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Federal Register / Vol. 86, No. 149 / Friday, August 6, 2021 / Notices
transactions in blocks of 5,000 Shares a Creation Basket at the Trusts NAV.
Authorized participants will deliver, or facilitate the delivery of, bitcoin to the Trusts account with the Custodian in exchange for Shares when they purchase Shares, and the Trust, through the Custodian, will deliver bitcoin to such authorized participants when they redeem Shares with the Trust.
Authorized participants may then offer Shares to the public at prices that depend on various factors, including the supply and demand for Shares, the value of the Trusts assets, and market conditions at the time of a transaction.
Shareholders who buy or sell Shares during the day from their broker may do so at a premium or discount relative to the NAV of the Shares of the Trust.

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Investment Objective According to the Registration Statement and as further described below, the investment objective of the Trust is to seek to track the performance of bitcoin, as measured by the performance of the S&P Bitcoin Index the Index, adjusted for the Trusts expenses and other liabilities. In seeking to achieve its investment objective, the Trust will hold bitcoin and will value the Shares daily based on the Index. The Trust will process all creations and redemptions in-kind in transactions with authorized participants. The Trust is not actively managed.
The Index As described in the Registration Statement, the Fund will use the Index to calculate the Trusts NAV. The Index is a U.S. dollar-denominated composite reference rate for the price of bitcoin.
There is no component other than bitcoin in the Index. The underlying exchanges are sourced by Lukka Inc.
the Data Provider based on a combination of qualitative and quantitative metrics to analyze a comprehensive data set and evaluate factors including legal/regulation, KYC/
transaction risk, data provision, security, team/exchange, asset quality/
diversity, market quality and negative events. The Index price is currently sourced from the following set of exchanges: Binance, Bitfinex, Bitflyer, Bittrex, Bitstamp, Coinbase Pro, Gemini, HitBTC, Huobi, Kraken, KuCoin, and Poloniex.
The Index methodology is intended to determine the fair market value FMV for bitcoin by determining the principal market for bitcoin as of 4pm ET daily. The Index methodology uses a ranking approach that considers several exchange characteristics including oversight and intra-day
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trading volume. Specifically, to rank the credibility and quality of each exchange, the Data Provider dynamically assigns a Base Exchange Score BES score to the key characteristics for each exchange.
The BES reflects the fundamentals of an exchange and determines which exchange should be designated as the principal market at a given point of time. This score is determined by computing a weighted average of the values assigned to four different exchange characteristics. All new and existing exchanges have to be approved by Lukkas Price Integrity Oversight Board at quarterly meetings. The exchange characteristics are as follows:
i Oversight; ii microstructure efficiency; iii data transparency and iv data integrity.
Oversight This score reflects the rules in place to protect and to give access to the investor. The score assigned for exchange oversight will depend on parameters such as jurisdiction, regulation, Know Your Customer and Anti-Money Laundering Compliance KYC/AML, among other proprietary factors.
Microstructure Efficiency The effective bid ask spread is used as a proxy for efficiency. For example, for each exchange and currency pair, the Data Provider takes an estimate of the effective spread relative to the price.
Data Transparency Transparency is the term used for a quality score that is determined by the level of detail of the data offered by an exchange. The most transparent exchanges offer order-level data, followed by order book, trade-level, and then candles.
Data Integrity Data integrity reconstructs orders to ensure the transaction amounts that make up an order equal the overall order amount matching on both a minute and daily basis. This data would help expose nefarious actions such as wash trading or other potential manipulation of data.
The methodology then applies a fivestep weighting process for identifying a principal exchange and the last price on that exchange. Following this weighting process, an executed exchange price is assigned for bitcoin as of 4 p.m. ET. The Index price is determined according to the following procedure:
Step 1: Assign each exchange a Base Exchange Score BES reflecting static exchange characteristics such as
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oversight, microstructure and technology, as discussed below.
Step 2: Adjust the BES based on the relative monthly volume each exchange services. This new score is the Volume Adjusted Score VAS.
Step 3: Decay the VAS based on the time passed since the last trade on the exchange. Here, the Data Provider is assessing the level of activity in the market by considering the frequency volume of trades. The decay factor reflects the time since the last trade on the exchange. This is the final Decayed Volume Adjusted Score DVAS, which tracks the freshness of the data by tracking most recent trades.
Step 4: Rank the exchanges by the DVAS score and designate the highestranking exchange as the principal market for that point in time. The principal market is the exchange with the highest DVAS.
Step 5: After selecting a primary exchange, an executed exchange price is used for bitcoin representing FMV at 4
p.m. ET. The Data Provider takes the last traded prices at that moment in time on that trading venue for the relevant pair Bitcoin/USD when determining the Index price.
As discussed in the Registration Statement, the fact that there are multiple bitcoin spot markets that may contribute prices to the Index price makes manipulation more difficult in a well-arbitraged and fractured market, as a malicious actor would need to manipulate multiple spot markets simultaneously to impact the Index price, or dramatically skew the historical distribution of volume between the various exchanges.
The Data Provider has dedicated resources and committees established to ensure all prices are representative of the market. Any price challenges will result in an independent analysis of the price. This includes assessing whether the price from the selected exchange is biased according to analyses designed to recognize patterns consistent with manipulative activity, such as a quick reversion to previous traded levels following a sharp price change or any significant deviations from the volume weighted average price on a particular exchange or pricing on any other exchange included in the Lukka Prime eligibility universe.
Upon detection or external referral of suspect manipulative activities, the case will be assigned a team of quantitative experts for mandatory investigation.
These checks occur on an on-going, intraday basis and any investigations are typically resolved same day. The evidence uncovered shall be turned over to the Data Providers Price Integrity
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