90 FR 30 pgs. 9648-9652 - Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change, as Modified by Amendment No. 2, To Amend the ARK 21Shares Bitcoin ETF and the 21Shares Core Ethereum ETF in Order To Permit In-Kind Creations and Redemptions
Type: NOTICEVolume: 90Number: 30Pages: 9648 - 9652
Pages: 9648, 9649, 9650, 9651, 9652Docket number: [Release No. 34-102381; File No. SR-CboeBZX-2025-010]
FR document: [FR Doc. 2025-02618 Filed 2-13-25; 8:45 am]
Agency: Securities and Exchange Commission
Official PDF Version: PDF Version
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102381; File No. SR-CboeBZX-2025-010]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of a Proposed Rule Change, as Modified by Amendment No. 2, To Amend the ARK 21Shares Bitcoin ETF and the 21Shares Core Ethereum ETF in Order To Permit In-Kind Creations and Redemptions
February 10, 2025.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the "Act"), 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on January 27, 2025, Cboe BZX Exchange, Inc. (the "Exchange" or "BZX") filed with the Securities and Exchange Commission (the "Commission") a proposed rule change to amend the ARK 21 Shares Bitcoin ETF and the 21 Shares Core Ethereum ETF, currently listed and traded on the Exchange under Exchange Rule 14.11(e)(4), in order to permit in-kind creations and redemptions. On February 5, 2025, the Exchange filed Amendment No. 1 to the proposed rule change, which replaced and superseded the original filing in its entirety. On February 7, 2025, the Exchange filed Amendment No. 2 to the proposed rule change, which replaced and superseded the proposed rule change, as modified by Amendment No. 1, in its entirety. The proposed rule change, as modified by Amendment No. 2, is described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change, as modified by Amendment No. 2, from interested persons.
Footnotes:
1 ?15 U.S.C. 78s(b)(1).
2 ?17 CFR 240.19b-4.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
Cboe BZX Exchange, Inc. ("BZX" or the "Exchange") is filing with the Securities and Exchange Commission ("Commission" or "SEC") a proposed rule change to amend the ARK 21Shares Bitcoin ETF (the "Bitcoin Trust") and the 21Shares Core Ethereum ETF (the "ETH Trust" and, collectively with the Bitcoin Trust, the "Trusts").
The text of the proposed rule change is also available on the Exchange's website ( http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/ ), at the Exchange's Office of the Secretary, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included 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 these 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 aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
1. Purpose
This Amendment No. 2 to SR-CboeBZX-2025-010 amends and replaces in its entirety the proposal as originally submitted on January 27, 2025, and as amended by Amendment No. 1 on February 5, 2025. The Exchange submits this Amendment No. 2 in order to clarify certain points and add additional details to the proposal.
[top] The Commission approved the listing and trading of shares (the "Bitcoin ETP Shares") of the Bitcoin Trust on the Exchange pursuant to Exchange Rule 14.11(e)(4), Commodity-Based Trust Shares, on January 10, 2024. 3 The
Footnotes:
3 ? See Securities Exchange Act Release Nos. 99288 (January 8, 2024) 89 FR 2387 (January 12, 2024) (SR-CboeBZX-2023-028) (Notice of Filing of Amendment No. 5 to a Proposed Rule Change To List and Trade Shares of the ARK 21Shares Bitcoin ETF Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares) ("Bitcoin ETP Amendment No. 5"); 99306 (January 10, 2024) 89 FR 3008 (January 17, 2024) (SR-CboeBZX-2023-028) (Order Granting Accelerated Approval of Proposed Rule Changes, as Modified by Amendments Thereto, To List and Trade Bitcoin-Based Commodity-Based Trust Shares and Trust Units) (the "Bitcoin ETP Approval Order"). On September 12, 2024, the Exchange amended the Bitcoin ETP Amendment No. 5 to add two new custodians to the Bitcoin Trust. See Securities Exchange Act Release No. 101080 (September 18, 2024) 89 FR 77910 (September 24, 2024) (Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the ARK 21Shares Bitcoin ETF and the 21Shares Core Ethereum ETF To Add Two New Custodians to Each Trust) (the "Custodian Amendment").
4 ? See Securities Exchange Act Release Nos. 100216 (May 22, 2024) 89 FR 46514 (May 29, 2024) (SR-CboeBZX-2023-070) (Notice of Filing of Amendment No. 2 to a Proposed Rule Change to List and Trade Shares of the ARK 21Shares Ethereum ETF Under BZX Rule 14.11(e)(4), Commodity-Based Trust Shares) ("Eth ETP Amendment No. 2"); 100224 (May 23, 2024) 89 FR 46937 (May 30, 2024) (SR-CboeBZX-2023-070) (Order Granting Accelerated Approval of Proposed Rule Changes, as Modified by Amendments Thereto, to List and Trade Shares of Ether-Based Exchange-Traded Products) (the "ETH ETP Approval Order"). The ETH Trust was originally named the ARK 21Shares Ethereum ETF, as reflected in the ETH ETP Approval Order. However, the Exchange later submitted an amendment, in part, to rename the ETH Trust to the 21Shares Core Ethereum ETF. See Securities Exchange Act Release No. 100306 (June 10, 2024) 89 FR 50656 (June 14, 2024) (SR-CboeBZX-2024-050) (Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the ARK 21Shares Ethereum ETF To Amend the Trust Name and Reflect That the Trust Will No Longer Have a Sub-Adviser) (the "Trust Name and Sub-Adviser Amendment"). The Custodian Amendment also added two new custodians to the Eth Trust in addition to the Bitcoin Trust.
Bitcoin Trust
The Exchange proposes to amend several portions of the Bitcoin ETP Amendment No. 5, as amended by the Custodian Amendment, in order to permit in-kind creations and redemptions.
Representations
The Bitcoin ETP Amendment No. 5 included specific representations making clear that the Bitcoin Trust would only process creations and redemptions in cash. Specifically, Bitcoin ETP Amendment No. 5 stated: "The Trust will process all creations and redemptions in cash transactions with authorized participants."? 5
Footnotes:
5 ? See Bitcoin ETP Amendment No. 5 at 2407.
The Exchange proposes to replace this representation to state: "The Trust will process all creations and redemptions in cash or in-kind transactions with authorized participants."
The Bitcoin ETP Amendment No. 5 also stated:
When the Trust creates or redeems its Shares, it will do so in cash transactions in blocks of 5,000 Shares (a "Creation Basket") at the Trust's net asset value ("NAV"). Authorized participants will deliver, or facilitate the delivery of, cash to the Trust's account with the Cash Custodian, in exchange for Shares when they create Shares, and the Trust, through the Cash Custodian, will deliver cash 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 Trust's assets, and market conditions at the time of a transaction. 6
Footnotes:
6 ? See Bitcoin ETP Amendment No. 5 at 2406.
The Exchange proposes to replace the above paragraph as follows:
When the Trust creates or redeems its Shares, it will do so in cash transactions or in-kind transactions in blocks of 5,000 Shares (a "Creation Basket") at the Trust's net asset value ("NAV"). For cash creations and redemptions, authorized participants will deliver, or facilitate the delivery of, cash to the Trust's account with the Cash Custodian, in exchange for Shares when they create Shares, and the Trust, through the Cash Custodian, will deliver cash to such authorized participants when they redeem Shares with the Trust. For in-kind creation and redemptions, authorized participants will deliver, or facilitate delivery of, bitcoin to the Trust's account with the Custodian, in exchange for Shares when they create 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 Trust's assets, and market conditions at the time of a transaction.
Creation and Redemption of Shares
The Bitcoin ETP Amendment No. 5 included the "Creation and Redemption of Shares" section. 7 The Exchange proposes to replace this section as follows:
Footnotes:
7 ? See Bitcoin ETP Amendment No. 5 at 2408-2409.
Creation and Redemption of Shares
When the Trust creates or redeems its Shares, it will do so in cash or in-kind. In connection with cash creations and cash redemptions, the authorized participants will submit orders to create or redeem Baskets of Shares in exchange for cash. When the Trust creates or redeems its Shares in cash, it will do so in transactions in blocks of 5,000 Shares that are based on the quantity of bitcoin attributable to each Share of the Trust ( e.g., a Creation Basket) at the Trust's NAV. When the Trust creates or redeems its Shares in-kind, it will do so in transfers of bitcoin in blocks of 5,000 Shares that are based on the quantity of bitcoin attributable to the Creation Basket being created or redeemed.
The authorized participants will deliver cash or bitcoin to create Shares and will receive cash or bitcoin when redeeming Shares. The Trust will create Shares by receiving bitcoin or cash from an authorized participant and will redeem Shares by delivering bitcoin or cash to an authorized participant.
On any business day, an authorized participant may place an order to create one or more Creation Baskets. Purchase orders must be placed by 12:00 p.m. Eastern Time, the close of regular trading on the Exchange, or another time determined by the Sponsor. 8 The day on which an order is received is considered the purchase order date. 9
Footnotes:
8 ?The time requirement for purchase orders will be publicized by the Sponsor.
9 ?The order date is the trade date.
For a cash creation order, the total deposit of cash required is based on the combined NAV of the number of Shares included in the Creation Baskets being created determined as of 4:00 p.m. ET on the date the order to purchase is properly received.
For a creation order in-kind, the total in-kind transfer of bitcoin is based on the quantity of bitcoin attributable to the Creation Baskets being created determined as promptly as practicable after 4:00 p.m. ET on the date the order to purchase is properly received.
The Administrator determines the quantity of bitcoin associated with a Creation Basket for a given day by dividing the number of bitcoin held by the Trust as of the opening of business on that business day, adjusted for the amount of bitcoin constituting estimated accrued but unpaid fees and expenses of the Trust as of the opening of business on that business day, by the quotient of the number of Shares outstanding at the opening of business divided by the number of Shares in a Creation Basket.
[top] The procedures by which an authorized participant can redeem one or more Creation Baskets mirror the procedures for the creation of Creation Baskets. For a cash creation order, an authorized participant will deliver cash to create Shares. For an in-kind creation order, an authorized participant will deliver bitcoin to create Shares. For a cash redemption order, an authorized participant will deliver Shares to the Trust and will receive cash for the Shares delivered. For an
Trust's Transfer Agent Will Instruct Disposition of Trust's Bitcoin
The Bitcoin ETP Amendment No. 5 subsection entitled "Trust's Transfer Agent Will Instruct Disposition of Trust's Bitcoin" includes the following:
In such cases, a third party will use cash to buy and deliver bitcoin to create Shares or withdraw and sell bitcoin for cash to redeem Shares, on behalf of the Trust. Authorized participants will deliver cash to the Trust's account with the Cash Custodian in exchange for Shares of the Trust, and the Trust, through the Cash Custodian, will deliver cash to authorized participants when those authorized participants redeem Shares of the Trust. 10
Footnotes:
10 ? See Bitcoin ETP Amendment No. 5 at 2407.
The Exchange proposes to replace the above with the following:
For a cash creation order, an authorized participant will deliver cash to create Shares. For an in-kind creation order, an authorized participant will deliver bitcoin to create Shares. For a cash redemption order, an authorized participant will deliver Shares to the Trust and will receive cash for the Shares delivered. For an in-kind redemption order, an authorized participant will deliver Shares to the Trust and will receive bitcoin for the Shares delivered.
ETH Trust
Similarly, the Exchange proposes to amend several portions of Eth ETP Amendment No. 2, as amended by the Custodian Amendment and the Trust Name and Sub-Adviser Amendment, in order to permit in-kind creations and redemptions.
Representations
First, Eth ETP Amendment No. 2 included specific representations making clear that the Bitcoin Trust would only process creations and redemptions in cash. Specifically, Eth ETP Amendment No. 2 stated:
When the Trust creates or redeems its Shares, it will do so in cash transactions in blocks of 10,000 Shares (a "Creation Basket") at the Trust's net asset value ("NAV"). Authorized participants will deliver, or facilitate the delivery of, cash to the Trust's account with the Cash Custodian in exchange for Shares when they create Shares, and the Trust, through the Cash Custodian, will deliver cash to such authorized participants when they redeem Shares with the Trust. 11
Footnotes:
11 ? See Eth ETP Amendment No. 2 at 46520.
The Exchange proposes to replace the above as follows:
When the Trust creates or redeems its Shares in cash transactions, it will do so in blocks of 10,000 Shares (a "Creation Basket") at the Trust's net asset value ("NAV"). Authorized participants will deliver, or facilitate the delivery of, cash to the Trust's account with the Cash Custodian in exchange for Shares when they create Shares, and the Trust, through the Cash Custodian, will deliver cash to such authorized participants when they redeem Shares with the Trust. When the Trust creates or redeems its Shares in-kind, it will do so in Creation Units in exchange for ether. Authorized participants will deliver, or facilitate delivery of, ether to the Trust's account with the Custodian, in exchange for Shares when they create Shares, and the Trust, through the Custodian, will deliver ether to such authorized participants when they redeem Shares with the Trust.
Eth ETP Amendment No. 2 also states: "The Trust will process all creations and redemptions in cash transactions with authorized participants."? 12 The Exchange proposes to replace this representation to state that the "Trust will process all creations and redemptions in cash or in-kind transactions with authorized participants."
Footnotes:
12 ? See ETH ETP Amendment No. 2 at 46521.
Creation and Redemption of Shares
The Eth ETP Amendment No. 2 includes the "Creation and Redemption of Shares" section. 13 The Exchange proposes to replace this section as follows:
Footnotes:
13 ? See ETH ETP Amendment No. 2 at 46522-46523.
Creation and Redemption of Shares
When the Trust creates or redeems its Shares, it will do so in cash or in-kind. In connection with cash creations and cash redemptions, the authorized participants will submit orders to create or redeem Baskets of Shares in exchange for cash. When the Trust creates or redeems its Shares in cash, it will do so in transactions in blocks of 10,000 Shares that are based on the quantity of ether attributable to each Share of the Trust ( e.g., a Creation Basket) at the Trust's NAV. When the Trust creates or redeems its Shares in-kind, it will do so in transfers of ether in blocks of 10,000 Shares that are based on the quantity of ether attributable to the Creation Basket being created or redeemed.
The authorized participants will deliver cash or ether to create Shares and will receive cash or ether when redeeming Shares. The Trust will create Shares by receiving ether or cash from an authorized participant and will redeem Shares by delivering ether or cash to an authorized participant.
On any business day, an authorized participant may place an order to create one or more Creation Baskets. Purchase orders must be placed by 12:00 p.m. Eastern Time, the close of regular trading on the Exchange, or another time determined by the Sponsor. 14 The day on which an order is received is considered the purchase order date. 15
Footnotes:
14 ?The time requirement for purchase orders will be publicized by the Sponsor.
15 ?The order date is the trade date.
For a cash creation, the total deposit of cash required is based on the combined NAV of the number of Shares included in the Creation Baskets being created determined as of 4:00 p.m. ET on the date the order to purchase is properly received.
For a creation order in-kind, the total in-kind transfer of ether is based on the quantity of ether attributable to the Creation Baskets being created determined as promptly as practicable after 4:00 p.m. ET on the date the order to purchase is properly received.
The Administrator determines the quantity of ether associated with a Creation Basket for a given day by dividing the number of ether held by the Trust as of the opening of business on that business day, adjusted for the amount of ether constituting estimated accrued but unpaid fees and expenses of the Trust as of the opening of business on that business day, by the quotient of the number of Shares outstanding at the opening of business divided by the number of Shares in a Creation Basket.
The procedures by which an authorized participant can redeem one or more Creation Baskets mirror the procedures for the creation of Creation Baskets. For a cash creation order, an authorized participant will deliver cash to create Shares. For an in-kind creation order, an authorized participant will deliver ether to create Shares. For a cash redemption order, an authorized participant will deliver Shares to the Trust and will receive cash for the Shares delivered. For an in-kind redemption order, an authorized participant will deliver Shares to the Trust and will receive ether for the Shares delivered.
Trust's Transfer Agent Will Instruct Disposition of Trust's Ether
The Eth ETP Amendment No. 2 subsection entitled "Trust's Transfer Agent Will Instruct Disposition of Trust's Ether" includes the following:
In such cases, a third party will use cash to buy and deliver ether to create Shares or withdraw and sell ether for cash to redeem Shares, on behalf of the Trust. Authorized participants will deliver cash to the Trust's account with the Cash Custodian in exchange for Shares of the Trust, and the Trust, through the Cash Custodian, will deliver cash to authorized participants when those authorized participants redeem Shares of the Trust. 16
Footnotes:
16 ? See Eth ETP Amendment No. 2 at 46520.
The Exchange proposes to replace the above with the following:
For a cash creation order, an authorized participant will deliver cash to create Shares. For an in-kind creation order, an authorized participant will deliver ether to create Shares. For a cash redemption order, an authorized participant will deliver Shares to the Trust and will receive cash for the Shares delivered. For an in-kind redemption order, an authorized participant will deliver Shares to the Trust and will receive ether for the Shares delivered.
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Conclusion
Except for the above changes, all other representations in the Bitcoin ETP Amendment No. 5, as amended by the Custodian Amendment, and ETH ETP Amendment No. 2, as amended by the Custodian Amendment and the Trust Name and Sub-Adviser Amendment, remain unchanged and will continue to constitute continuing listing requirements. In addition, the Bitcoin Trust will continue to comply with the terms of Bitcoin ETP Amendment No. 5, as amended, and the ETH Trust will continue to comply with the terms of ETH ETP Amendment No. 2, as amended, and the Trusts will continue to comply with the requirements of Rule 14.11(e)(4).
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act. 17 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5)? 18 requirements that the rules of an exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest.
Footnotes:
17 ?15 U.S.C. 78f(b).
18 ?15 U.S.C. 78f(b)(5).
The Exchange believes the proposed rule change is designed to remove impediments to and perfect the mechanism of a free and open market and, in general, to protect investors and the public interest because it would update representations in both the Bitcoin ETP Amendment No. 5, as amended, and the ETH ETP Amendment No. 2, as amended, such that the Trusts would both be able to engage in in-kind creations and redemptions with authorized participants, as described above. This ability would make the Trusts (and the market more generally) operate more efficiently because authorized participants would be able to source bitcoin or ether, as applicable, rather than to provide cash to the applicable Trust and to receive bitcoin or ether directly from the Trusts. This means that the authorized participant would be responsible for buying and selling the applicable crypto asset rather than the Trust itself, which would potentially lessen the impact on the market of the Trusts on both sides of the transaction by allowing the authorized participant to decide how and where to source the underlying crypto asset for creations and deciding how, where, and whether to sell the underlying crypto asset received for redemptions. This would improve the creation and redemption process for both authorized participants and the Trusts, increase efficiency, and ultimately benefit the end investors in the Trusts.
Except for the addition of in-kind creation and redemption for the Bitcoin Trust as specifically set forth herein, all other representations made in the Bitcoin ETP Amendment No. 5, as amended, remain unchanged, and will continue to constitute continuing listing requirements for the Bitcoin Trust. Similarly, except for the addition of in-kind creation and redemption for the ETH Trust as specifically set forth herein, all other representations made in the ETH ETP Amendment No. 2, as amended, remain unchanged, and will continue to constitute continuing listing requirements for the ETH Trust.
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 purposes of the Act. As noted above, the proposed amendment is intended to allow the Trusts to operate more efficiently by allowing for in-kind creation and redemption. The Exchange believes these changes will not impose any burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action
Within 45 days of the date of publication of this notice in the Federal Register or within such longer period 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 Exchange consents, the Commission will:
A. by order approve or disapprove such 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, as modified by Amendment No. 2, is consistent with the Act. Comments may be submitted by any of the following methods:
Electronic Comments
• Use the Commission's internet comment form ( https://www.sec.gov/rules/sro.shtml ); or
• Send an email to rule-comments@sec.gov. Please include file number SR-CboeBZX-2025-010 on the subject line.
Paper Comments
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
[top] All submissions should refer to file number SR-CboeBZX-2025-010. This file number should be included on the subject line if email 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 ( https://www.sec.gov/rules/sro.shtml ). Copies of the submission, all subsequent 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 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR-CboeBZX-2025-010 and should be submitted on or before March 7, 2025.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority. 19
Footnotes:
19 ?17 CFR 200.30-3(a)(12).
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-02618 Filed 2-13-25; 8:45 am]
BILLING CODE 8011-01-P