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Federal Register / Vol. 86, No. 160 / Monday, August 23, 2021 / Notices
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Futures markets, satisfying part b of the test outlined above.
c Other Means To Prevent Fraudulent and Manipulative Acts and Practices As noted above, the Commission also permits a listing exchange to demonstrate that other means to prevent fraudulent and manipulative acts and practices are sufficient to justify dispensing with the requisite surveillance-sharing agreement. The Exchange believes that such conditions are present. Specifically, the significant liquidity in the spot market and the impact of market orders on the overall price of bitcoin mean that attempting to move the price of bitcoin is costly and has grown more expensive over the past year. In January 2020, for example, the cost to buy or sell $5 million worth of bitcoin averaged roughly 30 basis points compared to 10 basis points in 2/2021
with a market impact of 50 basis points compared to 30 basis points in 2/
2021.77 For a $10 million market order, the cost to buy or sell was roughly 50
basis points compared to 20 basis points in 2/2021 with a market impact of 80 basis points compared to 50 basis points in 2/2021. As the liquidity in the bitcoin spot market increases, it follows that the impact of $5 million and $10
million orders will continue to decrease the overall impact in spot price.
Additionally, offering only in-kind creation and redemption will provide unique protections against potential attempts to manipulate the Shares.
While the Sponsor believes that the methodology which it uses to value the Trusts bitcoin is itself resistant to manipulation based on the methodology further described below, the fact that creations and redemptions are only available in-kind makes the valuation methodology significantly less important. Specifically, because the Trust will not accept cash to buy bitcoin in order to create new shares, will charge fees as a percentage of the Trusts bitcoin holdings measure in bitcoin and not in dollars, and, barring a forced redemption of the Trust or under other extraordinary circumstances, will not be forced to sell bitcoin to pay cash for redeemed shares, the price that the Sponsor uses to value the Trusts bitcoin is not particularly important. When authorized participants are creating with the Trust, they need to deliver a certain number of bitcoin per share regardless of the valuation used and when theyre redeeming, they can 77 These statistics are based on samples of bitcoin liquidity in USD excluding stablecoins or Euro liquidity based on executable quotes on Coinbase Pro, Gemini, Bitstamp, Kraken, LMAX Exchange, BinanceUS, and OKCoin during February 2021.

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similarly expect to receive a certain number of bitcoin per share. As such, even if the price used to value the Trusts bitcoin is manipulated which the Sponsor believes that its methodology is resistant to, the ratio of bitcoin per Share does not change and the Trust will either accept for creations or distribute for redemptions the same number of bitcoin regardless of the value. This not only mitigates the risk associated with potential manipulation, but also discourages and disincentivizes manipulation of the valuation methodology because there is little financial incentive to do so.
Commodity-Based Trust Shares The Exchange believes that the proposed rule change is designed to prevent fraudulent and manipulative acts and practices in that the Shares will be listed on the Exchange pursuant to the initial and continued listing criteria in Exchange Rule 14.11e4. The Exchange believes that its surveillance procedures are adequate to properly monitor the trading of the Shares on the Exchange during all trading sessions and to deter and detect violations of Exchange rules and the applicable federal securities laws. Trading of the Shares through the Exchange will be subject to the Exchanges surveillance procedures for derivative products, including Commodity-Based Trust Shares. The issuer has represented to the Exchange that it will advise the Exchange of any failure by the Trust or the Shares to comply with the continued listing requirements, and, pursuant to its obligations under Section 19g1 of the Exchange Act, the Exchange will surveil for compliance with the continued listing requirements.
If the Trust or the Shares are not in compliance with the applicable listing requirements, the Exchange will commence delisting procedures under Exchange Rule 14.12. The Exchange may obtain information regarding trading in the Shares and listed bitcoin derivatives via the ISG, from other exchanges who are members or affiliates of the ISG, or with which the Exchange has entered into a comprehensive surveillance sharing agreement.
Availability of Information The Exchange also believes that the proposal promotes market transparency in that a large amount of information is currently available about bitcoin and will be available regarding the Trust and the Shares. In addition to the price transparency related to the price of bitcoin, the Trust will provide information regarding the Trusts
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bitcoin holdings as well as additional data regarding the Trust. The Trust will provide an IIV per Share updated every 15 seconds, as calculated by the Exchange or a third-party financial data provider during the Exchanges Regular Trading Hours 9:30 a.m. to 4:00 p.m.
E.T.. The IIV will be calculated by using the prior days closing NAV per Share as a base and updating that value during Regular Trading Hours to reflect changes in the value of the Trusts bitcoin holdings during the trading day.
The IIV disseminated during Regular Trading Hours should not be viewed as an actual real-time update of the NAV, which will be calculated only once at the end of each trading day. The IIV will be widely disseminated on a per Share basis every 15 seconds during the Exchanges Regular Trading Hours by one or more major market data vendors.
In addition, the IIV will be available through on-line information services.
The website for the Trust, which will be publicly accessible at no charge, will contain the following information: a The current NAV per Share daily and the prior business days NAV and the reported closing price; b the BZX
Official Closing Price in relation to the NAV as of the time the NAV is calculated and a calculation of the premium or discount of such price against such NAV; c data in chart form displaying the frequency distribution of discounts and premiums of the Official Closing Price against the NAV, within appropriate ranges for each of the four previous calendar quarters or for the life of the Trust, if shorter; d the prospectus; and e other applicable quantitative information. The Trust will also disseminate the Trusts holdings on a daily basis on the Trusts website. The price of bitcoin will be made available by one or more major market data vendors, updated at least every 15
seconds during Regular Trading Hours.
The NAV for the Trust will be calculated by the Administrator once a day and will be disseminated daily to all market participants at the same time.
Quotation and last-sale information regarding the Shares will be disseminated through the facilities of the CTA.
Quotation and last sale information for bitcoin is widely disseminated through a variety of major market data vendors, including Bloomberg and Reuters. Information relating to trading, including price and volume information, in bitcoin is available from major market data vendors and from the exchanges on which bitcoin are traded.
Depth of book information is also available from bitcoin exchanges. The normal trading hours for bitcoin
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