[Federal Register Volume 87, Number 106 (Thursday, June 2, 2022)]
[Notices]
[Pages 33548-33558]
[FR Doc No: 2022-11819]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94999; File No. SR-NYSEArca-2021-67]

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

May 27, 2022.

I. Introduction

    On September 20, 2021, NYSE Arca, Inc. (``NYSE Arca'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to list and trade shares
(``Shares'') of the One River Carbon Neutral Bitcoin Trust (``Trust'')
under NYSE Arca Rule 8.201-E (Commodity-Based Trust Shares). The
proposed rule change was published for comment in the Federal Register
on October 5, 2021.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 93171 (Sept. 29,
2021), 86 FR 55073 (Oct. 5, 2021) (``Notice''). Comments on the
proposed rule change can be found at: https://www.sec.gov/comments/sr-nysearca-2021-67/srnysearca202167.htm.

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    On November 10, 2021, pursuant to Section 19(b)(2) of the Exchange
Act,\4\ the Commission designated a longer period within which to
approve the proposed rule change, disapprove the proposed rule change,
or institute proceedings to determine whether to disapprove the
proposed rule change.\5\ On December 21, 2021, the Commission
instituted proceedings under Section 19(b)(2)(B) of the Exchange Act
\6\ to determine whether to approve or disapprove the proposed rule
change.\7\ On March 18, 2022, the Commission designated a longer period
for Commission action on the proposed rule change.\8\
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    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 93553 (Nov. 10,
2021), 86 FR 64276 (Nov. 17, 2021).
    \6\ 15 U.S.C. 78s(b)(2)(B).
    \7\ See Securities Exchange Act Release No. 93840 (Dec. 21,
2021), 86 FR 73826 (Dec. 28, 2021).
    \8\ See Securities Exchange Act Release No. 94475 (Mar. 18,
2022), 87 FR 16808 (Mar. 24, 2022).
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    This order disapproves the proposed rule change. The Commission
concludes that NYSE Arca has not met its burden under the Exchange Act
and the Commission's Rules of Practice to demonstrate that its proposal
is consistent with the requirements of Exchange Act Section 6(b)(5),
and in particular, the requirement that the rules of a national
securities exchange be ``designed to prevent fraudulent and
manipulative acts and practices'' and ``to protect investors and the
public interest.'' \9\
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    \9\ 15 U.S.C. 78f(b)(5).
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    When considering whether NYSE Arca's proposal to list and trade the
Shares is designed to prevent fraudulent and manipulative acts and
practices, the Commission applies the same standard used in its orders
considering previous proposals to list bitcoin \10\-based commodity
trusts and bitcoin-based trust issued receipts.\11\ As the Commission
has explained, an exchange that lists bitcoin-based exchange-traded
products (``ETPs'') can meet its obligations under Exchange Act Section
6(b)(5) by demonstrating that the exchange has a comprehensive
surveillance-sharing agreement with a regulated market of significant
size related to the underlying or reference bitcoin assets.\12\
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    \10\ Bitcoins are digital assets that are issued and transferred
via a decentralized, open-source protocol used by a peer-to-peer
computer network through which transactions are recorded on a public
transaction ledger known as the ``bitcoin blockchain.'' The bitcoin
protocol governs the creation of new bitcoins and the cryptographic
system that secures and verifies bitcoin transactions. See, e.g.,
Notice, 86 FR at 55075.
    \11\ See Order Setting Aside Action by Delegated Authority and
Disapproving a Proposed Rule Change, as Modified by Amendments No. 1
and 2, To List and Trade Shares of the Winklevoss Bitcoin Trust,
Securities Exchange Act Release No. 83723 (July 26, 2018), 83 FR
37579 (Aug. 1, 2018) (SR-BatsBZX-2016-30) (``Winklevoss Order'');
Order Disapproving a Proposed Rule Change, as Modified by Amendment
No. 1, To Amend NYSE Arca Rule 8.201-E (Commodity-Based Trust
Shares) and To List and Trade Shares of the United States Bitcoin
and Treasury Investment Trust Under NYSE Arca Rule 8.201-E,
Securities Exchange Act Release No. 88284 (Feb. 26, 2020), 85 FR
12595 (Mar. 3, 2020) (SR-NYSEArca-2019-39) (``USBT Order''); Order
Disapproving a Proposed Rule Change To List and Trade Shares of the
WisdomTree Bitcoin Trust Under BZX Rule 14.11(e)(4), Commodity-Based
Trust Shares, Securities Exchange Act Release No. 93700 (Dec. 1,
2021), 86 FR 69322 (Dec. 7, 2021) (SR-CboeBZX-2021-024)
(``WisdomTree Order''); Order Disapproving a Proposed Rule Change To
List and Trade Shares of the Valkyrie Bitcoin Fund under NYSE Arca
Rule 8.201-E (Commodity-Based Trust Shares), Securities Exchange Act
Release No. 93859 (Dec. 22, 2021), 86 FR 74156 (Dec. 29, 2021) (SR-
NYSEArca-2021-31) (``Valkyrie Order''); Order Disapproving a
Proposed Rule Change To List and Trade Shares of the Kryptoin
Bitcoin ETF Trust under BZX Rule 14.11(e)(4), Commodity-Based Trust
Shares, Securities Exchange Act Release No. 93860 (Dec. 22, 2021),
86 FR 74166 (Dec. 29, 2021) (SR-CboeBZX-2021-029) (``Kryptoin
Order''); Order Disapproving a Proposed Rule Change To List and
Trade Shares of the First Trust SkyBridge Bitcoin ETF Trust under
NYSE Arca Rule 8.201-E (Commodity-Based Trust Shares), Securities
Exchange Act Release No. 94006 (Jan. 20, 2022), 87 FR 3869 (Jan. 25,
2022) (SR-NYSEArca-2021-37) (``SkyBridge Order''); Order
Disapproving a Proposed Rule Change To List and Trade Shares of the
Wise Origin Bitcoin Trust under BZX Rule 14.11(e)(4), Commodity-
Based Trust Shares, Securities Exchange Act Release No. 94080 (Jan.
27 2022), 87 FR 5527 (Feb. 1, 2022) (SR-CboeBZX-2021-039) (``Wise
Origin Order''); Order Disapproving a Proposed Rule Change To List
and Trade Shares of the NYDIG Bitcoin ETF Under NYSE Arca Rule
8.201-E (Commodity-Based Trust Shares), Securities Exchange Act
Release No. 94395 (Mar. 10, 2022), 87 FR 14932 (Mar. 16, 2022) (SR-
NYSEArca-2021-57) (``NYDIG Order''); Order Disapproving a Proposed
Rule Change To List and Trade Shares of the Global X Bitcoin Trust
Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares, Securities
Exchange Act Release No. 94396 (Mar. 10, 2022), 87 FR 14912 (Mar.
16, 2022) (SR-CboeBZX-2021-052) (``Global X Order''); and Order
Disapproving a Proposed Rule Change, as Modified by Amendment No. 1,
To List and Trade Shares of the ARK 21Shares Bitcoin ETF under BZX
Rule 14.11(e)(4), Commodity-Based Trust Shares, Securities Exchange
Act Release No. 94571 (Mar. 31, 2022), 87 FR 20014 (Apr. 6, 2022)
(SR-CboeBZX-2021-052) (``ARK 21Shares Order''). See also Order
Disapproving a Proposed Rule Change, as Modified by Amendment No. 1,
Relating to the Listing and Trading of Shares of the SolidX Bitcoin
Trust Under NYSE Arca Equities Rule 8.201, Securities Exchange Act
Release No. 80319 (Mar. 28, 2017), 82 FR 16247 (Apr. 3, 2017) (SR-
NYSEArca-2016-101) (``SolidX Order''). The Commission also notes
that orders were issued by delegated authority on the following
matters: Order Disapproving a Proposed Rule Change To List and Trade
the Shares of the ProShares Bitcoin ETF and the ProShares Short
Bitcoin ETF, Securities Exchange Act Release No. 83904 (Aug. 22,
2018), 83 FR 43934 (Aug. 28, 2018) (SR-NYSEArca-2017-139)
(``ProShares Order''); Order Disapproving a Proposed Rule Change To
List and Trade the Shares of the GraniteShares Bitcoin ETF and the
GraniteShares Short Bitcoin ETF, Securities Exchange Act Release No.
83913 (Aug. 22, 2018), 83 FR 43923 (Aug. 28, 2018) (SR-CboeBZX-2018-
001) (``GraniteShares Order''); Order Disapproving a Proposed Rule
Change To List and Trade Shares of the VanEck Bitcoin Trust Under
BZX Rule 14.11(e)(4), Commodity-Based Trust Shares, Securities
Exchange Act Release No. 93559 (Nov. 12, 2021), 86 FR 64539 (Nov.
18, 2021) (SR-CboeBZX-2021-019) (``VanEck Order''); Order Granting
Approval of a Proposed Rule Change, as Modified by Amendment No. 2,
To List and Trade Shares of the Teucrium Bitcoin Futures Fund Under
NYSE Arca Rule 8.200-E, Commentary .02 (Trust Issued Receipts),
Securities Exchange Act Release No. 94620 (Apr. 6, 2022), 87 FR
21676 (Apr. 12, 2022) (SR-NYSEArca-2021-53) (``Teucrium Order'');
and Order Granting Approval of a Proposed Rule Change, as Modified
by Amendment No. 2, To List and Trade Shares of the Valkyrie XBTO
Bitcoin Futures Fund Under Nasdaq Rule 5711(g) (Commodity Futures
Trust Shares), Securities Exchange Act Release No. 94853 (May 5,
2022), 87 FR 28848 (May 11, 2022) (SR-NASDAQ-2021-066) (``Valkyrie
XBTO Order'').
    \12\ See USBT Order, 85 FR at 12596. See also Winklevoss Order,
83 FR at 37592 n.202 and accompanying text (discussing previous
Commission approvals of commodity-trust ETPs); GraniteShares Order,
83 FR at 43925-27 nn.35-39 and accompanying text (discussing
previous Commission approvals of commodity-futures ETPs).
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    The standard requires such surveillance-sharing agreements since
they ``provide a necessary deterrent to manipulation because they
facilitate the availability of information needed to fully investigate
a manipulation if it were to occur.'' \13\ The Commission has
emphasized that it is essential for an exchange listing a derivative
securities product to enter into a surveillance-sharing agreement with
markets trading the underlying assets for the listing exchange to have
the ability to obtain information necessary to detect, investigate, and
deter fraud and market manipulation, as well as violations of exchange
rules and applicable federal securities laws and rules.\14\ The
hallmarks of a surveillance-sharing agreement are that the agreement
provides for the sharing of information about market trading activity,
clearing activity, and customer identity; that the parties to the
agreement have reasonable ability to obtain access to and produce
requested information; and that no existing rules, laws, or practices
would impede one party to the agreement from obtaining this information
from, or producing it to, the other party.\15\
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    \13\ See Amendment to Rule Filing Requirements for Self-
Regulatory Organizations Regarding New Derivative Securities
Products, Securities Exchange Act Release No. 40761 (Dec. 8, 1998),
63 FR 70952, 70959 (Dec. 22, 1998) (``NDSP Adopting Release''). See
also Winklevoss Order, 83 FR at 37594; ProShares Order, 83 FR at
43936; GraniteShares Order, 83 FR at 43924; USBT Order, 85 FR at
12596.
    \14\ See NDSP Adopting Release, 63 FR at 70959.
    \15\ See Winklevoss Order, 83 FR at 37592-93; Letter from
Brandon Becker, Director, Division of Market Regulation, Commission,
to Gerard D. O'Connell, Chairman, Intermarket Surveillance Group
(June 3, 1994), available at https://www.sec.gov/divisions/marketreg/mr-noaction/isg060394.htm.

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    In the context of this standard, the terms ``significant market''
and ``market of significant size'' include a market (or group of
markets) as to which (a) there is a reasonable likelihood that a person
attempting to manipulate the ETP would also have to trade on that
market to successfully manipulate the ETP, so that a surveillance-
sharing agreement would assist in detecting and deterring misconduct,
and (b) it is unlikely that trading in the ETP would be the predominant
influence on prices in that market.\16\ A surveillance-sharing
agreement must be entered into with a ``significant market'' to assist
in detecting and deterring manipulation of the ETP, because a person
attempting to manipulate the ETP is reasonably likely to also engage in
trading activity on that ``significant market.'' \17\
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    \16\ See Winklevoss Order, 83 FR at 37594. This definition is
illustrative and not exclusive. There could be other types of
``significant markets'' and ``markets of significant size,'' but
this definition is an example that will provide guidance to market
participants. See id.
    \17\ See USBT Order, 85 FR at 12597.
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    Consistent with this standard, for the commodity-trust ETPs
approved to date for listing and trading, there has been in every case
at least one significant, regulated market for trading futures on the
underlying commodity--whether gold, silver, platinum, palladium, or
copper--and the ETP listing exchange has entered into surveillance-
sharing agreements with, or held Intermarket Surveillance Group
(``ISG'') membership in common with, that market.\18\ Moreover, the
surveillance-sharing agreements have been consistently present whenever
the Commission has approved the listing and trading of derivative
securities, even where the underlying securities were also listed on
national securities exchanges--such as options based on an index of
stocks traded on a national securities exchange--and were thus subject
to the Commission's direct regulatory authority.\19\
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    \18\ See Winklevoss Order, 83 FR at 37594.
    \19\ See USBT Order, 85 FR at 12597; Securities Exchange Act
Release No. 33555 (Jan. 31, 1994), 59 FR 5619, 5621 (Feb. 7, 1994)
(SR-Amex-93-28) (order approving listing of options on American
Depository Receipts (``ADRs'')). The Commission has also required a
surveillance-sharing agreement in the context of index options even
when (i) all of the underlying index component stocks were either
registered with the Commission or exempt from registration under the
Exchange Act; (ii) all of the underlying index component stocks
traded in the U.S. either directly or as ADRs on a national
securities exchange; and (iii) effective international ADR arbitrage
alleviated concerns over the relatively smaller ADR trading volume,
helped to ensure that ADR prices reflected the pricing on the home
market, and helped to ensure more reliable price determinations for
settlement purposes, due to the unique composition of the index and
reliance on ADR prices. See Securities Exchange Act Release No.
26653 (Mar. 21, 1989), 54 FR 12705, 12708 (Mar. 28, 1989) (SR-Amex-
87-25) (stating that ``surveillance-sharing agreements between the
exchange on which the index option trades and the markets that trade
the underlying securities are necessary'' and that ``[t]he exchange
of surveillance data by the exchange trading a stock index option
and the markets for the securities comprising the index is important
to the detection and deterrence of intermarket manipulation.''). And
the Commission has required a surveillance-sharing agreement even
when approving options based on an index of stocks traded on a
national securities exchange. See Securities Exchange Act Release
No. 30830 (June 18, 1992), 57 FR 28221, 28224 (June 24, 1992) (SR-
Amex-91-22) (stating that surveillance-sharing agreements ``ensure
the availability of information necessary to detect and deter
potential manipulations and other trading abuses'').
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    Listing exchanges have also attempted to demonstrate that other
means besides surveillance-sharing agreements will be sufficient to
prevent fraudulent and manipulative acts and practices, including that
the bitcoin market as a whole or the relevant underlying bitcoin market
is ``uniquely'' and ``inherently'' resistant to fraud and
manipulation.\20\ In response, the Commission has agreed that, if a
listing exchange could establish that the underlying market inherently
possesses a unique resistance to manipulation beyond the protections
that are utilized by traditional commodity or securities markets, it
would not necessarily need to enter into a surveillance-sharing
agreement with a regulated significant market.\21\ Such resistance to
fraud and manipulation, however, must be novel and beyond those
protections that exist in traditional commodity markets or equity
markets for which the Commission has long required surveillance-sharing
agreements in the context of listing derivative securities
products.\22\
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    \20\ See USBT Order, 85 FR at 12597.
    \21\ See Winklevoss Order, 83 FR at 37580, 37582-91 (addressing
assertions that ``bitcoin and bitcoin [spot] markets'' generally, as
well as one bitcoin trading platform specifically, have unique
resistance to fraud and manipulation); see also USBT Order, 85 FR at
12597.
    \22\ See USBT Order, 85 FR at 12597.
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    As discussed in more detail below, NYSE Arca does not assert that
the Exchange has a comprehensive surveillance-sharing agreement with a
regulated market of significant size.\23\ Rather, NYSE Arca contends
that the proposal is consistent with Section 6(b)(5) of the Exchange
Act because the design of the methodology and framework of the Index
(as defined herein) is sufficiently resistant to market
manipulation.\24\ In addition, NYSE Arca states that the ``significant
liquidity in the spot market and resultant minimal impact of market
orders on the overall price of bitcoin, in conjunction with the Trust's
offering only in-kind creation and redemption of Shares with respect to
[a]uthorized [p]articipants, further mitigates the risk associated with
potential manipulation and financially disincentivizes manipulation of
the Index.'' \25\
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    \23\ See infra Section III.B.2.
    \24\ See Notice, 86 FR at 55080.
    \25\ Id. at 55082.
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    In the analysis that follows, the Commission examines whether the
proposed rule change is consistent with Section 6(b)(5) of the Exchange
Act by addressing: In Section III.B.1 assertions that other means
besides surveillance-sharing agreements will be sufficient to prevent
fraudulent and manipulative acts and practices; and in Section III.B.2
assertions relating to NYSE Arca's surveillance-sharing agreements
related to bitcoin.
    Based on the analysis, the Commission concludes that NYSE Arca has
not established that other means to prevent fraudulent and manipulative
acts and practices are sufficient to justify dispensing with the
requisite surveillance-sharing agreement. And as mentioned above, NYSE
Arca does not assert that it has a comprehensive surveillance-sharing
agreement with a regulated market of significant size related to
bitcoin. Moreover, as discussed further below, NYSE Arca repeats
various assertions made in prior bitcoin-based ETP proposals that the
Commission has previously addressed and rejected--and more importantly,
NYSE Arca does not respond to the Commission's reasons for rejecting
those assertions but merely repeats them. As a result, the Commission
is unable to find that the proposed rule change is consistent with the
statutory requirements of Exchange Act Section 6(b)(5).
    The Commission emphasizes that its disapproval of this proposed
rule change does not rest on an evaluation of whether bitcoin, or
blockchain technology more generally, has utility or value as an
innovation or an investment. Rather, the Commission is disapproving
this proposed rule change because, as discussed below, NYSE Arca has
not met its burden to demonstrate that its proposal is consistent with
the requirements of Exchange Act Section 6(b)(5).

II. Description of the Proposed Rule Change

    As described in more detail in the Notice,\26\ the Exchange
proposes to list

and trade the Shares of the Trust under NYSE Arca Rule 8.201-E, which
governs the listing and trading of Commodity-Based Trust Shares on the
Exchange.
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    \26\ See Notice, supra note 3. See also Amendment No. 1 to the
Registration Statement on Form S-1, dated October 6, 2021, filed by
the Trust with the Commission under the Securities Act of 1933 (File
No. 333-256407) (``Registration Statement'').
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    The investment objective of the Trust is to track the performance
of bitcoin, as measured by the performance of the MVIS One River Carbon
Neutral Bitcoin Index (``Index''), adjusted for the Trust's expenses
and other liabilities.\27\ As discussed below, the Index is designed to
reflect the performance of bitcoin in U.S. dollars on a carbon neutral
basis. In seeking to achieve its investment objective, the Trust would
hold bitcoin and would value its Shares based on the same methodology
used to calculate the Index, as adjusted to reflect the expenses
associated with offsetting carbon credits.\28\ The Trust would not
purchase or sell bitcoin directly, although the Trust may direct the
Custodian to sell or transfer bitcoin to pay certain expenses.\29\ The
Trust would not hold cash or cash equivalents; however, there may be
situations where the Trust would hold cash on a temporary basis.\30\
The Trust would not hold futures, options, or options on futures.\31\
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    \27\ See Notice, 86 FR at 55073. The sponsor of the Trust is One
River Digital Asset Management, LLC (``Sponsor''), a Delaware
limited liability company and a wholly-owned subsidiary of One River
Asset Management, LLC. The trustee for the Trust is Delaware Trust
Company. The marketing agent for the Trust is Foreside Global
Services, LLC. The Bank of New York Mellon (``BNY Mellon'') would
act as the Trust's administrator and transfer agent. The custodian
for the Trust, Coinbase Custody Trust Company, LLC (``Custodian''),
would hold all of the Trust's bitcoin on the Trust's behalf and
retain custody of the Trust's bitcoin in an account for the Trust
(``Bitcoin Account''). See id.
    \28\ See id. at 55074. According to the Sponsor, ``[t]he Trust
intends to offset the carbon footprint associated with the bitcoin
it holds by paying for the retirement of voluntary carbon credits
equal to the daily estimated carbon emissions associated with the
bitcoins held by the Trust.'' See Registration Statement at 47. See
also infra notes 39-41 and accompanying text (further describing
``carbon credits'').
    \29\ See Notice, 86 FR at 55074.
    \30\ See id. The Trust has entered into a cash custody agreement
with BNY Mellon under which BNY Mellon would act as custodian of the
Trust's cash and cash equivalents. See id.
    \31\ See id.
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    The Index value would be the benchmark value of the bitcoin, less
the estimated daily cost of offsetting the carbon emissions \32\ of a
single bitcoin.\33\ The Index is the aggregation of executed trade data
for ``major'' bitcoin spot platforms.\34\ According to NYSE Arca, to be
eligible for inclusion in the Index, a constituent bitcoin platform
must enforce policies to ensure fair and transparent market conditions
and have processes in place to impede illegal or manipulative trading
practices. Additionally, each constituent bitcoin platform must comply
with applicable law and regulation, including proper anti-money
laundering (``AML'') and know-your-customer (``KYC'') procedures.\35\
More than 160 global spot platforms are evaluated monthly based on data
transparency, KYC stringency, and transaction monitoring.\36\ The Index
is constructed using bitcoin price feeds from eligible bitcoin spot
markets \37\ and volume weighted median price averages, calculated over
20 intervals in rolling three-minute increments, less the estimated
cost of offsetting the daily carbon emissions attributable to each
bitcoin in the network.\38\
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    \32\ See infra note 44 and accompanying text (generally
describing the connection between electricity usage and consumption
with, and the carbon emission intensity of such electricity
consumption relating to, the bitcoin mining network). See also
Registration Statement at 3.
    \33\ See Notice, 86 FR at 55075. The Index methodology was
developed by MV Index Solutions GmbH (``MVIS'') and is monitored by
the One River Index Committee (``Committee''), an independent,
third-party calculation agent for the Index. MVIS, with the
assistance of its affiliates, is also the calculation agent for the
Index and for the MVIS[supreg] CryptoCompare Bitcoin Benchmark Rate
(``BBR''), which measures the value of the underlying bitcoin
represented by, and is the bitcoin benchmark component for, the
Index. The current constituent bitcoin platforms of the BBR are
Coinbase, Gemini, Bitstamp, Kraken, and itBit. See id. at 55074-75.
    \34\ See id. at 55075. See also Sponsor Letter at 6-7
(describing how the Index is transparent and rules-based).
    \35\ See Notice, 86 FR at 55075.
    \36\ See id.
    \37\ The Committee selects the Index's eligible spot markets and
evaluates them semi-annually, with the final selections to be made
on the third Friday of January and July or during market disruptions
where a market review is warranted, as determined by the Committee.
See id.
    \38\ See id. at 55074.
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    The Trust intends to offset the carbon footprint associated with
bitcoin once a quarter by paying for the instantaneous retirement of
voluntary carbon credits equal to the daily estimated carbon emissions
associated with the bitcoins held by the Trust.\39\ The Trust has
entered into an agreement with LIRDES S.A., d/b/a Moss Earth
(``Moss''), a company located in Uruguay, to pay for carbon credit
tokens created by Moss (``MCO2 Tokens'') representing certified
reductions in greenhouse gas emissions.\40\ The MCO2 Tokens issued by
Moss are carbon offsets encrypted and tokenized, utilizing blockchain
technology, and are stored on a registry managed by Verra.\41\ The
Trust would purchase MCO2 Tokens from Moss at the end of March, June,
September, and December at pre-negotiated prices, and Moss would
instantaneously retire the tokens to the Ethereum blockchain.\42\ The
number of MCO2 Tokens paid for by the Trust would equal the aggregated
sum of offsets implied by the daily carbon emissions for a single
bitcoin over the preceding quarter, multiplied by the average number of
bitcoins held in the Trust's portfolio during the quarter, with a view
towards tracking the carbon footprint offset estimate calculated by the
Index.\43\ The Trust would not hold the carbon offset MCO2 Tokens as an
asset. Instead, the Trust would pay for the MCO2 Tokens and retire the
tokens to the Ethereum blockchain to reduce global carbon emissions by
the carbon dioxide tonnage (or tonnage of other similar greenhouse
gases) corresponding to such tokens.\44\
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    \39\ See id. According to the Exchange, voluntary carbon credits
are certified and standardized under the Verra Verified Carbon
Standard (``Verra''), an organization that establishes and manages
standards and programs in connection with voluntary carbon credits,
and the Trust would only utilize carbon credits that meet the Verra
standards. See id. at 55074-75.
    \40\ See id. at 55075. Upon expiration of its agreement with
Moss in April 2031, the Trust would either enter into a replacement
agreement or pay for the retirement of MCO2 Tokens or similar carbon
credits at then-current spot prices for such instruments. See id.
    \41\ See id. According to the Exchange, the MCO2 Token is a
digital representation of a carbon credit that is stored on a
registry by Verra and can be acquired in over-the-counter (``OTC'')
or publicly-traded markets. Moss purchases carbon credits from
projects that are certified under Verra's Verified Carbon Standard.
Each circulating MCO2 Token is intended to represent a claim on a
certified carbon credit held in an aggregated pool of carbon credits
within the Moss account on the Verra registry. Tokenized carbon
credits are fungible and do not represent a claim on a specific
underlying carbon credit issued to a specific carbon reduction
project. See id.
    \42\ See id. at 55075 & n.10.
    \43\ See id. at 55075.
    \44\ See id. at 55075 & n.10. According to the Exchange, the
cost of the carbon offset used in the Index is calculated in the
following steps. First, electricity consumption for the bitcoin
mining network is recorded daily. Second, geolocation of bitcoin
miners identifies the location of electricity usage. Third, for each
location, the average production of electricity by its source of
production (e.g., solar, coal) is recorded. This estimates the
carbon emission intensity of electricity consumption in the bitcoin
network. Fourth, total electricity consumption is multiplied by the
carbon intensity of the bitcoin network to estimate total carbon
emissions. These steps allow MVIS to obtain a daily estimate of the
carbon emissions necessary to run the bitcoin network. The total
carbon emissions of the bitcoin network are divided by the total
number of bitcoins in circulation to estimate the carbon emissions
attributable to each bitcoin on each day. Finally, the carbon
emission attributable to each bitcoin is multiplied by the MCO2
Token market price of a carbon offset. See id. at 55074. The daily
accumulation of the carbon offset component of the Index measures
the totality of the cost of the carbon offset required for holding a
single bitcoin over the accumulation period. See id. at 55075.
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    BNY Mellon would calculate the net asset value (``NAV'') of the
Trust once each Exchange trading day. The NAV for a normal trading day
would be released after 4:00 p.m. E.T. (often by 5:30 p.m. E.T. and
almost always by

8:00 p.m. E.T.).\45\ The NAV per Share of the Trust would be equal to
the median price of the bitcoin used in the calculation of the Index,
less the Trust's liabilities, including the cost of carbon measured in
the Index, divided by the total number of outstanding Shares. The
accumulation of the daily carbon offset costs calculated in the Index
would act as an expense to the Trust. The payment for the retirement of
carbon offsets by the Trust would occur once per quarter of the
calendar year, and the number of MCO2 Tokens retired would equal the
aggregated sum of offsets implied by the daily carbon footprint for
each bitcoin held by the Trust during the quarter. The NAV would accrue
the estimated carbon cost daily.\46\
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    \45\ See id. at 55076-77.
    \46\ See id. at 55076.
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    The Trust would provide website disclosure of its bitcoin holdings
daily.\47\ The Intraday Indicative Value (``IIV'') per Share would be
widely disseminated every 15 seconds during the NYSE Arca Core Trading
Session (normally 9:30 a.m. E.T. to 4:00 p.m. E.T.) by the Trust and by
one or more major market data vendors and would be available through
on-line information services. The IIV would be calculated by using the
prior day's closing NAV per Share of the Trust as a base and updating
that value throughout the trading day to reflect changes in the most
recently reported price level of the Index as reported by Bloomberg,
L.P. or another reporting service.\48\
---------------------------------------------------------------------------

    \47\ See id. at 55082.
    \48\ See id. at 55077.
---------------------------------------------------------------------------

    The Trust would process all creations and redemptions in-kind and
only in one or more blocks of 50,000 Shares (``Baskets'').\49\ When
creating Shares, authorized participants would deliver, or facilitate
the delivery of, bitcoin to the Bitcoin Account in exchange for Shares,
and when redeeming Shares, the Trust, through the Custodian, would
deliver bitcoin to authorized participants.
---------------------------------------------------------------------------

    \49\ See id. at 55074, 55077.
---------------------------------------------------------------------------

    Although the Trust would create Baskets only upon the receipt of
bitcoins, and redeem Baskets only by distributing bitcoins, a separate
cash exchange process would be made available to authorized
participants. Under the cash exchange process, an authorized
participant would be able to deposit cash with BNY Mellon, which would
facilitate the purchase or sale of bitcoins through a liquidity
provider (``Liquidity Provider'') on behalf of an authorized
participant. The bitcoin purchased (or sold) by the Liquidity Provider
in connection with the cash exchange process would, in turn, be
delivered to (or from, as appropriate) the Custodian, on behalf of the
Trust, in exchange for Baskets.\50\
---------------------------------------------------------------------------

    \50\ See id. at 55074.
---------------------------------------------------------------------------

III. Discussion

A. The Applicable Standard for Review

    The Commission must consider whether NYSE Arca's proposal is
consistent with the Exchange Act. Section 6(b)(5) of the Exchange Act
requires, in relevant part, that the rules of a national securities
exchange be designed ``to prevent fraudulent and manipulative acts and
practices'' and ``to protect investors and the public interest.'' \51\
Under the Commission's Rules of Practice, the ``burden to demonstrate
that a proposed rule change is consistent with the Exchange Act and the
rules and regulations issued thereunder . . . is on the self-regulatory
organization [`SRO'] that proposed the rule change.'' \52\
---------------------------------------------------------------------------

    \51\ 15 U.S.C. 78f(b)(5). Pursuant to Section 19(b)(2) of the
Exchange Act, 15 U.S.C. 78s(b)(2), the Commission must disapprove a
proposed rule change filed by a national securities exchange if it
does not find that the proposed rule change is consistent with the
applicable requirements of the Exchange Act. Exchange Act Section
6(b)(5) states that an exchange shall not be registered as a
national securities exchange unless the Commission determines that
``[t]he rules of the exchange are designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general,
to protect investors and the public interest; and are not designed
to permit unfair discrimination between customers, issuers, brokers,
or dealers, or to regulate by virtue of any authority conferred by
this title matters not related to the purposes of this title or the
administration of the exchange.'' 15 U.S.C. 78f(b)(5).
    \52\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR
201.700(b)(3).
---------------------------------------------------------------------------

    The description of a proposed rule change, its purpose and
operation, its effect, and a legal analysis of its consistency with
applicable requirements must all be sufficiently detailed and specific
to support an affirmative Commission finding,\53\ and any failure of an
SRO to provide this information may result in the Commission not having
a sufficient basis to make an affirmative finding that a proposed rule
change is consistent with the Exchange Act and the applicable rules and
regulations.\54\ Moreover, ``unquestioning reliance'' on an SRO's
representations in a proposed rule change is not sufficient to justify
Commission approval of a proposed rule change.\55\
---------------------------------------------------------------------------

    \53\ See id.
    \54\ See id.
    \55\ Susquehanna Int'l Group, LLP v. Securities and Exchange
Commission, 866 F.3d 442, 447 (D.C. Cir. 2017) (``Susquehanna'').
---------------------------------------------------------------------------

B. Whether NYSE Arca Has Met Its Burden To Demonstrate That the
Proposal Is Designed To Prevent Fraudulent and Manipulative Acts and
Practices

1. Assertions That Other Means Besides Surveillance-Sharing Agreements
Will Be Sufficient To Prevent Fraudulent and Manipulative Acts and
Practices
    As stated above, the Commission has recognized that a listing
exchange could demonstrate that other means to prevent fraudulent and
manipulative acts and practices are sufficient to justify dispensing
with a comprehensive surveillance-sharing agreement with a regulated
market of significant size, including by demonstrating that the bitcoin
market as a whole or the relevant underlying bitcoin market is uniquely
and inherently resistant to fraud and manipulation.\56\ Such resistance
to fraud and manipulation must be novel and beyond those protections
that exist in traditional commodities or securities markets.\57\
---------------------------------------------------------------------------

    \56\ See USBT Order, 85 FR at 12597 n.23. The Commission is not
applying a ``cannot be manipulated'' standard. Instead, the
Commission is examining whether the proposal meets the requirements
of the Exchange Act and, pursuant to its Rules of Practice, places
the burden on the listing exchange to demonstrate the validity of
its contentions and to establish that the requirements of the
Exchange Act have been met. See id.
    \57\ See id. at 12597.
---------------------------------------------------------------------------

(a) Assertions Regarding Bitcoin and Bitcoin Markets
    NYSE Arca does not assert that the bitcoin market as a whole or the
relevant underlying bitcoin market is uniquely and inherently resistant
to fraud and manipulation. The Exchange, however, does assert that the
``significant liquidity in the spot market and resultant minimal impact
of market orders on the overall price of bitcoin, in conjunction with
the Trust's offering only in-kind creation and redemption of Shares . .
. mitigates the risk associated with potential manipulation and
financially disincentivizes manipulation of the Index.'' \58\
---------------------------------------------------------------------------

    \58\ See Notice, 86 FR at 55082.
---------------------------------------------------------------------------

    In support of the proposal, the Exchange states that ``bitcoin is
dominant, accounting for more than 49% of the total market
capitalization of cryptoassets'' and that, ``[a]s of June 2021, the
market cap for [b]itcoin is over $600 billion.'' \59\ In addition, NYSE
Arca

states that bitcoin has the ``longest history of any cryptoasset'' and
ranks as one of the most widely used, if not the most widely used,
cryptoassets in the global token market, with ``more than 38 million
unique bitcoin wallet addresses holding a positive balance, which shows
a steady increase in the number of bitcoin owners and depth of
ownership over the last four years.'' \60\ Moreover, the Exchange
provides that bitcoin investors hold bitcoin for a relatively long
time, as ``58% of owners maintain ownership for longer than a one-year
period, and 70% of all holders are in profitable positions.'' \61\
---------------------------------------------------------------------------

    \59\ See Notice, 86 FR at 55078. See also letter from Sponsor
(Jan. 16, 2022) (``Sponsor Letter'') at 1 (stating that the
expansion of bitcoin market capitalization to nearly one trillion
dollars and average daily turnover of $18.7 billion is above many
well-known single name equity trading volumes such as Apple Inc.).
    \60\ See Notice, 86 FR at 55078.
    \61\ See id.
---------------------------------------------------------------------------

    NYSE Arca also states that the bitcoin marketplace is maturing. The
Exchange cites to increased institutional participation, noting that
public and established companies now hold bitcoin, and that other
financial market participants (e.g., insurance companies and pension
funds) appear to be ``embracing cryptoassets.'' \62\ The Exchange also
provides that ``the rise in the digital economy has led to an increase
in activity within the regulated banking system, reflecting increased
institutional demand.'' \63\ Moreover, according to the Exchange,
``licensed and regulated service providers have emerged to provide fund
custodial services for digital assets, among other services.'' \64\
---------------------------------------------------------------------------

    \62\ See id. Specifically, NYSE Arca states that ``[e]stablished
companies like Tesla, Inc., MicroStrategy Incorporated, and Square,
Inc., among others, have recently announced substantial investments
in bitcoin in amounts as large as $1.5 billion (Tesla) and $425
million (MicroStrategy)'' and that ``MassMutual Insurance Company,
one of the nation's oldest private companies and a historically
conservative investor, has purchased over $100 million in bitcoin.''
Id.
    \63\ Id. See also letter from Paul Grewal, Chief Legal Officer,
Coinbase (Jan. 11, 2022) (``Coinbase Letter'') at 3-4 (restating
NYSE Arca's assertions and generally observing ``growth in the use
of crypto assets to participate in decentralized finance, or DeFi,
applications such as peer-to-peer borrowing and lending, with the
total value allocated towards decentralized finance globally growing
from under $1 billion to over $15 billion from December 31, 2019 to
December 31, 2020,'' and ``a positive trend in the total market
capitalization of crypto assets which indicates increased
adoption''); Sponsor Letter at 1-2 (generally asserting that the
rising value of bitcoin has accompanied advancement in information
around its operational quality and the development of novel
techniques designed to increase transparency and negate the risk of
manipulation).
    \64\ See Notice, 86 FR at 55078.
---------------------------------------------------------------------------

    Additionally, NYSE Arca states that the Commodity Futures Trading
Commission (``CFTC'') has ``exercised its regulatory jurisdiction in
bringing a number of enforcement actions related to bitcoin and against
trading platforms that offer cryptoasset trading, including, in certain
cases, against defendants for direct trading of cryptoassets.'' \65\
Specifically, NYSE Arca contends that the CFTC ``has historically
asserted jurisdiction over spot market commodities trading, where
manipulative trading in the spot market can affect its derivatives
market.'' \66\
---------------------------------------------------------------------------

    \65\ See id. at 55079.
    \66\ See id. at 55079-80. The Exchange specifically cites to two
cases, CFTC v. Gelfman Blueprint (No. 17-7181) (S.D.N.Y. Sept. 21,
2017) and CFTC v. Patrick K. McDonnell & Cabbagetech Corp., d/b/a
Coin Drop Markets, (No. 18-CV-0361) (E.D.N.Y. Aug. 24, 2018), where,
according to the Exchange, the CFTC asserted jurisdiction over the
spot market when ``there was little to no derivatives trading in the
United States'' or the ``case did not indicate that there was any
derivatives trading conducted,'' respectively. See id. NYSE Arca
surmises that the ``[c]ourts have taken an expansive interpretation
of the CFTC's jurisdiction over trading in particular virtual
currency products on the basis that futures trading in such products
as a class already occurs.'' See id. See also Coinbase Letter at 5
(asserting that the Commission should rely on the CFTC to exercise
its traditional fraud authority to ensure the underlying bitcoin
market is free of manipulation, and that these safeguards should
satisfy the Commission).
---------------------------------------------------------------------------

    Finally, according to NYSE Arca, certain other regulatory bodies,
such as the U.S. Department of the Treasury's Financial Crimes
Enforcement Network (``FinCEN''), the U.S. Office of the Comptroller of
the Currency (``OCC''), and the Board of Governors of the Federal
Reserve System (``Federal Reserve'') have recently proposed or
clarified rules to enhance transparency,\67\ custody,\68\ and account
services \69\ relating to ``cryptoassets'' or ``digital assets,''
respectively.\70\
---------------------------------------------------------------------------

    \67\ See Notice, 86 FR at 55078-79. NYSE Arca states that FinCEN
has proposed rulemaking initiatives aimed at enhancing transparency,
which would require certain financial institutions to collect,
retain, share, and report to FinCEN information related to certain
transactions involving convertible virtual currency or certain
digital assets, including identification information of persons
engaged in such transactions. See id. According to NYSE Arca, such
proposed rules ``are intended to reduce anonymity and promote
transparency within the cryptoasset markets generally and of
cryptoasset exchanges specifically, including the exchanges that
compose the bitcoin component of the Index.'' Id. NYSE Arca also
provides that, in March 2021, the Financial Action Task Force
(``FATF'') issued updated draft guidance that, ``when issued in
final form, would significantly broaden the reach of certain anti-
money laundering, including know-your-customer, compliance
requirements applicable to transactions in virtual assets or
involving virtual asset service providers.'' Id. While NYSE Arca
acknowledges that ``FinCEN has not finalized its proposed rules yet,
and the FATF guidance does not have the force of law,'' NYSE Arca
argues that ``these actions signal a concerted effort among
regulatory bodies to introduce requirements that would reduce
anonymity of cryptoasset transactions and implement stronger anti-
money laundering compliance measures among industry participants.''
Id.
    \68\ See Notice, 86 FR at 55080. According to the Exchange,
``the [OCC] has made clear that federally-chartered banks are able
to provide custody services for cryptoassets and other digital
assets.'' Id.
    \69\ See id. According to the Exchange, ``the [Federal Reserve]
proposed guidelines to evaluate the requests for account services at
Federal Reserve Banks in light of recent changes to the financial
payments landscape.'' Id.
    \70\ The Exchange also mentions technological advancements in
the bitcoin protocol, as well as advancements in regulatory
frameworks, both on a global and national scale, such as the Bank of
International Settlements' provision of consultation on prudential
treatment of cryptoassets. See Notice, 86 FR at 55079.
---------------------------------------------------------------------------

    As with the previous proposals, the Commission here concludes that
the Exchange's assertions about the general liquidity, growth, and
acceptance of the bitcoin market do not constitute other means to
prevent fraud and manipulation sufficient to justify dispensing with
the requisite surveillance-sharing agreement. While the Exchange states
that the significant liquidity in the spot market and resultant minimal
impact of market orders on the overall price of bitcoin mitigates the
risk associated with potential manipulation, such assertion is general
and conclusory. Indeed, apart from the market capitalization of bitcoin
and the number of unique bitcoin wallet addresses, NYSE Arca provides
no analysis or evidence of liquidity in the bitcoin spot market or its
assertion that there is ``minimal impact of market orders'' on the
price of bitcoin. Likewise, NYSE Arca provides no analysis or evidence
to demonstrate how liquidity or minimal impact of market orders serves
to detect and deter potential fraud and manipulation.\71\ As stated
above, ``unquestioning reliance'' on an SRO's representations in a
proposed rule change is not sufficient to justify Commission approval
of a proposed rule change.\72\
---------------------------------------------------------------------------

    \71\ See supra note 58 and accompanying text. The Exchange does
not directly tie the asserted liquidity or development of the
bitcoin market to an argument that such market evolution provides
sufficient means to justify dispensing with the requisite
surveillance sharing agreement. In addition, the Exchange makes no
assertions that bitcoin is resistant to price manipulation.
    \72\ See supra note 55. The Commission has previously considered
and rejected similar arguments about the liquidity and growth of the
bitcoin spot market and general statements about the maturation of
the bitcoin market. See, e.g., Valkyrie Order, 86 FR at 74159.
---------------------------------------------------------------------------

    While the Sponsor and NYSE Arca provide figures describing the size
of the bitcoin spot market,\73\ such information is not sufficient to
support the finding that other means besides surveillance-sharing
agreements exist to prevent fraud or manipulation. NYSE Arca does

not provide meaningful analysis, based on data points provided, that
the concerns previously articulated by the Commission relating to fraud
and manipulation of the bitcoin market have been mitigated. For
example, NYSE Arca does not sufficiently refute the presence of
possible sources of fraud and manipulation in the bitcoin spot market
generally that the Commission has raised in previous orders. Such
possible sources have included (1) ``wash'' trading,\74\ (2) persons
with a dominant position in bitcoin manipulating bitcoin pricing,\75\
(3) hacking of the bitcoin network and trading platforms, (4) malicious
control of the bitcoin network, (5) trading based on material, non-
public information, including the dissemination of false and misleading
information, (6) manipulative activity involving purported
``stablecoins,'' including Tether (USDT), and (7) fraud and
manipulation at bitcoin trading platforms.\76\ Additionally, although
NYSE Arca represents that ``there are more than 38 million unique
bitcoin wallet addresses holding a positive balance, which shows a
steady increase in the number of bitcoin owners and depth of ownership
over the last four years,'' \77\ such figure, on its own, regarding the
number of wallet addresses holding bitcoin do not provide any
information on the concentration of bitcoin within or among such
wallets, or take into account that a market participant with a dominant
ownership position could use dominant market share to engage in
manipulation.\78\
---------------------------------------------------------------------------

    \73\ See supra note 59 and accompanying text.
    \74\ See infra note 107 and accompanying text.
    \75\ See infra note 78 and accompanying text.
    \76\ See USBT Order, 85 FR at 12600-01 & nn.66-67 (discussing J.
Griffin & A. Shams, Is Bitcoin Really Untethered? (October 28,
2019), available at https://ssrn.com/abstract=3195066 and published
in 75 J. Finance 1913 (2020)); Winklevoss Order, 83 FR at 37585-86.
    \77\ See supra note 60 and accompanying text.
    \78\ See, e.g., Winklevoss Order, 83 FR at 37584; USBT Order, 85
FR at 12600-01; WisdomTree Order, 86 FR at 69325; Valkyrie Order, 86
FR at 74160; Kryptoin Order, 86 FR at 74170; Skybridge Order, 87 FR
at 3783-84; Wise Origin Order, 87 FR at 5531; ARK 21Shares Order, 87
FR at 20019. See also Registration Statement at 21 (disclosing that:
(a) Some entities hold large amounts of bitcoin relative to other
market participants, (b) as of the date of the [Registration
Statement], the ``largest [100] bitcoin wallets held a substantial
amount of the outstanding supply of bitcoin and it is possible that
some of these wallets are controlled by the same person or entity,''
and (c) ``it is possible that other persons or entities control
multiple wallets that collectively hold a significant number of
bitcoin, even if each wallet individually only holds a small
amount,'' and ``[a]s a result of this concentration of ownership,
large sales by such holders could have an adverse effect on the
market price of bitcoin'').
---------------------------------------------------------------------------

    Further, although the Exchange describes the bitcoin marketplace as
maturing with increased institutional participation and acceptance,\79\
the Exchange does not elaborate on how such participation and
acceptance would mitigate against fraud and manipulation.
---------------------------------------------------------------------------

    \79\ See supra notes 62-64 and accompanying text.
---------------------------------------------------------------------------

    In support of its proposal, NYSE Arca also states that the ``CFTC
has exercised its regulatory jurisdiction in bringing a number of
enforcement actions related to bitcoin and against trading platforms
that offer cryptoasset trading.'' \80\ The Commission has long
recognized that the CFTC maintains some jurisdiction over the bitcoin
spot market. However, under the Commodity Exchange Act, the CFTC does
not have regulatory authority over bitcoin spot trading platforms.\81\
Except in certain limited circumstances, bitcoin spot trading platforms
are not required to register with the CFTC, and the CFTC does not set
standards for, approve the rules of, examine, or otherwise regulate
bitcoin spot markets.\82\ As the CFTC itself stated, while the CFTC
``has an important role to play,'' U.S. law ``does not provide for
direct, comprehensive Federal oversight of underlying Bitcoin or
virtual currency spot markets.'' \83\ In addition, while certain
bitcoin derivatives exchanges that trade bitcoin futures and options on
bitcoin futures are regulated by the CFTC, the CFTC's regulations do
not extend to the bitcoin spot platforms, including the bitcoin spot
platforms comprising the Index.
---------------------------------------------------------------------------

    \80\ See Notice, 86 FR at 55079.
    \81\ See USBT Order, 85 FR at 12604; WisdomTree Order, 86 FR at
69328; Valkyrie Order, 86 FR at 74162; SkyBridge Order, 87 FR at
3877; ARK 21Shares Order, 87 FR at 20023.
    \82\ See id.
    \83\ See Winklevoss Order, 83 FR at 37599 n.288 (quoting CFTC
Backgrounder on Oversight of and Approach to Virtual Currency
Futures Markets (Jan. 4, 2018), at 1, available at https://www.cftc.gov/sites/default/files/idc/groups/public/@newsroom/documents/file/backgrounder_virtualcurrency01.pdf).
---------------------------------------------------------------------------

    Moreover, even if, as the Exchange maintains, the CFTC ``has
historically asserted jurisdiction over spot market commodities
trading, where manipulative trading in the spot market can affect its
derivatives market'' \84\ (emphasis added), the Exchange fails to
explain why the CFTC's ability to bring enforcement action is a
sufficient basis for the Exchange to dispense with the requirement to
enter into a surveillance-sharing agreement with a regulated market of
significant size. Specifically, where here the Shares of the proposed
ETP would trade on a securities market, the Exchange fails to explain
why it is relevant to the proposal that the CFTC can bring enforcement
actions when spot trading affects the derivatives market. Moreover, the
Commission also has the ability to bring enforcement actions for a wide
array of causes, including fraud and manipulation, in the securities
market. Despite this, as stated above, surveillance-sharing agreements
have been consistently present whenever the Commission has approved the
listing and trading of derivative securities, even where the underlying
securities were also listed on national securities exchanges--such as
options based on an index of stocks traded on a national securities
exchange--and were thus subject to the Commission's direct regulatory
authority.\85\
---------------------------------------------------------------------------

    \84\ See supra note 66 and accompanying text.
    \85\ See supra note 19 and accompanying text.
---------------------------------------------------------------------------

    Further, while the Exchange describes how other U.S. regulatory
bodies have clarified or considered rulemaking initiatives to enhance
transparency, custody, and account services relating to cryptoassets
and other digital assets,\86\ NYSE Arca fails to explain how such
initiatives serve as a suitable substitute or regulatory supplement to
dispense with the need for the Exchange to enter into a surveillance-
sharing agreement with a regulated market of significant size. As
discussed above, it is essential for an exchange listing a derivative
securities product to enter into a surveillance-sharing agreement with
markets trading the underlying assets for the listing exchange to have
the ability to obtain information necessary to detect, investigate, and
deter fraud and market manipulation, as well as violations of exchange
rules and applicable federal securities laws and rules.\87\ Such
agreement provides for the sharing of information about market trading
activity, clearing activity, and customer identity; that the parties to
the agreement have reasonable ability to obtain access to and produce
requested information; and that no existing rules, laws, or practices
would impede one

party to the agreement from obtaining this information from, or
producing it to, the other party.\88\ NYSE Arca fails to explain how
the additional regulatory clarifications or rulemaking initiatives
serve the function of a surveillance-sharing agreement in preventing,
and sharing information about, fraud and manipulation.\89\
---------------------------------------------------------------------------

    \86\ According to the Exchange, the OCC clarified that
``federally-chartered banks are able to provide custody services for
cryptoassets and other digital assets''; the Federal Reserve
proposed guidelines to evaluate the requests for account services;
and FinCEN has proposed rulemaking initiatives to ``require certain
cryptoasset transactions to be subject to [AML] compliance''; FATF
has issued updated draft guidance that ``would significantly broaden
the reach of certain anti-money laundering, including [KYC],
compliance requirements applicable to transactions in virtual assets
or involving virtual asset service providers''; and the Treasury's
Office of Foreign Assets Control (``OFAC'') has ``brought
enforcement actions over apparent violations of the sanctions laws
in connection with the provision of wallet management services for
digital assets.'' See supra notes 67-70 and accompanying text.
    \87\ See NDSP Adopting Release, 63 FR at 70959.
    \88\ See supra note 15 and accompanying text.
    \89\ NYSE Arca provides no data, information, or analysis as to
how clarifications by the OCC regarding custody or by the Federal
Reserve regarding account services address the Commission's concerns
about fraud and manipulation. Likewise, initiatives by FinCEN, FATF,
and OFAC related to AML, KYC, and sanctions do not serve as a
substitute for, and are not otherwise the dispositive factor in the
analysis regarding, the importance of having a surveillance-sharing
agreement with a regulated market of significant size relating to
bitcoin. For example, AML and KYC policies and procedures do not
substitute for the sharing of information about market trading
activity or clearing activity, and do not substitute for regulation
of national securities exchanges. See USBT Order, 85 FR at 12603
n.101 and accompanying text. See also Kryptoin Order, 86 FR at 74172
n.79 (discussing how a commenter asserts that global bitcoin and
cryptocurrency markets are subject to increasing levels of
regulation, oversight, and enforcement actions by global governments
and regulatory bodies, but provides no data, information, or
analysis as to how, among other things, any such regulation makes
the listing and trading of the ETP shares inherently resistant to
fraud and manipulation).
---------------------------------------------------------------------------

    In addition, NYSE Arca does not address risk factors specific to
the bitcoin blockchain and bitcoin platforms, described in the Trust's
Registration Statement, that undermine the argument that the concerns
previously articulated by the Commission relating to fraud and
manipulation of the bitcoin market have been mitigated.\90\ For
example, the Registration Statement acknowledges that the ``spot
markets through which bitcoin and other digital assets trade are new
and largely unregulated, and therefore, may be more exposed to fraud
and security breaches that established, regulated exchanges for other
financial assets or instruments''; that there is a risk of
``manipulation of bitcoin spot markets by customers and/or the closure
or temporary shutdown of such exchanges due to fraud''; that ``many
spot markets and OTC market venues, do not provide the public with
significant information regarding their ownership structure, management
teams, corporate practices or oversight of customer trading''; that
``[o]ver the past several years, a number of bitcoin spot markets have
been closed or faced issues due to fraud''; that ``[t]he nature of the
assets held at bitcoin spot markets makes them appealing targets for
hackers and a number of bitcoin spot markets have been victims of
cybercrimes''; that the bitcoin blockchain could be vulnerable to a
``51% attack,'' in which a bad actor (or actors) or botnet that
controls a majority of the processing power of the bitcoin network may
be able to alter the bitcoin blockchain on which the bitcoin network
and bitcoin transactions rely; and that ``digital asset networks have
been subject to malicious activity achieved through control of over 50%
of the processing power on the network.'' \91\
---------------------------------------------------------------------------

    \90\ See, e.g., SkyBridge Order, 87 FR at 3873; ARK 21Shares
Order, 87 FR at 20019-20.
    \91\ See Registration Statement at 4, 10-11, 15.
---------------------------------------------------------------------------

(b) Assertions Regarding the Index
    The Exchange states that the ``use of the Index eliminates those
bitcoin spot markets with indicia of suspicious, fake, or non-economic
volume from the NAV calculation methodology pursuant to which the Trust
prices its Shares.'' \92\ In addition, the Exchange asserts that the
use of multiple eligible bitcoin spot markets is designed to mitigate
the potential for idiosyncratic market risk.\93\ NYSE Arca also
contends that the use of 20 rolling three-minute increments in the
construction of the Index means that a malicious actor would need
sustained efforts to ``manipulate the market over an extended period of
time, or would need to replicate efforts multiple times, potentially
triggering review from the spot market or regulators, or both.'' \94\
The Exchange also states that ``[a]ny attempt to manipulate the NAV
would require a substantial amount of capital distributed across a
majority of the eligible spot markets, and potentially coordinated
activity across those markets, making it more difficult to conduct,
profit from, or avoid the detection of market manipulation.'' \95\
---------------------------------------------------------------------------

    \92\ See Notice, 86 FR at 55080.
    \93\ Id.
    \94\ Id.
    \95\ Id. See also Sponsor Letter at 2 (further asserting that
novel indices, such as the Index, ``provide not only a robust price
for the spot bitcoin market but also negate the risk of market
manipulation,'' and that to manipulate the Index would require
sustained intervention across multiple exchanges during a period of
peak market liquidity).
---------------------------------------------------------------------------

    Based on assertions made and the information provided, the
Commission can find no basis to conclude that NYSE Arca has articulated
other means to prevent fraud and manipulation that are sufficient to
justify dispensing with the requisite surveillance-sharing agreement.
The record does not demonstrate that the proposed methodology for
calculating the Index would make the proposed ETP resistant to fraud or
manipulation such that a surveillance-sharing agreement with a
regulated market of significant size is unnecessary. Specifically, NYSE
Arca has not assessed the possible influence that spot platforms not
included among the Index's underlying bitcoin platforms would have on
the Index.\96\ The record does not establish that the broader bitcoin
market is inherently and uniquely resistant to fraud and manipulation.
Accordingly, to the extent that trading on platforms not directly used
to calculate the Index affects prices on the Index's underlying bitcoin
platforms, the characteristics of those other platforms--where various
kinds of fraud and manipulation from a variety of sources may be
present and persist--may affect whether the Index is resistant to
manipulation.
---------------------------------------------------------------------------

    \96\ While NYSE Arca asserts that the Index's use of a median
price limits the ability of outlier prices to affect the Index, the
Commission has no basis on which to conclude that the Index's
constituent bitcoin platforms are insulated from prices of others
that engage in or permit fraud or manipulation. See supra notes 37-
38 and accompanying text.
---------------------------------------------------------------------------

    Moreover, NYSE Arca's assertions that the Index's methodology helps
make the Index resistant to manipulation are contradicted by the
Registration Statement's own statements. Specifically, the Registration
Statement states, among other things, that ``a number of bitcoin spot
markets have been closed or faced issues due to fraud'' and that
``[t]he nature of the assets held at bitcoin spot markets makes them
appealing targets for hackers and a number of bitcoin spot markets have
been victims of cybercrimes.'' \97\ The Index's constituent bitcoin
platforms are a subset of the bitcoin trading venues currently in
existence.
---------------------------------------------------------------------------

    \97\ See Registration Statement at 10, 25.
---------------------------------------------------------------------------

    With respect to the Index specifically, the Registration Statement
also states that ``[p]ricing sources used by the Index are digital
asset spot markets that facilitate the buying and selling of bitcoin
and other digital assets''; ``[a]lthough many pricing sources refer to
themselves as ``exchanges,'' they are not registered with, or
supervised by, the [Commission] or CFTC and do not meet the regulatory
standards of a national securities exchange or designated contract
market.'' \98\ The Sponsor further states in the Registration Statement
that ``[t]he Index is based on various inputs which include price data
from various third-party bitcoin spot markets'' and ``[t]he [MVIS] does
not guarantee the validity of any of these inputs, which may be subject
to technological error, manipulative activity, or fraudulent

reporting from their initial source.'' \99\ And, although the Sponsor
raises concerns regarding fraud and security of bitcoin platforms, as
well as concerns specific to the Index's constituent bitcoin platforms,
the Exchange does not explain how or why such concerns are consistent
with its assertion that the Index is resistant to fraud and
manipulation. Indeed, the Trust's Registration Statement undermines
NYSE Arca's arguments and assertions about how the Index is resistant
fraud and manipulation.
---------------------------------------------------------------------------

    \98\ See id. at 29.
    \99\ See id.
---------------------------------------------------------------------------

    Moreover, although the Exchange states that the Index's ``oversight
[is] managed by an independent committee'' \100\ and that the Committee
selects the Index's constituent platforms from multiple eligible
markets (and thus mitigate the potential for idiosyncratic market
risk), the record does not provide any other details about the
oversight of the Committee and how its selection processes mitigate
fraud and manipulation of the constituent bitcoin platforms. Given the
lack of information, the record does not suggest that the oversight or
the selection process represents a unique measure to resist or prevent
manipulation beyond mechanisms that exist in securities or commodities
markets.\101\ Rather, the oversight performed by the Committee appears
to be for the purpose of ensuring the accuracy and integrity of the
Index.\102\ Such oversight serves a fundamentally different purpose as
compared to the regulation of national securities exchanges and the
requirements of the Exchange Act. While the Commission recognizes that
this may be an important function in ensuring the integrity of the
Index, such requirements do not imbue either the Committee or the
Index's underlying bitcoin platforms with regulatory authority similar
to that the Exchange Act confers upon self-regulatory organizations
such as national securities exchanges.\103\
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    \100\ See Notice, 86 FR at 55080.
    \101\ Further, the Commission has previously considered and
rejected arguments about the valuation of bitcoin according to a
benchmark or reference price mitigating concerns about fraud and
manipulation. See, e.g., SolidX Order, 82 FR at 16258; Winklevoss
Order, 83 FR at 37587-90; USBT Order, 85 FR at 12599-601.
    \102\ See supra notes 33 & 37 and accompanying text.
    \103\ See 15 U.S.C. 78f(b).
---------------------------------------------------------------------------

    NYSE Arca also argues that the use of 20 rolling three-minute
increments means that a malicious actor would need to sustain efforts
to manipulate the market over an extended period of time, or would need
to replicate efforts multiple times, potentially triggering review from
the spot market or regulators, or both.\104\ However, NYSE Arca does
not show or explain how the proposed use of 20 rolling three-minute
increments to calculate the Index value would effectively be able to
eliminate fraudulent or manipulative activity that is not transient.
Fraud and manipulation in the bitcoin spot market could persist for a
``significant duration.'' \105\ The Exchange also does not connect the
use of the partitions \106\ to the duration of the effects of the wash
and fictitious trading that may exist in the bitcoin spot market.\107\
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    \104\ See supra notes 94-95 and accompanying text.
    \105\ See USBT Order, 85 FR at 12601 n.66; see also id. at
12607; Kryptoin Order, 86 FR at 74172.
    \106\ See supra notes 37-38 and accompanying text.
    \107\ See WisdomTree Order, 86 FR at 69327; Kryptoin Order, 86
FR at 74172.
---------------------------------------------------------------------------

    NYSE Arca also does not explain the significance of the Index's
unsubstantiated resistance to manipulation to the overall analysis of
whether the proposal to list and trade the Shares is designed to
prevent fraud and manipulation. Even assuming that NYSE Arca's argument
is that, if the Index is resistant to manipulation, the Trust's NAV,
and thereby the Shares as well, would be resistant to manipulation,
NYSE Arca has not established in the record a basis for such
conclusion.\108\ That assumption aside, the Commission notes that the
Shares would trade at market-based prices in the secondary market, not
at NAV, which then raises the question of the significance of the NAV
calculation to the manipulation of the Shares.\109\
---------------------------------------------------------------------------

    \108\ Putting aside NYSE Arca's various assertions about bitcoin
and developments of the bitcoin market, the Index, and the Shares,
NYSE Arca also does not address concerns the Commission has
previously identified, including the susceptibility of bitcoin
markets to potential trading on material, non-public information
(such as plans of market participants to significantly increase or
decrease their holdings in bitcoin; new sources of demand for
bitcoin; the decision of a bitcoin-based investment vehicle on how
to respond to a ``fork'' in the bitcoin blockchain, which would
create two different, non-interchangeable types of bitcoin), or to
the dissemination of false or misleading information. See Winklevoss
Order, 83 FR at 37585. See also USBT Order, 85 FR at 12600-01;
WisdomTree Order, 86 FR at 69329 n.114; Kryptoin Order, 86 FR at
74174 n.107; Skybridge Order, 87 FR at 3872; Wise Origin Order, 87
FR at 5533 n.89; ARK 21Shares Order, 87 FR at 20022 n.117.
    \109\ See Registration Statement at 5 (stating that the NAV of
the Trust may deviate from the market price of its Shares for a
number of reasons, including price volatility, trading activity,
normal trading hours for the Trust, the calculation methodology of
the NAV, and/or the closing of bitcoin trading platforms due to
fraud, failure, security breaches or otherwise); Registration
Statement at 30 (disclosing that shareholders should be aware that
the public trading price per Share may be different from the NAV for
a number of reasons, including price volatility, trading activity,
the closing of bitcoin trading platforms due to fraud, failure,
security breaches or otherwise, and the fact that supply and demand
forces at work in the secondary trading market for Shares are
related, but not identical, to the supply and demand forces
influencing the market price of bitcoin).
---------------------------------------------------------------------------

    Because NYSE Arca does not address or provide any analysis with
respect to these issues, the Commission cannot conclude that the Index
aids in the determination that the proposal to list and trade the
Shares is designed to prevent fraudulent and manipulative acts and
practices. The Exchange has not demonstrated that the Index methodology
makes the proposed ETP resistant to manipulation. While the proposed
procedures for calculating the Index using prices from the constituent
bitcoin platforms may be intended to provide some degree of protection
against attempts to manipulate the Index, these procedures are not
sufficient for the Commission to dispense with the requisite
surveillance-sharing agreement with a regulated market of significant
size.
(c) Assertion Regarding the Create/Redeem Process
    NYSE Arca also asserts that, because the Trust will, in ordinary
circumstances, not purchase or sell bitcoin, but instead process all
creations and redemptions in-kind in transactions with authorized
participants, ``the Trust is uniquely protected against potential
attempts by bad actors to manipulate the price of bitcoin on spot
markets contributing to the Index and thereby the Trust's NAV
calculation.'' \110\ According to NYSE Arca, this is true even with
respect to transactions with authorized participants who rely on the
cash exchange process described above because the Trust will create (or
redeem, as appropriate) Baskets only upon the receipt (or distribution,
as appropriate) of bitcoin, and will not create or redeem any Baskets
based on the receipt or distribution of cash alone.\111\ Thus, as NYSE
Arca argues, ``even if a bad actor were able to temporarily manipulate
the price of bitcoin on a spot market or manipulate enough of the
volume of the markets to overwhelm the protections designed into the
Index and thereby the NAV, the fact that the Trust will create or
redeem Baskets only upon receipt or distribution of bitcoin (in all
circumstances barring a forced redemption) means that the amount of

bitcoin per Share held by the Trust would not be impacted.'' \112\
---------------------------------------------------------------------------

    \110\ See Notice, 86 FR at 55080. According to the Exchange,
except to pay certain expenses or in the case of a forced redemption
or other ordinary circumstances, the Trust will not purchase or sell
bitcoin directly. See id. at 55080 n.43. See also Coinbase Letter at
2.
    \111\ See Notice, 86 FR at 55080.
    \112\ See id. The Exchange asserts that, because the Trust will
generally not accept cash in order to create new Shares or, barring
a forced redemption of the Trust or under other extraordinary
circumstances, be forced to sell bitcoin to pay cash for redeemed
Shares, ``the ratio of bitcoin per Share that [a]uthorized
[p]articipants will tender (for creations) or receive (for
distributions) will not change as a result of any changes in the
price per Share, even if the [a]uthorized [p]articipant relies on
the cash exchange process to facilitate such creation or
redemption.'' Id.
---------------------------------------------------------------------------

    NYSE Arca has not demonstrated that in-kind creations and
redemptions provide the Shares with a unique resistance to
manipulation.\113\ The Commission has previously addressed similar
assertions.\114\ As the Commission stated before, in-kind creations and
redemptions are a common feature of ETPs, and the Commission has not
previously relied on the in-kind creation and redemption mechanism as a
basis for excusing exchanges that list ETPs from entering into
surveillance-sharing agreements with significant, regulated markets
related to the portfolio's assets.\115\ Accordingly, the Commission is
not persuaded here that the Trust's in-kind creations and redemptions
afford it a unique resistance to manipulation.
---------------------------------------------------------------------------

    \113\ The Sponsor also asserts that the creation/redemption
process is at the core of bringing the ``[NAV] of the underlying
holdings as close to the traded value of the product as possible''
and notes that the ``in-kind exchange for redemption and creation of
Shares is more efficient than cash,'' but the Sponsor provides no
other explanation as to whether in-kind creations and redemptions
mitigate against the Commission's concerns regarding fraud and
manipulation in the bitcoin market or justify dispensing with the
requisite surveillance-sharing agreement. See Sponsor Letter at 6.
    \114\ See Winklevoss Order, 83 FR at 37589-90; USBT Order, 85 FR
at 12607-08; VanEck Order, 86 FR at 64546; WisdomTree Order, 86 FR
at 69329; Kryptoin Order, 86 FR at 74174; SkyBridge Order, 87 FR at
3874; Wise Origin Order, 87 FR at 5533; ARK 21Shares Order, 87 FR at
20022.
    \115\ See, e.g., iShares COMEX Gold Trust, Securities Exchange
Act Release No. 51058 (Jan. 19, 2005), 70 FR 3749, 3751-55 (Jan. 26,
2005) (SR-Amex-2004-38); iShares Silver Trust, Securities Exchange
Act Release No. 53521 (Mar. 20, 2006), 71 FR 14969, 14974 (Mar. 24,
2006) (SR-Amex-2005-072).
---------------------------------------------------------------------------

2. Assertions That NYSE Arca Has Entered Into a Comprehensive
Surveillance-Sharing Agreement With a Regulated Market of Significant
Size
    As NYSE Arca has not demonstrated that other means besides
surveillance-sharing agreements will be sufficient to prevent
fraudulent and manipulative acts and practices, the Commission next
examines whether the record supports the conclusion that NYSE Arca has
entered into a comprehensive surveillance-sharing agreement with a
regulated market of significant size relating to the underlying assets.
In this context, the term ``market of significant size'' includes a
market (or group of markets) as to which (i) there is a reasonable
likelihood that a person attempting to manipulate the ETP would also
have to trade on that market to successfully manipulate the ETP, so
that a surveillance-sharing agreement would assist in detecting and
deterring misconduct, and (ii) it is unlikely that trading in the ETP
would be the predominant influence on prices in that market.\116\
---------------------------------------------------------------------------

    \116\ See Winklevoss Order, 83 FR at 37594. This definition is
illustrative and not exclusive. There could be other types of
``significant markets'' and ``markets of significant size,'' but
this definition is an example that provides guidance to market
participants. See id.
---------------------------------------------------------------------------

    In its proposal, however, NYSE Arca does not identify any market as
a ``market of significant size'' and accordingly makes no assertions
regarding, and provides no information to establish, either prong of
the ``market of significant size'' determination.\117\ The requirements
of Section 6(b)(5) of the Exchange Act apply to the rules of national
securities exchanges. Accordingly, the relevant obligation for a
comprehensive surveillance-sharing agreement with a regulated market of
significant size, or other means to prevent fraudulent and manipulative
acts and practices that are sufficient to justify dispensing with the
requisite surveillance-sharing agreement, resides with the listing
exchange. Because there is insufficient evidence in the record
demonstrating that NYSE Arca has satisfied this obligation, the
Commission cannot approve the proposed ETP for listing and trading on
NYSE Arca.
---------------------------------------------------------------------------

    \117\ See Valkyrie Order, 86 FR at 74163.
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2) of the Exchange Act, the Commission
must disapprove a proposed rule change filed by a national securities
exchange if it does not find that the proposed rule change is
consistent with the applicable requirements of the Exchange Act--
including the requirement under Section 6(b)(5) that the rules of a
national securities exchange be designed to prevent fraudulent and
manipulative acts and practices.\118\
---------------------------------------------------------------------------

    \118\ See 15 U.S.C. 78s(b)(2)(C).
---------------------------------------------------------------------------

    For the reasons discussed above, NYSE Arca has not met its burden
of demonstrating that the proposal is consistent with Exchange Act
Section 6(b)(5),\119\ and, accordingly, the Commission must disapprove
the proposal.\120\
---------------------------------------------------------------------------

    \119\ 15 U.S.C. 78f(b)(5).
    \120\ In disapproving the proposed rule change, the Commission
has considered its impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f). The Sponsor argues that the growth
of digitalized U.S. dollars demonstrates that the technological
advancements in bitcoin are symbiotic with fiat currencies,
reinforcing the operational efficiencies to be gained from final and
virtually instantaneous settlement. See Sponsor Letter at 4. The
Sponsor also asserts that, just as an in-kind exchange for
redemption and creation of Shares is more efficient than cash,
establishing this precedent may also lead to the natural extension
of investors seeking in-kind delivery as they consume custodial and
other financial services directly, and that, in this case,
``exchange traded products would be a transition to a more
digitalized, personalized, and efficient form of automated financial
services.'' See Sponsor Letter at 6. For the reasons discussed
throughout, however, see supra note 51, the Commission is
disapproving the proposed rule change because it does not find that
the proposed rule change is consistent with the Exchange Act. See
also USBT Order, 85 FR at 12615.
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C. Other Comments

    One commenter argues that the approval of a futures-based ETP
should allow for the Commission to approve NYSE Arca's proposal because
a futures-based ETP and the Trust are both reliant on bitcoin's
underlying price, and ETPs that invest in bitcoin futures contracts
present substantially similar risk of manipulation as the Trust.\121\
---------------------------------------------------------------------------

    \121\ See Coinbase Letter at 2.
---------------------------------------------------------------------------

    The Commission disagrees with the premise of the argument. The
proposed rule change does not relate to the same underlying holdings as
either exchange-traded funds registered under the Investment Company
Act of 1940 that provide exposure to bitcoin through CME bitcoin
futures or bitcoin futures ETPs. The Commission considers the proposed
rule change on its own merits and under the standards applicable to it.
Namely, with respect to this proposed rule change, the Commission must
apply the standards as provided by Section 6(b)(5) of the Exchange Act,
which it has applied in connection with its orders considering previous
proposals to list bitcoin-based commodity trusts and bitcoin-based
trust issued receipts.\122\
---------------------------------------------------------------------------

    \122\ See supra note 12. See also VanEck Order, 86 FR at 64552;
Skybridge Order, 87 FR at 3881 n.177. See generally Teucrium Order &
Valkyrie XBTO Order, supra note 11.
---------------------------------------------------------------------------

    Moreover, when the Commission recently approved proposals by NYSE
Arca and Nasdaq to list and trade shares of ETPs holding bitcoin
futures contracts that trade on the Chicago Mercantile Exchange, Inc.
(``CME'') as their only non-cash holdings, the Commission found that
each listing exchange had met its obligations under Exchange Act
Section 6(b)(5) by demonstrating that the exchange had a comprehensive
surveillance-sharing agreement with a regulated market of significant
size related to CME bitcoin futures contracts. In each such case,
however, the proposed ``significant'' regulated market (i.e., the CME)
with

which the listing exchange had a surveillance-sharing agreement was the
same market on which the underlying bitcoin assets (i.e., CME bitcoin
futures contracts) traded; and thus in each such case, the CME's
surveillance can reasonably be relied upon to capture the effects on
the CME bitcoin futures market caused by a person attempting to
manipulate a futures ETP by manipulating the price of CME bitcoin
futures contracts, whether that attempt is made by directly trading on
the CME bitcoin futures market or indirectly by trading outside of the
CME bitcoin futures market. However, as the Commission stated, this
reasoning does not extend to spot bitcoin ETPs. Spot bitcoin markets
are not currently ``regulated.'' As explained in the Teucrium Order and
the Valkyrie XBTO Order, if an exchange seeking to list a spot bitcoin
ETP relies on the CME as the regulated market with which it has a
comprehensive surveillance-sharing agreement, the assets held by the
spot bitcoin ETP would not be traded on the CME; and because of this
important difference, with respect to a spot bitcoin ETP, there would
be reason to question whether a surveillance-sharing agreement with the
CME would, in fact, assist in detecting and deterring fraudulent and
manipulative misconduct affecting the price of the spot bitcoin held by
that ETP. In any event, however, in the current proposal, NYSE Arca
does not identify any market as a ``market of significant size.''
    The Commission also received comment letters that addressed the
general nature of bitcoin \123\ and the maturation of custodial
practices relating to the safekeeping of bitcoin.\124\ Ultimately,
however, additional discussion of these topics is unnecessary, as they
do not bear on the basis for the Commission's decision to disapprove
the proposal.
---------------------------------------------------------------------------

    \123\ See Letter from Sam Ahn (Oct. 7, 2021).
    \124\ See Coinbase Letter at 4.
---------------------------------------------------------------------------

IV. Conclusion

    For the reasons set forth above, the Commission does not find,
pursuant to Section 19(b)(2) of the Exchange Act, that the proposed
rule change is consistent with the requirements of the Exchange Act and
the rules and regulations thereunder applicable to a national
securities exchange, and in particular, with Section 6(b)(5) of the
Exchange Act.\125\
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    \125\ As the Commission, for the reasons stated above, does not
find the proposed rule change is consistent with the requirements of
the Exchange Act and the rules and regulations thereunder, the
Commission does not address here the Exchange's proposal as it
pertains the Trust's investment objective to reflect the performance
of bitcoin in U.S. dollars on a carbon neutral basis through MCO2
Tokens.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act, that proposed rule change SR-NYSEArca-2021-67 be, and
hereby is, disapproved.

    By the Commission.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-11819 Filed 6-1-22; 8:45 am]
BILLING CODE 8011-01-P