omb approval omb number: 3235-0045 estimated average ......8 the index provider manages the index...
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Notice of proposed change pursuant to the Payment, Clearing, and Settlement Act of 2010
Section 806(e)(1) * Section 806(e)(2) *
Security-Based Swap Submission pursuant
to the Securities Exchange Act of 1934
Section 3C(b)(2) *
Exhibit 2 Sent As Paper Document Exhibit 3 Sent As Paper Document
has duly caused this filing to be signed on its behalf by the undersigned thereunto duly authorized.
19b-4(f)(6)
19b-4(f)(5)
Provide a brief description of the action (limit 250 characters, required when Initial is checked *).
(Name *)
NOTE: Clicking the button at right will digitally sign and lock
this form. A digital signature is as legally binding as a physical
signature, and once signed, this form cannot be changed.
Associate General Counsel
(Title *)
01/10/2019Date
Provide the name, telephone number, and e-mail address of the person on the staff of the self-regulatory organization
prepared to respond to questions and comments on the action.
Senior Counsel NYSE Group IncTitle *
Contact Information
19b-4(f)(4)
19b-4(f)(2)
19b-4(f)(3)
Extension of Time Period
for Commission Action *
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 19b-4
Withdrawal
Fax (212) 656-8101
David Last Name *
Filing by
Pilot
NYSE Arca, Inc.
01- *2019
Amendment No. (req. for Amendments *)
File No.* SR -
De Gregorio
(212) 656-4166Telephone *
E-mail *
First Name *
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934,
Section 19(b)(3)(A) * Section 19(b)(3)(B) *Initial * Amendment *
Pursuant to Rule 19b-4 under the Securities Exchange Act of 1934
Description
Proposal to list and trade shares of the Bitwise Bitcoin ETF Trust under NYSE Arca Rule 8.201-E
Clare Saperstein,
Clare SapersteinBy
Section 19(b)(2) *
19b-4(f)(1)
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Page 1 of * 38
OMB APPROVAL
OMB Number: 3235-0045
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Rule
Date Expires *
If the self-regulatory organization is amending only part of the text of a lengthy
proposed rule change, it may, with the Commission's permission, file only those
portions of the text of the proposed rule change in which changes are being made if
the filing (i.e. partial amendment) is clearly understandable on its face. Such partial
amendment shall be clearly identified and marked to show deletions and additions.
Partial Amendment
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The self-regulatory organization may choose to attach as Exhibit 5 proposed changes
to rule text in place of providing it in Item I and which may otherwise be more easily
readable if provided separately from Form 19b-4. Exhibit 5 shall be considered part
of the proposed rule change.
Exhibit 5 - Proposed Rule Text
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
For complete Form 19b-4 instructions please refer to the EFFS website.
Copies of any form, report, or questionnaire that the self-regulatory organization
proposes to use to help implement or operate the proposed rule change, or that is
referred to by the proposed rule change.
Exhibit Sent As Paper Document
Exhibit 4 - Marked Copies
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Exhibit 3 - Form, Report, or Questionnaire
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Exhibit 2 - Notices, Written Comments,Transcripts, Other Communications
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Exhibit 1 - Notice of Proposed Rule Change *
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Form 19b-4 Information *
Exhibit 1A- Notice of Proposed RuleChange, Security-Based Swap Submission,or Advance Notice by Clearing Agencies *
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The full text shall be marked, in any convenient manner, to indicate additions to and
deletions from the immediately preceding filing. The purpose of Exhibit 4 is to permit
the staff to identify immediately the changes made from the text of the rule with which
it has been working.
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The self-regulatory organization must provide all required information, presented in a
clear and comprehensible manner, to enable the public to provide meaningful
comment on the proposal and for the Commission to determine whether the proposal
is consistent with the Act and applicable rules and regulations under the Act.
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Exhibit Sent As Paper Document
The Notice section of this Form 19b-4 must comply with the guidelines for publication
in the Federal Register as well as any requirements for electronic filing as published
by the Commission (if applicable). The Office of the Federal Register (OFR) offers
guidance on Federal Register publication requirements in the Federal Register
Document Drafting Handbook, October 1998 Revision. For example, all references to
the federal securities laws must include the corresponding cite to the United States
Code in a footnote. All references to SEC rules must include the corresponding cite
to the Code of Federal Regulations in a footnote. All references to Securities
Exchange Act Releases must include the release number, release date, Federal
Register cite, Federal Register date, and corresponding file number (e.g., SR-[SRO]
-xx-xx). A material failure to comply with these guidelines will result in the proposed
rule change being deemed not properly filed. See also Rule 0-3 under the Act (17
CFR 240.0-3)
The Notice section of this Form 19b-4 must comply with the guidelines for publication
in the Federal Register as well as any requirements for electronic filing as published
by the Commission (if applicable). The Office of the Federal Register (OFR) offers
guidance on Federal Register publication requirements in the Federal Register
Document Drafting Handbook, October 1998 Revision. For example, all references to
the federal securities laws must include the corresponding cite to the United States
Code in a footnote. All references to SEC rules must include the corresponding cite
to the Code of Federal Regulations in a footnote. All references to Securities
Exchange Act Releases must include the release number, release date, Federal
Register cite, Federal Register date, and corresponding file number (e.g., SR-[SRO]
-xx-xx). A material failure to comply with these guidelines will result in the proposed
rule change, security-based swap submission, or advance notice being deemed not
properly filed. See also Rule 0-3 under the Act (17 CFR 240.0-3)
Copies of notices, written comments, transcripts, other communications. If such
documents cannot be filed electronically in accordance with Instruction F, they shall be
filed in accordance with Instruction G.
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Required fields are shown with yellow backgrounds and asterisks.
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1. Text of the Proposed Rule Change
(a) Pursuant to the provisions of Section 19(b)(1) of the Securities ExchangeAct of 1934 (“Act”),1 and Rule 19b-4 thereunder,2 NYSE Arca, Inc.(“NYSE Arca” or the “Exchange”), proposes to list and trade shares of theBitwise Bitcoin ETF Trust under NYSE Arca Rule 8.201-E.
A notice of the proposed rule change for publication in the FederalRegister is attached hereto as Exhibit 1.
(b) The Exchange does not believe that the proposed rule change will haveany direct effect, or any significant indirect effect, on any other Exchangerule in effect at the time of this filing.
(c) Not applicable.
2. Procedures of the Self-Regulatory Organization
The proposed rule change is being submitted by Exchange staff to the Securitiesand Exchange Commission (“Commission”) pursuant to authority delegated bythe Exchange’s Board of Directors and the NYSE Arca Board of Directors.
The persons on the Exchange staff prepared to respond to questions andcomments on the proposed rule change are:
3. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basisfor, the Proposed Rule Change
(a) Purpose
The Exchange proposes to list and trade shares (“Shares”) of the Bitwise BitcoinETF Trust (the “Trust”), under NYSE Arca Rule 8.201-E.3
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b-4.
3 The Trust is a Delaware statutory trust and registered under the Securities Act of1933. On January10, 2018, the Trust filed with the Commission a registrationstatement on Form S-1 under the Securities Act of 1933 (15 U.S.C. 77a) (the“Securities Act”) relating to the Trust (File No. 333-229180) (the “Registration
David De GregorioSenior Counsel
NYSE Group, Inc.(212) 656-4166
Michael CavalierCounsel
NYSE Group, Inc.(212) 656-2474
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According to the Registration Statement, the Trust will not be registered as aninvestment company under the Investment Company Act of 1940, as amended,4
and is not required to register under such act. The Trust is not a commodity poolfor purposes of the Commodity Exchange Act, as amended.5
The Trust is managed and controlled by Bitwise Investment Advisers, LLC (the“Sponsor”).
The custodian for the Trust may hold the Trust’s investment assets and cash andcash equivalents pursuant to a custodian agreement. The custodian is also thetransfer agent for the Trust.
The Trust will offer Shares of the Trust for sale through the Trust’s distributor in“Creation Units”, as described below. The distributor will also assist the Sponsorand the Trust’s administrator with certain functions and duties relating todistribution and marketing.
The Exchange represents that the Shares satisfy the requirements of NYSE ArcaRule 8.201-E and thereby qualify for listing on the Exchange.6
Operation of the Trust7
According to the Registration Statement, the investment objective of the Trust isto reflect the performance of the total returns available to investors in bitcoin, asmeasured by the performance of the Bitwise Bitcoin Total Return Index (the“Index”), less fees and expenses. The Index was designed by Bitwise IndexServices, LLC (the “Index Provider”) to measure the total return of an investmentin bitcoin utilizing bitcoin price transactions from 10 exchanges that offer tradingon cryptocurrencies (the “Verified Exchanges”) spanning 5 countries andincluding exchanges located in the United States, Europe and Asia. Themethodology and composition of the Index is described more fully below.8
Statement”). The description of the operation of the Trust herein is based, in part,on the Registration Statement.
4 15 U.S.C. 80a-1.
5 17 U.S.C. 1.
6 With respect to the application of Rule 10A-3 (17 CFR 240.10A-3) under the Act,the Trust relies on the exemption contained in Rule 10A-3(c)(7).
7 The description of the operation of the Trust, the Shares and the bitcoin marketcontained herein are based, in part, on the Registration Statement. See note 3,supra.
8 The Index Provider manages the Index with input from its Bitwise GlobalInvestable Market Crypto Index Committee (the “Committee”), which has
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The Trust will seek to achieve its investment objective of tracking the Index byinvesting, under normal market conditions,9 substantially all of the Trust’s assetsin OTC and exchange-traded bitcoin.
The Trust will not hold or trade in any instrument or asset on any futuresexchange or over the counter (“OTC”) other than bitcoin traded in the OTCmarkets and traded on domestic and international bitcoin exchanges.
Overview of Bitcoin
Bitcoin is a new type of digital asset issued by, and transmitted through, thedecentralized, open source protocol of the bitcoin peer-to-peer network (the“Bitcoin Network”) that hosts a public transaction ledger where bitcoin transfersare recorded (the “Bitcoin Blockchain”). Bitcoin is “stored” or reflected on theBitcoin Blockchain, which through the transparent reporting of bitcointransactions, allows the Bitcoin Network to verify and confirm the rightfulownership of the bitcoin assets. The Bitcoin Network and bitcoin softwareprograms can interpret the Bitcoin Blockchain to determine the exact bitcoinbalance, if any, of any digital wallet listed in the Bitcoin Blockchain as havingtaken part in a transaction on the Bitcoin Network. The Bitcoin Blockchain iscomprised of a digital file, which can be downloaded and stored, in whole or inpart, on any Bitcoin users’ software programs. Each validated bitcoin transactionis broadcast to the Bitcoin Network and permanently recorded on the BitcoinBlockchain.
The process by which bitcoin are created and bitcoin transactions are verified iscalled “mining.” To begin mining, a user, or “miner,” can download and run amining client, which, like regular Bitcoin Network software programs, turns theuser’s computer into a “node” on the Bitcoin Network that validates blocks.Bitcoin transactions are recorded in new blocks that are added to the Bitcoin
ultimate responsibility and authority for developing, maintaining and adjusting theIndex. The Committee is composed of three members of the Bitwise leadershipteam selected for seniority and expertise in indexing, cryptoassets and dataengineering. The Committee is advised in this effort by the Bitwise GlobalInvestable Market Crypto Index Advisory Board (the “Advisory Board”), anindependent group of leading experts in the fields of both traditional assetindexing and crypto assets.
9 The term “normal market conditions” includes, but is not limited to, the absenceof trading halts in the applicable financial markets generally; operational issues(e.g., systems failure) causing dissemination of inaccurate market information; orforce majeure type events such as natural or manmade disaster, act of God, armedconflict, act of terrorism, riot or labor disruption or any similar interveningcircumstance.
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Blockchain and new bitcoins are provided as compensation issued to the minersfor updating the Blockchain. Miners, through the use of the bitcoin softwareprogram, engage in a set of prescribed complex mathematical calculations inorder to add a block to the Bitcoin Blockchain and thereby confirm bitcointransactions included in that block’s data. Bitcoin is created and allocated by theBitcoin Network protocol through a “mining” process subject to a strict, well-known issuance schedule.
Confirmed and validated bitcoin transactions are recorded in blocks added to theBitcoin Blockchain. Each block contains the details of some or all of the mostrecent transactions that are not memorialized in prior blocks, as well as a recordof the award of bitcoin to the miner who added the new block. Each unique blockcan only be solved and added to the Bitcoin Blockchain by one miner; therefore,all individual miners and mining pools on the Bitcoin Network are engaged in acompetitive process of constantly increasing their computing power to improvetheir likelihood of solving for new blocks. As more miners join the BitcoinNetwork and its processing power increases, the Bitcoin Network adjusts thecomplexity of the block-solving equation to maintain a predetermined pace ofadding a new block to the Bitcoin Blockchain approximately every ten minutes.
The value of bitcoin is determined, in part, by the supply of and demand forbitcoin in the global exchange market for the trading of bitcoin, marketexpectations for the adoption of bitcoin by individuals, the number of merchantsthat accept bitcoin as a form of payment and the volume of private end-user-to-end-user transactions.
Overview of Index Methodology and Composition
The Index was developed to provide investors with a clear, rules-based, andtransparent way to track the value of bitcoin. The Index is designed as aninvestable benchmark, suitable both for benchmarking active strategies andserving as the underlying index for an investment in bitcoin.
As described below, in valuing the price of bitcoin, the Index Provider will makeuse of bitcoin price transactions from a universe of cryptocurrency exchanges thatit classifies as “Verified Exchanges.” The Index Provider at present tracks over200 online cryptocurrency exchanges that offer trading on cryptocurrencies.From that list the Index Provider will eliminate a significant portion based on anumber of factors, including eliminating exchanges that (1) are domiciled inemerging market countries and countries that have capital controls; (2) do notcharge fees for trading, either explicitly or through “trade mining” activitieswhere an exchange provides an off-setting rebate to the client for the trades; (3)lack functioning and stable Application Programing Interfaces (“API”) for thetransmission of price and volume data; (4) issues with significant downtime,problems with customers withdrawal abilities, or known security issues; (5) are ormay be subject to extraordinary legal or regulatory activity; and (6) do notaccount for at least 0.1% of the trailing 30-day Average Daily Volume among all
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exchanges that charge transaction fees. Those exchanges that remain after theIndex Provider has eliminated exchanges are considered the “VerifiedExchanges.”10
In addition, on no less than a quarterly basis, the Index Committee will review theactual published trading data of each otherwise Verified Exchange. This includesbid/ask spreads and size, actual claimed executed trades with price and volume,and any other factors the Committee deems relevant. Exchanges that showpersistent signs of artificial or inflated volume may be removed from the list ofVerified Exchanges.
According to the Registration Statement, as a result of its screening process, theIndex Provider’s list of Verified Exchanges will be derived by significantlyreducing the universe of over 200 exchanges down to approximately 10. Atpresent, the Index Provider believes that these Verified Exchanges account for amajority of the total global volume of bitcoin traded on exchanges, although boththe number of Verified Exchanges and the percentage of global volume theyrepresent is subject to change.
In addition to using prices and volume from Verified Exchanges to calculate theIndex, the Committee will also include executed prices and volume from listedfutures contracts on any regulated futures exchange domiciled in a developedmarket country and on which bitcoin are traded as long as the futures contractsettles to physical “coins” at the expiration of the contract(s). In the case of listedfutures contracts that offer more than one planned expiration date, the futurescontract that is closest to expiration, the “spot contract,” will be used.
The Index Provider believes that the use of a large number of pre-screenedcryptocurrency exchanges, as well as listed futures that are physically settled,representing a majority of global bitcoin trading to provide price and volumeinputs, provides certain benefits compared to using a limited number of exchangesfor index pricing inputs. These benefits include minimizing the potential negativeimpacts of any single exchange going off-line due to technical problems, orfinancial, hacking, legal or regulatory issues. In addition, given the fungiblenature of bitcoin, the Index Provider believes that the potential impact on Indexvalues of individual exchanges experiencing outside attempts to manipulate eitherreported volume or reported prices is muted by the use of a large number ofexchange price and volume inputs.
When calculating the value of the Index the Index Provider makes use of theactual trades executed on the various Verified Exchanges. Prices are weightedsuch that bitcoin prices from exchanges with a greater amount of the trading
10 The list of Verified Exchanges used to price the Index will be available on theIndex Provider’s website, www.bitwiseinvestments.
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volume in the prior hour are weighted more heavily than bitcoin prices fromexchanges with lesser amounts of volume.
The Index has provisions for handling isolated, or “one-off,” events in thecryptocurrency market generally, such as “hard forks.” A hard fork occurs if analternative version of bitcoin is developed and the holders of the original versionof bitcoin also end up owning a pro-rata share of the new version. As a generalrule, the Index attributes the value of significant hard forks, if any, to the value ofthe Index at the time of the event. However, the Index would not continue to becalculated going forward as if those new holdings were an ongoing part of theIndex. The Index Provider may from time to time adopt additional policies for theIndex to address changes and new developments in the bitcoin universe.
The Index Provider will publish the daily Index values each day at or shortly after4:00 pm Eastern Time (“E.T.”). An indicative Index value will be publishedevery 15 seconds during all business days, although this value is not the officialIndex value.
Net Asset Value
According to the Registration Statement, the Trust’s per Share Net Asset Value(“NAV”) will be calculated by dividing the value of the net assets of the Trust(i.e., the value of its total assets less total liabilities) by the total number of Sharesoutstanding. The Trust’s NAV will be calculated on each trading day on theExchange. The Trust will compute its NAVs as of 4:00 p.m. E.T. The Trust’sNAV will be calculated only once each trading day. The Trust’s daily NAV maybe found at, www.bitwiseinvestments.
Indicative Fund Value
In order to provide updated information relating to the Trust for use by investorsand market professionals, the Exchange will calculate an updated “IndicativeFund Value” (“IFV”). The IFV will be calculated by using the prior day’s closingnet assets of the Trust as a base and updating throughout the Exchange’s CoreTrading Session of 9:30 a.m. E.T. to 4:00 p.m. E.T. reflect changes in the mostrecently reported price level of the Index as reported by Bloomberg, L.P. oranother reporting service.
The IFV will be disseminated on a per Share basis every 15 seconds during theExchange’s Core Trading Session and be widely disseminated by one or moremajor market data vendors during the NYSE Arca Core Trading Session.11
11 Several major market data vendors display and/or make widely available IFVstaken from the Consolidated Tape Association (“CTA”) or other data feeds.
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Creation and Redemption of Shares
According to the Registration Statement, the Trust intends to create and redeemShares in one or more Creation Baskets or Redemption Baskets. A CreationBasket and a Redemption Basket are a block of 25,000 Shares of the Trust.Except when aggregated in Creation Units, the Shares are not redeemablesecurities.
Only Authorized Participants may purchase and redeem Creation Baskets.Authorized Participants must be (1) registered broker-dealers or other securitiesmarket participants, such as banks and other financial institutions, that are notrequired to register as broker-dealers to engage in securities transactions describedbelow, and (2) the Depository Trust Company (“DTC”) Participants. AnAuthorized Participant is an entity that has entered into an Authorized ParticipantAgreement with the Trust and the Sponsor.
Creation Procedures
On any business day, an Authorized Participant may place an order with thedistributor to create one or more Creation Baskets. For purposes of processingboth purchase and redemption orders, a “business day” means any day other thana day when the Exchange or the New York Stock Exchange is closed for regulartrading.
By placing a purchase order, an Authorized Participant agrees to deposit bitcoin,Treasuries, cash or a combination of bitcoin, Treasuries and cash with the Trust.Prior to the delivery of baskets for a purchase order, the Authorized Participantmust also have wired to the custodian the nonrefundable transaction fee due forthe purchase order. Authorized Participants may not withdraw a creation request.If an Authorized Participant fails to consummate the foregoing, the order shall becancelled.
Redemption Procedures
According to the Registration Statement, the procedures by which an AuthorizedParticipant can redeem one or more baskets mirror the procedures for thecreation of creation baskets. On any business day, an Authorized Participant mayplace an order with the Marketing Agent to redeem one or more baskets. Aredemption order so received will be effective on the date it is received insatisfactory form by the Marketing Agent (“Redemption Order Date”). Theredemption procedures allow Authorized Participants to redeem baskets and donot entitle an individual shareholder to redeem any shares in an amount less than aRedemption Basket, or to redeem baskets other than through an AuthorizedParticipant.
By placing a redemption order, an Authorized Participant agrees to deliver thebaskets to be redeemed through DTC’s book-entry system to the Trust not later
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than noon E.T. on the second business day following the effective date of theredemption order. Prior to the delivery of the redemption distribution for aredemption order, the Authorized Participant must also have wired to theSponsor‘s account at the custodian the non-refundable transaction fee due for theredemption order. An Authorized Participant may not withdraw a redemptionorder.
The manner by which redemptions are made is dictated by the terms of theAuthorized Participant Agreement. If an Authorized Participant fails toconsummate the foregoing, the order shall be cancelled.
Determination of Redemption Distribution
The redemption distribution from the Trust will consist of a transfer to theredeeming Authorized Participant of an amount of bitcoin, Treasuries and/or cashthat is in the same proportion to the total assets of the Trust (net of estimatedaccrued but unpaid fees, expenses and other liabilities) on the date the order toredeem is properly received as the number of shares to be redeemed under theredemption order is in proportion to the total number of shares outstanding on thedate the order is received. The Sponsor, directly or in consultation with theAdministrator, determines the requirements for bitcoin, Treasuries and cash,including the remaining maturities of the Treasuries and proportions of Treasuriesand cash that may be included in distributions to redeem baskets. The MarketingAgent will publish an estimate of the redemption distribution per basket as of thebeginning of each business day.
Availability of Information Regarding Bitcoin
The NAV for the Trust’s Shares will be disseminated daily to all marketparticipants at the same time.
Quotation and last-sale information regarding the Shares will be disseminatedthrough the facilities of the CTA. The IFV will be available through onlineinformation services.
In addition, the Trust’s website, www.bitwiseinvestments.com, will display theapplicable end of day closing NAV. The daily holdings of the Trust will beavailable on the Trust’s website before 9:30 a.m. E.T. The Trust’s total portfoliocomposition will be disclosed each business day that NYSE Arca is open fortrading, on the Trust’s website. The Trust’s website will also include a form ofthe prospectus for the Trust that may be downloaded. The website will include theShares’ ticker and CUSIP information, along with additional quantitativeinformation updated on a daily basis for the Trust. The Trust’s website willinclude (1) the prior business day’s trading volume, the prior business day’sreported NAV and closing price, and a calculation of the premium and discount ofthe closing price or mid-point of the bid/ask spread at the time of NAVcalculation (“Bid/Ask Price”) against the NAV; and (2) data in chart formatdisplaying the frequency distribution of discounts and premiums of the daily
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closing price or Bid/Ask Price against the NAV, within appropriate ranges, for atleast each of the four previous calendar quarters. The Trust’s website will bepublicly available prior to the public offering of Shares and accessible at nocharge.
The spot price of bitcoin as reflected in the Index will also be available on a 24-hour basis from the Trust’s website.
Trading Halts
With respect to trading halts, the Exchange may consider all relevant factors inexercising its discretion to halt or suspend trading in the Shares of the Trust.12
Trading in Shares of the Trust will be halted if the circuit breaker parameters inNYSE Arca Rule 7.12-E have been reached. Trading also may be halted becauseof market conditions or for reasons that, in the view of the Exchange, maketrading in the Shares inadvisable.
The Exchange may halt trading during the day in which an interruption to thedissemination of the IFV or the value of the Index occurs.13 If the interruption tothe dissemination of the IFV or the value of the Index persists past the trading dayin which it occurred, the Exchange will halt trading no later than the beginning ofthe trading day following the interruption. In addition, if the Exchange becomesaware that the NAV with respect to the Shares is not disseminated to all marketparticipants at the same time, it will halt trading in the Shares until such time asthe NAV is available to all market participants.
Trading Rules
The Exchange deems the Shares to be equity securities, thus rendering trading inthe Shares subject to the Exchange’s existing rules governing the trading of equitysecurities. Shares will trade on the NYSE Arca Marketplace from 4 a.m. to 8 p.m.E.T. in accordance with NYSE Arca Rule 7.34-E (Early, Core, and Late TradingSessions). The Exchange has appropriate rules to facilitate transactions in theShares during all trading sessions. As provided in NYSE Arca Rule 7.6-E, theminimum price variation (“MPV”) for quoting and entry of orders in equitysecurities traded on the NYSE Arca Marketplace is $0.01, with the exception ofsecurities that are priced less than $1.00 for which the MPV for order entry is$0.0001.
Further, NYSE Arca Rule 8.201-E sets forth certain restrictions on EquityTrading Permit (“ETP”) Holders acting as registered Market Makers in the Sharesto facilitate surveillance. Under NYSE Arca Rule 8.201-E(g), an ETP Holder
12 See NYSE Arca Rule 7.12-E.
13 A limit up/limit down condition in the futures market would not be considered aninterruption requiring the Trust to be halted.
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acting as a registered Market Maker in the Shares is required to provide theExchange with information relating to its trading in the underlying commodity,related futures or options on futures, or any other related derivatives.Commentary .04 of NYSE Arca Rule 11.3-E requires an ETP Holder acting as aregistered Market Maker, and its affiliates, in the Shares to establish, maintain andenforce written policies and procedures reasonably designed to prevent the misuseof any material nonpublic information with respect to such products, anycomponents of the related products, any physical asset or commodity underlyingthe product, applicable currencies, underlying indexes, related futures or optionson futures, and any related derivative instruments (including the Shares).
As a general matter, the Exchange has regulatory jurisdiction over its ETPHolders and their associated persons, which include any person or entitycontrolling an ETP Holder. A subsidiary or affiliate of an ETP Holder that doesbusiness only in commodities or futures contracts would not be subject toExchange jurisdiction, but the Exchange could obtain information regarding theactivities of such subsidiary or affiliate through surveillance sharing agreementswith regulatory organizations of which such subsidiary or affiliate is a member.
Surveillance
The Exchange represents that trading in the Shares of the Trust will be subject tothe existing trading surveillances administered by the Exchange, as well as cross-market surveillances administered by FINRA on behalf of the Exchange, whichare designed to detect violations of Exchange rules and applicable federalsecurities laws.14 The Exchange represents that these procedures are adequate toproperly monitor Exchange trading of the Shares in all trading sessions and todeter and detect violations of Exchange rules and federal securities lawsapplicable to trading on the Exchange.
The surveillances referred to above generally focus on detecting securities tradingoutside their normal patterns, which could be indicative of manipulative or otherviolative activity. When such situations are detected, surveillance analysisfollows and investigations are opened, where appropriate, to review the behaviorof all relevant parties for all relevant trading violations.
The Exchange or FINRA, on behalf of the Exchange, or both, will communicateas needed regarding trading in the Shares with other markets and other entitiesthat are members of the ISG, and the Exchange or FINRA, on behalf of theExchange, or both, may obtain trading information regarding trading in the Sharesfrom such markets and other entities. In addition, the Exchange may obtaininformation regarding trading in the Shares from markets and other entities that
14 FINRA conducts cross-market surveillances on behalf of the Exchange pursuantto a regulatory services agreement. The Exchange is responsible for FINRA’sperformance under this regulatory services agreement.
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are members of ISG or with which the Exchange has in place a comprehensivesurveillance sharing agreement (“CSSA”).15
Also, pursuant to NYSE Arca Rule 8.201-E(g), the Exchange is able to obtaininformation regarding trading in the Shares and the underlying bitcoin throughETP Holders acting as registered “Market Makers”, in connection with such ETPHolders’ proprietary or customer trades through ETP Holders which they effecton any relevant market.
In addition, the Exchange also has a general policy prohibiting the distribution ofmaterial, non-public information by its employees.
All statements and representations made in this filing regarding (a) the descriptionof the portfolios of the Trust or the Index, (b) limitations on portfolio holdings,reference assets or the Index, or (c) the applicability of Exchange listing rulesspecified in this rule filing shall constitute continued listing requirements forlisting the Shares on the Exchange.
The issuer has represented to the Exchange that it will advise the Exchange of anyfailure by the Trust to comply with the continued listing requirements, and,pursuant to its obligations under Section 19(g)(1) of the Act, the Exchange willmonitor for compliance with the continued listing requirements. If the Trust isnot in compliance with the applicable listing requirements, the Exchange willcommence delisting procedures under NYSE Arca Rule 5.5-E(m).
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its ETP Holdersin an Information Bulletin of the special characteristics and risks associated withtrading the Shares. Specifically, the Information Bulletin will discuss thefollowing: (1) the risks involved in trading the Shares during the Early and LateTrading Sessions when an updated IFV will not be calculated or publiclydisseminated; (2) the procedures for purchases and redemptions of Shares inCreation Units (and that Shares are not individually redeemable); (3) NYSE ArcaRule 9.2-E(a), which imposes a duty of due diligence on its ETP Holders to learnthe essential facts relating to every customer prior to trading the Shares; (4) howinformation regarding the IFV is disseminated; (5) how information regardingportfolio holdings is disseminated; (6) the requirement that ETP Holders deliver aprospectus to investors purchasing newly issued Shares prior to or concurrentlywith the confirmation of a transaction; (7) trading information; and (8) NYSEArca suitability rules.
15 For a list of the current members of ISG, see www.isgportal.org. The Exchangenotes that not all components of the Trust may trade on markets that are membersof ISG or with which the Exchange has in place a CSSA.
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The Information Bulletin will also discuss any exemptive, no-action, andinterpretive relief granted by the Commission from any rules under the Act. Inaddition, the Information Bulletin will reference that the Trust is subject tovarious fees and expenses described in the Registration Statement.
The Information Bulletin will also disclose the trading hours of the Shares that theNAV for the Shares will be calculated after 4:00 p.m. E.T. each trading day. TheInformation Bulletin will disclose that information about the Shares will bepublicly available on the Trust’s website.
(b) Statutory Basis
The basis under the Act for this proposed rule change is the requirement underSection 6(b)(5)16 that an exchange have rules that are designed to preventfraudulent and manipulative acts and practices, to promote just and equitableprinciples of trade, to remove impediments to, and perfect the mechanism of afree and open market and, in general, to protect investors and the public interest.
The Exchange believes that the proposed rule change is designed to preventfraudulent and manipulative acts and practices and to protect investors and thepublic interest in that the Shares will be listed and traded on the Exchangepursuant to the initial and continued listing criteria in NYSE Arca Rule 8.201-E.
The Exchange has in place surveillance procedures that are adequate to properlymonitor trading in the Shares in all trading sessions and to deter and detectviolations of Exchange rules and applicable federal securities laws. TheExchange or FINRA, on behalf of the Exchange, or both, will communicate asneeded regarding trading in the Shares with other markets and other entities thatare members of the ISG, and the Exchange or FINRA, on behalf of the Exchange,or both, may obtain trading information regarding trading in the Shares from suchmarkets and other entities. In addition, the Exchange may obtain informationregarding trading in the Shares from markets and other entities that are membersof ISG or with which the Exchange has in place a CSSA. The Exchange is alsoable to obtain information regarding trading in the Shares or the underlyingbitcoin through ETP Holders, in connection with such ETP Holders’ proprietaryor customer trades which they effect through ETP Holders on any relevantmarket.
Quotation and last-sale information regarding the Shares will be disseminatedthrough the facilities of the CTA. The Trust’s website will also include a form ofthe prospectus for the Trust that may be downloaded. The website will includethe Shares’ ticker and CUSIP information, along with additional quantitativeinformation updated on a daily basis for the Trust. The Trust’s website willinclude (1) daily trading volume, the prior business day’s reported NAV and
16 15 U.S.C. 78f(b)(5).
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closing price, and a calculation of the premium and discount of the closing priceor mid-point of the Bid/Ask Price against the NAV; and (2) data in chart formatdisplaying the frequency distribution of discounts and premiums of the dailyclosing price or Bid/Ask Price against the NAV, within appropriate ranges, for atleast each of the four previous calendar quarters. The Trust’s website will bepublicly available prior to the public offering of Shares and accessible at nocharge.
Moreover, prior to the commencement of trading, the Exchange will inform itsETP Holders in an Information Bulletin of the special characteristics and risksassociated with trading the Shares. The Information Bulletin will also discuss anyexemptive, no-action, and interpretive relief granted by the Commission from anyrules under the Act. In addition, the Information Bulletin will reference that theTrust is subject to various fees and expenses described in the RegistrationStatement. The Information Bulletin will also disclose the trading hours of theShares and that the NAV for the Shares will be calculated after 4:00 p.m. E.T.each trading day. The Information Bulletin will disclose that information aboutthe Shares will be publicly available on the Trust’s website.
Trading in Shares of the Trust will be halted if the circuit breaker parameters inNYSE Arca Rule 7.12-E have been reached or because of market conditions orfor reasons that, in the view of the Exchange, make trading in the Sharesinadvisable.
The proposed rule change is designed to perfect the mechanism of a free and openmarket and, in general, to protect investors and the public interest in that it willfacilitate the listing and trading of a new type of exchange-traded product basedon the price of bitcoin that will enhance competition among market participants,to the benefit of investors and the marketplace. As noted above, the Exchange hasin place surveillance procedures that are adequate to properly monitor trading inthe Shares in all trading sessions and to deter and detect violations of Exchangerules and applicable federal securities laws.
4. Self-Regulatory Organization’s Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will impose anyburden on competition that is not necessary or appropriate in furtherance of thepurpose of the Act. The Exchange notes that the proposed rule change willfacilitate the listing and trading of a new type of Commodity-Based Trust Sharebased on the price of bitcoin that will enhance competition among marketparticipants, to the benefit of investors and the marketplace.
5. Self-Regulatory Organization’s Statement on Comments on the Proposed RuleChange Received from Members, Participants or Others
The Exchange has neither solicited nor received written comments on theproposed rule change.
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6. Extension of Time Period for Commission Action
The Exchange does not consent at this time to an extension of any time period forCommission action.
7. Basis for Accelerated Effectiveness Pursuant to Section 19(b)(2)
Not applicable.
8. Proposed Rule Change Based on Rules of Another Self-Regulatory Organizationor of the Commission
The proposed rule change is not based on the rules of another self-regulatoryorganization or of the Commission.
9. Security-Based Swap Submissions Filed Pursuant to Section 3C of the Act
Not applicable.
10. Advance Notices Filed Pursuant to Section 806(e) of the Payment, Clearing andSettlement Supervision Act
Not applicable.
11. Exhibits
Exhibit 1 - Form of Notice of Proposed Rule Change for Federal Register
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EXHIBIT 1
SECURITIES AND EXCHANGE COMMISSION(Release No. 34- ; File No. SR-NYSEARCA-2019-01)
[Date]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed RuleChange Relating to the Listing and Trading of shares of the Bitwise Bitcoin ETF Trustunder NYSE Arca Rule 8.201-E.
Pursuant to Section 19(b)(1)1 of the Securities Exchange Act of 1934 (the “Act”)2
and Rule 19b-4 thereunder,3 notice is hereby given that, on [date], NYSE Arca, Inc. (the
“Exchange” or “NYSE Arca”) filed with the Securities and Exchange Commission (the
“Commission”) the proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the self-regulatory organization. The Commission is
publishing this notice to solicit comments on the proposed rule change from interested
persons.
I. Self-Regulatory Organization’s Statement of the Terms of Substance of theProposed Rule Change
The Exchange proposes to list and trade shares of the Bitwise Bitcoin ETF Trust
under NYSE Arca Rule 8.201-E. The proposed change is available on the Exchange’s
website at www.nyse.com, at the principal office of the Exchange, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basisfor, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization included
1 15 U.S.C.78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b-4.
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statements concerning the purpose of, and basis for, the proposed rule change and
discussed any comments it received on the proposed rule change. The text of those
statements may be examined at the places specified in Item IV below. The Exchange has
prepared summaries, set forth in sections A, B, and C below, of the most significant parts
of such statements.
A. Self-Regulatory Organization’s Statement of the Purpose of, and theStatutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade shares (“Shares”) of the Bitwise Bitcoin
ETF Trust (the “Trust”), under NYSE Arca Rule 8.201-E.4
According to the Registration Statement, the Trust will not be registered as an
investment company under the Investment Company Act of 1940, as amended,5 and is
not required to register under such act. The Trust is not a commodity pool for purposes
of the Commodity Exchange Act, as amended.6
The Trust is managed and controlled by Bitwise Investment Advisers, LLC (the
“Sponsor”).
The custodian for the Trust may hold the Trust’s investment assets and cash and
cash equivalents pursuant to a custodian agreement. The custodian is also the transfer
4 The Trust is a Delaware statutory trust and registered under the Securities Act of1933. On January10, 2018, the Trust filed with the Commission a registrationstatement on Form S-1 under the Securities Act of 1933 (15 U.S.C. 77a) (the“Securities Act”) relating to the Trust (File No. 333-229180) (the “RegistrationStatement”). The description of the operation of the Trust herein is based, in part,on the Registration Statement.
5 15 U.S.C. 80a-1.
6 17 U.S.C. 1.
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agent for the Trust.
The Trust will offer Shares of the Trust for sale through the Trust’s distributor in
“Creation Units”, as described below. The distributor will also assist the Sponsor and the
Trust’s administrator with certain functions and duties relating to distribution and
marketing.
The Exchange represents that the Shares satisfy the requirements of NYSE Arca
Rule 8.201-E and thereby qualify for listing on the Exchange.7
Operation of the Trust8
According to the Registration Statement, the investment objective of the Trust is
to reflect the performance of the total returns available to investors in bitcoin, as
measured by the performance of the Bitwise Bitcoin Total Return Index (the “Index”),
less fees and expenses. The Index was designed by Bitwise Index Services, LLC (the
“Index Provider”) to measure the total return of an investment in bitcoin utilizing bitcoin
price transactions from 10 exchanges that offer trading on cryptocurrencies (the “Verified
Exchanges”) spanning 5 countries and including exchanges located in the United States,
Europe and Asia. The methodology and composition of the Index is described more fully
below.9
7 With respect to the application of Rule 10A-3 (17 CFR 240.10A-3) under the Act,the Trust relies on the exemption contained in Rule 10A-3(c)(7).
8 The description of the operation of the Trust, the Shares and the bitcoin marketcontained herein are based, in part, on the Registration Statement. See note 4,supra.
9 The Index Provider manages the Index with input from its Bitwise GlobalInvestable Market Crypto Index Committee (the “Committee”), which hasultimate responsibility and authority for developing, maintaining and adjusting theIndex. The Committee is composed of three members of the Bitwise leadershipteam selected for seniority and expertise in indexing, cryptoassets and data
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The Trust will seek to achieve its investment objective of tracking the Index by
investing, under normal market conditions,10 substantially all of the Trust’s assets in OTC
and exchange-traded bitcoin.
The Trust will not hold or trade in any instrument or asset on any futures
exchange or over the counter (“OTC”) other than bitcoin traded in the OTC markets and
traded on domestic and international bitcoin exchanges.
Overview of Bitcoin
Bitcoin is a new type of digital asset issued by, and transmitted through, the
decentralized, open source protocol of the bitcoin peer-to-peer network (the “Bitcoin
Network”) that hosts a public transaction ledger where bitcoin transfers are recorded (the
“Bitcoin Blockchain”). Bitcoin is “stored” or reflected on the Bitcoin Blockchain, which
through the transparent reporting of bitcoin transactions, allows the Bitcoin Network to
verify and confirm the rightful ownership of the bitcoin assets. The Bitcoin Network and
bitcoin software programs can interpret the Bitcoin Blockchain to determine the exact
bitcoin balance, if any, of any digital wallet listed in the Bitcoin Blockchain as having
taken part in a transaction on the Bitcoin Network. The Bitcoin Blockchain is comprised
of a digital file, which can be downloaded and stored, in whole or in part, on any Bitcoin
engineering. The Committee is advised in this effort by the Bitwise GlobalInvestable Market Crypto Index Advisory Board (the “Advisory Board”), anindependent group of leading experts in the fields of both traditional assetindexing and crypto assets.
10 The term “normal market conditions” includes, but is not limited to, the absenceof trading halts in the applicable financial markets generally; operational issues(e.g., systems failure) causing dissemination of inaccurate market information; orforce majeure type events such as natural or manmade disaster, act of God, armedconflict, act of terrorism, riot or labor disruption or any similar interveningcircumstance.
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users’ software programs. Each validated bitcoin transaction is broadcast to the Bitcoin
Network and permanently recorded on the Bitcoin Blockchain.
The process by which bitcoin are created and bitcoin transactions are verified is
called “mining.” To begin mining, a user, or “miner,” can download and run a mining
client, which, like regular Bitcoin Network software programs, turns the user’s computer
into a “node” on the Bitcoin Network that validates blocks. Bitcoin transactions are
recorded in new blocks that are added to the Bitcoin Blockchain and new bitcoins are
provided as compensation issued to the miners for updating the Blockchain. Miners,
through the use of the bitcoin software program, engage in a set of prescribed complex
mathematical calculations in order to add a block to the Bitcoin Blockchain and thereby
confirm bitcoin transactions included in that block’s data. Bitcoin is created and
allocated by the Bitcoin Network protocol through a “mining” process subject to a strict,
well-known issuance schedule.
Confirmed and validated bitcoin transactions are recorded in blocks added to the
Bitcoin Blockchain. Each block contains the details of some or all of the most recent
transactions that are not memorialized in prior blocks, as well as a record of the award of
bitcoin to the miner who added the new block. Each unique block can only be solved and
added to the Bitcoin Blockchain by one miner; therefore, all individual miners and
mining pools on the Bitcoin Network are engaged in a competitive process of constantly
increasing their computing power to improve their likelihood of solving for new blocks.
As more miners join the Bitcoin Network and its processing power increases, the Bitcoin
Network adjusts the complexity of the block-solving equation to maintain a
predetermined pace of adding a new block to the Bitcoin Blockchain approximately every
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ten minutes.
The value of bitcoin is determined, in part, by the supply of and demand for
bitcoin in the global exchange market for the trading of bitcoin, market expectations for
the adoption of bitcoin by individuals, the number of merchants that accept bitcoin as a
form of payment and the volume of private end-user-to-end-user transactions.
Overview of Index Methodology and Composition
The Index was developed to provide investors with a clear, rules-based, and
transparent way to track the value of bitcoin. The Index is designed as an investable
benchmark, suitable both for benchmarking active strategies and serving as the
underlying index for an investment in bitcoin.
As described below, in valuing the price of bitcoin, the Index Provider will make
use of bitcoin price transactions from a universe of cryptocurrency exchanges that it
classifies as “Verified Exchanges.” The Index Provider at present tracks over 200 online
cryptocurrency exchanges that offer trading on cryptocurrencies. From that list the Index
Provider will eliminate a significant portion based on a number of factors, including
eliminating exchanges that (1) are domiciled in emerging market countries and countries
that have capital controls; (2) do not charge fees for trading, either explicitly or through
“trade mining” activities where an exchange provides an off-setting rebate to the client
for the trades; (3) lack functioning and stable Application Programing Interfaces (“API”)
for the transmission of price and volume data; (4) issues with significant downtime,
problems with customers withdrawal abilities, or known security issues; (5) are or may be
subject to extraordinary legal or regulatory activity; and (6) do not account for at least
0.1% of the trailing 30-day Average Daily Volume among all exchanges that charge
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transaction fees. Those exchanges that remain after the Index Provider has eliminated
exchanges are considered the “Verified Exchanges.”11
In addition, on no less than a quarterly basis, the Index Committee will review the
actual published trading data of each otherwise Verified Exchange. This includes bid/ask
spreads and size, actual claimed executed trades with price and volume, and any other
factors the Committee deems relevant. Exchanges that show persistent signs of artificial
or inflated volume may be removed from the list of Verified Exchanges.
According to the Registration Statement, as a result of its screening process, the
Index Provider’s list of Verified Exchanges will be derived by significantly reducing the
universe of over 200 exchanges down to approximately 10. At present, the Index
Provider believes that these Verified Exchanges account for a majority of the total global
volume of bitcoin traded on exchanges, although both the number of Verified Exchanges
and the percentage of global volume they represent is subject to change.
In addition to using prices and volume from Verified Exchanges to calculate the
Index, the Committee will also include executed prices and volume from listed futures
contracts on any regulated futures exchange domiciled in a developed market country and
on which bitcoin are traded as long as the futures contract settles to physical “coins” at
the expiration of the contract(s). In the case of listed futures contracts that offer more than
one planned expiration date, the futures contract that is closest to expiration, the “spot
contract,” will be used.
The Index Provider believes that the use of a large number of pre-screened
cryptocurrency exchanges, as well as listed futures that are physically settled,
11 The list of Verified Exchanges used to price the Index will be available on theIndex Provider’s website, www.bitwiseinvestments.
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representing a majority of global bitcoin trading to provide price and volume inputs,
provides certain benefits compared to using a limited number of exchanges for index
pricing inputs. These benefits include minimizing the potential negative impacts of any
single exchange going off-line due to technical problems, or financial, hacking, legal or
regulatory issues. In addition, given the fungible nature of bitcoin, the Index Provider
believes that the potential impact on Index values of individual exchanges experiencing
outside attempts to manipulate either reported volume or reported prices is muted by the
use of a large number of exchange price and volume inputs.
When calculating the value of the Index the Index Provider makes use of the
actual trades executed on the various Verified Exchanges. Prices are weighted such that
bitcoin prices from exchanges with a greater amount of the trading volume in the prior
hour are weighted more heavily than bitcoin prices from exchanges with lesser amounts
of volume.
The Index has provisions for handling isolated, or “one-off,” events in the
cryptocurrency market generally, such as “hard forks.” A hard fork occurs if an
alternative version of bitcoin is developed and the holders of the original version of
bitcoin also end up owning a pro-rata share of the new version. As a general rule, the
Index attributes the value of significant hard forks, if any, to the value of the Index at the
time of the event. However, the Index would not continue to be calculated going forward
as if those new holdings were an ongoing part of the Index. The Index Provider may from
time to time adopt additional policies for the Index to address changes and new
developments in the bitcoin universe.
The Index Provider will publish the daily Index values each day at or shortly after
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4:00 pm Eastern Time (“E.T.”). An indicative Index value will be published every 15
seconds during all business days, although this value is not the official Index value.
Net Asset Value
According to the Registration Statement, the Trust’s per Share Net Asset Value
(“NAV”) will be calculated by dividing the value of the net assets of the Trust (i.e., the
value of its total assets less total liabilities) by the total number of Shares outstanding.
The Trust’s NAV will be calculated on each trading day on the Exchange. The Trust will
compute its NAVs as of 4:00 p.m. E.T. The Trust’s NAV will be calculated only once
each trading day. The Trust’s daily NAV may be found at, www.bitwiseinvestments.
Indicative Fund Value
In order to provide updated information relating to the Trust for use by investors
and market professionals, the Exchange will calculate an updated “Indicative Fund
Value” (“IFV”). The IFV will be calculated by using the prior day’s closing net assets of
the Trust as a base and updating throughout the Exchange’s Core Trading Session of 9:30
a.m. E.T. to 4:00 p.m. E.T. reflect changes in the most recently reported price level of the
Index as reported by Bloomberg, L.P. or another reporting service.
The IFV will be disseminated on a per Share basis every 15 seconds during the
Exchange’s Core Trading Session and be widely disseminated by one or more major
market data vendors during the NYSE Arca Core Trading Session.12
Creation and Redemption of Shares
According to the Registration Statement, the Trust intends to create and redeem
Shares in one or more Creation Baskets or Redemption Baskets. A Creation Basket and a
12 Several major market data vendors display and/or make widely available IFVstaken from the Consolidated Tape Association (“CTA”) or other data feeds.
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Redemption Basket are a block of 25,000 Shares of the Trust. Except when aggregated
in Creation Units, the Shares are not redeemable securities.
Only Authorized Participants may purchase and redeem Creation Baskets.
Authorized Participants must be (1) registered broker-dealers or other securities market
participants, such as banks and other financial institutions, that are not required to register
as broker-dealers to engage in securities transactions described below, and (2) the
Depository Trust Company (“DTC”) Participants. An Authorized Participant is an entity
that has entered into an Authorized Participant Agreement with the Trust and the
Sponsor.
Creation Procedures
On any business day, an Authorized Participant may place an order with the
distributor to create one or more Creation Baskets. For purposes of processing both
purchase and redemption orders, a “business day” means any day other than a day when
the Exchange or the New York Stock Exchange is closed for regular trading.
By placing a purchase order, an Authorized Participant agrees to deposit bitcoin,
Treasuries, cash or a combination of bitcoin, Treasuries and cash with the Trust. Prior to
the delivery of baskets for a purchase order, the Authorized Participant must also have
wired to the custodian the nonrefundable transaction fee due for the purchase order.
Authorized Participants may not withdraw a creation request. If an Authorized
Participant fails to consummate the foregoing, the order shall be cancelled.
Redemption Procedures
According to the Registration Statement, the procedures by which an Authorized
Participant can redeem one or more baskets mirror the procedures for the creation of
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creation baskets. On any business day, an Authorized Participant may place an order
with the Marketing Agent to redeem one or more baskets. A redemption order so
received will be effective on the date it is received in satisfactory form by the Marketing
Agent (“Redemption Order Date”). The redemption procedures allow Authorized
Participants to redeem baskets and do not entitle an individual shareholder to redeem any
shares in an amount less than a Redemption Basket, or to redeem baskets other than
through an Authorized Participant.
By placing a redemption order, an Authorized Participant agrees to deliver the
baskets to be redeemed through DTC’s book-entry system to the Trust not later than noon
E.T. on the second business day following the effective date of the redemption order.
Prior to the delivery of the redemption distribution for a redemption order, the Authorized
Participant must also have wired to the Sponsor‘s account at the custodian the non-
refundable transaction fee due for the redemption order. An Authorized Participant may
not withdraw a redemption order.
The manner by which redemptions are made is dictated by the terms of the
Authorized Participant Agreement. If an Authorized Participant fails to consummate the
foregoing, the order shall be cancelled.
Determination of Redemption Distribution
The redemption distribution from the Trust will consist of a transfer to the
redeeming Authorized Participant of an amount of bitcoin, Treasuries and/or cash that is
in the same proportion to the total assets of the Trust (net of estimated accrued but unpaid
fees, expenses and other liabilities) on the date the order to redeem is properly received as
the number of shares to be redeemed under the redemption order is in proportion to the
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total number of shares outstanding on the date the order is received. The Sponsor,
directly or in consultation with the Administrator, determines the requirements for
bitcoin, Treasuries and cash, including the remaining maturities of the Treasuries and
proportions of Treasuries and cash that may be included in distributions to redeem
baskets. The Marketing Agent will publish an estimate of the redemption distribution per
basket as of the beginning of each business day.
Availability of Information Regarding Bitcoin
The NAV for the Trust’s Shares 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 CTA. The IFV will be available through online information
services.
In addition, the Trust’s website, www.bitwiseinvestments.com, will display the
applicable end of day closing NAV. The daily holdings of the Trust will be available on
the Trust’s website before 9:30 a.m. E.T. The Trust’s total portfolio composition will be
disclosed each business day that NYSE Arca is open for trading, on the Trust’s website.
The Trust’s website will also include a form of the prospectus for the Trust that may be
downloaded. The website will include the Shares’ ticker and CUSIP information, along
with additional quantitative information updated on a daily basis for the Trust. The
Trust’s website will include (1) the prior business day’s trading volume, the prior
business day’s reported NAV and closing price, and a calculation of the premium and
discount of the closing price or mid-point of the bid/ask spread at the time of NAV
calculation (“Bid/Ask Price”) against the NAV; and (2) data in chart format displaying
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the frequency distribution of discounts and premiums of the daily closing price or
Bid/Ask Price against the NAV, within appropriate ranges, for at least each of the four
previous calendar quarters. The Trust’s website will be publicly available prior to the
public offering of Shares and accessible at no charge.
The spot price of bitcoin as reflected in the Index will also be available on a 24-
hour basis from the Trust’s website.
Trading Halts
With respect to trading halts, the Exchange may consider all relevant factors in
exercising its discretion to halt or suspend trading in the Shares of the Trust.13 Trading in
Shares of the Trust will be halted if the circuit breaker parameters in NYSE Arca Rule
7.12-E have been reached. Trading also may be halted because of market conditions or
for reasons that, in the view of the Exchange, make trading in the Shares inadvisable.
The Exchange may halt trading during the day in which an interruption to the
dissemination of the IFV or the value of the Index occurs.14 If the interruption to the
dissemination of the IFV or the value of the Index persists past the trading day in which it
occurred, the Exchange will halt trading no later than the beginning of the trading day
following the interruption. In addition, if the Exchange becomes aware that the NAV
with respect to the Shares is not disseminated to all market participants at the same time,
it will halt trading in the Shares until such time as the NAV is available to all market
participants.
13 See NYSE Arca Rule 7.12-E.
14 A limit up/limit down condition in the futures market would not be considered aninterruption requiring the Trust to be halted.
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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. Shares will trade on the NYSE Arca Marketplace from 4 a.m. to 8 p.m. E.T. in
accordance with NYSE Arca Rule 7.34-E (Early, Core, and Late Trading Sessions). The
Exchange has appropriate rules to facilitate transactions in the Shares during all trading
sessions. As provided in NYSE Arca Rule 7.6-E, the minimum price variation (“MPV”)
for quoting and entry of orders in equity securities traded on the NYSE Arca Marketplace
is $0.01, with the exception of securities that are priced less than $1.00 for which the
MPV for order entry is $0.0001.
Further, NYSE Arca Rule 8.201-E sets forth certain restrictions on Equity
Trading Permit (“ETP”) Holders acting as registered Market Makers in the Shares to
facilitate surveillance. Under NYSE Arca Rule 8.201-E(g), an ETP Holder acting as a
registered Market Maker in the Shares is required to provide the Exchange with
information relating to its trading in the underlying commodity, related futures or options
on futures, or any other related derivatives. Commentary .04 of NYSE Arca Rule 11.3-E
requires an ETP Holder acting as a registered Market Maker, and its affiliates, in the
Shares to establish, maintain and enforce written policies and procedures reasonably
designed to prevent the misuse of any material nonpublic information with respect to
such products, any components of the related products, any physical asset or commodity
underlying the product, applicable currencies, underlying indexes, related futures or
options on futures, and any related derivative instruments (including the Shares).
As a general matter, the Exchange has regulatory jurisdiction over its ETP
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Holders and their associated persons, which include any person or entity controlling an
ETP Holder. A subsidiary or affiliate of an ETP Holder that does business only in
commodities or futures contracts would not be subject to Exchange jurisdiction, but the
Exchange could obtain information regarding the activities of such subsidiary or affiliate
through surveillance sharing agreements with regulatory organizations of which such
subsidiary or affiliate is a member.
Surveillance
The Exchange represents that trading in the Shares of the Trust will be subject to
the existing trading surveillances administered by the Exchange, as well as cross-market
surveillances administered by FINRA on behalf of the Exchange, which are designed to
detect violations of Exchange rules and applicable federal securities laws.15 The
Exchange represents that these procedures are adequate to properly monitor Exchange
trading of the Shares in all trading sessions and to deter and detect violations of Exchange
rules and federal securities laws applicable to trading on the Exchange.
The surveillances referred to above generally focus on detecting securities trading
outside their normal patterns, which could be indicative of manipulative or other violative
activity. When such situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of all relevant
parties for all relevant trading violations.
The Exchange or FINRA, on behalf of the Exchange, or both, will communicate
as needed regarding trading in the Shares with other markets and other entities that are
15 FINRA conducts cross-market surveillances on behalf of the Exchange pursuantto a regulatory services agreement. The Exchange is responsible for FINRA’sperformance under this regulatory services agreement.
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members of the ISG, and the Exchange or FINRA, on behalf of the Exchange, or both,
may obtain trading information regarding trading in the Shares from such markets and
other entities. In addition, the Exchange may obtain information regarding trading in the
Shares from markets and other entities that are members of ISG or with which the
Exchange has in place a comprehensive surveillance sharing agreement (“CSSA”).16
Also, pursuant to NYSE Arca Rule 8.201-E(g), the Exchange is able to obtain
information regarding trading in the Shares and the underlying bitcoin through ETP
Holders acting as registered “Market Makers”, in connection with such ETP Holders’
proprietary or customer trades through ETP Holders which they effect on any relevant
market.
In addition, the Exchange also has a general policy prohibiting the distribution of
material, non-public information by its employees.
All statements and representations made in this filing regarding (a) the description
of the portfolios of the Trust or the Index, (b) limitations on portfolio holdings, reference
assets or the Index, or (c) the applicability of Exchange listing rules specified in this rule
filing shall constitute continued listing requirements for listing the Shares on the
Exchange.
The issuer has represented to the Exchange that it will advise the Exchange of any
failure by the Trust to comply with the continued listing requirements, and, pursuant to its
obligations under Section 19(g)(1) of the Act, the Exchange will monitor for compliance
with the continued listing requirements. If the Trust is not in compliance with the
16 For a list of the current members of ISG, see www.isgportal.org. The Exchangenotes that not all components of the Trust may trade on markets that are membersof ISG or with which the Exchange has in place a CSSA.
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applicable listing requirements, the Exchange will commence delisting procedures under
NYSE Arca Rule 5.5-E(m).
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its ETP Holders
in an Information Bulletin of the special characteristics and risks associated with trading
the Shares. Specifically, the Information Bulletin will discuss the following: (1) the risks
involved in trading the Shares during the Early and Late Trading Sessions when an
updated IFV will not be calculated or publicly disseminated; (2) the procedures for
purchases and redemptions of Shares in Creation Units (and that Shares are not
individually redeemable); (3) NYSE Arca Rule 9.2-E(a), which imposes a duty of due
diligence on its ETP Holders to learn the essential facts relating to every customer prior
to trading the Shares; (4) how information regarding the IFV is disseminated; (5) how
information regarding portfolio holdings is disseminated; (6) the requirement that ETP
Holders deliver a prospectus to investors purchasing newly issued Shares prior to or
concurrently with the confirmation of a transaction; (7) trading information; and (8)
NYSE Arca suitability rules.
The Information Bulletin will also discuss any exemptive, no-action, and
interpretive relief granted by the Commission from any rules under the Act. In addition,
the Information Bulletin will reference that the Trust is subject to various fees and
expenses described in the Registration Statement.
The Information Bulletin will also disclose the trading hours of the Shares that the
NAV for the Shares will be calculated after 4:00 p.m. E.T. each trading day. The
Information Bulletin will disclose that information about the Shares will be publicly
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available on the Trust’s website.
2. Statutory Basis
The basis under the Act for this proposed rule change is the requirement under
Section 6(b)(5)17 that an exchange have rules that are designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable principles of trade, to
remove impediments to, and perfect the mechanism of a free and open market and, in
general, to protect investors and the public interest.
The Exchange believes that the proposed rule change is designed to prevent
fraudulent and manipulative acts and practices and to protect investors and the public
interest in that the Shares will be listed and traded on the Exchange pursuant to the initial
and continued listing criteria in NYSE Arca Rule 8.201-E.
The Exchange has in place surveillance procedures that are adequate to properly
monitor trading in the Shares in all trading sessions and to deter and detect violations of
Exchange rules and applicable federal securities laws. The Exchange or FINRA, on
behalf of the Exchange, or both, will communicate as needed regarding trading in the
Shares with other markets and other entities that are members of the ISG, and the
Exchange or FINRA, on behalf of the Exchange, or both, may obtain trading information
regarding trading in the Shares from such markets and other entities. In addition, the
Exchange may obtain information regarding trading in the Shares from markets and other
entities that are members of ISG or with which the Exchange has in place a CSSA. The
Exchange is also able to obtain information regarding trading in the Shares or the
underlying bitcoin through ETP Holders, in connection with such ETP Holders’
17 15 U.S.C. 78f(b)(5).
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proprietary or customer trades which they effect through ETP Holders on any relevant
market.
Quotation and last-sale information regarding the Shares will be disseminated
through the facilities of the CTA. The Trust’s website will also include a form of the
prospectus for the Trust that may be downloaded. The website will include the Shares’
ticker and CUSIP information, along with additional quantitative information updated on
a daily basis for the Trust. The Trust’s website will include (1) daily trading volume, the
prior business day’s reported NAV and closing price, and a calculation of the premium
and discount of the closing price or mid-point of the Bid/Ask Price against the NAV; and
(2) data in chart format displaying the frequency distribution of discounts and premiums
of the daily closing price or Bid/Ask Price against the NAV, within appropriate ranges,
for at least each of the four previous calendar quarters. The Trust’s website will be
publicly available prior to the public offering of Shares and accessible at no charge.
Moreover, prior to the commencement of trading, the Exchange will inform its
ETP Holders in an Information Bulletin of the special characteristics and risks associated
with trading the Shares. The Information Bulletin will also discuss any exemptive, no-
action, and interpretive relief granted by the Commission from any rules under the Act.
In addition, the Information Bulletin will reference that the Trust is subject to various
fees and expenses described in the Registration Statement. The Information Bulletin will
also disclose the trading hours of the Shares and that the NAV for the Shares will be
calculated after 4:00 p.m. E.T. each trading day. The Information Bulletin will disclose
that information about the Shares will be publicly available on the Trust’s website.
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Trading in Shares of the Trust will be halted if the circuit breaker parameters in
NYSE Arca Rule 7.12-E have been reached or because of market conditions or for
reasons that, in the view of the Exchange, make trading in the Shares inadvisable.
The proposed rule change is designed to perfect the mechanism of a free and open
market and, in general, to protect investors and the public interest in that it will facilitate
the listing and trading of a new type of exchange-traded product based on the price of
bitcoin that will enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, the Exchange has in place surveillance
procedures that are adequate to properly monitor trading in the Shares in all trading
sessions and to deter and detect violations of Exchange rules and applicable federal
securities laws.
B. Self-Regulatory Organization’s Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will impose any
burden on competition that is not necessary or appropriate in furtherance of the purpose
of the Act. The Exchange notes that the proposed rule change will facilitate the listing
and trading of a new type of Commodity-Based Trust Share based on the price of bitcoin
that will enhance competition among market participants, to the benefit of investors and
the marketplace.
C. Self-Regulatory Organization’s Statement on Comments on the ProposedRule Change Received from Members, Participants, or Others
No written comments were solicited or received with respect to the proposed rule
change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for CommissionAction
Within 45 days of the date of publication of this notice in the Federal Register or
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up to 90 days (i) as the Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory
organization consents, the Commission will:
(A) by order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and arguments
concerning the foregoing, including whether the proposed rule change is consistent with
the Act. Comments may be submitted by any of the following methods:
Electronic comments:
• Use the Commission’s Internet comment form
(http://www.sec.gov/rules/sro.shtml); or
• Send an e-mail to [email protected]. Please include File Number SR-
NYSEARCA-2019-01 on the subject line.
Paper comments:
• Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and
Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEARCA-2019-01. This file
number should be included on the subject line if e-mail 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
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amendments, all written statements with respect to the proposed rule change that are filed
with the Commission, and all written communications relating to the proposed rule
change between the Commission and any person, other than those that may be withheld
from the public in accordance with the provisions of 5 U.S.C. 552, will be available for
website viewing and printing in the Commission’s Public Reference Room, 100 F Street,
NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m.
and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the
principal office of the Exchange. All comments received will be posted without
change. Persons submitting comments are cautioned that we do not redact or edit
personal identifying information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions should refer to
File Number SR-NYSEARCA-2019-01 and should be submitted on or before [insert date
21 days from publication in the Federal Register].
For the Commission, by the Division of Trading and Markets, pursuant to
delegated authority.18
Robert W. ErrettDeputy Secretary
18 17 CFR 200.30-3(a)(12).