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Federal Register / Vol. 86, No. 172 / Thursday, September 9, 2021 / Notices
market of significant size.26 The Commission noted that, for commoditytrust ETPs there has been in every case at least one significant, regulated market for trading futures in the underlying commoditywhether gold, silver, platinum, palladium or copperand the ETP listing exchange has entered into surveillance sharing agreements with, or held ISG membership in common with, that market. 27
The CME 28 is a member of the ISG, the purpose of which is to provide a framework for the sharing of information and the coordination of regulatory efforts among exchanges trading securities and related products to address potential intermarket manipulations and trading abuses. 29
Membership of a relevant futures exchange in ISG is sufficient to meet the surveillance sharing requirement.30
The Commission has previously noted that the existence of a surveillance sharing agreement by itself is not sufficient for purposes of meeting the requirements of Section 6b5; the surveillance sharing agreement must be with a market of significant size.31 The Commission has provided an example of how it interprets the terms significant market and market of significant size, though that definition is meant to be illustrative and not exclusive: the terms significant market and market of significant size . . . include a market or group of markets as to which a there is a reasonable likelihood that a person attempting to manipulate the ETP

would also have to trade on that market to successfully manipulate the ETP so that a surveillance sharing agreement would assist the ETP listing market in detecting and deterring misconduct and b it is unlikely that trading in the ETP
would be the predominant influence on prices in that market. 32
As discussed below, the Exchange maintains that the CME is a market of significant size as it satisfies both elements of the example provided by the Commission.
Attempts To Manipulate the ETP Could Only Occur on the CME
The first element of what constitutes a significant market or market of significant size is that there is a reasonable likelihood that a person attempting to manipulate the ETP
would also have to trade on a market or group of markets to successfully manipulate the ETP so that a surveillance sharing agreement would assist the ETP listing market in detecting and deterring misconduct. The Commission has stated that establishing a lead-lag relationship i.e., that price formation occurs on the lead market and informs or causes the price on the lagging market between the Bitcoin Futures market and the spot market is central to understanding whether it is reasonably likely that a would-be manipulator of the ETP would need to trade on the Bitcoin Futures market to successfully manipulate prices on those spot platforms that feed into the proposed ETPs pricing mechanism.33

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

TRADE DATA ON CME BITCOIN FUTURES 34

lotter on DSK11XQN23PROD with NOTICES1

Trading VolumeNotional Amount
Trading VolumeNumber of Contracts
Open InterestNotional Amount
Open InterestNumber of Contracts

26 The Exchange to date has not entered into surveillance sharing agreements with any cryptocurrency platform. However, the CME, which calculates the CME CF BRR, and which has offered contracts for bitcoin futures products since 2017, is, as noted below, a member of the ISG. In addition, each Constituent Platform has entered into a data sharing agreement with CME. See https docscfbenchmarks.s3.amazonaws.com/CME+CF+
Constituent+Exchanges+Criteria.pdf.
27 See Winklevoss II Order, at 37594.
28 The CME is regulated by the CFTC, which has broad reaching anti-fraud and anti-manipulation authority including with respect to the bitcoin
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Daily average for week including August 24, 2018
week of the GraniteShares order
Daily average for week including February 26, 2020
week of the Wilshire Phoenix order 35

$117,000,000
3,629
$95,400,000
2,956

$354,750,000
7,731
$250,250,000
5,407

market since bitcoin has been designated as a commodity by the CFTC. See A CFTC Primer on Virtual Currencies October 17, 2017, available at https www.cftc.gov/sites/default/files/idc/groups/
public/documents/file/labcftc_primercurrencies 100417.pdf the CFTC Primer on Virtual Currencies The CFTCs jurisdiction is implicated when a virtual currency is used in a derivatives contract or if there is fraud or manipulation involving a virtual currency traded in interstate commerce.. See also 7 U.S.C. Sec.
7d3 The board of trade shall list on the contract market only contracts that are not readily susceptible to manipulation..

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29 See
Daily average for the week ending May 28, 2021

$2,412,000,000
12,610
$1,662,600,000
8,677

https isgportal.org/overview.
e.g., Winklevoss II Order, at 37594.
31 See, e.g., Winklevoss II Order, at 3758990.
32 See, e.g., Winklevoss II Order, at 37594; and see GraniteShares Order, n. 85 and accompanying text.
33 See Wilshire Phoenix Order at 12612.
34 Figures calculated by the Exchange based on data available at https www.cmegroup.com/ftp/
bitcoinfutures/. Each Bitcoin Futures contract represents 5 bitcoin.
35 Data for February 28, 2020 was not available and thus not included in calculating the daily averages.
30 See,
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