discounts and premiums of the
daily Bid-Ask Price against the NAV, within appropriate ranges, for
each of the four previous calendar quarters (or for the life of the
Trust, if shorter). In addition, on each business day the Trust's
website will provide pricing information for the Shares. Also, an
estimated value that reflects an estimated intraday value of the
Trust's portfolio (the ``Intraday Indicative Value''), will be
disseminated.
---------------------------------------------------------------------------

    \65\ The bid-ask price of the Trust is determined using the
highest bid and lowest offer on the Consolidated Tape as of the time
of calculation of the closing day NAV.
---------------------------------------------------------------------------

    The Trust's website will provide an intra-day indicative value
(``IIV'') per Share updated every 15 seconds, as calculated by the
Exchange or a third-party financial data provider during the Exchange's
Regular Market Session (9:30 a.m. to 4:00 p.m. (Eastern time)).\66\ The
IIV will be calculated by using the prior day's closing NAV per Share
as a base and updating that value during the Exchange's Regular Market
Session to reflect changes in the value of the Trust's NAV during the
trading day.
---------------------------------------------------------------------------

    \66\ The IIV on a per Share basis disseminated during the
Regular Market Session should not be viewed as a real-time update of
the NAV, which is calculated once a day.
---------------------------------------------------------------------------

    The IIV disseminated during the Exchange's Regular Market Session
should not be viewed as an actual real-time update of the NAV, which
will be calculated only once at the end of each trading day. The IIV
will be widely disseminated on a per Share basis every 15 seconds
during the Exchange's Regular Market Session by one or more major
market data vendors. In addition, the IIV will be available through on-
line information services.
    The NAV for the Trust will be calculated by the Sponsor once a day
and will be disseminated daily to all market participants at the same
time. Quotation and last-sale information regarding the Shares will be
disseminated through the facilities of the Consolidated Tape
Association (``CTA'').
Initial and Continued Listing
    The Shares will be subject to Nasdaq Rule 5711(g)(vi), which sets
forth the initial and continued listing criteria applicable to
Commodity Futures Trust Shares. The Exchange will obtain a
representation that the Trust's NAV will be calculated daily and will
be made available to all market participants at the same time. Upon
termination of the Trust, the Shares will be removed from listing. The
Trustee, Delaware Trust Company, is a trust company having substantial
capital and surplus and the experience and facilities for handling
corporate trust business, as required under Nasdaq Rule 5711(g)(vi)(D)
and no change will be made to the trustee without prior notice to and
approval of the Exchange.
    As required in Nasdaq Rule 5711(g)(vii), the Exchange notes that
any registered market maker (``Market Maker'') in the Shares must file
with the Exchange, in a manner prescribed by the Exchange, and keep
current a list identifying all accounts for trading the underlying
commodity, related futures or options on futures, or any other related
derivatives, which the registered Market Maker may have or over which
it may exercise investment discretion. No registered Market Maker in
the Shares shall trade in the underlying

commodity, related futures or options on futures, or any other related
derivatives, in an account in which a registered Market Maker, directly
or indirectly, controls trading activities, or has a direct interest in
the profits or losses thereof, which has not been reported to the
Exchange as required by Nasdaq Rule 5711(g). In addition to the
existing obligations under Exchange rules regarding the production of
books and records, the registered Market Maker in the Shares shall make
available to the Exchange such books, records or other information
pertaining to transactions by such entity or any limited partner,
officer or approved person thereof, registered or non-registered
employee affiliated with such entity for its or their own accounts in
the underlying commodity, related futures or options on futures, or any
other related derivatives, as may be requested by the Exchange.
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. (Eastern time).
The Exchange has appropriate rules to facilitate transactions in the
Shares during all trading sessions. The Shares of the Trust will
conform to the initial and continued listing criteria set forth in
Nasdaq Rule 5711(g).
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: (1) The extent to which trading is not
occurring in the futures contracts underlying the Shares; or (2)
whether other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present.
    As indicated in Commentary .03 to Nasdaq Rule 5711(g), if the IIV
or the value of the underlying futures contract 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 futures contract occurs. If the interruption to the
dissemination of the IIV or the value of the underlying futures
contract 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.
Surveillance
    The Exchange believes that its surveillance procedures are adequate
to properly monitor the trading of the Shares on the Exchange during
all trading sessions and to deter and detect violations of Exchange
rules and the applicable federal securities laws. Trading of Shares on
the Exchange will be subject to the Exchange's surveillance procedures
for derivative products. The Exchange will require the Trust to
represent to the Exchange that it will advise the Exchange of any
failure by the Trust to comply with the continued listing requirements,
and, pursuant to its obligations under Section 19(g)(1) of the Exchange
Act, the Exchange will surveil for compliance with the continued
listing requirements. If the Trust is not in compliance with the
applicable listing requirements, the Exchange will commence delisting
procedures under the Nasdaq 5800 Series. In addition, the Exchange also
has a general policy prohibiting the distribution of material, non-
public information by its employees.
    Additionally, the Bitcoin Futures will be subject to the rules and
surveillance programs of CME and the CFTC.\67\ The Exchange or the
Financial Industry Regulatory Authority (``FINRA''), on behalf of the
Exchange, will communicate as needed regarding trading in the Shares
and the underlying Bitcoin Futures via ISG from other exchanges who are
members or affiliates of the ISG or with which the Exchange has entered
into a comprehensive surveillance sharing agreement.\68\ The Exchange
may also obtain information regarding trading in the spot bitcoin
market from exchanges with which the CME or the Exchange has entered
into a comprehensive surveillance sharing agreement. In addition, the
Exchange is able to access, as needed, trade information for certain
fixed income instruments reported to FINRA's Trade Reporting and
Compliance Engine (``TRACE'').
---------------------------------------------------------------------------

    \67\ The CFTC issued a press release on December 1, 2017, noting
the self-certifications from CFE and CME and highlighting the
rigorous process that the CFTC had undertaken in its engagement with
CFE and CME prior to the self-certification for the Bitcoin Futures.
The press release focused on the ongoing surveillances that will
occur on each listing exchange, including surveillance based on
information sharing with the underlying cash bitcoin exchanges as
well as the actions that the CFTC will undertake after the contracts
are launched, including monitoring and analyzing the size and
development of the market, positions and changes in positions over
time, open interest, initial margin requirements, and variation
margin payments, stress testing positions, conduct reviews of
designated contract markets, derivatives clearing organizations,
clearing firms, and individual traders involved in trading and
clearing bitcoin futures. For more information, see http://www.cftc.gov/PressRoom/PressReleases/pr7654-17.
    \68\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com. The Exchange notes that not all
components of the Disclosed Portfolio for the Trust may trade on
markets that are members of ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement. Not more than
10% of the net assets of the Trust in the aggregate invested in
Bitcoin Futures shall consist of Bitcoin Futures whose principal
market is not a member of the ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

Information Circular
    Prior to the commencement of trading, the Exchange will inform its
members in an Information Circular of the special characteristics and
risks associated with trading the Shares. Specifically, the Information
Circular will discuss the following: (1) The procedures for purchases
and redemptions of Shares in Creation Units (and that Shares are not
individually redeemable); (2) Section 10 of Nasdaq General Rule 9,
which imposes suitability obligations on Nasdaq members with respect to
recommending transactions in the Shares to customers; (3) how
information regarding the IIV is disseminated; (4) the risks involved
in trading the Shares during the Pre-Market and Post-Market Sessions
when an updated IIV will not be calculated or publicly disseminated;
(5) the requirement that members deliver a prospectus to investors
purchasing newly issued Shares prior to or concurrently with the
confirmation of a transaction; and (6) trading information. The
Information Circular will also discuss any exemptive, no-action and
interpretive relief granted by the Commission from any rules under the
Act.
    Additionally, the Information Circular will reference that the
Trust is subject to various fees and expenses described in the Draft
Registration Statement. The Information Circular will also disclose the
trading hours of the Shares. The Information Circular will disclose
that information about the Shares will be

publicly available on the Trust's website.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section
6(b) of the Act \69\ in general and Section 6(b)(5) of the Act \70\ in
particular in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system and, in general, to protect investors and the
public interest.
---------------------------------------------------------------------------

    \69\ 15 U.S.C. 78f.
    \70\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Exchange believes that its surveillance procedures are adequate to
properly monitor the trading of the Shares on the Exchange during all
trading sessions and to deter and detect violations of Exchange rules
and the applicable federal securities laws. Additionally, the Bitcoin
Futures will be subject to the rules and surveillance programs of CME
and the CFTC. Trading of the Shares through the Exchange will be
subject to the Exchange's surveillance procedures for derivative
products, including Commodity Futures Trust Shares. The Exchange or
FINRA, on behalf of the Exchange, will communicate as needed regarding
trading in the Shares and the underlying Bitcoin Futures via ISG, from
other exchanges who are members or affiliates of the ISG, or with which
the Exchange has entered into a comprehensive surveillance sharing
agreement. The Exchange may also obtain information regarding trading
in the spot bitcoin market via the ISG, from other exchanges who are
members or affiliates of the ISG, or from other exchanges with which
the Exchange has entered into a comprehensive surveillance sharing
agreement. In addition, the Exchange is able to access, as needed,
trade information for certain fixed income instruments reported to
TRACE. The Exchange prohibits the distribution of material non-public
information by its employees.
    The Exchange believes that its surveillance procedures are adequate
to properly monitor the trading of the Shares on the Exchange during
all trading sessions and to deter and detect violations of Exchange
rules and the applicable federal securities laws. The Exchange further
believes that the proposal is designed to prevent fraudulent and
manipulative acts and practices in that the Exchange expects that the
market for Bitcoin Futures will be sufficiently liquid to support
numerous ETPs shortly after launch. This belief is based on numerous
conversations with market participants, issuers, and discussions with
personnel of CFE. As such, the Exchange believes that the expected
liquidity in the market for Bitcoin Futures, combined with the Exchange
surveillance procedures related to the Shares, and the broader
regulatory structure will prevent trading in the Shares from being
susceptible to manipulation.
    Because of its innovative features as a cryptoasset, bitcoin has
gained wide acceptance as a secure means of exchange in the commercial
marketplace and has generated significant interest among investors. In
less than a decade since its creation in 2008, bitcoin has achieved
significant market penetration, with payments giant PayPal and
thousands of merchants and businesses accepting it as a form of
commercial payment, as well as receiving official recognition from
several governments, including Japan and Australia. Accordingly,
investor interest in gaining exposure to bitcoin is increasing
exponentially as well. As expected, the total volume of bitcoin
transactions in the market continues to grow exponentially.
    Despite the growing investor interest in bitcoin, the primary means
for investors to gain access to bitcoin exposure remains either through
the Bitcoin Futures or direct investment through bitcoin exchanges or
over-the-counter trading. For regular investors simply wishing to
express an investment viewpoint in bitcoin, investment through the
Bitcoin Futures is complex and requires active management, and direct
investment in bitcoin brings with it significant inconvenience,
complexity, expense and risk. The Shares would therefore represent a
significant innovation in the bitcoin market by providing an
inexpensive and simple vehicle for investors to gain exposure to
bitcoin in a secure and easily accessible product that is familiar and
transparent to investors. Such an innovation would help to perfect the
mechanism of a free and open market and, in general, to protect
investors and the public interest by improving investor access to
bitcoin exposure through efficient and transparent exchange-traded
derivative products.
    In addition to improved convenience, efficiency and transparency,
the Trust will also help to prevent fraudulent and manipulative acts
and practices by enhancing the security afforded to investors as
compared to a direct investment in bitcoin. Despite the extensive
security mechanisms built into the Bitcoin network, a remaining risk to
owning bitcoin directly is the need for the holder to retain and
protect the ``private key'' required to spend or sell bitcoin after
purchase. If a holder's private key is compromised or simply lost,
their bitcoin can be rendered unavailable--i.e., effectively lost to
the investor. Investment vehicles that invest directly in bitcoin or
investors that hold their bitcoin through digital wallets or other
storage mechanisms must take extraordinary steps in order to protect
their bitcoin, such as placing their bitcoin in ``cold storage.'' This
risk will be eliminated for the Trust because the exposure to bitcoin
is gained through cash-settled Bitcoin Futures that do not present any
of the security issues that exist with direct investment in bitcoin.
    The Trust expects that it will generally seek to remain fully
exposed to Bitcoin Futures even during times of adverse market
conditions. Under Normal Market Conditions, the Trust will generally
hold only Bitcoin Futures and Money Market Instruments (which are used
to collateralize the Bitcoin Futures).
    The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of the
Shares that the NAV will be calculated daily and that the NAV and the
Disclosed Portfolio will be made available to all market participants
at the same time. In addition, a large amount of information is
publicly available regarding the Trust and the Shares, thereby
promoting market transparency. Moreover, the Intraday Indicative Value
will be disseminated by one or more major market data vendors at least
every 15 seconds during Regular Trading Hours. On each business day,
before commencement of trading in Shares during Regular Trading Hours,
the Trust will disclose on its website the Disclosed Portfolio that
will form the basis for the Trust's calculation of NAV at the end of
the business day. Pricing information will be available on the Trust's
website including: (1) The prior business day's reported NAV, the Bid/
Ask Price of the Trust, and a calculation of the premium and discount
of the Bid/Ask Price against the NAV; and (2) data in chart format
displaying the frequency distribution of discounts and premiums of the
daily Bid/Ask Price against the

NAV, within appropriate ranges, for each of the four previous calendar
quarters.
    Additionally, information regarding market price and trading of the
Shares will be continually available on a real-time basis throughout
the day on brokers' computer screens and other electronic services, and
quotation and last sale information for the Shares will be available on
the facilities of the CTA. The Trust's website will include a form of
the prospectus for the Trust and additional data relating to NAV and
other applicable quantitative information. Trading in Shares of the
Trust will be halted under the conditions specified in Nasdaq Rule
4120(b). Trading may also be halted because of market conditions or for
reasons that, in the view of the Exchange, make trading in the Shares
inadvisable. Finally, trading in the Shares will be subject to Nasdaq
Rule 4120(a)(9), which sets forth circumstances under which Shares of
the Trust may be halted and delisting proceedings commenced. In
addition, as noted above, investors will have ready access to
information regarding the Trust's holdings, the Intraday Indicative
Value, the Disclosed Portfolio, and quotation and last sale information
for the Shares.
    Intraday price quotations on Money Market Instruments of the type
held by the Trust are available from major broker-dealer firms and from
third-parties, which may provide prices free with a time delay, or
``live'' with a paid fee. For Bitcoin Futures, such intraday
information is available directly from the applicable listing venue.
Intraday price information is also available through subscription
services, such as Bloomberg and Thomson Reuters, which can be accessed
by authorized participants and other investors. Pricing information
related to Money Market Instruments will be available through issuer
websites and publicly available quotation services such as Bloomberg,
Markit and Thomson Reuters.
    The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
additional types of actively-managed exchange-traded products that will
enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, the Exchange has in
place surveillance procedures relating to trading in the Shares and may
obtain information via ISG from other exchanges that are members of ISG
or with which the Exchange has entered into a comprehensive
surveillance sharing agreement as well as trade information for certain
fixed income instruments as reported to FINRA's TRACE. Not more than
10% of the net assets of the Trust in the aggregate invested in Bitcoin
Futures shall consist of Bitcoin Futures whose principal market is not
a member of the ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement. In addition, as noted
above, investors will have ready access to information regarding the
Trust's holdings, the Intraday Indicative Value, the Disclosed
Portfolio, and quotation and last sale information for the Shares.
    For the above reasons, the Exchange believes that the proposed rule
change is consistent with the requirements of Section 6(b)(5) of the
Act.

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

    The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. The Exchange notes that the
proposed rule change rather will facilitate the listing and trading of
additional actively-managed exchange-traded products that will enhance
competition among both market participants and listing venues, to the
benefit of investors and the marketplace.

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

    No written comments were either solicited or received.

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

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-NASDAQ-2021-066 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2021-066. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NASDAQ-2021-066 and should be submitted
on or before September 30, 2021.
---------------------------------------------------------------------------

    \71\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\71\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-19420 Filed 9-8-21; 8:45 am]
BILLING CODE 8011-01-P